The company's optimistic offtake hopes for its Sally Malay and Lanfranchi mines come despite falls in its first-half nickel production to 5773 tonnes, down from 6302t year on year.

This was due to lower production from the Sally Malay mine, the company said yesterday.

However, Sally Malay's chief financial officer Trevor Eton told MiningNews.net the fall in production was all part of the mine schedule and had been anticipated.

"It was scheduled to fall, it was in our budget, we knew it was going to happen," he said.

"It just so happened we were at the part of the mine where the widths were a bit lower and a bit narrower, and the grades were lower.

"We always knew we were going to pick it up in the second half of this year - and in February, we were getting close to 2 percent [nickel]."

The company's current offtake deal for its namesake mine with Sino Nickel - a joint venture between Jinchuan and Sino Mining - is due to expire in March 2010, and it had begun discussions with the JV over terms for offtake beyond that date.

The Perth-based miner said the contract - which specifies Sino will take least 100,000 wet metric tonnes of ore per annum at an agreed percentage of London Metal Exchange and Metal Bulletin cash prices - was based on its now out-of-date 2002 feasibility study.

Mine life at the project had originally been estimated at 5.5 years, but the mine's reserves still contain 37,000t nickel metal, which will extend operations out to 2012.

Sally Malay is also working on firming up new resources at the Northern Ore Zone and Sally Malay deeps within the next year, which could boost reserves and mine life further.

At the company's other mine, Lanfranchi, nickel is sold to BHP division Nickel West, with the contract currently specifying offtake of up to 350,000 tonnes nickel and copper ore per annum at a percentage of LME cash prices.

BHP already has first right of refusal on all nickel production beyond that figure, and the contract is set to expire in 2010 though BHP has the option of extending it until 2019.

Sally Malay said budgeted production in the next financial year would exceed well beyond the 350,000tpa level and the mine's lifespan was also going to extend well beyond 2009.

As a result, the company has begun discussions with BHP to exercise its option to extend the tonnages and life of the agreement.

Eton told MNn the company was always hopeful it could also improve the payability terms of its offtake deals.

"We are talking to both parties, and I'm sure it will be mentioned, but where that leads to I just don't know."

He said that the company's agreement offtake with BHP would also most likely cover any offtakes from the Copernicus and Deacon deposits, which the company is expecting to develop this year as part of its aim of producing 20,000t of nickel metal by 2009.

The company yesterday announced a reduced profit of $A24.4 million for the half year, down from $32.7 million in the previous corresponding period, which included a $16.9 million hit on hedging losses.

Shares in Sally Malay were last trading at $4.90, up 45c or more than 10% this morning.