Western banks step back to the plate for European Nickel but Chinese finance still on the table

European Nickel (AIM, PLUS: ENK) is certainly juggling quite a few nickel balls at the moment. The company is progressing towards a merger with fellow nickel laterite specialist, Rusina Mining, and this morning confirmed that it had extended financing discussions for its key Çaldağ project which contains a JORC proven reserve of 33.2Mt at 1.13% Ni, for a nickel content of 375,000 tonnes.

A “Financing Framework Agreement” signed in February 2009 with Jiangxi Rare Earth and Rare Metals Tungsten Group Company Limited (“JXTC”) and China Tianchen Engineering Corporation (“TCC”) has been extended - by mutual agreement - for six weeks until 14 May 2010. An associated BHP Billiton Offtake Termination Agreement, announced in July 2009 has also been extended.

“This extension will allow extra time for the Chinese export credit agency to provide a Letter of Intent and for the Industrial and Commercial Bank of China to prepare a term sheet for the US$350 million of project finance required for the construction of the Çaldağ project in Turkey,” European Nickel stated.

JXTC are a large state-owned enterprise based in Jiangxi province, and are building the world's first dedicated MHP nickel refinery, due to come on-stream this year. Part of the original agreement included JXTC purchasing 20% of the Çaldağ project for US$20 million, which is “nearing completion, subject to finalisation of the debt financing”.

Simon Purkiss, Managing Director, said “We have worked hard with our Chinese partners to progress a Chinese finance solution at a time when conventional Western Bank project finance was not available. This extension recognises the relationships we have built in China and their continued willingness to finance the Çaldağ project.”

Purkiss however went on to report that Western banks, who failed to secure financing for the project once before, had returned to the table and are now in contention to supply project finance, hence the relatively short extension to the financing framework agreement with JXTC and TCC. “...we have kept [the financing extension] relatively short as we now have the strong prospect of an alternative source of project finance from Western banks.”

If this wasn’t enough for investors to digest, European Nickel also highlighted recent new tax incentives in Turkey for largest scale industrial projects, which the company estimates would substantially increase the net present value of Çaldağ (applying a 10% discount rate) to US$285 million from US$207 million.

“The incentives will be available to the Çaldağ project and include a reduction in employee social security payments and a reduction in the corporate tax rate from 20% to 4% until a saving equal to 50% of the fixed investment has been achieved.”

http://www.proactiveinvestors.co.uk/companies/news/15067/western-banks-step-back-to-the-plate-for-european-nickel-but-chinese-finance-still-on-the-table-15067.html