The huge Elk Creek critical minerals project promises to be a serious game-changer for the state of Nebraska, for NioCorp Development Ltd (the company developing it), and for critical metal supply in the US. Now with the company poised to add separated and purified rare earth products to its already diversified critical minerals offering, NioCorp’s importance to metals markets and global decarbonization efforts is set to grow even larger.
The Elk Creek project is a large underground carbonatite mineral deposit with a relatively long estimated mine life of 38 years. The deposit hosts attractive grades of niobium, scandium, and titanium – in fact, this project represents the highest-grade niobium project in North America, and it also will establish the US as the world’s leading producer of scandium.
All of NioCorp’s primary products have been designated 'critical minerals' by the US government, which has elevated the project’s importance to government officials, industrial consumers, and investors alike. This is especially the case given that all of NioCorp’s planned products are vital to clean energy technologies such as electric vehicles and wind turbines, as well as to applications that reduce weight, increase fuel efficiency, and reduce greenhouse gases and other harmful air emissions.
NioCorp recently announced that it also has abundant rare earth resources in the project – so many that the Elk Creek project’s total rare earth oxide (TREO) content is second in the US only to the Mountain Pass, California mine. If the company elects to produce rare earth products, that will further elevate its criticality to environmentally preferred technologies even further.
There are currently only three primary Niobium mines operating globally even as demand growth has created a market worth over US$5 billion. There is also currently no reliable, large-scale source of scandium. And, the US currently lacks any industrial-scale production of separated rare earth oxides. The Elk Creek project will help address all of these supply chain weaknesses.
A recently updated NI-43-101 feasibility study for the project shows a pre-tax net present value (NPV) of US$2.81 billion compared to US$2.56 billion in the 2019 study, pre-tax internal rate of return (IRR) of 29.2% (27.3% in 2019) and up-front capex required of US$1.14 billion. For Nebraska, the project is estimated to create 436 new full-time, permanent jobs and approximately 1,200 jobs during the project’s construction period. It also is expected to generate tax revenues to state and local governments over the life of the project of US$742 million.
Proactive recently caught up with CEO Mark Smith to see how far down the track the company has come in advancing this key global project.
Proactive: You recently announced an update to the project’s mineral resource, showing that the deposit contains very large quantities of rare earth elements. Can you explain why you are looking to add rare earths to your current three strategic critical metal products?
Smith: When initial exploration started on this project back in the late 1960s and early 1970s, the primary focus was on rare earths. However, it was discovered that the best mineral in the deposit in terms of ore grade and processing was niobium. So, rare earths were put to the side in terms of priorities. As we developed the mine plan to produce niobium, scandium and titanium, we developed the necessary metallurgical approach for producing these three product lines. That metallurgy involves full hydromet (hydrometallurgy) of the ore, so we will be placing all of our pay metals in solution. It dawned on us that, although the rare earths would probably not be of sufficient grade to mine this orebody solely for rare earths, they do make an excellent add-on set of products because the costs of mining, crushing, and putting into solution all pay metals are borne by niobium, scandium, and titanium. Rare earths essentially come along for the ride. The challenge then becomes applying some solvent extraction technology, but we know how to do that very well. Our team is one of the few in North America that has actually produced separated rare earths at commercial scale.
Our likely approach at this point is to produce only the key magnetic rare earths – neodymium, praseodymium, terbium, and dysprosium. We don't intend to produce other relatively low-value rare earths such as Cerium or Lanthanum, which will help to keep production costs low.
We have now finished the technical work on both the Elk Creek resource and reserve updates, which we recently released to the public. We're continue to work on the metallurgy and engineering necessary to demonstrate at an NI-43-101 level the technical and economic feasibility of producing separated rare earths. We are pretty experienced in rare earths so I'm very confident of what I think the benefits are, but we have to meet the NI-43-101 requirements.
Obviously Elk Creek is a huge project. Can you tell me more about how you plan to approach getting it financed and what's your timeline for achieving this?
Let me start out with what we're thinking in terms of strategies. As with any large project like this you are going to have a debt component and an equity component. And ultimately, you may end up with something in the middle - more akin to something called mezzanine financing. But on the front end, you start out working with debt and working out how much equity is remaining. We have five different plans that we're working on right now: Plan A, B, C, D, and E. You can tell we're very creative!
What I really like about the five plans that we're working on is that not one single plan has to be used. In other words, I can combine Plan A with D and E or I can put C with B. And so it gives us a lot of flexibility on the debt side. We still intend to raise upwards of US$700 to US$800 million in debt for the project and that is working pretty well. We're getting very good commitments from various parties on the debt side. Now we need to ratchet up our efforts on the equity side. We have been meeting with people in New York, in London, in Canada, all over -- these are name brand private equity and debt providers, and they are generally groups that tend to focus on mining and mineral projects.
Our current focus is to bring in a US$20 to US$25 million equity tranche from what I like to call an anchor investor group. That anchor group will be comprised of an investor or group of investors that the debt side of the equation will recognize as investors who has the wherewithal or can bring in their LPs to ultimately bring in the full amount of equity. So we're at that stage right now. It's your classic debt and equity process. You take a half a step forward with one of those, and then the other side will take another half step. It's a very slow, tedious process. But it is one that we have done before. We know how to get to the finish line and we're just working each of those pieces very carefully and in a determined way.
And you have already struck some off-take deals. Can you briefly tell me a bit about them and why they are significant?
There are three different off-take deals that we have in place right now. Two are for niobium. The larger one is with ThyssenKrupp out of Germany. And that one is for 50% of the ferroniobium that we will be producing from the project over the first 10 years of operation. That one is very important because ThyssenKrupp is headquartered in Germany and has multiple steel facilities in Germany. That means that they will actually use a fairly significant portion of that 50% in their own steel mills. As a result, we have also been deemed eligible for the German loan guarantee program for upwards of between US$150 and US$200 million of loan guarantees. So we treasure that offtake agreement.
The second offtake agreement we have is with CMC Cometals here in the US and that's for 25% of our ferroniobium that we will be producing over the first 10 years. It's a very good steel company located here in the US with multiple steel mills and they a very good partner to work with.
The third offtake agreement that we have is actually for scandium - scandium trioxide 99.9% purity. We've entered into a contract with Traxys - a global metal trading firm – for 12 tonnes of scandium per year over 10 years. To our knowledge, that is the largest scandium offtake agreement ever entered into in the history of scandium. So we're very proud of that one. Traxys would like to have more scandium, but we decided to limit how much we're actually selling to a trading company versus selling to an end-user.
Can you tell me a little more about scandium? What is it used for and what does it mean for NioCorp to produce it?
That's an exciting part of our project. You have to do a lot of research in the scandium market and what its potential is to get as excited as we are about it. There are only about 20 to 25 tonnes of this material produced around the world and it's produced in four areas of which we are aware - China, Russia, Kazakhstan and the Philippines. The problem with all four of those areas is that they're not considered the most stable political places to do business or the best environmentally, in terms of how they mine and process the material.
So as the world is getting greener and companies must report more and more on the environmental practices associated with their minerals mining and processing, that's going to present more and more of a problem for operations in other countries.
At NioCorp will be producing about 100 tons of scandium per year. A couple of positive things there. One is it will be produced in the United States, which is considered politically pretty stable. It's also a large enough quantity of material to be of use to a lot of technologies that have been placed on the shelf because there isn't really a stable or reliable source of scandium being produced today. We can point to a couple of markets there. One is the commercial airline and defense airline businesses - the Boeings and the Airbuses of this world. They have actually developed and patented technologies, which involve alloying scandium with aluminum.
Scandium does for aluminum what niobium does for steel. It’s a grain refiner. It makes everything much stronger, much lighter, and much more corrosion resistant. You need less metal to achieve the same level of performance you are seeking. The really important thing, especially in the commercial aircraft manufacturing industry, is that the scandium/aluminum alloy is reliably weldable, whereas aluminum itself is very difficult to reliably weld. So the efficiencies in producing these airplanes could go up quite dramatically for Boeing or Airbus because they can apply computerized welding techniques as opposed to having to use hundreds of thousands of rivets on every plane. It's a slow, tedious process to get that done. That market alone is estimated to need about 300 tons of scandium per year. So that's a big one that we're very focused on.
My concern has been that, even with the NioCorp production coming on, is our production going to be enough for the airline industry to justify changing its manufacturing platforms over to the scandium/aluminum alloys? The good news there is that a lot of my worries have been set aside because Rio Tinto has gotten into the scandium production business out of Canada. They are producing and selling scandium as we speak. And according to their development efforts, they're looking at probably bumping their production up to about 100 tons per year as well. So, if you take our 100 tons and their 100 tons, now we have enough substance for this market to really come alive.
What newsflow can we expect from the company in the near to mid-term?
Now that we have completed the work to update our Mineral Resource and Reserve, we're working very hard on the metallurgy and engineering side to complete the technical work necessary to determine the technical and economic feasibility of adding rare earths to our production plans. This work will result in an update to our NI-43-101 Technical Report, which a lot of investors are anxiously awaiting. We are working virtually seven days a week to get this work done. I am very much looking forward to that update and to formally announcing our intent to add rare earths to our product portfolio and demonstrating the economic benefits of that expansion.
It's very hard to predict the future of financing because putting your financing together is like pushing a rope – there is only so much one can do to speed up this process, and you have to be careful with what you say is possible and what is not. My sincere hope is to have the project financed in 2022 and to get construction started immediately thereafter.
It's been a lot of work to get us to this point but we have all the permits in hand that we need to start construction. That really sets our project apart. We also have NI-43-101 technical information at the feasibility study level all done. We have important commercially enforceable off-take contracts done. We have an extremely business-friendly state in Nebraska. We have tax packages that we have approved by the State of Nebraska. The public support for this project in the local area, as well as the whole state of Nebraska, is second to no project I've ever worked on before. It's that strong. So we really got everything in a position where we're ready to go. We just need to finish the financing and start building.
Contact the writer at giles@proactiveinvestors.com