Cutting costs in the new rare earth world
Cutting your coat according to your cloth is a time-honoured adage – and particularly befitting as the commodities sector goes through this rather tough patch. We are seeing exploration companies jump the development barrier only by taking a new look at their projects and trimming them down to suit the mood of these times. Capital costs are attacked and cut; aspirations are recast to reflect the reality of the situation; and modest beats grand.
Smaller is better, in other words. Which is the approach being taken by Search Minerals (TSXV:SMY) at its Foxtrot critical rare earth elements [CREE] project in southeast Labrador. Search discovered what is known as the Port Hope Simpson CREE district, and controls a belt 70km long by up to 8km wide. It recently announced finding a Foxtrot-like CREE resource called Deepwater Fox and, in addition, has identified more than 20 other Foxtrot-like projects in the district. Its production plan with a mine life of 14 years (eight open pit, six underground) includes output of 7.095kg of neodymium oxide and 836,000kg of dysprosium oxide.
An updated preliminary economic assessment, or PEA, has confirmed robust economics and the potential to become a profitable producer, not only of Nd and Dy, but praseodymium and terbium.
The PEA was carried out to assess a scenario of lower capital costs, a lower mining rate and a higher grade processing feed. Cutting the overheads and focusing on higher grade material is a time-honoured strategy during lower points of the price cycle.
Search has its own proprietary process that involves a direct leach on crushed material, and so eliminating grinding, flotation, gravity and magnetic separation. Not only does it have those advantages, but the process produces waste that is a dry stackable inert residue, eliminating the need for wet tailing ponds.
The new plan is for an initial C$152 million capital cost, another C$57 million to be spent going underground in Year 8 and a C$23 million sustaining and closure capital. The estimated total revenue is C$1.71 billion, meaning an internal rate of return of (after tax) 16.7% and a payback period of 4.4 years.
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Search has been able to reduce the initial capital costs as a smaller-scale, yet profitable, operation, said President and CEO Greg Andrews. A feature of the Foxtrot deposit geology allowed Search to begin mining in mineralized material for early cash flow.
Indicated mineral resources total 7.4 million tonnes at a grade of 1.09% total rare earth elements, along with an inferred resource of 2 million tonnes at 1.17%. The contrast with the previous estimate is quite noticeable; that was 9,3 million tonnes at 1.06% and, particularly, the inferred resource of 5.2 million tonnes at just 0.93%.
And while we talk about the technology and economics, it is probably worth noting the human side of this REE (rare earths) company. Last year the St John’s based newspaper, The Telegram, reported how Search Minerals had built a working relationship with the NunatuKavut, the southern Inuit people of Labrador. The company agreed to consult on environmental matters and items of historical importance. When exploration programs are underway, NunatuKavut people have been taken on the payroll, the locals helping the drilling parties, setting up camps, doing bookkeeping and supplying products to the teams.
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