There are many aspects to the success of a rare earth element (REE) deposit being developed into a mine. Yet the question arises: Why are so many REE projects not put into production while standing still with “robust” economic studies?
Quality of a REE deposit
John Kaiser of Kaiser Research Online argues that there are 3 deal breakers when assessing the quality of a REE deposit: 1) rock value; 2) tonnage footprint; 3) distribution of metals. Does any of that include cutting the wheat from the chaff a.k.a. metallurgy?
Chinese refineries process mineral concentrate feeds of +30% TREO with +60% recoveries, and so this is what they are looking for. Consider that!
With REE deposits, it all comes down to acid consumption, which is typically the largest cost. Less material means less acid, which means less deleterious elements into solution, which means less cost to deal with that solution, and less complications throughout the process. The ability to produce a saleable mineral concentrate is paramount for REE companies aiming at developing their deposit into a mine.
Finding public disclosure in REE sector
However, finding public disclosure details on mineral concentrates is difficult or impossible in the REE sector as most tiptoe around it. An obvious reason for this is the complexities in making a concentrate which meets the criteria of a refinery. It is often the case that only part of the information is disclosed, so that the reader cannot fully assess its significance.
In April 2013, Avalon Rare Metals Inc (NYSEMKT:AVL) (TSE:AVL) published a “positive” feasibility study on its Nechalacho Deposit in Canada’s Northwest Territories. A few days ago, Avalon announced that it is yielding improved recoveries for both the concentrator and hydrometallurgical plant at around 80% compared to 42% in the April 2013 FS. However, the feed grade and final mineral concentrate grade has never been disclosed, and the mass pull reported is is vague enough that it’s not possible to tell whether it is design criteria or actual test result. The silver bullet question: Why?
The costs of the Nechalacho Project stand at $1.5 billion. Avalon Rare Metals Inc (NYSEMKT:AVL) (TSE:AVL)’s CEO, Don Bubar, recently moaned: “Raising capital is the biggest challenge. We need to find customers and have them enter into off take agreements before we can secure project financing.” Jay Currie, who interviewed Don, explains one side: “Part of that challenge is that none of the 15 rare earths have ready markets in the same way as iron or coal do.“ Is the other part of that challenge that Avalon produces such a low quality concentrate that it does not disclose a word on it?
Back in 2009, John Kaiser’s evaluations of Quest Rare Minerals Ltd (NYSEMKT:QRM) (TSE:QRM) (CVE:QRM)’s Strange Lake Deposit helped to put the company on many investors’ radar; for example: “An astonishing rock value of US$304/ton for those samples Quest plucked from the main outcrop of the Strange Lake Deposit.”
Since then, the company “successfully” defined Strange Lake as “the world’s largest HREE resource” (according to the company) with 4.4 million tons of rare earth oxides out of which 1.6 million tons are HREE (Heavy Rare Earth Elements are the rarest form of rare earth oxides). Strange Lake’s HREE as a percentage of total rare earth is also one of the industry’s highest at 40%. The 2013 pre-feasibility study (PFS) shows “robust” economics, such as an IRR of 26% and a NPV of $1.9 billion (both pre-tax; unlevered with a 10% discount rate).
So what happened despite such “fantastic” fundamentals?
Like many other REE projects, Strange Lake is located in northern Canada. In order to get their material to the port at Voisey Bay, Quest must build a 170 km long road. Following that, it is their stated plan to ship their deposit to the processing facility in Becancour which is some 2,000 km away, down the Atlantic coast.
The entire deposit is to be put in containers and transported with trucks and ships for 2,200 km? Yes, according to the company and no matter how strange this quest may sound to you: “The PFS results are based on whole-ore, to be mined at Strange Lake, trucked to the Labrador port facility, and then shipped…” In earnest, Quest plans to feed its hydrometallurgical plant (that costs half of the $2.6 billion in total project construction costs) not with a concentrate but with whole ore. Consider that!
Cutting the wheat from the chaff
In terms of being economic in the REE sector, ultimately you want to produce the highest grade mineral concentrate you can, because then you reduce the amount of material that then will go into solution and you will need to transport less material to where the acid is. Typically, it is the amount of material you plan to dissolve in acid that decides if a REE project is truly robust. Acid is expensive, and it is this question of the amount of mineral concentrate being dissolved in the acid where investors should focus when assessing if a REE project is feasible.
Traditionally, it is a 2-stage process:
Stage 1: Reducing the waste rock (i.e. producing a mineral concentrate on site). The company that can reduce its waste rock the most is going to have the least amount of material going into the next stage.
Stage 2: The solution stage (i.e. dissolving the mineral concentrate in acid). This is where the costly acid comes into play. It is important to understand that eventually any company can dissolve their entire ore body (“whole ore”) with acid, but it is the amount of acid required that is the key to success. That’s exactly where the buck stops.
Commerce Resources Corp. (CVE:CCE) (FRA:D7H) (ETR:D7H) recently disclosed a significant update on metallurgical work from their Ashram REE Project in Quebec. The results outline a breakthrough and are likely to become the world’s best metallurgy for a major REE project in development. Darren Smith, Project Geologist with Dahrouge Geological Consulting Ltd. put together the following chart comparing the mineral concentrates of various REE projects worldwide:
Remember that refiners want mineral concentrates with +30% TREO along with +60% recoveries? Consider that again now and see that there is only one project with a better than 30% mineral concentrate!
With a TREO grade of 44%, Commerce Resources Corp. (CVE:CCE) (FRA:D7H) (ETR:D7H) can produce the highest grade concentrate of all major REE projects in development. That is 3 times higher than the next closest competitor. Of equal importance, Commerce is capable of reducing Ashram’s mass by 97%, which means that 97% of the deposit is waste rock and Commerce can strip that out (on site!). Ultimately, Commerce only needs to put into solution 3% of the ore body (instead of 100% like Quest). Initial indications are that the process to do so is inexpensive.
Avalon mentions a mass pull but it remains unclear if it is an actual test result or rather a design criteria. At the end of the day, Avalon seems capable of only producing a 7-8% concentrate, so there is still substantial waste in their mineral concentrate they