Where is the USA going to source its rare earths if the Chinese slap an export embargo on their own output? Since the Chinese control between 70% and 80% of the world’s rare earth production, and since rare earths are essential for defence manufacturing, it’s a crucial question. Especially in these times of heightened trade war rhetoric and tit-for-tat tariffs.
It’s a question that has resulted in sudden jumps in the share prices of non-Chinese rare earths companies like Lynas (ASX:LYC) and Mkango (LON:MKA), and near frenzied buying on the part of investors who are well aware that there aren’t that many listed rare earths companies to go round.
Focus has been on zinc in recent years
It seems likely that investors passed Galileo over because its 34%-owned Glenover rare earths project in South Africa hasn’t exactly been to the forefront in its marketing campaigns lately. Instead the company has been focussing on two zinc projects in Zambia, Star and Kashitu, where it is beginning to build considerable scale in terms of resource base and understanding of the geological structures.
And Galileo can hardly be blamed for staying relatively quiet about Glenover in recent months. After all, before the end of May, investors weren’t exactly enthused by rare earths opportunities anywhere, and certainly not by projects that aren’t yet in production.
Glenover already boasts a robust preliminary economic assessment
But Glenover has several advantages over other rare earths projects in development, not least its advanced stage. Indeed, back in the days of the mining boom of the mid-2000s, a serial entrepreneur put Galileo Resources together with Glenover as its key asset.
Considerable work was done on the project, to the point where it boasts a robust preliminary economic assessment, a clear route to market for its product, and a three million tonne stockpile of ore that’s already been mined.
But along the way, rare earths prices dropped away and the mining boom turned sour, and Galileo turned to focus on more immediately prospective metals like gold and zinc, where it was able to make considerable progress.
Still, Glenover was neither forgotten, nor abandoned, but continued to sit on Galileo’s books with the company continuing to pay the relevant licensing fees to the South African authorities.
Woken up by the trade war
And it looks now as though the project could come alive again.
“The Glenover project has been woken up by the trade war,” says Colin Bird.
And interested parties are now likely to be giving the project the once over again.
After all, the data is there for all to see, and plenty of it too.
“The ore will recover,” says Bird. “It will separate. It floats nicely and we can produce a very good concentrate.”
Two production scenarios were investigated in the preliminary economic assessment, one that focussed primarily on phosphate production, but which allowed for significant rare earth by-products from tailings, and one that involved the primary production of rare earths, with phosphate as the by-product.
The rare earths scenario is based around a resource of just over 10mln tonnes of ore grading 2.13% total rare earth oxides, and envisages production of 167,100 tonnes of rare earths over a 24 year mine life. The project, as evaluated in 2015, has a net present value of US$512mln and generates an internal rate of return of just over 34%.
For a company like Galileo, which is capitalised at not much more than £2mln, the US$233mln development cost looks like a significant hurdle. But if the US government gets in enough of a panic about rare earths supplies there could be a total sea-change in the funding environment.
Trade sale could be on the cards
In any case it’s entirely possible that Galileo will look to sell Glenover rather than develop it itself, now that interest in rare earths has suddenly shot back to the fore. How much the project is really worth is an open question, but Bird notes the significant weighting in the types of rare earths at Glenover towards the heavy metals, which are in considerable demand.
In the meantime, Galileo continues to move forward with its zinc projects and since sister company Jubilee Metals has now acquired the nearby Kabwe zinc refinery, there’s likely to be an easy option when it comes to processing ore from Kashitu. That ore, it seems likely, will also be vanadium-rich.
So, there’s a lot going on inside Galileo, and an asset base that seems to justify a much steeper valuation.
How long it will take for that value to show through remains to be seen, but once the shares move it seems a sure bet they will move rapidly.