http://www.pdac.ca/pdac/publications/papers/2004/techprgm-dalvi-bacon.pdf

Although this is a little dated, I still found it an interesting read, and I believe the basic premises and conclusions still hold true. (Conclusions copied below) The processing of nickel laterite ore requries high levels of energy input. The only two successful laterite projects in 2004 were ones where either the operator held a captured electrical energy source or there was access to low cost natural gas in conjuction with a high grade laterite ore.

Noront makes the case that laterite projects continue to disappoint over the intervening years and it makes the Eagle One nickel sulphide project attracative. BoaSteel must see this as well.

Conclusion: The Future of Laterites

Since 1950 the demand for nickel has increased at an average rate of 4 % per year. For the next ten

years growth in nickel demand is expected to exceed this, mainly due to the expansion of the Chinese economy and the consequent growth in stainless steel demand in China. Currently, China accounts for about 70 % of growth in nickel demand worldwide. Slowdown in China’s economic activity therefore poses a risk to the future demand of nickel and therefore various laterite projects in the process of development.

In the past, most of the nickel production has come from sulfide ores. However, the replenishment rate of sulfide reserves has lagged significantly behind their depletion rate. During the next ten years nickel production from the sulfide ores is expected to grow only slightly, including additional production from Inco’s Voisey’s Bay project and any additional production from Russia. The growth in nickel production in the future is thus expected to come from laterite ores of nickel. The laterites account for almost 70 % of world land based nickel resources, and there are many undeveloped laterite deposits in the world allowing exploitation of laterites to satisfy the growing demand for nickel. To satisfy nickel demand we need one project the size of Inco’s Goro project every year! This is a major challenge.

The existing laterite producers have an excellent opportunity to grow since brownfield projects and

debottlenecking projects are most economical and have advantage over greenfield projects. Greenfield smelters will be few and far between due to requirement for high-grade ore and their large power requirements. The Caron process is not economical at lower nickel prices and not competitive with smelting and PAL processes. We believe, most of the future greenfield laterite projects will be PAL projects (HPAL or E-PAL). PAL processes have the following advantages:

• They treat limonitic, nontronitic and some saprolitic nickel laterites which are abundant

(laterites suitable for hydrometallurgical processes are estimated to have more than twice the

tonnage compared to saprolitic ores)

• They are not as energy intensive as smelters since drying, calcining and melting are not

required

• Recovery of nickel and cobalt are high (~ 90 % for both). Smelters have low (or no economic)

recovery of cobalt. Caron process has low recoveries for both nickel and cobalt compared to

PAL and smelting. PAL processes thus get by-product credit for cobalt. Going forward, we

believe the cobalt market is slightly more positive than in the immediate past due to the

political situation is Africa and slow progress in implementation of laterite PAL technology.

Although, PAL process has been practiced for more than 60 years, the modern technology is unproven and faces technical, engineering, project management and ramping-up challenges. We believe these will be eventually overcome. However, it will take more experience, therefore slowing down expansion in laterite nickel capacity. Cash operating costs for laterite operations have been optimistically projected to be low. This has not come to pass. However, with new projects and more experience the operating costs (net of by-product credits) are expected to decline. Our projection for overall nickel production capacity in 2012 and the related operating costs (nickel cost curve) is shown in Figure 9. This shows laterite source nickel production would account for a majority (51 %) of world nickel production, with a significant expansion in hydrometallurgical capacity (PAL capacity). The capacity shown in Figure 9 for 2012 is nickel price dependent and assumes that the nickel price in the future would be adequate to provide a reasonable rate of return for the producers.

Several newer technologies are currently being developed. Their future will depend on their ability to

reduce capital and operating costs and applicability for smaller projects where existing technologies

are expensive. Past experience has shown that commercialization of new technologies is time

consuming and expensive and has significant risk attached to it.

The question is whether the nickel consumers (and the society in general) are willing to pay a higher

price for nickel and stainless steel, its most important application, or face supply uncertainty in times

of economic growth. The growth in nickel demand requires installation of significant greenfield

capacity. The history of laterite projects as discussed earlier has not been encouraging. Many projects

closed down, or were restructured, or had economic difficulties. Experience of the nickel industry

(especially laterite nickel industry) has shown that greenfield capacity requires significantly higher

price of nickel for the producers to obtain a reasonable return on equity (greater than the cost of

borrowing). It also requires tolerance for risk. Laterite projects are generally in remote areas requiring

high investment in infrastructure. Going forward, the social and environmental burdens on all mining

projects are going to be significant. New laterite projects must provide reasonable return on

investment while carrying commercial and social costs for nickel (and stainless steel, its major user) to

guarantee stable supply while avoiding price spikes like this year.