FROM THE BROKING DESK
We will be roadshowing Darren Townsend, the CEO of Peak Resources††, in London on 26 and 27 January. This very interesting story is driven by the projected dramatic growth of the electric vehicle (EV) and alternative energy markets. The company’s Ngualla rare earth project in Tanzania is heavily weighted towards neodymium and praseodymium, which are key elements in the manufacture of high-efficiency permanent magnets, the outlook for which is positive due to growth in demand for electric cars and bikes (and also wind power generation). The provision of high-capability battery power is undergoing huge growth amid a potentially enormous multi-year expansion (clearly witnessed last year in the reaction of the lithium space to ever growing demand projections).
Permanent magnets are expected to see a similar growth trajectory to lithium. In terms of scale, grade, product output and development stage, Ngualla (where a fully-funded BFS is almost complete) is a potentially globally significant strategic asset. We have some further details on Peak and its proposed investment in the UK in the Companies section below.
While this is a non-deal roadshow, it’s still a great opportunity to get up to speed on what could become a key part of the EV economy. Please let us know if you’d like a meeting.
In other news, Base Resources*† has announced its December quarterly production report. We’ll have a full discussion of this and our outlook for the company out later, but the initial key takeaways from this were:
Ilmenite prices are continuing to improve, with a 40% increase in prices over the quarter and expected further improvements over the course of this year.
Production and costs were broadly stable QoQ.
Net debt was reduced by a further US$18m to US$130m.
The company has an increased focus on exploration, with a view to adding to reserves at the mine. In the June quarter it expects to be able to publish the results of a drilling program to test the south-west extension of mineralisation at the Southern Dune. It has also commenced drilling In the NE Sector (to the north-east of the Central Dune) and expects to commence initial drilling on its licences in Tanzania before mid-year.
ASX:PEK| A¢7.5 | US$25m
UK Location for Rare Earth Refinery
Peak Resources announced in December that it has selected a site in the north-east of the UK as the location for its proposed rare earth refinery. The site in the Tees Valley (in the same area as that proposed by Sirius Minerals) benefits from access to global shipping, cheap and reliable reagent supplies, skilled labour, readily available supplies of power and water and environmentally sustainable options to dispose of tailings materials.
COMMENT: The selection of the Tees Valley adds a number of downstream advantages to those that the company’s project already has on account of the quality of its Ngualla deposit in Tanzania, which has a large, high-grade, near-surface, weathered zone of mineralisation that can be upgraded before downstream processing.
Project revenues are heavily weighted towards neodymium and praseodymium, which are used in the rapidly growing permanent magnet market, the outlook for which is positive due to growth in demand for electric cars and bikes, and also wind power generation.
Prices for neodymium and praseodymium, like those for rare earths in general, have suffered since the 2011 boom, which resulted from threats to supply from the dominant supplier, China. However, the widespread losses being reported from producers, along with structural reforms in China to limit illegal production, suggest that we are at a cyclical low and that improved prices can be expected. We looked at the outlook for neodymium and praseodymium in our last issue of The Alchemist. This can be viewed here.
Peak Resources is focused on delivering an integrated rare earths project — The company’s 75%-owned project combines the Ngualla rare earth deposit in western Tanzania with downstream processing in a solvent extraction separation plant in the UK producing a range of rare earth products.
Project mainly produces neodymium and praseodymium oxide — Approximately 85% of the value of the final product is associated with a high-purity neodymium and praseodymium oxide, with the remaining value split between a heavy rare earth (samarium, europium and gadolinium) carbonate product and mixed lanthanum and cerium carbonate.
Targeting completion of bankable feasibility study (BFS) for early 2Q17 — Having completed a pre-feasibility study on the project in March 2014, the company undertook an updated study of the results which it announced in March 2016. The company is fully funded for the completion of the BFS following the completion of a placement and entitlement offer and the draw-down of A$4.1m of debt from Appian. In its September quarterly, progress towards the completion of the BFS was reported to be good. A draft Environmental and Social Impact Assessment was lodged with the National Environmental Council during 3Q16 and the company expects to receive an Environmental Certificate by the end of the year and the Mining Licence in early 2017.
Ngualla deposit one of the world’s largest Nd/Pr deposits — Ngualla is one of the world’s largest neodymium and praseodymium (Nd/Pr) deposits, with Total resources containing 4.6Mt of REO at a grade of 2.15%. The deposit is host to a thick blanket of weathered, high-grade mineralisation from surface. This weathered bastnaesite zone at a cut-off of 1.0% REO comprises total resources of 21.3Mt grading 4.75% REO, containing 1.01Mt of REO, of which 90% is in the Measured category.
Tanzanian operations to produce 27,900tpa of beneficiated REO concentrate grading 45% REO — The study of March 2016 updated the parameters from the PFS two years earlier, and showed a mining inventory for the project of 18.4Mt grading 4.89% REO, containing 900,000t REO. Mining is expected to benefit from a low waste-to-ore ratio of 1.68:1 and, owing to the weathered nature of the material, is not expected to require blasting. The company plans to process 556,000tpa of dry ore through a beneficiation plant to produce 27,900tpa of high-value, 45% REO concentrate containing 12,555tpa of REO, for overall REO recovery of 46%. Upgrading is achieved by crushing, grinding and flotation, with re-grinding and a second stage of flotation to produce a rare earth bastnaesite concentrate. The concentrate has a very low uranium and thorium content, resulting in no requirement for additional transport permitting.
UK-based rare earth leach recovery and separation processing to produce final products — Having investigated a number of different leach recovery flowsheets and following positive trials on concentrate from the project, the BFS will use an alkali roast processing route to produce a rare earth solution that will be fed to a solvent extraction-based separation process. In this, the material is firstly roasted with alkali, then washed and filtered before being leached using a low-strength hydrochloric acid, a process that selectively targets Nd and Pr. The project benefits from the relatively low rate of acid consumption, owing to the low levels of acid consuming carbonate and phosphate in the gangue minerals and relatively low levels of iron in the concentrate. Lime slurry is then planned to be used to precipitate residual impurities, leaving a filtrate for treatment in the final stage solvent extraction separation circuit. Final products from project are planned to be:
• 2,300tpa of neodymium and praseodymium rare earth oxides;
• 250tpa of mixed samarium, europium and gadolinium rare earth oxide; and
• 5,900tpa of cerium/lanthanum carbonate (equivalent to 4,240tpa of contained REO).
Key project parameters — The updated PFS of March 2016 estimated capex for the project at US$330m (including a 25% contingency). This comprised US$194m and US$120m for the Tanzanian- and EU-based operations respectively, and US$16m owners’ costs. The project was planned to operate for a total of 31 years and to have operating costs of US$97m pa. The updated study did not present NPVs or IRRs for the project; however, we estimate that at current prices of around US$39/kg for a Nd/Pr mixed oxide, the project would be around breakeven at the operating level.
Neodymium and praseodymium exposed to high-growth permanent magnet demand — Nd/Pr are used in combination to create high-power magnets that are notable for their strength and durability. Prices of rare earths, including those for Nd/Pr oxides, peaked in 2011 and have since fallen back to pre-bubble levels. Owing to the increased use of high-power magnets in electrical motors and generators, particularly in electric cars and bikes, the outlook for demand for Nd/Pr is very positive, suggesting that current price levels could represent a cyclical low.
Appian and IFC own direct stakes in the Ngualla Project and are also significant shareholders in Peak — Peak owns 75% of the project and Appian owns 20%, with the IFC owning the remaining 5%. Appian and the IFC also own 16.1% and 6.7% of Peak. The company had A$4.7m in cash and debt of A$4.1m (a three-year term loan from Appian) at the end of September 2016. It raised a further A$0.8m in equity in October 2016, as a result of which it has stated that it is fully funded for the completion of the BFS.
WHITE ROCK MINERALS***
ASX:WRM | A¢1.5 | US$8.6m
DFS Team Selected for Mt Carrington Gold/Silver Project
White Rock Minerals has announced that it has assembled the team that will complete the Definitive Feasibility Study (DFS) and Environmental Impact Statement (EIS) on its Mount Carrington gold/silver project in New South Wales.
COMMENT: Having raised a total of A$4.8m late last year and then completed a positive updated Scoping Study in March 2016, White Rock has put together the team of consultants that will now complete the DFS and EIS. The company believes that there is considerable potential to increase the in-pit mineable resource over the Scoping Study.
Mount Carrington project background — The company completed an updated Scoping Study on its 100%-owned Mount Carrington gold/silver project in March 2016. This is a relatively small, but high-return, project, comprising two gold-rich open pits and three silver-rich pits together with a flotation/CIL processing route. Estimated capex was low at A$24m, with a capital payback of <1 year. Total resources contained 659,000oz of AuEq, from which 111,000oz of gold and 6.7Moz of silver (203,000oz AuEq) were planned to be produced over a mine life of seven years. Project C1 cash costs were estimated to be A$754/oz AuEq (~US$550/oz). At a gold price of A$1,600/oz and a silver price of A$22/oz, the project had a pre-tax NPV10 of A$61m and an IRR of 103%. The company plans to complete the DFS and the EIS by late 2017. Allowing 12 months for construction suggests that the project could potentially be in production by the beginning of 2019.
Streaming finance from Cartesian Royalty Holdings to fund Mount Carrington’s development — In late July 2016 the company entered a binding, conditional Term Sheet under which Cartesian Royalty Holdings was to provide A$1.0m under a two-tranche placement and a gold and silver streaming-based financing to provide A$19m for the development of the project, in return for 40,000oz of gold equivalent production over a seven-year period. The company states that, subject to the successful delivery of the DFS, the funding will directly provide for construction and commissioning through to commercial production.
Red Mountain Project polymetallic exploration project has historical resources of 5.7Mt at 5% Zn, 2% Pb and 120 g/t Ag — White Rock Minerals also owns the Red Mountain zinc-rich, polymetallic VMS advanced exploration project in Alaska. Historical estimates are sourced from prior owner Grayd Resource Corp, based on drilling completed between 1996 and 1998. Drilling highlights to date include grades of 26% Zn and 12% Pb over 5.5m at Dry Creek, and 7% Zn and 4% Pb over 3m at West Tundra Flats. Preliminary metallurgical test-work has indicated recoveries of over 90% Zn, >80% Au and >70% Pb & Ag. Statistical analysis of VMS clustering patterns indicates that, further to Dry Creek and West Tundra Flats, the Red Mountain camp has the potential to host a sizeable 10-15Mt deposit with similar Zn, Ag and Pb grades. The company is undertaking a programme of data compilation, geochemistry and geophysics to establish drill targets.
Current EV of A$8m/US$6m — Having completed a number of fund raisings late last year, the company has 770m shares outstanding and 101m options. Cash at the end of the year was A$3.8m.