EDITOR: | May 12th, 2017 | 10 Comments

What brings Peak Resources, Pala Investments and ERP Strategic Minerals together?

| May 12, 2017 | 10 Comments
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In the InvestorIntel Rare Earths Monthly – April 2017 article, I declared that the second big news story was that from Peak Resources Ltd. (ASX: PEK) (Peak). They made an announcement concerning the ex-Molycorp Mountain Pass project. In a release to the ASX (26 April 2017) Peak announced that:

Peak to collaborate with ERP Strategic Minerals on Mountain Pass Rare Earths Mine California.

The announcement states that Peak is in discussions on a potential collaboration with ERP Strategic Minerals, LLC (ERP), which is part of the ERP Group of companies, regarding ERP’s stalking horse bid to purchase certain assets and surface real property rights of the Mountain Pass Rare Earths Mine (Mountain Pass) which has been filed by the Chapter 11 trustee of Molycorp Minerals LLC with the US Bankruptcy Court in Delaware.

The Mountain Pass mine, located in San Bernardino County, California, approximately 80 kilometres south of Las Vegas, Nevada, is the only mine and processing facility for rare earths minerals in the United States. The mine has an operating history dating back to the 1950s and was most recently placed on care and maintenance after the Debtors filed for Chapter 11 bankruptcy protection in 2015.

Peak, together with Swiss-based mining investment fund, Pala Investments, are in discussions with ERP to provide financial, technical and operational support for the restart and operation of Mountain Pass should ERP be successful in acquiring Mountain Pass under the US Chapter 11 bankruptcy sale process. The definitive terms of such collaboration are subject to negotiation, finalisation and closing of mutually acceptable agreements and receipt of any applicable regulatory approvals.

In my April report, I posed the big question of why? Before I put my thoughts forward, I need to clarify some misconceptions about rare earths processing – it will make my later thoughts easier to follow.

Various commentators state that rare earth processing is all about purifying the rare earths, which is for the most part true. But what they don’t state and it’s important to know is that the processing is really about removal of the impurities. And boy can they make a processing circuit difficult. For example, the Arafura Resources Limited (ASX: ARU) Nolans Project circuit is all about phosphate removal, the Hastings Technology Metals Ltd. (ASX: HAS) Yangibana Project circuit is all about iron removal, and the Greenland Minerals and Energy Ltd. (ASX: GGG) Kvanefjeld Project circuit is all about uranium removal. And the processing circuits reflect those differences. Now I say that because the above three circuits are quite different and they would need very significant changes to cater for the different mineralogy of each others ores. But it has been postulated by Jack Lifton that Peak transport their Ngualla ore from Africa to the Mountain Pass plant for processing. Can it be done? Let me answer that question and other possibilities by discussing potentially possible business models.

Model 1. Peak ore through the Mountain Pass circuit.

Peak would mine the Ngualla ore in Tanzania, transport the ore to a port on the western continental USA, then transport the ore to Mountain Pass in California for processing. Possible?

Peak ore is ~2.5% REO and the REO mineral is bastnaesite. It is upgradable by flotation to produce a mineral concentrate that is similar to that produced from the Mountain Pass ore body. However, the Mountain Pass ore, in which the REO mineral is bastnaesite, averages 8-12% REO. This means that for a similar REO output you would need 8-12/2.5 (~4x) more ore throughput and hence a much larger mineral processing plant. However, it would be possible to process the Peak ore at the current capacity of the Mountain Pass mineral processing plant and produce a quarter of the REO equivalent output.

So, is this a probable model? Methinks not. Why? Because of the transport costs, the environmental impacts of the ore movement through ports, the limited value add opportunity in Tanzania. But note it is a quick option since potentially the only new “build” is the mine in Tanzania, that is, providing that infrastructure is available at the ports.

Model 2. Peak upgraded mineral concentrate through the Mountain Pass circuit.

Should a mineral processing plant be built and operated at the Ngualla project site in Tanzania, and a mineral concentrate of ~50% REO be produced, then the picture changes. Rather than bulk shipping in a dozen or so ~100,000 tonne shipments of ore per year, it could be possible to provide dedicated vessels of ~20,000 tonne capacity, or perhaps produced into bulka-bags managed and shipped in sea containers. This then feeds the chemical plant at Mountain Pass (rather than the mineral processing circuit as in Model 1) that then produces a refinery grade feedstock. A much more economical model from a transport point of view.

Model 3. Peak chemical concentrate through the Mountain Pass circuit.

The Tanzania project now has a mine, a mineral processing upgrade plant and a chemical plant that produces a refinery grade feedstock. This is then transported to Mountain Pass for processing in the refinery section, the solvent extraction plant that exists at Mountain Pass.

This is, in essence, the current Peak DFS model but transporting the refinery grade feedstock to Mountain Pass, instead of a new dedicated refinery that would need to be built in the Tees Valley in the United Kingdom.

Possible? Yes. Probable? Well let’s leave that answer for later.

We are yet to ask the question: “Does this collaboration really have anything to do with the use of Peak material through the Mountain Pass plant”? We need to ask the question: “Do ERP Strategic Minerals (ERP) want to restart Mountain Pass on Mountain Pass mined ore”? Well, maybe. It all depends.

It has been stated by a number of commentators that the Mountain Pass project failed due the fall in REO prices post the 2011 boom times. Well, although those prices wouldn’t have helped, I believe that the project failed due to the massive debt load on Molycorp as a result of the purchase of Neo Materials and the extended commissioning time of the Mountain Pass plant, resulting in MolyCorp being unable to service its debts. You must note that although the REO prices were plummeting, they were only going back to the long term trend, back to the prices that would have been used for the investment decision for the re-opening of the mine and construction of the new processing facility. Where am I going with this discussion? I believe that the Mountain Pass project can operate and achieve a good cash return based on its magnet feed REO, but its success depends on the debt to carry. Should someone get Mountain Pass at a fire-sale price then this would obviously assist. So, I think that ERP could be looking at re-starting Mountain Pass on Mountain Pass ore. But why involve Peak?

Darren Townsend, MD of Peak, in his ASX release commented:

“I am very pleased that Peak is working together with groups of the quality of ERP and Pala on the Mountain Pass project. With Peak’s COO Rocky Smith on our team of industry specialists we are uniquely positioned to assist the consortium with Mountain Pass given Rocky was the former Managing Director of Operations at Mountain Pass. It is also worth noting that the process plant at Mountain Pass has been operated on bastnasite mineralisation, the same rare earth mineralogy as Peak’s Ngualla deposit”.

So far, we have been dealing with published facts and looking at models based on logic. To look at the question of why Peak, we have to be much more futuristic. In the comments section of my April article, Tim Ainsworth, a private REO commentator and I would imagine still an investor, and who by the way is a commentator that I am always delighted to listen to, poses the capacity question: “Can the REO world cope with the capacity of MolyCorp”? Now future demand prediction is not my forte but I’ll paraphrase Professor Dudley Kingsnorth whose commentary of REO supply and demand is well respected.

“At ~8% CAGR for magnets, the world will need new magnet-REO capacity the size of Lynas every year for however long that growth persists”. Or words to that effect. That growth has never eventuated. It was always stalled by forces unforeseen. But what if that growth rate has started? What if we are looking at needing new capacity the size of Lynas every year?

Back to the Peak involvement. I simply cannot see Peak and ERP collaborating on Mountain Pass simply to provide the operating experience of the ex-COO of the Mountain Pass operation to a project that shows no benefit to the Ngualla project. The Ngualla project in Tanzania needs Rocky Smith on the Ngualla project. His contribution cannot be diluted. Surely, that is all pain and no gain for Peak. Well, not unless there is another model that is yet to surface. Yet to be analysed.

I’m out on a limb here but here goes. What if the Peak, Pala and ERP consortium recognise the REO-magnet world needs Mountain Pass AND Ngualla over the next 5 years? What if the current collaboration on Mountain Pass is all about the fastest path to market for the consortium, that is, getting Mountain Pass operational, and then there will be a further collaboration on Ngualla? Surely, that would be sufficient reason for Peak to suffer short term pain on the Ngualla project by utilising the capability of Peak personnel on the restart of Mountain Pass?

As ever, I will keep you informed of developments and attempt to provide between the lines comment.


Steve Mackowski

Editor:

Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>


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Comments

  • Chris Smith

    What the ROW needs now is more magnet manufacturing projects outside China & Japan. Currently the world is dependent on China and it has plans in the short term to increase their dominance. There are plenty of potential NdPr (& other REs) producers but at current prices most projects are uneconomical, Lynas may be the exception.

    May 13, 2017 - 4:41 AM

    • Steve Mackowski

      The ROW sees the start of this process at the mine. Wrong. It really now needs to start at the end of line end product. USA design your own hi-value end use and then the subordinate supply chain can develop.

      May 13, 2017 - 6:04 AM

  • Tim Ainsworth

    Steve, similar to another article here, my question re the market does not relate to NdFeB CAGR in any shape or form, double digit growth is a given for many years > Chinese exports ran 16% 2016 and currently 18.5% YTD. SB noted just seeing the first signs of ASP recovery after a long sustained fall, vital to sustaining NdPr appreciation.

    My Q is more who/where can compete cost effectively with Japan/China at the high end, and China balance of range. It is not merely a matter of catching up on 20yrs of neglect but also building the SCALE to compete economically, no one is going to wean US OEM’s off the 1200t per month of Chinese NdFeB with a comparably bigger/heavier, 4/5% HRE dependent mag costing +20/30%, so where exactly is the starting point to building the vital scale?

    China’s “illegal” production has attracted plenty of attention for all the wrong reasons but it is not so much illegal as “over quota” processing of stockpiles of ore & concentrate that appeared as part of the consolidation process. China’s stated goal is to reduce production capacity to 200ktpa, with a 105ktpa production quota. SB noted current price appreciation to date as been based on multiple forms of supply constraint, not domestic demand increase.

    Another clearly stated goal is to lift NdFeB production by 50% c2018 I believe, to that end Nth RE in the final stages of constructing a “giga” magnetic metals plant capable of processing 80% of NdPr production. Just stop and reflect a moment the SCALE of mine to metal the principal precursor to perhaps 40ktpa NdFeB, and the US currently imports c15ktpa, and as far as I can determine that has been put together from concept in about 18 months.

    So with 200ktpa processing capacity (and I note Nth RE just signed a new supply contract with Baotou IO for 300ktpa ore supply) and the ability to construct MSC so rapidly in response to demand who exactly will be able to position at scale to compete at quality, price, or volume?

    And please, don’t raise a tariff wall, US & EU are already struggling to retain their auto makers, any such stupidity will only drive other sectors behind the bamboo curtain: http://www.reuters.com/article/us-autoshow-shanghai-electromobility-idUSKBN17L1PT

    Point being, sure NdFeB CAGR promises to be strong at worst, but only one player is positioned to meet that demand for at least the next decade, and if your planning to supply material inputs at any scale of consequence you are going to have to compete inside China, or displace Lynas into Japan at similar price levels. Basically chicken & egg, all the RE commentary is bottom up, when it should be, where is the market that affords the scale to be competitive?

    BTW Steve, TMR puts Mt Pass 6.57% TREO & Ngualla 4.19% TREO, so perhaps Ngualla’s NdPr content squares them off, have to note Mt Weld throwing off 24% ATM. Apart from the NdPr market scenario above just luv to see the mktg plan for all the LaCe from either.

    May 13, 2017 - 6:23 AM

    • Steve Mackowski

      Tim. You are quite right in your SCALE consideration. The answer for budding REO developers. You must have a relationship with China, otherwise you don’t have a market. See my next monthly REO report.

      May 15, 2017 - 12:39 AM

    • Jack Lifton

      Tim,

      I have been traveling, and so I didn’t see this exchange until now. I completely agree with your analysis. I’m not sure people understood what I was saying when I speculated as to why PALA/PEAK and ERP/Shenghe were dancing around the Molycorp corpse. Neither group could seriously believe that they could be competitive in the NdPr market, but I think both believe that they could make a “killing’ by relisting Molycorp and promoting the hell out of it again. It worked once and the suckers continue to give birth.

      May 20, 2017 - 7:59 PM

      • Tim Ainsworth

        Jack, your concept of scale back 2011 or so has proved such a valuable tool in making some sense morass RE, but now moving to another level, rapid pace.
        Morphed cost efficacy rather than simple scale, now all about the magnet.
        Dear old Moly never got close, but Lynas v much gifted in play IMO.

        May 22, 2017 - 7:53 AM

  • Nabeel mancheri

    Ultimately, the processed NdPr at Moutain Pass (whether Nguallla or its own), will have to transport to China, Vietnam or Thailand for futher processing and alloying, then to magnets. Mountain Paas even doesnt have the capabality to separate Nd and Pr. The final cutomer of the products anyway will be, most probably Chinese magnet manufacurers with small portion used in Europe and Japan. Will Chinese manufacturers use this output , considering, the price, geopolitics etc be an open question, bringing back us to square one and the question of why MCP failed as a project..

    May 15, 2017 - 12:04 PM

  • Nabeel mancheri

    And why I see opportunities for others outside in China is well explained in my article
    https://link.springer.com/article/10.1007/s40831-017-0118-4

    May 15, 2017 - 12:08 PM

  • Alex

    If we consider possibility of Two Zones (USA-Japan-Europe-Korea) and (China) there are need two supply chain, because if it will be political sunctions or high Tax , it will be prohibited or not profitable to buy Rare Earth from other Zone. The Japanese demand and their supply chain (Vietnam, Japan) and Lynas as supplyer NdPr understandable. But demand of USA-Europe Zone need their own source NdPr and supply chain without Chinese participation. But to have the second supply chain good ambition of Buyers of magnets (for keeping their profits) . Who will pay for creating the additional Works for second supply chain – when there is only one Zone now ?
    Investors surely get nothing from creating additional production for the market.
    State ? – may be if they are ready to invest into security supply chain.
    Buyers of Magnet ? Does they ready pay extra price for not chinese supply ?

    May 21, 2017 - 5:14 AM

  • InvestorIntel Rare Earths Monthly – May 2017

    […] What brings Peak Resources, Pala Investments and ERP Strategic Minerals together? […]

    June 8, 2017 - 3:35 PM

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