--UPDATE, ADDS BROKER COMMENTS--
Rare earths explorer Mkango (CVE:MKA) has seen a substantial increase in the value of its Songwe Hill project in Malawi from an updated pre-feasibility study.
Allowing for lower equipment, reagent and other costs and exchange rates movements has seen the project's net present value rise 18% to US$345mln using an average price for a basket of rare earths of US$59.8kg.
Up-front capital expenditure is now forecast at US$216mln, with cash operating costs of US$13per kg for the first five years and US$16.4 per kg for the life of mine plus US$10 per kg for chemical processing.
The study envisaged production of 2,841 tonnes of rare earths in mixed chemical concentrate per year over an 18 year mine life.
Some 65% of the rare earths would be neodymium and praseodymium and over 15% the heavy rare earths, dysprosium and terbium.
These four are among the most valuable and used in hi-tech permanent magnet applications seen as critical components in the next wave of consumer products, electronics and green energy.
As part of its study, which is ahead of a planned AIM listing for the company, Mkango also commissioned a study in rare earths demand from consultant Adamas.
Total rare earths (TREO) demand will Total approximately 125,000 tonnes in 2015 and increase by 1% to 13% across a range of elements until 2020 to increase Total demand to approximately 150,750 tonnes.
Neodymium oxide, praseodymium oxide, dysprosium oxide, lanthanum oxide will drive this rise as the permanent magnet and fuel cracking catalyst sectors expand.
In particular, demand for neodymium, praseodymium, dysprosium, terbium, lanthanum, and yttrium will significantly exceed global annual production in the year 2020, which points to significantly higher prices than currently.
Will Dawes, Mkango's chief executive, said the review had validated its focus on the “big four” magnet rare earths, which have a strong market outlook, geared to China’s emerging green economy.
Mkango is favourably positioned, he added, with a combination of low capex and opex versus its peer group of advanced stage rare earth projects.
Broker SP Angel pointed out that Songwe Hill would be an uncomplicated, quarry style mine and that the planned processing methods would allow for a low cost operation.
Analyst Simon Beardsmore, in a note, said: “In a market dominated by China, we speculate that some consumers may welcome the entry of a new supplier to diversify the market.
“Rare earths’ key role in high-tech defence, industrial and renewable energy technology leads a number of countries to consider them strategic raw materials.”
He also highlighted that Independent market analysis shows the potential for the basket price of the prospective output from Songwe Hill to double by 2020.