Memorandum submitted by European Nickel
PLC
1. SUMMARY
European Nickel has developed new technology
which, by contrast with conventional smelting, makes possible
the extraction of nickel in a manner which is both environmentally
friendly and relatively low cost.
This technology is effective with nickel found
in rock formations known as laterites, which occur in, amongst
other places, South Eastern Europe, including Turkey. European
Nickel has successfully demonstrated the technology, known as
heap leaching, in a large scale feasibility study at its mine
at Çaldağ, near Izmir.
Once fully operational, European Nickel will
have invested $300 million at Çaldağ, making
it the largest physical British investment in Turkey (ie excluding
a takeover, such as HSBC, or a privatisation acquisition, like
Vodafone). Çaldağ will make Turkey the biggest
nickel producer in Europe.
However, the licence needed to proceed with
full scale construction and operation of the plant, applied for
18 months ago, has still not been issued by the Turkish government.
Faced with continuing losses as a result, European Nickel is likely
to have to abandon this innovative and valuable British investment
unless the licence is issued in the first quarter of 2008.
2. COMPANY BACKGROUND,
TECHNOLOGY AND
HISTORY
In 1999, a group of investors decided to investigate
whether the technology used to extract copper from rock formations
known as laterites could also be used to extract nickel. This
technology, known as heap-leaching, has important advantages.
By comparison with smelting, the usual method of extracting nickel,
heap-leaching is low-cost. It can therefore be used on mineral
deposits which may not be economically viable for smelting. It
is also, unlike smelting, benign in terms of pollution and carbon
emission (see Section 3 below).
Having established the practical credibility
of this nickel extraction process through laboratory testing,
the investors identified a number of locations in South East Europe
which exhibit the necessary geological features. In June 2000
they formed European Nickel which initially focused on deposits
in Albania. However, difficulties with the commodity market and
financing, and a lack of progress with the Albanian government,
resulted in the Company looking elsewhere in the region for suitable
deposits.
In 2002, the Company acquired an option over
the Çaldağ deposit, located some 80 kilometres
north east of Izmir, near the town of Turgutlu in western Turkey.
A $2.5 million bank loan was used to commence the geological drilling
programme and prepare the site for the metallurgical trial. In
March 2004 the Company raised £15 million through a placing
and was admitted to the Alternative Investment Market of the London
Stock Exchange.
With these resources, the Company was able to
embark later in 2004 on a full scale bankable feasibility study.
This was successful. For the first time anywhere in the world,
the Çaldağ project has demonstrated the practicability
of the percolation and extraction of nickel through the irrigation
of heaps of nickel bearing ore with dilute sulphuric acid. The
large scale pilot plant has now operated continuously over a three
year period.
Completion of the feasibility study led to an
equity placing in May 2006. This raised £85 million intended
to cover the Company's equity portion of the next stage of the
project, namely construction of the full scale plant based on
the successfully trialled technology.
3. THE ÇALDAĞ
PROJECT: COST
EFFICIENCY, REVENUE
AND EMPLOYMENT
ASPECTS
Sulphuric acid heap leaching is common in the
copper industry. The geological formation that produced the Çaldağ
nickel deposit lends itself to heap leaching because of the low
clay content of the ore. The nickel is soluble in dilute sulphuric
acid. The lack of clays in the laterite profile assists the percolation
of the solutions through the heaps. At Çaldağ
the leach cycle lasts about 20 months.
This low cost technology has important advantages
over conventional smelting and high pressure tank leaching methods.
The Çaldağ deposit contains 33 million tonnes
of ore with an average nickel grade of 1.13%. Because of the higher
cost of conventional smelting technology, only 10 million tonnes
would be of sufficiently high grade to make Çaldağ
economically viable by these methods; and since the high grade
ore is at the bottom of the deposit, Çaldağ
would not an economically viable project using conventional technology.
The full scale project involves the direct investment
of US$300 million. It will be the largest physical investment
in Turkey by a British company in Turkey (ie excluding a takeover,
such as undertaken by HSBC, or the result of privatisation, as
in the case of Vodafone's operations there). It will also be the
largest investment in Turkey by an international mining company.
Over the 15 year life of the project, it will
earn more than $2.2 billion for the Turkish Treasury and make
Turkey the largest nickel producer in Europe, ahead of Greece.
The company currently employs 135 personnel at Çaldağ.
Once the full scale plant is operational, more than 500 long term,
well paid jobs will be created for the local labour force.
4. SAFETY AND
THE ENVIRONMENT
Sulphuric acid is the most widely used chemical
in the world. European Nickel's technology is based on a very
dilute sulphuric acid solution (approximately 5% by weight) of
the solution is H2SO4—about half the strength of the solution
in a car battery). Once dissolved in water, sulphuric acid cannot
vaporise, so that there is no possibility of the emission of harmful
gases from the process.
Moreover, the acid is completely consumed in
the percolation process. The water in which it is diluted therefore
contains no acid at the end of the process cycle. All precipitated
waste products are stable metal sulphate compounds, such as gypsum
which is used to make wall boards for house construction. The
waste will be stored in compliance with both EU and Turkish safety
standards. Overall, the Çaldağ operation
has been designed to run as an entirely enclosed circuit. There
will be zero discharge to the environment.
Environmental monitoring was started in 2003
and European Nickel commenced a full environmental base line study
in 2004. Besides a 20-year operating licence granted by the Turkish
Directorate of Mining Affairs, European Nickel holds an environmental
permit for the project issued by the Turkish Government in 2006.
Çaldağ is subject to regular monitoring by
government agencies. European Nickel has conducted a social and
environmental impact assessment in compliance with both Turkish
Ministry of the Environment and World Bank standards.
In order to make room for the full scale operation
which is to be constructed now that all trials have been successfully
completed, it will be necessary to fell 140,000 trees. However,
European Nickel has offered to plant 140,000 saplings every year
of the 15-year life cycle of the plant. In total, therefore, more
than 2 million trees will be planted. Indeed, the company has
already provided more than 50,000 trees for local public projects.
The planned heap leaching operations will release
some CO2 through the use of limestone as a neutralising
agent for the acid in solution. However, this will be offset by
the gradual growth in carbon capture by the new trees planted.
Furthermore, because of the requirement for
large quantities of sulphuric acid for the heap leaching, European
Nickel will build a plant to produce this on site. The production
of acid will also generate power through a process which is carbon
emission-free. This further contributes to a small carbon footprint
at Çaldağ compared to the conventional smelting
process which consumes significant amounts of power normally generated
from carbon emitting sources. It is predicted that the Çaldağ
project will be carbon-neutral by the time operations there have
been ended.
Finally, the total amount of power generated,
some 30MW, will exceed Çaldağ's requirements
by about half. European Nickel will, therefore, be able to return
to the Turkish grid more electricity, generated through European
Nickel's carbon emission-free process, than it consumes.
5. THE PRESENT
POSITION
The issue of an environmental permit for the
project by the Turkish Ministry of the Environment in 2006 implied
that the Turkish authorities approved the project in principle.
However, the permit required to fell the trees necessary for the
construction of the full scale operation, for which application
was made in June that year, has still not been issued more than
eighteen months later. This delay costs the company $1 million
every month. The total loss thus exceeds more than more than $12
million to date. There have been other knock-on effects, affecting,
for example, the company's capacity to retain skilled engineering
teams when there is no work for them to undertake.
The Company fully recognises the environmental
and political implications of a project which will require the
felling of a large number of trees. However, as noted above, the
project's technology meets high environmental standards. European
Nickel has undertaken to plant many more saplings than will be
felled over the course of the Çaldağ project.
It has complied fully with all the Turkish government's legal
requirements. It has pursued a very active programme of transparent
consultation with local organisations and communities who have
been informed in detail about all aspects of the project, which
is widely supported regionally and locally as a result.
The Company has been in intensive contact with
the Turkish authorities, including Prime Minister Erdogan and
the Ministers of the Environment in both the present and previous
Turkish administrations, in its attempts to secure the permit.
It has made a number of offers aimed at meeting their concerns,
most recently by reducing the number of trees which must be felled
by moving certain parts of the operation to a second site outside
the forest area. So far, however, this has not resulted in the
issue of the permit.
Without a clear prospect of the permit being
issued, European Nickel will, in the face of continuing unacceptable
losses, almost certainly have to stop further investment at Çaldağ
in the second quarter of 2008. This would be regrettable. It would
represent the failure of a major, technologically innovative,
British investment in Turkey. It would entail the loss of an important
revenue opportunity for Turkey. Finally, it would put in doubt
the credibility of the Turkish government's professions of support
for foreign direct investment among the international mining companies,
banks and investors who are closely monitoring the project.
28 January 2008
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