Lunnon Metals (ASX:LM8) scoping study underscores long-term nickel value at Baker and Foster

Lunnon Metals Limited (ASX:LM8) has released the findings of a Scoping Study examining the development potential of its Baker and Foster nickel sulphide deposits in the Kambalda region of Western Australia.

The study builds on the Company’s prior technical work, incorporating updated cost data and mine scheduling to assess both deposits in detail.

It follows the May 2023 Pre-Feasibility Study on Baker alone and reflects changes in market conditions since late 2023.

The Company continues to prioritise its gold portfolio for near term activity.

However, with both Baker and Foster located on granted mining leases, fully permitted for their respective stages of advancement, and underpinned by high-grade nickel mineral resources, the Scoping Study was commissioned to ensure that the Company remains in a position to respond to shifts in the nickel sector.

Managing Director Edmund Ainscough addresses key investor questions, covering the economic outlook for Baker and Foster, development timing, processing assumptions, capital requirements and the Company’s broader strategic focus.

What does the Scoping Study tell us about the economics of the Baker deposit at current nickel prices?

Baker demonstrates robust economics even at the current nickel price of $23,000 per tonne.

The deposit is forecast to produce between 21,000 and 21,600 tonnes of nickel metal across a 4.2-year mine life, based on a production target of 700,000 to 720,000 tonnes grading 2.97 percent nickel.

The project is expected to generate approximately $70 million in pre tax free cash flow, with a Net Present Value of $50 million at an 8 percent discount rate.

It delivers an internal rate of return of 78.8 percent and a projected payback period of just 1.8 years, with all in costs estimated at $393 per tonne of ore.

The mine plan is based entirely on Measured and Indicated Mineral Resources, with no reliance on Inferred material, which enhances geological confidence in the financial model.

Baker is fully permitted for development and benefits from existing infrastructure within the Kambalda-St Ives region.

“This Scoping Study is a timely reminder of the quality of the Baker nickel deposit, and the inherent value that comes with ownership of the Foster and Baker Mineral Resources.”

What does the study assume regarding processing, and what agreements are currently in place?

The study assumes nickel production from Baker and Foster would be processed at the Kambalda Concentrator, located approximately 25 kilometres from the deposits.

The facility is owned by Nickel West, a wholly owned subsidiary of BHP, and is currently on full care and maintenance following the suspension of BHP’s nickel division in February 2024, with a formal review of the division expected by February 2027.

While there is no binding agreement currently in place for ore processing, Nickel West retains a right of pre-emption over the sale of any nickel or nickel related product from the Foster-Baker project area.

The Scoping Study has not been characterised beyond Scoping level due to this uncertainty.

While technical work across mining, geology and metallurgy has been completed to a high standard, the lack of a defined processing path means the study does not support the reporting of Ore Reserves at this stage.

How much capital is required for each project, and how does that influence future development planning?

The pre-production capital requirement is estimated at $27 million for Baker and $57 million for Foster, bringing the total to $84 million.

These estimates cover all surface works, development infrastructure, mobilisation and contingency.

The maximum negative cash position is projected at slightly more than $30 million for Baker and just under $100 million for Foster.

Notably, these figures do not include any assumptions regarding future funding mechanisms.

The Company has a strong current cash balance and a demonstrated track record of raising equity since its listing in June 2021, but no funding has yet been secured for development.

These funding requirements are outlined transparently in the Scoping Study and are an important consideration in future decision making.

Why is the Company focused on gold if the nickel assets appear to be economically viable?

The decision to focus on gold in 2025 reflects current market conditions.

The nickel sector has experienced a sustained downturn since late 2023, and the local processing infrastructure remains unavailable for the foreseeable future.

Given those factors, it has been prudent to allocate resources toward the Company’s gold portfolio, where exploration success and regulatory progress are ongoing.

However, the Scoping Study ensures that the nickel assets remain technically up to date and development ready.

The deposits are 100 percent owned, well understood, and located in a mining jurisdiction with over 60 years of operating history.

The Company continues to monitor market and infrastructure developments to maintain flexibility in its capital allocation strategy.

“With the success we are enjoying on the gold front, the Company is well positioned to bide its time whilst continuing to investigate processing solutions in its own right and potentially in collaboration with other key interested parties in the district.”

What is the expected production profile and development timeline outlined in the study?

The study models a notional start date of 1 January 2027, with Baker and Foster each developed as standalone underground mines.

Baker is forecast to operate for 4.2 years and produce approximately 21,350 tonnes of nickel in ore, or 19,595 tonnes in concentrate after recovery.

Foster is expected to operate for 4.6 years and deliver 23,942 tonnes of nickel in ore, or 21,689 tonnes in concentrate.

Across both operations, the combined nickel in concentrate totals 41,284 tonnes.

Average metallurgical recovery is 91 percent, and each mine is forecast to produce around 3,500 tonnes of payable nickel per annum.

The production targets are underpinned by 91 percent Measured and Indicated resources, with Inferred material contributing only to later stages of Foster’s mine life.

“These Mineral Resources are high-grade, high-quality nickel sulphide deposits and the analysis completed in this Scoping Study appropriately points to the value of Baker now, but just as significantly, the leverage that these assets offer Lunnon Metals at nickel prices just 20 percent higher than the prevailing spot price.”

A well-positioned portfolio with strategic flexibility

The 2025 Scoping Study confirms that Lunnon Metals nickel portfolio remains a valuable component of its broader strategy.

While near term attention remains on advancing its gold assets, the Company has ensured that Baker and Foster are technically and economically well defined, fully permitted and positioned for potential development once processing options and market conditions improve.

Lunnon Metals continues to monitor developments across the sector and will provide further updates as new information becomes available regarding nickel offtake arrangements, permitting maintenance and potential funding pathways.

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