EDITOR: | September 10th, 2013 | 10 Comments

Chinese players revive interest in Australian REE projects; Is this another sign the sector is bouncing back?

| September 10, 2013 | 10 Comments
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REEs for BrombyBy amazing coincidence, Chinese-connected interests have moved to cement ties with the two emerging Australian rare earth prospects so far without a major partner, with both deals being announced the same morning. And suddenly the market got interested once again in the REE story. After the announcements, stock in Arafura Resources (ASX:ARU) was up 25% while by later afternoon Hastings Rare Metal (ASX:HAS) was ahead on the session by 17.6%.

The two announcements have one vital common point: the potential new partners have REE processing technology at their fingertips.

A word of caution first, however. Both companies have signed memorandums of understanding (MoU) which are non-binding and the new partners can pull out. That caveat stated, the moves are a significant step forward for both companies. In Arafura is must be seen as a lifeline; in the instance of Hastings, finalisation of the planned arrangement will save many hundreds of millions of dollars in capital outlays and make possible production in early 2015.

Arafura’s MoU is with Shenghe Resources, located in Chengdu, Sichuan province which has small allocations under China’s rare earth export quota; just 647 tonnes of light REE and 56 tonnes of heavies.

Shenghe, which is listed on the Shanghai Stock Exchange, does not want the Arafura output for its Chinese customers. Rather, because it is limited by the quotas in what it can export from China, the company is seeking supplies abroad to enlarge its international business free of those export quotas.

Arafura’s Nolans project in the Northern Territory has an ore reserve of 24 million tonnes at 2.8% rare earth oxides along with phosphate and uranium, enough to support a 22-year mine life. But, as has been reported here on Investor Intel, the company has had its setbacks. And this is not just a deal where a new partner will inject cash; they will no doubt do that once the deal is finalised, but just as importantly it will bring expertise to Arafura for its separation plant processing.

Meanwhile, Hastings has attracted an unnamed strategic investor but one with connections to processing of REE in China. The investor will, under the terms of the MoU, provide staged financing of the Hastings project through to commercial production. However, further due diligence will be carried out by the new party.

Possibly the most telling sentence in the announcement was this: “Importantly the strategic partner has a deep technical understanding of the separation of refining process required for heavy rare earths”. It is already a producer of 99.999% purity yttrium and dysprosium. Hastings project’s economics have been predicated on four elements: dysprosium, yttrium, niobium and zirconium. Its rare earth composition is above 80% heavy rare earths.

Hastings was faced with a capex bill of around AUD$720 million to process in Australia. However, this tie-up with a strategic partner should allow it to mine the ore, send it overland by road train (a road vehicle where the power unit can haul two or three huge trailers at a time) and then ship from the port of Wyndham which has access to the Timor Sea.

This strategy should make possible first production by early 2015. It also reduces the number of approvals required in Australia as there will be no processing and disposal of uranium and thorium.


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Comments

  • Veritas Bob

    Well, yes, I’d say that caution is in order. Note this key bullet from the Arafura announcement: “Upon successful completion of the definitive feasibility by Arafura, Shenghe will be provided with the opportunity to co‐fund the development of the Nolans Project”. Opportunity is not commitment.

    September 10, 2013 - 8:50 AM

    • Jan Johnson

      Seems to me Nolans is a poor-man’s Mt Weld. Similar mineralisation and RE distribution at about 1/3 the grade. Unless their busines model is MUCH better I see no reason why they’ll succeed in the face of sufficient ROW capacity courtesy of Lynas and Molycorp.

      September 11, 2013 - 11:09 AM

  • Jim S.

    Granted Bob that opportunity is not commitment but these two players are now a lot farther ahead in the game and more likely to succeed. Watching Hastings with a close eye for 2015 production. Good article.

    September 10, 2013 - 10:43 AM

    • Veritas Bob

      Production of what by (early) 2015 – briefing slides?

      September 10, 2013 - 11:57 AM

      • Robin Bromby

        Yes, as I qualified my piece by saying, these are not (yet) firm commitments. But – as we say in Australia – it’s better than a poke in the eye with a sharp stick.
        And it seems to me the announcements are significant for two things: 1, China is very keen on heavy rare earths and 2. the fascinating idea that a Chinese company is looking for ways to expand internationally and bypass the export quotas.
        So let’s be cautious – but not relentlessly negative.

        September 10, 2013 - 4:25 PM

        • Veritas Bob

          But seriously, even if the MOU materializes into actual money and action, production by early 2015 ( i.e., within about a year and a half)?

          September 10, 2013 - 4:31 PM

          • Robin Bromby

            We’ll have to wait and see. I am not here to argue the company’s case. But you have to keep in mind that this is a mine and ship concept along the lines of direct-ship iron ore. No processing in Australia — and it’s that stage that takes the development time.

            September 10, 2013 - 4:38 PM

  • Bill Keenes

    “The two announcements have one vital common point: the potential new partners have REE processing technology at their fingertips”

    … and that’s a very valid point. The Chinese are the only ones who have been processing rare earths for the past 30 years – they have all the intellectual property.

    September 11, 2013 - 12:10 AM

  • JPRS

    MOU are in fact forward sales so you can raise funds for development then production. MOU are not without costs and are usually signed to the disadvantages of the mining company, and the future production is always discounted as the buyer is also the direct or indirect financial controller. Rare Earth may surge if we have a substantial degenerating conflict in Syria and its neighbours getting involved. At this stage Lynas is my best bet for added value before 2015 and share price regaining its heights.

    September 11, 2013 - 6:12 AM

    • Tim Ainsworth

      Doubt the MOU contains forward sales but yet further confirmation that the potential margins in the RE business are moving downstream from the primary producers. Lynas’s ability to value add to customer spec may see it stand apart, and perhaps the CV of the new COO emphasises that direction.

      September 11, 2013 - 8:17 PM

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