Aclara Resources Inc (TSX:ARA, OTC:ARAAF) is advancing its Penco rare earths project in Chile to meet rising demand from the electric vehicle market for critical minerals such as dysprosium and terbium.
The company last week announced a significant investment from Chile’s CAP SA valued at up to $80 million which is set to accelerate the development of the project, with the aim of starting production in 2027.
CEO Ramón Barúa joined Proactive to discuss the details of the investment and its implications for the company.
Proactive: The exciting news is that you’ve secured an investment deal worth up to $80 million with Chile’s CAP. Why CAP as a partner?
RB: The first important thing to mention is that it captures the same view of the future as Aclara. We all think what we’re doing is very important, extracting critical minerals, but how we do it and how we accomplish that is of utmost importance to both CAP and Aclara. Looking at the future in a greener way is very important to us so I believe upon that rock we have built this fantastic relationship going forward.
Tell us what CAP brings to the party in terms of financial muscle, because it is important to have a partner that does have some financial backing.
Certainly, it’s super important, the financial part. What’s even more important is their ability to support us in Chile with our permitting strategy. The biggest challenge that we have in country right now is the EIA, the Environmental Impact Assessment, and they bring a lot of experience. CAP operates several mines, several ports and they have a steel mill very close to the Penco Module that they have been operating for close to 50 years. That experience is highly valued.
In addition, the financial part is crucial to a company that is rather small at least as so far as Aclara. We have in cash, as of December 31st, $33 million. With the deal with CAP, that has changed with four key components. The first component is that they bring $29 million into our subsidiary in Chile, REE Uno, to fully fund Chile for several years until we can obtain the permits and the facilities are completed and it liberates the $30 million we have at the corporate level to be fully invested at the Carina Module [in Brazil].
The second component is that they have the option to invest up to $50 million when we obtain the permits in Chile and that equates to a very large portion of the equity we anticipate needing when we need to build the Penco Module, so it potentially resolves the financial needs and the risks. In addition to that, they have the option to invest at the holding level. This is fantastic also because it creates momentum in the stock market regarding our price. Finally, there is a component to create a metals and alloys company, which is absolutely crucial for the future of Aclara. We don’t only want to be a raw metals miner, on the contrary, we want to be a fully integrated company.
It sounds like a win-win situation for both companies. Tell us more about the Penco rare earths project and the potential that both companies are seeing there.
The Penco Module has lots of advantages. First is the ionic clay deposit that we have seen. This deposit has high concentrations of dysprosium and terbium, two very important rare earths that are crucial for electric vehicle motors that are going to save our planet. These are the most coveted, most critical of elements, not just my words but from the Department of Energy in the US.
I believe that Penco could be in production quite soon, If everything goes well with the permitting, I believe we could start production in 2027 which is well ahead of the competition. We, both companies, want to ensure that Penco is a leading producer and that it can exist as quickly as possible because after that I believe there’s geological potential and with that comes the possibility also to increase production and increase capacity there. Both CAP and Aclara share that view.
With CAP on board, is permitting the next step for the Penco Module?
Certainly. We have agreed as part of the terms with CAP to create a steering committee where we are going to be coordinating in a lot of detail. The next step is to file a permit now on March 28, we are on track to do that. CAP has played an important role in reviewing the filing and it will certainly play an important role also in the evaluation and review process by the Chilean authorities.
The deal as it stands values REE Uno at $116.5 million and you also possess half of the new joint venture valued at $3 million at an Aclara level. A hefty valuation and that, of course, excludes your Carina Module in Brazil.
That is correct. We based the deal on the IPO we completed on December 10th of 2021. At that time, the valuation of Aclara as a whole was around $120 million, which compares to the valuation we had received for Chile. At the time of the IPO, we only had Chile. CAP is coming in at the same valuation as our other founding shareholders, so they are fully aligned in terms of the future of the company. It compares very well with where we are trading today. I would encourage those who look at our stock price to look at this valuation because they will see that the current price in the market is trading at a significant discount to that.
And at the Carina Module, everything is progressing swiftly as well?
The Carina Module is moving ahead quite nicely. We’re in the process of a drilling campaign, reverse circulation drilling. We expect that this campaign will add significant resources to the already $160 million maiden resource. The rest of the permitting and the baseline studies, we have already begun to complete the information for that and our intention will be to file an environmental permit within a year.
Quotes have been edited for clarity and style