Long Nickel Mine
IGO 100%

Background

Independence Group’s wholly owned subsidiary Lightning Nickel Pty Ltd (“Lightning”), acquired the Long Nickel Mine and the lease of related infrastructure and equipment from WMC Resources Ltd for $15 million in September 2002. The mine was successfully commissioned in October 2002.

The mine is located at Kambalda in Western Australia (Figure 1). The mine provides a healthy cash flow to the Company and has significant upside for further mine life extensions.

Historic production from the Long Nickel Mine represents the second largest concentration of nickel in the Kambalda region, and qualified as one of WMC’s longest operating nickel mines with a 21 year mine life. Total production to closure in 1999 was 5.43 million tonnes at an average reconciled grade of 3.7% per cent nickel (203,184 nickel tonnes).

Since IGO recommissioned the mine in 2002, the mine has produced 1.47 million tonnes at a reconciled grade of 3.85% nickel (55,496 nickel tonnes). Exploration and development activities have resulted in the discovery of an additional 9 years of reserves increasing current mine life to at least 2015, based on reserves only, at a production rate of approximately 9,000 tonnes of nickel per annum.
The McLeay nickel deposit was discovered in 2005 and is still open to the south.

In September 2008 the Moran nickel deposit was discovered. It currently has a resource of 32,400 nickel tonnes and is also open to the south.

Tenure

The Long Complex assets are located on four Western Australian Mining Leases and a portion of East Location 48. Location 48 is one of a number of freehold land grants created in the Eastern Goldfields district in 1890.

Offtake Agreement

The Company has an agreement with BHP Billiton Nickel West Pty Ltd whereby the ore produced from the mine is delivered to the adjacent Nickel West Kambalda Nickel Operations Concentrator for toll treatment and production of nickel concentrates, which are then sold to BHP on terms set out in that agreement. The agreement expires on 27 February 2019.

Safety

The mine plan adopted by the Company incorporates a number of procedures and policies to ensure the safety of our team is not jeopardised. Two Lost Time Injuries (“LTI”) occurred during 2009 to give a total of only 8 Lost Time Injuries since the mine was purchased in 2002, which is a great credit to the dedication of all personnel on site.

Lightning’s safety policy requires that operators undertake regular emergency training, and teams from surrounding mines have also participated in safety and training activities with Lightning’s personnel.

The occupational health and safety regime is stated in the Lightning Nickel Safety Policy, which is based on the belief that profits can be made without compromising safety. It is management’s conviction that a positive attitude is the key to any safety programme. Hazard identification, accident/ incident investigation, competency training, work procedures development, competency reassessment and regular workplace inspections, are carried out with the help of our employees.

Ground Conditions and Seismicity

The risks of “mine-induced” seismicity are well known and understood at Long. The ore body is disrupted by a swarm of cross-cutting porphyries, some of which are stressed. When mining the discrete ore blocks within the Long Mine, procedures to manage these conditions are built into the operating standards and are well understood by our mining team.

Lightning is a sponsor of the Australian Centre for Geomechanics Research (“ACGR”) seismicity research studies. ACGR and the University of Western Australia have been undertaking ground support studies at the Long Nickel Mine with the assistance of the Company’s mining and geotechnical team.

Mine Work Force

Lightning currently employs 120 full-time staff as well as 6 full-time contractors. Contract drillers are also on site on an ongoing basis. Many employees are ex-WMC Kambalda employees, who brought a pool of sound operating knowledge, experience and skills to the mine.

Lightning’s work force has been very stable with a high retention rate since the commencement of mining in October 2002. All miners apart from the hand-held team are on salary, and an incentive scheme is in place to reward all on site when production and development targets are achieved.

Mine Production

Mining methods range from long-hole open stoping with mullock/sand backfill and mechanised Jumbo flat-back stoping, to hand-held mining which is utilised to extract blocks in narrow stopes not suitable for mechanisation. Wherever necessary, non-entry, mechanised mining methods are employed for safety reasons. The spacing of stoping sub-levels and other aspects of the mining methods have been designed to minimise dilution.

Production for the year was 8,779 tonnes of nickel metal as shown in Table 1.

Not only did the Company mine 26% (2,297 tonnes) of its nickel from outside reserves in 2008/9, an additional 1,631 nickel tonnes (19%) were produced from within reserve blocks than was predicted by the reserve model.

Independence’s share of nickel produced in 2008/9 was 5,298 tonnes and 261 copper tonnes, resulting in revenue of $93.9 million.

Resources and Reserves

Lightning personnel, Cube Consulting Pty Ltd (mineral resource consultants), and MiningOne Pty Ltd (mine engineering consultants) were used to estimate resources and reserves based on industry best practice. Tabulated resource and reserve numbers have been rounded for reporting purposes.

Ore reserve tonnages and grades have been estimated at economic nickel cut-off grades in the new resource model, which takes into account the high value of the ore, its mode of occurrence, the geotechnical considerations to ensure successful and safe mining in the geological environment, forecast cost of production and estimated future nickel prices (Tables 2 - 3).

The resource was estimated using 2D and 3D metal accumulation of grade, thickness and density, interpolated by Ordinary Kriging into blocks for each mineralised surface. The reserve process utilises the 3D resource models to construct 3D mining stopes from which the reserve tonnes are reported, after subtracting porphyries and unextractable pillars and adding in mining depletion.

Geophysics

A portable underground electromagnetic (“EM”) “Torch” system (analogous to a large metal detector), conductivity probes and a 3-component down-hole magnetic TEM probe are used to produce real time massive and matrix nickel sulphide location information, providing a vector to potential mineralisation. This technology contributed to the discovery of the McLeay and Moran deposits. It has also resulted in a reduction in drilled metres, allowed more accurate mine design and reduced the need for expensive “exploration” development.

A surface high-powered TEM transmitter is in operation, which was developed by Independence and Curtin University of Technology in Western Australia. An underground high- powered TEM transmitter and loop have also been installed, which assisted in the discovery of the Moran deposit.

During 2009 a high resolution 3 dimensional seismic survey was completed north and south of the Long ore body targeting new massive nickel sulphide deposits. Processing of the data from this survey generated a number of targets south of McLeay and Moran and elsewhere on the prospective basalt- ultramafic contact.

Exploration

Exploration during the year resulted in the discovery of the high-grade Moran deposit and also identified extensions to the McLeay ore body.

Significant potential exists to discover additional ore south of Moran and McLeay, as well as the largely unexplored Long North zone.

Two lava channels have been identified on the Company’s Long Nickel Mine tenure (Figure 2):

Channel 1: The upper nickel channel is interpreted to contain from north to south, the Gibb, Gibb South, Victor, Victor South and McLeay deposits.

Channel 2: The lower nickel channel is interpreted to contain Long, Long North and Long South (Moran deposit).

The Company’s exploration team integrates geological mapping, structural studies, magnetic, electromagnetic and seismic geophysical surveys to produce a 3-dimensional picture of the ultramafic stratigraphy in its exploration targeting.

Moran

The high-grade Moran deposit is the second discovery of new nickel sulphide ore bodies by the Company’s exploration team (Figure 3). The Moran nickel sulphides are within the same lava channel hosting the +200,000 nickel tonne Long ore body. Moran is currently interpreted to have a 480m strike length and extends 110m down-dip. The deposit is located 200m south of the existing Long South decline.
Mineralisation is relatively continuous and homogeneous with widths amenable to mechanical underground mining.

The deposit is open to the north (limited), south and east. Untested TEM anomalies occur north and south of the deposit which will be followed up with drilling once drill drives have been extended to provide better drilling access.

The Moran deposit is a significant discovery and drilling in 2009/10 is expected to increase the size of the ore body.

Development has commenced and it is planned to bring the Moran deposit into production in the June 2010 quarter.

McLeay

The McLeay discovery was Independence’s first new nickel discovery, the discovery of which relied heavily on the use of TEM geophysics. The deposit, which now comprises six different shoots, remains open to the south-east (Figure 4). Geophysical surveys have identified new conductors south of the current resource limits which will be drill tested in 2009/10 with the aim of increasing the current 730m strike length of the resource.

Long North

Drilling north of the Long ore body in 2007/8 identified a new ore surface (the 07 Shoot), which was previously thought to have been stoped out by porphyry dykes.

Geophysical surveys and drilling are scheduled for 2009/10 to determine whether ore blocks occur north of the porphyry dykes. Long, Victor South, McLeay and Moran Resources

Approximately 42,100 nickel tonnes occur in resources in addition to the 51,800 nickel tonnes in reserves. Systematic drill-testing is ongoing to convert resources to reserves.

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