Lindian Resources Ltd (ASX:LIN, OTC:LINIF) last week released a feasibility study for the stage 1 development of its Kangankunde Rare Earths Project in Malawi, confirming a technically low-risk and economically robust project.
Results of the study support a technically robust Stage 1 project — which includes mining operations, a mineral processing plant and necessary support infrastructure — with highly attractive economics. It also provides confidence that a significantly larger expansion project in the future should be considered.
In his weekly commentary note, Far East Capital’s Warwick Grigor reacted to the feasibility study, saying the numbers exceeded his expectations and that “the fuse has been lit under Kangankunde” in regards to potential corporate activity.
“I don’t think it is going to be long before we start to see mobilisation of corporate raiders who will want to gain control of what is not only truly world-class, but which is the pre-eminent, pre-production rare earths project.
“Whoever has control of Kangankunde, it will be the most strategic rare earths project in the world.”
Chinese or the West?
Grigor believes that the Chinese will be keen to take control of the project to prevent a Western party bringing it into production. With control of the low-cost project, the Chinese will be in a position to undercut every other rare earths development that comes into production.
On the other hand, if the West wants to free itself of Chinese rare earths control it must keep control of the project, which “brings companies like BHP, Fortescue, Lynas and Rio to the table”.
Now that a feasibility study has provided more confidence around the project development and economics, companies will likely be more interested. Grigor says, “if rumours are correct, the troops are being mobilised already. The fuse has been lit. We just have to wait a little longer to see how big the bang will be when the first shot is fired.”
A look at the numbers
Grigor highlights the low pre-production capex of A$60 million, which “can be readily financed with equity capital,” while it has a payback period for this stage of less than two years, as compared to a more typical four-year payback period for large projects with long mine lives. Kangankunde’s stage one mine life is a lengthy 45 years.
Additionally, the FOB operating cost of US$2.92/kg TREO for the first five years is well below the US$6-8/kg level generally regarded as the required economic unit cost to make a project worth developing. Other projects are likely to have a cost of more than US$10/kg.
Metallurgy is the most difficult aspect of the ionic clay rare earth deposits. Similarly difficult are those with monazite and xenotime crystals that need to be cracked.
Grigor highlighted the more simple flowsheet for Kangankunde, based on gravity and magnetic separation, with limited use of reagents. Almost no radioactivity is another advantage. And while the total recovery of TREO is expected to be only 60%, to a concentrate grade of 55%, “the economics still look impressive” and these recovery rates could be improved with subsequent modifications.
Right place when sector turns
Grigor notes that Lindian has released a feasibility study just two years after acquiring the project, whereas “most other rare earth wannabes are still trying to figure out what their next trick will be, after rushing to the market to boast that they have rare earths.”
He adds that “while rare earth prices are low now, they won’t be down at these levels forever. Nevertheless, even at these suppressed prices, the numbers look good.
“The company should be in the right space when the sector turns up again. If any company can develop a profitable operation, it will be Lindian. Most of the other rare earth companies will be left standing at the gate.
“I say the fuse has been lit on corporate activity but I don’t know how long it is. One thing is for certain though — the raiders will be running their ruler over this one as they strategise their acquisition tactics.”