EDITOR: | October 22nd, 2014 | 2 Comments

Epstein InvestorIntel Interview: George Bauk, Northern Minerals

| October 22, 2014 | 2 Comments
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George-BaukThe following interview of Managing Director and CEO George Bauk of Northern Minerals was conducted by phone and email on October 18-19.

Please describe Northern Minerals to readers less familiar with your company.

Northern Minerals Limited (ASX: NTU), listed on the ASX in 2006, is focussed on becoming a globally significant producer of the heavy rare earth (HRE), dysprosium. The company has a large landholding in Western Australia and the Northern Territory that is highly prospective for this element. Northern Minerals’ 100% owned flagship property is the Browns Range Project. This project has a number of deposits and prospects containing high value dysprosium and other HREs, hosted in xenotime mineralization. Dysprosium is an essential ingredient in the production of neodymium iron-boron magnets used in clean energy and high technology solutions. The Project’s xenotime mineralization facilitates the use of a relatively simple and cost effective processing flowsheet to produce a high grade dysprosium rich mixed rare earth oxide. The Company is targeting construction to commence in April, 2015, followed by initial production in Q3 2016.

On October 15th Northern Minerals released 2 press releases. Could you please summarize those lengthy news items?

The first press release entitled “Further increase in Browns Range Mineral Resource” highlighted the fact that we upgraded our resource statement by a relatively small amount. We now have 52.4 million kg of TREO in the Indicated and Inferred categories. But, more important is the fact that of 13 targets drilled, 6 now have JORC compliant resources on them. Moving from exploration to an actual JORC resource is not easy, in fact it’s quite rare in the world of mining. We have had a great strike rate. Our resource size increases have been limited more by funding then by exploration success. The second press release entitled, “Further Discoveries Reinforce Exploration Potential at Browns Range” deals more with potential then with fact. It describes the substantial potential of the land package we have, that potential is truly enormous. For example, significant drill intersections were achieved from first pass drilling of two new prospects and significant opportunity exists to expand the current six deposits.

How globally significant is Browns Range?

As a result of increasing global demand for magnet applications, dysprosium supply is critical and therefore globally significant. Most projects in development are dominated by light REEs. There are relatively few HREs outside of China. Browns Range is a dysprosium story. Eventually, we could reach 15% of global supply of dysprosium. Our biggest output will be yttrium. We will need to balance our production of dysprosium and yttrium so that we don’t flood the market with yttrium. Said another way, we could produce even more dysprosium if not for the excess yttrium that would entail. Terbium is relevant, but it’s 1.2% of the mix of REEs. Even though we will produce only about 30k-50k kg per year of Terbium, it will be our 2nd largest economic contributor. To reiterate, dysprosium is the main story here, the centerpiece.

What are the main uses for dysprosium? Which end markets are growing fastest?

One needs look no further than magnets, as I mentioned before. Magnets are expected to grow by a CAGR of 8%-12% a year. Electric vehicles are also a big user of dysprosium as are wind turbines. To be clear, not all magnets have dysprosium in them, but that’s still the biggest market for dysprosium. There’s an enormous push for electric vehicles in China, some predict there could be 5 million there by 2020. It doesn’t take a whole lot of dysprosium in an electric vehicle to add up to a great need for that element. The entire dysprosium market is just 1.8mm kgs, per year.

The importance of dysprosium to the project is clear, what about yttrium? Are there other important contributors to project economics?

As mentioned, we don’t want to flood market with yttrium, so we plan to put our product suite into balance. A key driver going forward that I haven’t touched upon is security of supply. In 2011, the prices of many REEs went parabolic. Peak pricing for dysprosium reached something like $4,000 per kg. Security of supply became non existent. We are aggressively going into production to reintroduce confidence in the supply chain of dysprosium. We think the demand for dysprosium would be higher if there was security of supply outside of China. Currently the price is about $350-$400 kg. Although down significantly from the 2011 peak, it’s still up from before that unsustainable peak. We need to see reasonable win-win prices. We think the market could withstand prices up to the $600-$700/kg range from 2016 on.

How does China fit into the picture, specifically with regards to Northern Minerals’ proposed operation?

Our major shareholder is a high net worth Chinese investor who knows natural resources. He’s been big in coking coal and iron ore. He owns 45% of our company and has been a big supporter over the past 2 years. China will play a key role in many projects going forward. Time is needed to fix the supply chain outside of China, to rebuild confidence in the supply chain. It will take a lot of time to get meaningful REE production outside of China. There are alternatives outside of China. We are talking to numerous parties. China is trying to find supply outside of their own country as well, they realize they control too much, yet they are consuming virtually as much as they can produce. China has bigger issues, like per capita car use. They need more REEs, China could go from a net exporter to net importer of REEs. China’s meaningful pollution problems means more wind power, (among other things).

Where does Northern Minerals stand with regard to obtaining off-take agreements?

We have announced 1 with Sumitomo a non-binding agreement for up 50% of our production at Browns range. Still a MOU, so it’s not a done deal yet. They would take our concentrate and take it through further refining themselves. We might try to move downstream ourselves at some point, but it’s expensive and complex. Mining and benefication are relatively simple and well done in Australia. Hydrometallurgy is more difficult but still relatively well done in Australia. Remember, Australia a country of miners. However, the next stage is in areas that require a higher level of sophistication. For now, we need a partner. Over time we could start separating our own concentrate by getting it toll milled whereby we take back the finished product and market it ourselves.

Please describe Browns Range’s Pre-Feasibility Study economics.

We are quite pleased with our PFS and expect a full feasibility report next year. The highlights of the PFS are as follows; NPV(10%) of A$446 million, IRR of 33%, (3.3 year payback) A$314 million of pre-production capital requirements, 2016 production.

Please comment on Browns Range’s 10-year mine life. How likely is it that the company will be able to expand the mine life?

The real key message is that of our 6 JORC resources, all remain open at depth. They simply are not explored as much as we could, we haven’t closed out any of them. The deepest hole is 550 meters, that one is still open at depth. We even have an entire western extension that hasn’t been explored at all. Our only restriction is funding. 117 new targets have been identified. Our confidence level is extremely high that we can extend that 10-year mining life.

How is Northern Minerals’ relationship with the locals? Are you working with any Aboriginal groups?

Yes, we do. We signed our Native Title Agreement in June, 2014. We started negotiating with them relatively recently. From the beginning, our relationship has been good, we had a long term mindset that they liked. After obtaining the Native Title, we got a mining lease granted later in the same month of June.

How technically complex is your flow sheet, specifically your benefication and hydro-metallurgical plants?

The centerpiece and key to unlocking our value proposition is the host rock. Mineralogy is a key ingredient. Our REES are in xenotime, meaning that we have relatively simple mineralogy. Dysprosium hosted in xenotime is better than most other host rocks. We are able to take the head grade 0.7% up to 20% in stage 1. That’s a fantastic job of rejecting quartz. Therefore, we have a smaller amount of hydro-metallurgical work to be done, which is expensive. In the end we have a concentrate thats 99% pure ready to be separated downstream.

Please describe in as much detail as practicable Northern Minerals’ capital structure.

440 million shares outstanding, 88 million listed and unlisted stock options, and performance rights, A$7mm cash, one high net worth Chinese investor holds 45% of our shares, the top 20 shareholders own roughly 80% of Northern Minerals. So, the effective float is a lot less than the 440 million shares outstanding.

Are there any misconceptions about Northern Minerals that you would like to address?

We feel that since we’re not trading on the TSX or in the U.S., that presents a bit of a problem trying to get our name better known in the REE space. The other thing we like to demonstrate to prospective investors is that we are more advanced than many recognize. Our relatively simple flowsheet, blessed with great mineralization and host rock will get us into production in 2016. That’s a lot sooner than many peers. I urge investors and prospective investors to review our latest corporate presentation posted within the last week.


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Comments

  • hiwayman

    Peter,

    Chris Ecclestone –had this to say back in 2011…

    ‘Just as it is easier to emulate the survivors of the Titanic than those
    who perish, in the case of the REE sub-space it is simpler to divine
    who is less likely to end up in the recycling pile.Thus as night follows
    day the vast horde of REE hopefuls will in turn be scythed down by
    economic reality and recycled into some new corporate entity in a
    sexy sub-space yet to be smiled upon by the Gods of the Market.’
    ***
    Northern, never lost sight of the basic fundamentals of business
    acumen,which has enabled this company to not only survive the
    ‘Big Cull’,but in all probability be a key member in the ‘dress circle’
    of HRE mining contenders.

    October 22, 2014 - 8:50 PM

  • merlion

    Indeed, hiwayman.

    This company was a Uranium prospector in Q3,2010. The Board had a good think, took some good mineralogical advice and re-badged as a RE hopeful.

    Behold, just 4 years later, it’s pathway to production is clear, concrete and convincing.

    Three blessings: Xenotime, the Principal Investor, and Management.

    Serendipity indeed.

    October 22, 2014 - 9:11 PM

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