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Namibia Rare Earths Inc
Symbol NRE
Shares Issued 77,828,500
Close 2014-09-30 C$ 0.18
Market Cap C$ 14,009,130
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Namibia Rare PEA estimates 1,500 tpy of REO production

2014-10-01 08:14 ET - News Release

Mr. Don Burton reports

PRELIMINARY ECONOMIC ASSESSMENT CONFIRMS POTENTIAL FOR HEAVY RARE EARTH MINE AT LOFDAL

Namibia Rare Earths Inc. has provided the positive results of the NI 43-101-compliant preliminary economic assessment on the Lofdal rare earths project, Namibia, which confirms the technical and economic potential of the Lofdal heavy rare earth project in northwestern Namibia.

The PEA concludes that the project currently has the potential to produce an average of 1,500 tonnes per annum of separated rare earth oxides (REO) which would generate after-tax cumulative cash flow of $257-million (U.S.) with a net present value 10 per cent (NPV) of $147-million (U.S.) and an internal rate of return (IRR) of 43 per cent. The PEA indicates that there is considerable potential to expand the current mineral resource and recommends that additional drilling be carried out to provide for an extended mine life in conjunction with a six-month prefeasibility study (PFS) program. Financial sensitivities of the project are summarized in the "Financial sensitivities summary" table, financial highlights in the "Financial highlights" table, mineral resource estimates in the "In-situ mineral resources (1) for the Area 4 deposit within the more-than-0.1-per-cent TREO envelope with effective date July 31, 2012" table, capital costs are in the "Total capital costs summary" table, operating costs are in the "Total operating costs summary" table and REO pricing is in the "Projected 2017 FOB China export prices for REOs and projected REO distribution for Lofdal concentrate (average 17.3 per cent TREO from Mintek Studies)" table.

Donald Burton, president of Namibia Rare Earths, stated: "This preliminary economic assessment provides shareholders and investors with the first indications of the economic potential of Lofdal. The PEA confirms the strengths of the project in terms of its favourable rare earth distribution and amenability to conventional mining and processing, and demonstrates its financial strengths in terms of the low capital costs and significant cash flows. The PEA provides a clear path forward for development of the project. Management believes that there remains considerable upside to the project as we move towards prefeasibility and feasibility studies. Together with ongoing metallurgical optimizations, we will target additional drilling to significantly expand mineral resources and to establish minable reserves thereby extending the life of mine. The company will aggressively pursue the most expeditious path towards development of Lofdal through all available options."

    FINANCIAL SENSITIVITIES SUMMARY

Discount rate  Pretax NPV  After-tax NPV
      (%)        (U.S.$)       (U.S.$)    

      8       $264,068,000 $164,960,000 
     10        238,227,000  147,385,000 
     12        214,912,000  131,455,000 
                                         
                   Pretax       After tax  

   IRR (%)            53          43      

Cumulative cash                          
flow (U.S.$)    $400,954,000  $256,971,000 


              FINANCIAL HIGHLIGHTS              

Initial capital costs (U.S.$)                        $92,056,000
Total capital costs (U.S.$)                          155,735,000
Total operating costs per tonne mined (U.S.$)              91.07
Total operating costs per kg TREO produced (U.S.$)         49.95
Basket price per kg TREO produced (U.S.$/kg)              105.77
Life of mine (years)                                        7.25

The PEA should not be considered to be a prefeasibility or feasibility study, as the economics and technical viability of the project have not been demonstrated at this time. The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Furthermore, there is no certainty that the PEA will be realized.

The company will hold a webcast on Friday, Oct. 3, 2014, at 11 a.m. EST to discuss the results of the PEA. Call-in details are provided at the end of this press release.

The MDM Group, South Africa, was the principal consultant responsible for the preparation of the PEA which is co-authored by the MSA Group, South Africa, and MineTech International Ltd., Canada.

Project overview

Mineral resource estimate

The PEA utilized the initial 43-101-compliant mineral resources for the Area 4 deposit at a cut-off grade of 0.1 per cent total rare earth oxides (TREO) which provides 2.88 million tonnes of indicated mineral resources yielding 9,230 tonnes of REO, of which 7,050 t are estimated to be heavy rare earth oxides (HREO) and 3.28 million tonnes of inferred mineral resources yielding 8,970 t of REO, of which 6,700 t are estimated to be HREO (see "In-situ mineral resources (1) for the Area 4 deposit within the more-than-0.1-per-cent TREO envelope with effective date July 31, 2012" table). These REO and HREO tonnages are rounded to the nearest 10 t but are shown as originally calculated in the "In-situ mineral resources (1) for the Area 4 deposit within the more-than-0.1-per-cent TREO envelope with effective date July 31, 2012" table. The remainder of the REO is made up of light rare earth oxides (LREO).

   IN-SITU MINERAL RESOURCES (1) FOR THE AREA 4 DEPOSIT WITHIN THE MORE-THAN-0.1% TREO ENVELOPE WITH 
                                EFFECTIVE DATE JULY 31, 2012

                                    In-situ indicated mineral resource

Cut-off          Tonnes             LREO            HREO           TREO             REO               HREO
% TREO           million             %               %               %            tonnes           proportion

0.1               2.88              0.08            0.24           0.32            9,234              76.3%
0.2               1.62              0.09            0.37           0.45            7,358              80.9%
0.3               0.90              0.09            0.53           0.62            5,594              85.6%
0.4               0.58              0.09            0.69           0.78            4,477              88.3%
0.5               0.39              0.09            0.84           0.93            3,673              90.3%
0.6               0.28              0.09            1.00           1.09            3,039              91.8%
0.7               0.20              0.08            1.18           1.26            2,524              93.5%

                                    In-situ inferred mineral resource

Cut-off          Tonnes             LREO            HREO           TREO             REO               HREO
% TREO           million             %               %               %            tonnes           proportion

0.1               3.28              0.07            0.20           0.27            8,973              74.7%
0.2               1.80              0.08            0.30           0.37            6,748              79.3%
0.3               0.75              0.08            0.47           0.56            4,180              85.1%
0.4               0.42              0.08            0.64           0.72            3,071              88.8%
0.5               0.27              0.08            0.81           0.89            2,377              90.9%
0.6               0.21              0.08            0.91           0.99            2,049              92.1%
0.7               0.16              0.07            1.03           1.10            1,717              93.5%

(1) Mineral resources which are not mineral reserves do not have demonstrated economic viability.

Mining and processing

Mining will be by conventional open pit methods utilizing an owner-operated mine fleet at a mining rate of 2,500 tonnes per day (840,000 tonnes per year) with the ultimate pit reaching a vertical depth of 200 metres. A total of 6.04 MT of mineralized material at a diluted grade of 0.28 per cent TREO will be provided to the primary crusher over the 7-1/4-year life of mine (LOM).

Following secondary and tertiary crushing the feed is delivered to X-ray technology (XRT) and X-ray fluorescent (XRF) sorters to eliminate internal waste, thereby reducing volume to the ball mill for fine grinding. Ball mill product slurry is fed to the rougher magnetic separator with tails going through three scavenger magnetic stages. The magnetic concentrate product is subjected to a cleaner flotation circuit and then passes through a concentrate thickener prior to the acid leach circuit.

The leach circuit utilizes a four-stage hydrochloric acid (HCl) leach to dissolve the carbonate minerals. A gangue leach centrifuge circuit provides for a primary acid water wash to remove the entrained dissolved calcium chloride solution and a secondary potable water wash with a second centrifuge for solid-liquid separation. The resultant solids are filtered in a filter press for final concentrate bagging and shipping to a hydrometallurgical facility which is proposed to be located at the deep-water port of Walvis Bay.

Concentrate batches of 29 tonnes each will be shipped in containers over a distance of 375 kilometres to the hydrometallurgical facility for caustic cracking and washing. The caustic cracking plant is designed for the purpose of breaking or "cracking" the phosphate component of the rare earth mineral xenotime in order to access the contained thorium for removal by subsequent HCl leaching. Following the caustic cracking stage the washed residue is transferred to the HCl digestion tank to leach the thorium. Subsequent precipitation steps will produce a thorium hydroxide product for storage and a rare earth hydroxide product to be combined with the HCl digestion residue as a final product for drying and drumming.

The project is not of sufficient scale to support capitalization for a separation plant and it is envisioned that the final product will be delivered to a third party facility and subject to an offshore treatment charge.

Capital costs

The total capital costs for the project are estimated at $155,735,000 (U.S.) and include direct capital costs for mining, mill site processing facilities, cracking plant processing facilities, tailings storage facility and camp allowance; sustaining capital; closure costs; indirect costs and contingency (see "Total capital costs summary" table). Indirect costs, including EPCM, owner's costs, first fills and spares, have been estimated at 30 per cent of direct costs. The contingency has been estimated at 20 per cent of the total of direct costs plus indirect costs.

       TOTAL CAPITAL COSTS SUMMARY (U.S.$)   

Direct mining costs                      $25,710,000
Direct mine site processing costs         48,059,000
Direct cracking plant processing costs    15,887,000
Direct tailings storage facility costs     2,400,000
Subtotal initial capital costs            92,056,000
Sustaining capital mining                  5,580,000
Sustaining capital processing              4,385,000
Mine closure costs                         2,163,000
Indirect costs                            27,617,000
Contingency                               23,935,000
Total capital costs                      155,735,000

The project initial capital requirements are estimated at $92,056,000 (U.S.).

Operating costs

Operating costs include the costs of the owner-operated mine fleet, processing at the mill site and cracking plant facility, transportation costs for concentrates from the mine site to Walvis Bay and from port to an offshore treatment facility for separation. Technology Metals Research of the United States has indicated that a tolling charge of $15 (U.S.) to $20 (U.S.) per kilogram of finished REOs would be a reasonable estimate for the processing (outside of China) of an intermediate concentrate with a rare earth element distribution similar to the one associated with the Lofdal project to commonly required purity levels and finished forms. A separate cost has therefore been estimated for the offshore treatment cost and is considered as part of the total operating costs which are summarized in the "Total operating costs summary" table.


                    TOTAL OPERATING COSTS SUMMARY                    

Description                        Cost per tonne mined   Cost per kg TREO produced
                                         (U.S.$/t)               (U.S.$/kg)        

Mining                                     23.49                    12.88          
Processing (mill site and cracking)        29.02                    15.92          
Tailings storage facility                   0.5                      0.27          
Offshore treatment charge                  38.06                    20.88          
Total operating costs                      91.07                    49.95          

Rare earth pricing

A price deck has been developed for 2017 by Technology Metals Research and Core Consultants, based on REO supply/demand projections and pricing models for that year, which would be a reasonable approximation of when Lofdal might be expected to enter production. The nature of the REE market is such that it does not lend itself to traditional models for commodity forecasting. In analyzing potential future prices, consideration is given to the likely relative surplus or deficit of REEs available to the market, in order to gain a sense of price direction. Two key assumptions made in the price projections are that China maintains its production targets of 100,000 to 105,000 tonnes in the near to medium term, and that there are no sudden or unexpected policy changes in China that would shock the export market as occurred in 2010/2011. The resulting 2017 FOB China export price projections for REOs are shown in the "Projected 2017 FOB China export prices for REOs and projected REO distribution for Lofdal concentrate (average 17.3 per cent TREO from Mintek Studies)" table.

The projected REO distribution for Lofdal concentrates is also presented in the "Projected 2017 FOB China export prices for REOs and projected REO distribution for Lofdal concentrate (average 17.3 per cent TREO from Mintek Studies)" table. The projected basket price of $105.77 (U.S.) is calculated from the REO distribution and the projected 2017 FOB China prices.


    PROJECTED 2017 FOB CHINA EXPORT PRICES FOR REOS
AND PROJECTED REO DISTRIBUTION FOR LOFDAL CONCENTRATE (AVERAGE 
             17.3% TREO FROM MINTEK STUDIES)

                  REO price      Grade  Distribution   Value
                  (U.S./kg)       (%)      (% TREO)  (U.S.$/kg)

La oxide              5           0.081      0.47       0.02
Ce oxide              4           0.135      0.78       0.03
Pr oxide             95           0.014      0.08       0.08
Nd oxide             73           0.056      0.32       0.24
Sm oxide              8           0.089      0.51       0.04
Eu oxide            750           0.092      0.53       3.99
Gd oxide             47           0.609      3.52       1.65
Tb oxide            870           0.197      1.14       9.91
Dy oxide            530           1.573      9.09      48.20
Ho oxide             55           0.352      2.04       1.12
Er oxide             75           1.089      6.30       4.72
Tm oxide          1,000           0.162      0.94       9.37
Yb oxide             55           0.961      5.56       3.06
Lu oxide          1,250           0.135      0.78       9.76
Y oxide              20          11.752     67.94      13.59
Total                            17.297    100.00     105.77
Basket price                                          105.77

Economic analysis

The economic analysis assumes that the project will be 100 per cent equity financed and uses parameters relevant as of September, 2014, under conditions likely to be applicable to project development and operation, and analyzes the sensitivity of the project to changes in the key project parameters. All costs have been presented in United States dollars and wherever applicable conversion from South African rand has utilized an exchange ratio of 10.70 based on July, 2014, exchange rates.

Mining and treatment data, capital cost estimates and operating cost estimates have been put into a base case financial model to calculate the IRR and NPV based on calculated project after-tax cash flows. The scope of the financial model has been restricted to the project level and as such, the effects of interest charges and financing have been excluded.

For the purposes of the PEA, the evaluation is based on 100 per cent of the project cash flows before distribution of profits to the equity owners. Both pretax and after-tax cash flows have taken 5-per-cent royalty payments into account.

At a discount rate of 10 per cent the project is anticipated to yield a pretax IRR of 53 per cent with an NPV of $238,227,000 (U.S.), and an after-tax IRR of 43 per cent with an NPV of $147,385,000 (U.S.). Cumulative cash flows are $400,954,000 (U.S.) pretax and $256,971,000 (U.S.) after tax over the seven-year LOM (see the "In-situ mineral resources (1) for the Area 4 deposit within the more-than-0.1-per-cent TREO envelope with effective date July 31, 2012" table).

The project is expected to pay back initial capital within the first two years.

Socio-economic and environmental impact

The presence of the mine will have significant positive impacts on the local population of Khorixas as job opportunities and indirect economic opportunities will be created. The location of the hydrometallurgical facility in Walvis Bay will provide similar opportunities to the local population of that area. It is estimated that the mining activities will require a work force of approximately 230 people.

The details regarding the cracking process at Walvis Bay need to be confirmed and the proposed management options of the radioactive waste assessed to determine the environmental and social impacts. An environmental impact assessment has not yet been undertaken, however, the PEA indicates that the project can be developed in an environmentally responsible manner. A comprehensive environmental management system will be developed to facilitate and control the environmental and social aspects during the development and operation of the project.

The predominant environmental impacts associated with the mining activities are associated with surface and groundwater quantity, dust contamination and the potential side effects of radioactive thorium. It is proposed that the baseline monitoring of surface water, groundwater, dust fallout and radiological background levels be undertaken. With the implementation of effective mitigation and management measures, any negative environmental and social impacts can be avoided, reduced and managed to ensure there are minimal long term or adverse impacts.

Conclusions

The PEA has been modelled on the available NI 43-101 mineral resources for the Lofdal Area 4 rare earth deposit at a 0.1-per-cent TREO cut-off. There are no mineral reserves estimated for the project. Mining by open pit at a rate of 840,000 tpy provides just over seven years of mine life. The available resource is modelled to a vertical depth of 200 metres and the geological potential to increase the resource, as evidenced by deeper exploration drilling to over 300 vertical meters, is considered high.

The PEA has concluded that the Lofdal Area 4 heavy rare earth deposit can be easily mined by open pit and treated by conventional grinding, magnetic separation, gangue acid leach and cracking processes. Similar facilities are currently in operation locally in Namibia. The plant design was based on the results of the initial metallurgical test program completed on deposit samples, which showed the suitability of sorting technology, magnetic separation, flotation and gangue acid leach treatment. The plant feed will be delivered to the mine site processing plant from the open pit mine using conventional mining practices and equipment suitable to this type of recovery. Hydrometallurgical cracking will be accomplished at a separate facility in Walvis Bay. The mixed REO concentrate must then be treated for separation at a suitable facility offshore.

An environmental impact assessment has not yet been undertaken, however, the PEA indicates that the project can be developed in an environmentally responsible manner with significant economic benefits to the town of Khorixas and the local communities, and to Walvis Bay. A comprehensive environmental management system will be developed to facilitate and control the environmental and social aspects during the development and operation of the project. A number of recommendations are made to implement baseline environmental monitoring in advance of environmental impact assessment.

The capital costs are estimated at $155,735,000 (U.S.) and the economic model has concluded that the project is positive based on the projected REO price deck which assumes a basket price for the heavy enriched Lofdal concentrates of $105.77 (U.S.) per kilogram. The costing estimates for the study were prepared in mid-2014 and based to a large extent on South African supply and installation rates, which are believed to be comparable with local Namibian rates.

The financial analyses are based on the scenario of 100 per cent equity financing for the project. The base case model assumes a constant price of $105.77 (U.S.) per tonne of separated REO and at a 10-per-cent discount rate generates a pretax IRR of 53 per cent with an NPV of $238,227,000 (U.S.) and a posttax IRR of 43 per cent with an NPV of $147,385,000 (U.S.). Cumulative cash flows are $400,954,000 (U.S.) pretax and $256,971,000 (U.S.) posttax over the seven-year LOM. The forecast capital payback time is within two years.

Recommendations

The PEA makes recommendations that Namibia Rare Earths:

  • Complete current test work in order to confirm the proposed process route;
  • Undertake additional drilling to expand the current resource and to upgrade the quality of the resource in order to derive mineable reserves and to extend the life of mine;
  • Obtain a representative bulk sample from the deposit suitable for pilot-plant-scale test work;
  • Carry out a six-month preliminary feasibility study (PFS) to further develop the engineering design of the plant and recognize value engineering where possible;
  • Revisit the capital cost estimates in general for possible savings due to optimizing the cost estimates from plus or minus 50 per cent to plus or minus 10 per cent.

Qualified persons and 43-101 technical report

An NI 43-101-compliant report entitled preliminary economic assessment on the Lofdal rare earths project, Namibia, will be filed on SEDAR within 45 days. The MDM Group is the principal author under the supervision of David S. Dodd, BSc (honours), FSAIMM, who is a qualified person in accordance with NI 43-101 -- standards of disclosure for mineral projects.

Sections of the report dealing with property description and location, accessibility, climate, local resources, infrastructure and physiography, history, geological setting and mineralization, deposit types, exploration, drilling, sample preparation, analyses, and security and data verification were completed by the MSA Group under the supervision of Peter Roy Siegfried, MAusIMM (CP geology), who is a qualified person in accordance with NI 43-101 -- standards of disclosure for mineral projects.

The section of the report dealing with mineral resource estimates was completed by the MSA Group under the supervision of Michael R. Hall, BSc (honours), MBA, MAusIMM, PrSciNat, MGSSA, who is a qualified person in accordance with NI 43-101 -- standards of disclosure for mineral projects.

Sections of the report, dealing with the tailings storage facility design, capital and operating costs, were completed by MineTech International Ltd. under the supervision of Patrick Hannon, MASc, PEng, who is a qualified person in accordance with NI 43-101 -- standards of disclosure for mineral projects.

Sections of the report, dealing with mineral reserve estimates, mining methods and mine capital and operating costs, were completed by MineTech International Ltd. under the supervision of William Douglas Roy, MASc, PEng, who is a qualified person in accordance with NI 43-101 -- standards of disclosure for mineral projects.

Donald M. Burton, PGeo, and president of Namibia Rare Earths Inc., is the company's qualified person and has reviewed and approved this press release. Each of David S. Dodd, Peter Roy Siegfried, Michael R. Hall, Patrick Hannon and William Douglas Roy has also reviewed and approved the technical disclosure in this press release.

Conference call and webcast

Senior management of Namibia Rare Earths, together with principal authors of the PEA, will be hosting a conference call and webcast to discuss the results of the PEA and to provide an opportunity for questions and answers.

Call-in details for the conference call and webcast to be held on Friday, Oct. 3, 2014, at 11 a.m. (Eastern Standard Time) are:

North American toll-free:  1-888-390-0546

Standard international dial-in:  1-416-764-8688

A replay of the conference call will be available from Friday, Oct. 3, 2014, at 1 p.m. (Eastern Time) to Friday, Oct. 10, 2014, at 11:59 p.m. (Eastern Time) by dialling:

Toronto or international:  1-416-764-8677

Toll-free North America:  1-888-390-0541

Playback passcode:  262269 (pound sign)

The webcast will be posted for one year on Namibia Rare Earths' website.

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