UPDATE: Western Areas Inks Offtake, Financing Deal With BHP

Western Areas NL (WSA.AU) said Thursday it has struck an offtake deal that will see BHP Billiton Ltd. (BHP) buy nickel concentrate from its Forrestania project and provide A$45 million in financing.

News of the offtake deal, which looks set to replace an existing agreement with Norilsk Nickel (GMKN.RS), boosted the Perth-based junior miner's shares, which were up 5.8% to A$3.48 at 0407 GMT, in a broader Australian market down 0.2%.

The agreement will see BHP buy up to 10,000 metric tons of high grade blended nickel in concentrate a year from Western Area's Forrestania nickel concentrator, up to a total of 75,000 tons.

BHP will use the high grade nickel concentrate from Western Areas to help feed its Kalgoorlie smelter.

As a part of the offtake deal, BHP will also provide A$45 million in financing to Western Areas, most of which will be used for early development of the Spotted Quoll deposit and the expansion of the processing plant.

Repayment of the loan from BHP will begin in July 2012 and is subordinated to Western Area's senior lender, the ANZ Banking Group Ltd.

"The new agreement provides significant benefits to Western Areas, including terms which are an improvement over the existing agreement with Norilsk and substantial financing which can be directed towards increasing low cost nickel production at Forrestania," Western Areas Managing Director Julian Hanna said in a statement.

Western Areas' sales agreements with Norilsk were amended in February after the Russian company announced it was shutting down its Australian operations.

Norilsk is still buying Western Areas' concentrate, but the Australian company has the option to cut its sales to Norilsk by 40% from April this year and by 100% from January next year.

Western Areas is aiming to produce between 20,000 and 25,000 tons of nickel a year from its mines in the Forrestania area 400 kilometers east of Perth from 2010.

The miner said it is seeking a short term sales contract for the 10,000 tons to 15,000 tons a year that will be left over after the BHP offtake deal.

-By Alex Wilson, Dow Jones Newswires; 61-3-9671-4313; [e-mail]