Vital Metals aims to become the lowest cost producer of mixed rare earths oxide outside of China
Demand for secure supply of rare earths grows with technology and electric vehicles
We have known about this ”problem” for more than 20 years. You don’t have to be sinophobic, but if you are a manufacturer who relies on the sourcing of Rare Earth Elements (REEs) for your manufacturing outputs, maybe you should be. China still counts for about 80% of the world’s REE production. They have dominated the world of rare earths since the late 1990s, but growing reliance on technology requires more and more of the somewhat obscure but necessary REE minerals to create our electronic gadgets and increasingly, electric vehicle and accessory components.
Enter Vital Metals Limited, (VML: ASX) an Australian listed global explorer of rare earths. While their initial impact may be small in the future supply-chain for REEs, they are an important part of the global movement for the diversification of REE production from a concentrated source – think eliminating the OPEC dominance of oil production 50 years ago and how the world succeeded (mostly) with that.
OK – what is a rare earth element and why are they important? There are technically 15 REEs, although two others are generally included as they have similar characteristics. They are further broken down into “light” REEs that are produced globally (and are in abundance) and “heavy” REEs that are produced mostly in China and are in limited supply. Heavy REEs are in demand for their usage in high technology and clean-energy applications. The US military is buying these from China to manufacture – among other things – their armored vehicles, precision-guided weapons, batteries and night vision goggles. China is not the enemy, but at the very least the global supplier is not considered a “friendly”.
REEs are mined. Mining of these elements is usually in remote and not-so-hospitable locations. Any region that has REE potential that is close to accessible infrastructure should be on the list of “mines to be developed”.
Vital Metals has two of these projects, one in Canada and one in Africa. Their Nechalachco rare earths project in the Canadian Northwest Territories (NWT) on the edge of Great Slave Lake is scheduled to commence the production of rare earth oxide in the first half of 2021. Everything is on track to meet this production schedule as a result of years of previous work on the project (and expenditures of more than $100 million), and the design of the project parameters is aimed at early cash flow (and low capital costs) of a production stream that is highly desirable to end users.
On August 22, 2020, Vital Metals announced a binding term sheet for the construction and operation of a rare earth extraction plant to produce a mixed rare earth carbonate product. Significantly, the plant will be located adjacent to the Saskatchewan Research Council’s (SRC) planned separation plant which will be able to convert rare earth carbonate mixes to commercial grade rare earth oxides. Vital’s plant is expected to be operational in Q3-2021 with feedstock from their Nechalachco mining project.
Most people do not know that the SRC has almost a decade of expertise in REEs (associated with uranium mining in Saskatchewan) and recently announced the construction of a rare earth processing facility in Saskatchewan, the first of its kind in Canada. The SRC facility is expected to be operational in late 2022. It is hard to overestimate the importance of Vital Metals’ rare earth extraction plant being built in the neighborhood of the SRC facility.
The team at Vital are recognized for their expertise in the global rare earth element arena including all necessary elements of mining, processing, geology and marketing. The devil really is in the details, and Vital’s team has a cost and time effective strategy to deliver early production and cash flow. Remote locations require extensive planning and timing is everything as mining and processing equipment can only be delivered and setup during certain weather windows.
The company’s market capitalization is only about A$26 million. They estimate that developing the first mine in northern Canada will require less than A$20 million total capital cost for their first project (North-T, 100% interest), some of which can be funded by future generated cash flow. There is also significant potential upside in the area for exploration and production expansions, which would likely also be funded by internally generated cash flow. The company has a plan to develop the bigger Tardiff Project by 2024, aiming for a 20 year mine life and leveraging off existing infrastructure as the “next phase” in the area.
Vital Metals’ second REE project is in Tanzania, with rail and power infrastructure within approximately 10 km of their 90% owned Wigu Hill Project. Previous owners spent approximately $10 million and management is of the view that this is a high grade, potential world class resource. This asset has an older NI 43-101 evaluation report attributing to it 3.3 Mt at 2.6% REO.
The global movement away from China as the main source of rare earth elements has been underway for a number of years. The world always knew that as technology developed REEs would become more and more important, but with the development of electric vehicles in particular it is now becoming increasingly apparent that there is a need for more secure and friendly sources of REEs. Vital Minerals’ aim is to become a global player in the production of REEs. Their expertise, projects and potential appear to have put them squarely on this path.
See also video: Interview with Vital Metals’ Managing Director Geoff Atkins on their rare earths production and new extraction facility.
Frederick Kozak is a Professional Engineer with extensive oil and gas, and international business experience and has more than 25 years involved in capital markets ... <Read more about Frederick Kozak>