06/25/2015 04:55 EDT | Updated 06/25/2016 05:59 EDT

Royal Nickel gets green light from Quebec for its Dumont mine

MONTREAL - Royal Nickel is hoping to begin construction early next year on one of Canada's largest base metal mines after receiving the green light Thursday from the Quebec government.

The Dumont project in Abitibi in northwestern Quebec is expected to cost an initial US$1.2 billion and produce 52,000 tonnes per day of ore that is a key ingredient of stainless steel.

The total project will cost US$3 billion over the mine's 33-year life, including US$900 million that will double its output in five years and US$900 million in ongoing capital upgrades.

Chief executive Mark Selby said the mine will be one of the world's largest nickel mines and will benefit the region's economy. The concentrate will be exported primarily to Europe and Asia.

"It's got an initial 33-year project life and the resource base can supply many decades more so it'll be a real anchor and foundation for the economy of the Abitibi," he said in an interview.

About 1,300 people will be employed in the two-year construction period and an average of 500 over the mine's life.

Nickel prices have plummeted in the last couple of weeks to US$5.80 a pound from a peak of US$24 in 2007.

But Selby said industry observers believe prices will rise to US$9 to US$10 per pound amid demand from China and curtailed supply following a decision by Indonesia, which accounts for 30 per cent of the world's output, to ban exports of unprocessed ore.

In the meantime, Royal Nickel (TSX:RNX) can still generate substantial cash flow because the cash cost over the life of the Dumont mine is forecast at US$3.85 per pound, Selby said.

He described the certificate of authorization from the province's environment department is the most important milestone achieved to date. It was obtained after a little more than three years of study.

Financing for the project will include a US$600-million senior bond financing, with Swedbank already appointed as advisers. The remaining initial funding is expected to come from selling up to a 50 per cent stake in the mine and from other sources.

Selby said the current weakness in the mining sector should keep construction costs down.

"Given that there's very little new construction happening in the mining industry right now we think we will be in a very good position to meet or beat the estimates that are in our feasibility study."

The Abitibiwinni First Nation said it isn't against the project but called the government's approval of the project premature.

"We are very disappointed with Quebec's attitude. For a year we have tried several times to get the government to respect its obligation and adequately consult us," said Chief Bruno Kistabish.

Royal Nickel said it hope to conclude a new impacts benefit agreement before year-end.

Environmental group la Coalition Quebec called on the province to toughen its dust emission regulations saying they don't protect communities that are several kilometres from the open pit.

But Selby said the project will be fully compliant will all current government regulations.

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