European Nickel says its well positioned to achieve strategic goals

In its results for the year ended 30 September 2010, European Nickel (AIM, PLUS:  ENK) said it is positioned to move forward and successfully achieve its main strategic goal: to become a growing and profitable nickel producer. The company told investors that whilst it continues to receive positive assurances from its Chinese partners in respect of the delayed investment, it has been investigating alternative financing options for the Çaldağ project.

“We weathered the global financial economic crisis and have emerged into 2010 stronger”, European Nickel MD Simon Purkiss commented. The company has two principal projects, the Çaldağ project in Turkey and the Acoje project in the Philippines. Of the two, the Çaldağ is the most advanced and when it comes into full production it will be the world's first commercial nickel laterite heap leach operation.

Under the Çaldağ financing framework agreement, signed in December 2008, European Nickel’s Chinese financing partner, the Jiangxi Rare Earth and Rare Metals Tungsten Group (JXTC) is acquiring a 20% equity interest in the Çaldağ project for US$20 million. The Chinese investor is required to obtain the relevant Chinese government and regulatory approvals for overseas investment.

"Concluding the Chinese project finance package for Çaldağ has taken longer than anticipated, although progress was made during 2009. We have continued to receive positive assurances during the early part of 2010 in relation to the progress of the Chinese project financing”. 

European Nickel appointed Endeavour Financial Corporation as its debt advisers, in light of the Chinese financing delays. During the year, Endeavour supported the company with bridging loans and it has been advising the board with regards to its debt financing position. In today’s results statement, European Nickel noted that Endeavour recently began investigating alternative debt financing options for Çaldağ.

“As a precautionary measure, we have reopened dialogue with Western banks regarding debt finance and have been encouraged by the initial reactions in the context of improved credit market conditions", Purkiss added.

The company said it has been encouraged by the dialogue, and stated that the banks' interest underlines the commercial attractiveness of the Çaldağ project. In respect of the ‘Western’ alternative financing strategies, Purkiss noted that both the ‘off-take termination agreement’ signed with BHP and the financing framework both expire at the end of March 2010.

According to the terms of the Chinese framework agreement, European Nickel was required to cancel its 50% off-take agreement with BHP Billiton (LSE: BLT) for the Çaldağ production, and subsequently transfer the rights to JXTC. Originally, only 50% of Caldag's off-take was going to be sold to JXTC but this was increased to 100% by mutual agreement between European Nickel and its Chinese partner.

Although both agreements may be extended, European Nickel said their expiry introduces an opportunity to seek alternative finance and upon expiry of the BHP Billiton termination, JXTC will lose the right to the Çaldağ off-take and it will revert back to BHP Billiton.

For the full year, the company reported a pre-tax loss of US$14.4m, representing a 39% improvement from last year’s loss of US$23.3m. According to European Nickel, the improved performance reflects the cost-cutting initiatives across the group. The majority of the cost reduction was carried out in Turkey, where the demonstration plant was put on care and maintenance, and total staff numbers reduced by 58% by the end of the year.

Since the end of the year European Nickel has been making significant progress. Last month, the company signed an agreement to acquire Rusina Mining NL (AIM: RMLA, ASX: RML) in an equity-based deal, with a capped value of up to £27.1m. Upon completion, the current Rusina shareholders will own approximately 27.3% of the enlarged company.

The two companies have been developing the joint venture Acoje nickel project in the Philippines. Under the current agreement, European Nickel is providing its heap leach technology and contributing US$10 million towards a definitive feasibility study, to earn a 40% interest in the Acoje project.

"The  merger  with  Rusina  is  a  logical transaction which will secure Acoje's future,  consolidates  our  asset  base  in  the Philippines and strengthens the management  team.  The heap leach trial site has finished construction and a 3,000 tonne ore sample will be processed”, Purkiss stated. 

Additionally in February, the company also raised US$19.4 million through the placement of 172.4 million new ordinary shares to certain institutional investors at £0.07p per share. The placing was carried out by Mirabaud Securities LLP as lead broker.  http://www.proactiveinvestors.co.uk/companies/news/13876/european-nickel-says-its-well-positioned-to-achieve-strategic-goals-13876.html