Mr. Randall Scott reports
RARE ELEMENT RESOURCES ANNOUNCES 2014 PRE-FEASIBILITY STUDY ON THE BEAR LODGE PROJECT
Rare Element Resources Ltd. has incorporated the significant
resource expansion and numerous operational improvements announced over
the last several months into a positive 2014 prefeasibility study for the Bear Lodge critical rare earth project in northeast Wyoming. All references in this news release to "$" are to
United States dollars and certain numbers have been rounded.
The PFS highlights include:
- A low initial capital cost of $290-million;
- Mining of a high-grade zone in years one to nine boosts initial cash flows and
results in a 2.9-year payback from the start of production;
- An after-tax net present value of $330-million at a 10-per-cent discount
rate and an after-tax internal rate of return of 29 per cent;
- A 45-year project life based on the expanded measured and indicated mineral resource -- additional upside possible from the inferred
mineral resource, including the potential delineation of an additional
high-grade mineral resource and heavy-rare-earth-enriched
exploration targets.
- A proprietary recovery process that consistently produces a total rare earth oxide concentrate that is more than 97 per cent pure and near thorium free.
- Average annual production of over 7,500 tons (6,800 tonnes) of TREO
concentrate.
Various activities undertaken by the company in connection with the PFS
have significantly derisked the project, including:
- Successfully completing additional pilot plant studies and further
refining the process technology;
- Sizing the project to balance initial capital cost with meaningful
market penetration while preserving ability to accelerate production
when market conditions warrant;
- Advancing the permitting process, most significantly with the progress
on the draft environmental impact statement;
- Providing concentrate product to potential customers/partners for
evaluation, where the initial feedback has been positive.
"We have made great progress over the last two years by significantly
expanding the mineral resource at Bear Lodge, developing a proprietary
recovery process that consistently produces a 97-per-cent-plus pure near
thorium-free TREO concentrate in repeated pilot plant testing and
advancing permitting with the formal start of the EIS process," said
Randall J. Scott, president and chief executive officer. "During this
same time frame, we have seen the rare earth marketplace change
significantly and have gained a better understanding of customer needs.
The PFS incorporates all this and demonstrates the potential for solid
returns for our shareholders even in the current weak rare earth price
environment. The project's low initial capital cost reflects the
advantages of our location near existing infrastructure and in
communities supportive of responsible natural resource development. The
strength of our mineral resource is demonstrated by a greater than
40-year project life and the ability of a high-grade core to accelerate
payback. Importantly, there remains further upside opportunity from the
inferred mineral resources within the pit boundary, the exploration of
identified additional targets with heavy rare earth enrichment,
operating cost reductions from further optimization of our proprietary
technology, monetization of potentially valuable byproducts within the
deposit and our continuing evaluation of downstream separation." Mr.
Scott concluded: "Bear Lodge is a world-class rare earth district that,
for over 40 years, is expected to supply raw materials critical to new
technologies, including the key magnet materials of neodymium,
praseodymium, dysprosium and terbium, for industries that are still
growing and developing. When you consider all the project's strengths
and the opportunities we have identified, we think it is clear that the
Bear Lodge project has substantial value to all of our stakeholders even
beyond what is being captured in the current IRR."
Roche Engineering Inc., an independent engineering company, prepared
the PFS in co-operation with a number of specialized consultants on
behalf of the company. The PFS evaluates the project as outlined in the
plan of operations as accepted by the U.S. Forest Service, the
lead agency involved in the preparation of the project's EIS. The PFS
findings are based upon a selective mining approach developed in
connection with work on the preparation of the draft EIS to minimize the
project's overall environmental footprint on public lands. The PFS
contemplates selectively mining at a rate consistent with ore processing
capacity and thereby stages the mining impact while reducing the need
for extensive stockpiling.
Key metrics of the PFS are listed in the attached tables.
PFS KEY METRICS
Initial capital costs (millions) $290
Life-of-mine capital costs (millions) (1) $453
Payback period 2.9 years
Pretax/after-tax IRR 32.7%/28.6%
Pretax/after-tax NPV at 10-per-cent discount rate (millions) $426/$330
Mine life/project life 38 years/45 years
Lower-grade stockpile processing Years 39-45
Assumed discounted basket price/kg $24.60
Note:
(1) This amount includes sustaining capital.
OPERATING METRICS
High-grade processing years 1 to 9 LOM average (1)
Average annual mining
rate (millions of tons/millions of tonnes) 3.72/3.37 3.72/3.38
Annual production TREO (tons/tonnes) 8,523/7,732 7,510/6,813
Mining average grade, % TREO 4.7% 2.8%
Strip ratio (waste to ore) 8:1 8.7:1
Physical upgrade plant average annual feed rate (tons/tonnes) 220,000/199,600 345,000/313,000
Physical upgrade plant recovery rate 92.8% 87.9%
Hydrometallurgical average annual feed rate (tons/tonnes) 178,760/162,100 206,300/187,100
Hydrometallurgical recovery rate 88.3% 89.9%
Overall recovery rate 81.9% 79.0%
Operating cost per ton processed $413.32 $296.93
Operating cost per kg TREO $11.75 $15.05
Average annual operating cash flow (after-tax) (millions) $84.5 $52.4
Note:
(1) The life of mine includes seven years of low-grade stockpile processing.
The company anticipates filing a National Instrument 43-101-compliant technical
report reflecting the results of the PFS under its profile at SEDAR within 45 days of the date of this news release.
Project description
The Bear Lodge project is located in northeast Wyoming. In 2011, the U.S.
Geological Survey determined that the project contains one of the
largest disseminated rare earth deposits in North America. This
world-class mineralized district is rich in the critical rare earths
that are essential for electronics, high-strength permanent magnets,
fibre optics, laser systems and evolving green technologies. The company
controls 100 per cent of the mining rights in the project area.
The project consists of three principal components: 1) a small open-pit
mine operation that will include the Bull Hill and Whitetail Ridge
deposits, and associated support facilities, located approximately 12
miles (19 kilometres) by road north of Sundance, Wyo.; 2) a physical
upgrading plant for mineral preconcentration located adjacent to
the mine; and 3) a hydrometallurgical plant located near
Upton, Wyo., for further concentration of the rare earth elements into
a mixed TREO concentrate. The Upton site is approximately 40 miles (64
kilometres) south from the Bull Hill mine site. This site is accessible
by existing county and state roads. It is also adjacent to an active
transcontinental rail line, which will make possible efficient delivery
of equipment during construction and lower shipping costs for supplies
used during operations, as well as delivery of the final product to
customers. Using the current NI 43-101 mineral reserves, the expected
project life is 45 years.
Mining at Bull Hill is planned as a small conventional truck-and-shovel open-pit operation that accesses near-surface mineralization.
Mining will selectively recover, for immediate processing at the PUG
plant, the high-grade ores from the Bull Hill deposit in years one to nine.
This will allow the company to maximize early cash flows and accelerate
the payback of capital. In years 10 to 38, ore from both the Bull Hill
and Whitetail deposits will be mined and processed. Lower-grade ores
mined during initial cap years one to 15 will be stockpiled for processing
in years 39 to 45. The initial processing rate at the PUG plant is
expected to average 220,000 tons (199,600 tonnes) per year in years one to nine. After a planned expansion of both the PUG and the hydromet in year
10, the PUG processing rate is expected to increase in years 10 to 38 to
an average rate of 366,000 tons (332,000 tonnes) per year to offset the
decline in ore grade. The PUG processing of ore from low-grade
stockpiles would begin in year 39 and continue until year 45 at a rate
of 423,000 tons (383,700 tonnes) per year. Waste rock will be stored at
an adjacent waste rock facility located on private land and will be
reclaimed and recontoured concurrently with mine operations. The
portion of the inferred mineral resource already delineated within the
pit boundaries provides the potential opportunity to improve economic
returns, however, inferred mineral resources have a greater amount of
uncertainty.
In years one to nine, the PUG plant is scheduled to process high-grade ore,
expected to average 4.7 per cent TREO. In years 10 to 38, the mining rate is
expected to increase as the grade drops, with ore grades averaging 2.6 per cent
TREO. The expected LOM average grade is estimated at 2.8 per cent TREO. The
increase in production rate is planned to coincide with the start of
processing mid-grade and Whitetail deposit ores. The PUG plant is
designed to use a combination of crushing, screening and gravity
separation, depending on the ore type being treated, to reduce the
physical mass of the ore by reducing gangue and concentrating the rare-earth-bearing fines for shipment to the hydromet plant. The Bull Hill
deposit contains varying proportions of weathered high-grade oxide and
oxide-carbonate ores, along with variable grades of stockwork
mineralization adjacent to the higher-grade ores. Each of these ore
types will have a different mass reduction and upgrade percentage in the
PUG circuit. On average, the PUG recovery is expected to be 92.8 per cent in
years one to nine and 87.9 per cent over the LOM. The mineral preconcentrate produced
at the PUG will be transported by covered truck to the hydromet plant in
Upton.
The hydromet plant is designed to process the preconcentrate through
acid leaching followed by the company's proprietary recovery technology.
This process uses a chloride solution to extract the rare earth elements into a liquid, then uses oxalate reagents to facilitate the
selective precipitation of the REE (please see the company's news
release dated Nov. 11, 2013, for additional details). The benefits of
this process are that it achieves a high-purity near-thorium-free bulk
TREO concentrate, and has the ability to regenerate and recycle a
majority of the water and reagents used in the process.
The rare earth recovery rate in the hydromet process in years one to 9 is
expected to be 88.3 per cent and approximately 89.9 per cent over the LOM. The average
annual LOM nominal TREO production rate is anticipated to be
approximately 7,510 tons (6,813 tonnes), with years one to nine averaging
8,523 tons (7,732 tonnes). The tailings produced from the processing
will be neutralized, dewatered and stored in an engineered lined
tailings storage facility located on private land adjacent to the
hydromet plant.
The project was sized to balance initial capital requirements and still
be a meaningful supplier for current market demand while minimizing the
environmental footprint of the project. Both the PUG and the hydromet
plant are being designed to have sufficient flexibility to produce
higher tonnages of rare earth concentrates when market conditions
warrant with only minor modifications and optimization of operating
parameters.
Mineral resource and reserve
The company previously announced a measured and indicated mineral
resource of 17.3 million tons (15.7 million tonnes) averaging 3.11 per cent
TREO, and an inferred mineral resource of 29.3 million tons (26.6
million tonnes) averaging 2.58 per cent TREO (see the company's news release
dated March 17, 2014). The additional work to prepare the PFS resulted
in an increase in the M&I mineral resource tons by approximately 4 per cent and
a slight reduction of the average grade from 3.11 per cent to the current 3.05 per cent
(using a 1.5-per-cent cut-off grade). The breakout of the current mineral
resource is as shown in the attached table.
MEASURED AND INDICATED MINERAL RESOURCE
(using a 1.5-per-cent cut-off grade)
Deposit Tons (M) Tonnes (M) Grade TREO (%) Contained TREO lb (M) Contained TREO Kg (M)
Bull Hill
Measured 3.0 2.7 3.77 226 102
Indicated 10.7 9.7 3.09 661 300
Total 13.7 12.4 3.24 887 402
Whitetail Ridge
Measured - - - - -
Indicated 4.3 3.9 2.47 212 96
Total 4.3 3.8 2.47 212 96
Project-wide M&I mineral resource 18.0 16.3 3.05 1,099 498
Note: M stands for millions.
The mine plan used in the PFS is expected to access areas of
significantly higher grade within the M&I mineral resource in years one to nine of the project's life. This both reduces the environmental footprint
of the project and reduces the amount of stockpiling necessary, bringing
cash flows forward and resulting in an attractive payback period of 2.9
years. A breakout of this high-grade material is as shown in the attached table.
CONTAINED HIGH GRADE IN MEASURED AND INDICATED MINERAL RESOURCE (1)
(using a 3-per-cent cut-off grade)
Tons (M) Tonnes (M) Grade TREO (%) Contained TREO lb (M) Contained TREO Kg (M)
Contained High Grade
Measured 1.7 1.5 4.92 167 76
Indicated 4.3 3.9 4.45 383 174
Total 6.0 5.4 4.58 550 250
Notes:
M stands for millions.
The contained high-grade material is a subset of the M&I mineral resource as of June 30, 2014, and is
identified above.
Mineral reserve
The mineral reserve is derived from, and included in, the M&I mineral
resource. Mineral reserves take into consideration minability,
selectivity, mining loss and dilution, and identify that portion of the
M&I mineral resources which are economically recoverable under the
current development scenario outlined in the PFS. The mineral reserve
was determined in accordance with NI 43-101 standards and do not
constitute mineral reserve under the U.S. Securities and Exchange Commission's Industry Guide 7.
MINERAL RESERVE ESTIMATE
(using a 3-per-cent modified TREO cut-off for high grade and a
1.5-per-cent cut-off for mid-grade)
Contained TREO
Grade (% TREO) Tons (M) Tonnes(M) Pounds (M) Kg (M)
Proven mineral reserves
High grade 5.17 1.4 1.3 145 66
Mid-grade 2.36 1.2 1.1 57 26
Average/total 3.87 2.6 2.4 202 92
Probable mineral reserves
High grade 4.13 3.9 3.5 322 146
Mid-grade 1.89 9.1 8.3 343 156
Average/total 2.56 13.0 11.8 665 302
Total proven and probable
High grade 4.41 5.3 4.8 467 212
Mid-grade 1.94 10.3 9.4 400 182
Average/total 2.78 15.6 14.2 867 394
Note: M stands for millions.
Inferred mineral resource
Both the Bull Hill and Whitetail Ridge deposits have a significant
amount of drill-indicated inferred mineral resource, of which about
one-third is contained within the current pit outline. While this
portion of the resource has greater uncertainty than the M&I mineral
resource and is assigned no economic value in the PFS, it represents
significant potential upside opportunity for the project as it could
result in lower stripping ratios, and more material to be processed and
recovered during mining operations than is currently contemplated in the
PFS.
INFERRED MINERAL RESOURCE
(using a 1.5-per-cent cut-off grade)
Deposit Tons (M) Tonnes (M) Grade TREO (%) Contained TREO lb (M) Contained TREO Kg (M)
Bull Hill 23.9 21.7 2.54 1,212 550
Whitetail Ridge 7.9 7.2 2.71 429 194
Inferred mineral resource 31.8 28.9 2.58 1,641 744
Total rare earth oxide composition
The Bear Lodge project is rich in "critical" rare earths, defined by the
U.S. Department of Energy as those most essential to the "clean energy"
economy and at the highest risk of supply disruption. These
elements include neodymium, dysprosium, europium, terbium and yttrium.
The company also includes praseodymium as it believes it is a critical
REE because of its use with neodymium in high-intensity permanent
magnets. These elements are expected to experience higher demand growth as green technologies advance in concert with increasing environmental
standards worldwide. The distribution of the different REE in the
mineral reserve is outlined in the attached table.
COMPOSITION OF TREO IN PROVEN & PROBABLE MINERAL RESERVES (1)
Relative distribution % REO in proven and probable mineral reserve
Neodymium 17.88% 0.496%
Praseodymium 4.90% 0.136%
Europium 0.68% 0.019%
Cerium 43.02% 1.194%
Lanthanum 26.83% 0.745%
Dysprosium 0.45% 0.012%
Terbium 0.14% 0.004%
Gadolinium 1.64% 0.045%
Samarium 2.99% 0.083%
Yttrium 1.30% 0.036%
Erbium 0.08% 0.002%
Other rare earths 0.09% 0.003%
TREO 100.00% 2.775%
Note:
(1) This table does not break out estimates for holmium, lutetium, thulium and
ytterbium because they occur in negligible amounts. Values are based on the
attached mineral reserve estimates and a discounted basket price of $24.60 per
kilogram as of June 30, 2014. Resources, reserves and economics were all
calculated using a basket price of $24.60 per kilogram, however, elemental
distribution and prices vary between resource models and the PFS economic model.
Please see the "rare earth pricing and markets" section of this news release for
a discussion of the applicable discount and price assumptions.
Attractive project location
The mine site is located northwest of the town of Sundance, Wyo., which is situated along U.S. Interstate Highway 90, 60 miles (96
kilometres) east of Gillette, Wyo. Gillette is a major business centre
for the natural resources industry. The existing road system will
support preconcentrate trucking with some upgrades required for safety.
The hydromet plant in Upton, Wyo., is located adjacent to an active
transcontinental rail line, which is expected to result in lower
transportation costs for supplies to the site and in respect to the
distribution of the final product to end-users. Nearby towns can provide
a majority of the necessary infrastructure, including housing, food,
fuel, power and skilled labour. Community support is strong, with local
polling completed in 2013 indicating 76-per-cent support for the project.
Water rights at the mine site are available through permits from the
Wyoming State Engineer's Office. The water supply at the hydromet plant
is available from the town of Upton. During the project's life, a power
line will be extended to support operations at the mine. Power for the
hydromet plant will be fed from a substation at the nearby industrial
park. Published power costs are some of the lowest in the United States.
The mine site footprint, including the PUG plant, is relatively small,
with less than 900 acres (364 hectares) of total disturbance over its
life -- approximately 460 acres (186 hectares) on Forest Service land and
438 acres (177 hectares) on private land. The hydromet plant and
tailings disposal site will be located on approximately 840 acres (339
hectares) of private land, for which the company currently holds
purchase rights.
Capital expenditures
In part because of the extensive existing infrastructure, initial
start-up capital is estimated to be a relatively low $290-million. The
life-of-mine capital cost for the project, including sustaining capital,
later phases of tailings construction, PUG and hydromet expansion in
year 10, and closure costs, is estimated at $453-million. This includes
start-up capital and a capital cost contingency that averages 18.8 per cent on
initial capital and 14.6 per cent on sustaining capital. Initial expenditures of
approximately $12-million are anticipated for infrastructure, including
improving access roads, upgrading power and constructing the water
supply facilities.
CAPITAL EXPENDITURES (1)
(in millions of U.S. dollars)
Initial capital Sustaining capital LOM capital
Mining $ 57.9 $ 45.4 $ 103.4
PUG plant 8.0 36.8 44.8
Hydromet and tailings storage 126.2 20.9 147.0
Engineering and commissioning 30.1 12.2 42.3
Infrastructure 11.9 6.0 17.9
Owners costs and other 9.2 4.3 13.5
Closure costs - 16.5 16.5
Total direct and indirect costs 243.3 142.1 385.4
Contingency 47.1 20.8 67.9
Total $ 290.4 $ 162.9 $ 453.3
Note:
(1) Capital expenditures do not include $24.6-million of working capital, which
is included in the project economics.
Operating costs
In years one to nine, the average total annual operating cost is estimated at
$91-million, assuming a nominal processing rate of 220,000 tons (199,600
tonnes) per year of high-grade feed to the PUG plant at an average grade
of 4.7 per cent TREO. This would produce an average of 8,523 tons (7,732 tonnes)
per year of bulk TREO concentrate. In years 10 to 38, the average total
annual operating cost is estimated at $111-million, assuming a nominal
production rate of 366,000 tons (332,000 tonnes) per year of feed to the
PUG plant at an average grade of 2.8 per cent TREO. Because of the economy of
scale experienced with the increased tonnage being processed in years 10 to 38, the mining cost per ton of ore processed decreases. During this
same period, the lower grade of the ores being processed will result in
the average cost per kilogram of TREO increasing. Estimated production during
years 10 to 38 would average 7,700 tons (6,985 tonnes) per year of bulk
TREO concentrate per year. Previously stockpiled ores will be processed
in years 39 to 45, with an average total annual operating cost estimated
at $83-million, assuming an average feed rate of 423,000 tons (383,700
tonnes) at an average grade of 1.7 per cent TREO. The average annual TREO
concentrate production rate during these years would be 5,423 tons
(4,920 tonnes) per year. While included in the economic evaluation,
estimated applicable property and severance taxes are not included in
the attached operating costs table.
OPERATING COSTS
Years 1 to 9 LOM
Cost per ton Average cost Cost per ton Average cost
of ore processed per Kg TREO of ore processed per Kg TREO LOM Total (M)
Mining $ 69.83 $ 1.99 $ 42.98 $ 2.18 $668
PUG 20.39 0.58 21.56 1.09 335
Hydromet and tailings storage 292.03 8.30 212.68 10.78 3,306
General and administrative,
and road maintenance 31.08 0.88 19.71 1.00 306
Total $ 413.32 $ 11.75 $ 296.93 $ 15.05 $4,615
Note: M stands for millions.
Environmental and permitting
The company continues to support the USFS efforts to prepare an EIS on
the project in accordance with the National Environmental Policy Act
process. This process is key to securing the permits and approvals
necessary to move into production. In early 2012, the company submitted
the plan of operations for the project, which was accepted by the USFS
as complete in May, 2013. Since then, the USFS has selected a project
manager and prime contractor for preparation of the EIS, published
notice in the federal register and completed necessary scoping work. The
USFS is currently working on the evaluation of the public comments,
identification of alternatives and preparation of the draft EIS. The U.S.
Army Corps of Engineers, and the appropriate state and local government
agencies, are involved in the EIS process as co-operating agencies. The
schedule, as distributed by the USFS in its scoping documents, calls for
completion of the draft EIS in the first quarter of 2015 and the final
EIS by mid-2015. The final record of decision for the EIS, the
decision document that establishes the acceptable operating conditions,
is expected in the fourth quarter of 2015.
The company will need to obtain a mining permit from the Wyoming
Department of Environmental Quality -- land quality division.
Additionally, the company will need various permits, including a licence
to possess source material from the Nuclear Regulatory Commission, and
other approvals from a number of other federal, state and local
agencies. The company is pursuing those permits/approvals on a parallel
path with the work currently being done on the EIS, where possible.
Production timeline
The company will incorporate the results of the PFS, as well as project
engineering, budgets, schedules and other information, into a feasibility
study, expected to begin, pending board approval, before the end of
2014. Given the anticipated timing of the FS commencement, construction
could be completed and commissioning commenced on the project as early
as late 2016. This timeline is subject to the timely completion of
permitting, financing and additional development activities directed at
continuing to derisk the project. The company is reviewing all project
variables and expects to have updates to the anticipated schedule for
the project in the fourth quarter of 2014.
Rare earth pricing and markets
Because of their unique magnetic, catalytic and phosphorescent
characteristics, rare earths are expected to be essential elements in
the next generation of technological advancements. Current projections
from a variety of leading industry analysts call for growth in demand of 7 per cent to
8 per cent per annum from 2013 to 2020, with the fastest demand
growth coming from magnet, metal alloy and catalyst uses of rare earths.
The company anticipates that this expected growth in demand, coupled
with the factors listed below, will support a case for higher rare earth
prices, both in the near and long term:
- Recent financial results from several of the six firms now
consolidating the rare earth industry in China have been poor,
suggesting there may be some pressure for these dominant producers to
raise prices.
- Chinese production costs are escalating, particularly for labour and
environmental protection, with some industry observers estimating that
prices need to rise by 20 per cent to offset environmental cost increases
alone.
- The Chinese government has announced purchase prices for a domestic
stockpiling program of certain rare earths that could reduce available
supplies. The premiums to current market prices vary by element, but
reports indicate that the Chinese government is expecting to pay an
overall premium of approximately 10 per cent above current prices.
- Demand growth projections indicate that China, which currently
consumes approximately two-thirds of the global rare earths supply,
may be a net importer of many rare earths by 2020.
- Geopolitical considerations, increasing environmental regulations,
remote locations and high capital requirements for many potential new
rare earth projects may serve to limit new supply.
- Research and development efforts for new uses of rare earths are
expected to accelerate, driven in part by manufacturers having access
to secure non-Chinese rare earth sources like the Bear Lodge project.
To establish the assumed prices for the PFS, the company used the
trailing 12-month Chinese export values for individual rare earth
oxides derived from latest available customs statistics through June,
2014, as reported by Metal-Pages, a firm based in the United Kingdom that reports on metals
trading across numerous sectors. Customs statistics report the value of
goods exported based on actual market transactions and, as a result,
provide empirical data on the underlying market prices. The assumed
prices for gadolinium and samarium are based on published spot "free on board China" prices as reported by Metal-Pages because no custom statistics
are available. These spot prices are based on Metal-Pages' survey of
market participants and, according to some market sources, can differ
significantly from realized prices since most rare earths sales are
done under private contracts.
For the PFS, the company discounted certain of these individual rare
earth oxide export values further (including cerium, europium and
praseodymium) to account for current market conditions. Most
significantly, the company reduced the reported value for dysprosium by
66 per cent to temper the impact of significant spikes in export values that
occur in periods of high seasonal demand and could be expected to
diminish when alternative sources of dysprosium are developed.
The PFS prices then assume a 25-per-cent discount to the weighted average basket
price of the project's planned production to account for further costs
to separate the high-quality mixed TREO concentrate into individual
rare earth oxides. Most of the transactions within the rare earth
industry are done under private contract and pricing information is of
limited transparency, thus exact information on separation costs is
unavailable. To arrive at the discount used in the PFS, the company
surveyed a number of market sources that suggested a discount of 20 per cent to
30 per cent was appropriate for the company's 97-per-cent-plus pure TREO concentrate. As
another reference point, the company calculated a blended tolling
charge based on reported tolling charges in the rare earth market of
$5 per kilogram for light rare earth concentrate and $20 to $25 per kilogram for heavy
rare earth concentrates. Based on the company's rare earth distribution,
this blended charge is estimated at approximately $5.50 to $5.70 per kilogram.
As a final data point, the company investigated the historical monthly
average pricing differential between rare earth concentrate and oxide using the limited publicly available pricing data. Metal-Pages regularly
quotes prices for only one rare earth concentrate, a 45 per cent TREO cerium
carbonate concentrate. The company compared this with the 99 per cent cerium
oxide price using FOB China prices from the same source. Using the
historical quoted prices for the two-year period ending June, 2014, the
average monthly price differential was 25.2 per cent.
Based on the evaluation methods identified above, the prices and rare
earth distribution used in the PFS are outlined in the attached table.
TREO PRODUCT PRICING USED IN PFS
(based on average LOM project output)
Recovered Adjusted
distribution/Kg TTM export
Element TREO (g/kg) value/kg Value/kg
Neodymium 182 $ 71.26 $ 12.97
Europium 7 $ 948.23 6.64
Praseodymium 50 $ 96.97 4.85
Dysprosium 4 $ 654.87 2.62
Lanthanum 283 $ 6.77 1.91
Cerium 416 $ 4.54 1.89
Terbium 1 $ 745.32 0.75
Gadolinium 16 $ 46.50 0.74
Yttrium 10 $ 22.14 0.22
Samarium 30 $ 5.50 0.17
Erbium 1 $ 50.36 0.05
1,000 g Price/kilogram $ 32.81
After 25-per-cent discount $ 24.60
"Given Bear Lodge's long project life, the fact that it is expected to
deliver a solid after-tax return using the low average rare earth prices
over the past year is only part of the story," said Paul Zink, senior
vice-president and chief financial officer. "Looking beyond the IRR, one
has to appreciate the more than 40-year project life, the low capital
cost, the short construction cycle, the ability to mine a high-grade
core for an extended time, the benefits of being located in
resource-friendly Wyoming near existing infrastructure and the upside
to the project's resource. As we move toward the feasibility study, we
believe we have numerous opportunities to improve the economics further,
including work currently advancing to optimize the metallurgical
process. We are also pleased that all the project improvements,
including the production of a very pure TREO concentrate with a high
percentage of critical rare earth, resulted in an initial capital cost
below $300-million -- a direct reflection of the benefits of our
proprietary technology, superior location and existing infrastructure."
Sensitivity analysis
The project's sensitivity to certain factors is listed in the attached table.
NPV SENSITIVITY ANALYSIS
(based on pretax NPV in millions of U.S. dollars)
Rare earth prices Operating costs Capital cost
NPV -20% Base +20% -20% Base +20% -20% Base +20%
At 8% discount $ 176 $ 563 $ 949 $ 771 $ 563 $ 355 $ 624 $ 563 $ 502
At 10% discount $ 117 $ 426 $ 735 $ 587 $ 426 $ 264 $ 483 $ 426 $ 368
At 12% discount $ 73 $ 327 $ 581 $ 456 $ 327 $ 197 $ 381 $ 327 $ 272
Further project opportunities
The company has identified additional areas to evaluate and consider in
order to seek to optimize both the project's technological and economic
upside. The PFS identifies these, and the company plans to incorporate
them into the FS. Some of these opportunities include the following.
Thorium removal/lower costs from proprietary processing technology
Subsequent to establishing the parameters for the PFS, bench-scale
testing demonstrates the ability to eliminate detectable thorium within
the final product by adjusting certain variables within the company's
proprietary process. The company continues to evaluate this work and is
looking at conducting larger-scale testing in the coming months.
Additional opportunities to reduce costs include the adjustment of
process variables and the investigation of selective removal of the
lower-valued rare earths early in the hydromet process.
Rare earth separation as a means to participate more fully in the
value chain
Initial studies have indicated that the very high
purity of the company's concentrate should lend itself to lower-cost
separation by eliminating the need for the circuits required to remove
impurities. The company is investigating available alternatives to
determine the costs/benefits of incorporating downstream separation into
its business model.
Inferred mineral resource
The 31.8 million tons (28.9 million
tonnes) of inferred mineral resource with an average grade of 2.58 per cent TREO
(using a 1.5-per-cent cut-off) was not considered in the economic evaluation in
the PFS. Of this resource, a significant portion (approximately
one-third) falls within the boundaries of the designed pit and may be
recoverable during mining. This material is currently defined as waste
in the project model. Recovery of any portion of this inferred mineral
resource, if it exists, could reduce the stripping ratio and improve
project economics.
Additional exploration targets
Geological, geochemical and
geophysical work, along with limited drilling, have identified a number
of additional targets within the project boundaries. Two of the most
promising are the Taylor and Carbon targets. These targets have
demonstrated enrichment in heavy rare earth elements (HREE) and warrant
further evaluation. Their higher HREE content could have a positive
impact on revenues because HREEs generally have a higher price per
kilogram. Further exploration on these and other identified targets is
not currently planned until mining operations are established.
Capturing byproduct value
Mineralization at the project
contains potentially valuable byproducts, such as manganese, iron,
magnesium and gold. If some or any of these can be economically
recovered through the hydromet plant, they could represent additional
revenue for the project.
Contributors
Roche Engineering is the principal author of, and is an
independent engineering company that prepared, the PFS on behalf of
the company. Pete Dahlberg, PE, is the independent qualified person
from Roche Engineering responsible for the PFS, as well as
process engineering, and process capital and operating cost estimation.
He reviewed and approved this news release, and will review all
sections of the related NI 43-101 technical report.
Alan C. Noble, PE, of Ore Reserves Engineering, is the
independent qualified person responsible for resource estimation. The
drill hole database was verified independently by Ore Reserves
Engineering, which frequently undertakes mineral property studies.
Ore Reserves is familiar with the CIM mineral resource/reserve definitions
and the disclosure requirements of NI 43-101, to which the mineral
resource and mineral reserve classifications in this news release
conform.
William Rose, PE, of WLR Consulting, prepared the mine plan, and is
responsible for the design of the mine plan and estimation of mineral
reserves.
Golder Associates is responsible for providing mine capital and
operating cost estimates, designing the waste rock storage facility
and water structures, and designing the tailings storage facility at
the hydromet site.
Jaye T. Pickarts, PE, chief operating officer of Rare Element, is
a metallurgical engineer and a qualified person responsible for the
metallurgy and process development.
We seek Safe Harbor.
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