Companies: BLT    ENK   

AIM-quoted European Nickel is finalising £95 million debt finance for its 260,000-tonne Caldag nickel deposit in Turkey.

Chief executive Simon Purkiss says the company has received credit approval for the Caldag project from Standard Bank, Standard Chartered Bank and Societe Generale and is 'now doing the documentation stage' with them. This follows May's £84 million equity raising at 35p through broker Canaccord, an earlier placing for £15 million and the issue of £10 million options and warrants to existing shareholder, mining giant BHP BIlliton.

Altogether, says Purkiss, this gives European Nickel access to potential £109 million in equity funding. This, coupled with the debt finance in prospect, should afford the company a comfortable margin over the £158 million expected requirement to bring Caldag into full production at 20,000 tonnes a year by January 2009.

Indeed, if the Caldag costs turn out as estimated, European Nickel should have significant development capital for other projects in mining-friendly Turkey and Albania. Purkiss says production at Caldag should start next June when the all-important sulphuric acid plant should be ready.

He sugggests expansion there and output from these other projects could help take group nickel output to a target of '50,000 tonnes in three to five years.' European Nickel has an offtake agreement with BHP Billiton for the life of the mine at Caldag, which is estimated to hold 33.5 million tonnes of ore at 1.14 per cent nickel.

Purkiss says Caldag should yield nickel concentrate at a cash cost of $1.18 a lb, against current prices of around $10, supported by strong stainless steel and battery-making demand. He argues the project would still be economical at a nickel price of $2.20 a lb, though the company is hedging 27 months forward at $10.

Purkiss maintains that at $4.25 a lb nickel Caldag would have an internal rate of return of 31 per cent and a net present value of £92 million, which at $6 a lb would rise to 66 per cent and £242 million respectively. Floated at 32p in 2004, European Nickel, which started out with some colourful backers Down Under, has institutional shareholders including the Pru, JP Morgan, Fidelity and RAB Capita.

They have seen the price fluctuate from 17p to 47p. At 43p, down 1p this morning and valuing the company at £159.5 million, the shares have speculative possibilities, unless sector confidence evaporates.