Peak Resources’ low capex and metallurgical advantages attract IFC financing
Peak Resources Ltd (‘Peak’, ASX: PEK), the Australian rare earths mining company, has obtained a financial commitment of USD$ 25 million from the Appian Natural Resources Fund LP, an investment fund, for its Ngualla rare earth project located in southern Tanzania. Appian will help Peak finance the bankable feasibility study for the Ngualla Project by taking a 13% share of the Company’s capital. Appian has the option to take up to 37.5%, at the cost of some AUD$ 14.1 million. Ngualla deposit is estimated to have the potential to deliver some 170 million tons of rare earth oxides at a grade of 2.24% rare earth oxide content, making it the 5th largest in the world outside of China. Meanwhile, the International Finance Corporation (“IFC”), a member of the World Bank Group, intends to participate in Peak’s venture by joining Appian in a consortium, contributing about 20% of the total investment. Peak’s Ngualla deposit has a maiden mineral resource of 170 million tons at 2.24% REO, making it one of the largest and highest grade rare earth deposits in the world.
This is a significant development for Peak, which gains a reliable financial backer as the IFC makes its first foray into the rare earths, while the IFC has in what is the Institution’s first foray in rare earths. Appian has already invested USD 1 million as the first tranche of a USD$ 3 million bridge loan. IFC’s Board, meanwhile, intends to participate in partnership with Appian in a 20:80 % arrangement (Appian 80% – IFC 20%). IFC also has the right to appoint a member to join Peak’s Board. The Appian and IFC loans will ensure that the Ngualla Project remains well funded while also generating investors’ trust and confidence. In fact, the IFC, is one of the largest lenders to the private sector in emerging economies such as Tanzania. Peak has managed to confront financial risks, allowing for management to focus more on the development and optimization of its assets in order to clear the path ahead to production.
The IFC also performs social and environmental sustainability due diligence as part of its risk assessment procedures. Appian is a private equity fund having a specific mandate to invest in mining. Moreover, last December, Peak announced it had signed a non-binding MOU with a Chinese rare earths company based in Jiangsu Province, northeastern China, to form a strategic long-term partnership to help develop the Peak Resources Ngualla project, which should start production in 2016. The Chinese have offered facilities and technical expertise in the beneficiation, processing and separation of rare earths into high purity rare earth products and an established marketing network. Many Chinese mining firms want to secure positions in projects in Tanzania, which is an ideal area for export logistics to China.
The Ngualla Project is itself one of the ones with the best conditions, which translates to lower costs, allowing for the Company to adopt a relatively simple processing method. The mineralization is not radioactive since the proportion of uranium and thorium is among the lowest of all major rare earth projects in the world. The ratio of overburden occurrence is low and the resource is distributed such as to allow for open pit mining. The deposits are believed to be the fifth largest outside the People’s Republic of China. The capital cost is estimated at USD$ 400 million with an annual income of some USD$ 360 million. Peak Resources wants to set up a pilot project next and then in 2016 start of commercial production. To fully appreciate Peak’s success at securing financial partners for the Ngualla project, consider that, today, REE prices are still much lower than even a few years ago and financing for capital-intensive projects is harder than ever.
Project margins are at risk, which makes it difficult got mining companies to find any partner for mine financing. Only those rare earths companies that offer convincing evidence of the quality and efficacy of their project can draw the right attention from financial partners. Nevertheless, once these partners, especially when these include such institutions as the IFC, it validates management’s performance, minimizing risks and maximizing the prospects of success. Peak’s main advantages are the quality of the resource, the 58 year mine life and very low capital costs (CAPEX). Peak’s scoping and Pre-feasibility studies suggested a CAPEX in the order of USD$ 367 million which allows for a surprisingly quick projected payback period – according to Peak’s management this will happen in the third year of production.
As for the Ngualla Project itself, the property’s rare earths potential was discovered in 2010 and that it has only taken four years to go from discovery to Pre-Feasibility-Study. The Ngualla project is located in southwestern Tanzania, which, is a very good mining jurisdiction. The Ngualla Project itself also offers metallurgical advantages given the fact that the deposits have shown a mineralization, bastnaesite – typically rich in lanthanum, cerium and most importantly in yttrium – with very little uranium and thorium content, which eases processing and reduces capital cost requirements. Tanzania is the third largest gold mining country in Africa, backed by adequate infrastructure and mining legislation, updated in 2010.