A new analyst report says the Nolan project in Australia could be the next major rare earths deposit to achieve financing and a firm go-ahead — but that comes with a strict proviso. Sydney-based Resource Capital Research says the new cost-cutting initiatives undertaken by Arafura Resources (ASX:ARU) have to be successful.
But analyst Tony Parry has no doubt about Nolans itself, which is located in the Northern Territory of Australia. He describes it as “world class”. Nolans has probable reserves of 24 million tonnes at 2.8% rare earth oxides, which equates to a 22-year mine life based on 20,000 tonnes a year planned REO output. Adds Parry: “Few other rare earths hopefuls globally have been able to demonstrate such a high degree of resource confidence”.
Arafura has, along with most rare earths companies, had to take it on the chin: its basket price for proposed rare earths output has dropped about 50% over the past 12 months. The company, in response, is taking measures to slash the capital cost by between A$500 million and A$1 billion — that’s 26% and 53% respectively — without reducing the 20,000 tonne annual production target.
Parry says his analysis shows that a A$900 million reduction by Arafura in the capital cost (to about A$1 billion) will raise pre-tax net present value at current REE prices from A$100 million to A$1.1 billion. Arafura is cashed up; at June 30, it had cash of A$32.2 million, sufficient to finalise the feasibility study within 12 months and possibly to get project partnering and financing agreement by the September quarter of 2014. Arafura, he adds, has a supportive and active major shareholder in East China Exploration and Development Bureau and is continuing to develop strong relationships with multinationals such as ThyssenKrupp.
The other point to make is that rare earths companies have been talked down so much some are what might in the future been seen as ridiculous valuations. In that context, Parry points out that Arafura’s market capitalisation is just A$42 million. He says that represents “excessive pessimism”.
URANIUM: The spot price is down again. As of now, spot uranium is selling at $34.50/lb, which represents a 13% decline just in the past month. Since the Fukushima accident, spot uranium has lost 49%.
The commodities team at the Commonwealth Bank of Australia says uranium has plunged over the past two weeks due to Japanese demand being weaker than expected. A complicated nuclear restart approval process and continuing anti-nuclear sentiment has Japan divided on the future of nuclear energy, the source that once supplied 30% of the country’s electricity.
GOLD: It is estimated that between 10% and 20% of Australia’s gold mine capacity is in danger of being closed. That’s the effect of the recent fall in the metal’s price. The import of that should be enormous, given that Australia’s is the world’s second largest producer (at 250 tonnes a year).
Global giant Barrick Gold has put three of its Australian mines up for sale and there’s speculation others could be on offer too. Barrick is seen as certain to retain only its 50% share of the Kalgoorlie Super Pit. According to the Australian Financial Review, Newmont Mining is also considering leaving Australia (it has three mines in the country). An Australian company, Straits Resources, has just announced the closure of its Mt Muro gold mine in Indonesia. And AngloGold Ashanti says it is doing everything it can to prevent the closure of the Sunrise Dam mine in Western Australia.
Meanwhile, administrators for three recently failed gold mining companies are having trouble finding buyers for those companies’ mine operations. It is expected that Chinese companies will move when the mine prices get low enough. Rio Tinto has just sold its stake in the Northparkes gold mine in New South Wales for A$820 million. The buyer? China Molybdenum.