Frontier Rare Earths well-funded and debt free as it heads toward feasibility study
Frontier Rare Earths Limited (‘Frontier’, TSX: FRO) announced that it has filed its Q2 2013 Management Discussion and Analysis (MD&A) and Financial Statements today. Frontier highlighted the following achievements in the MD&A, showing “continued positive progress has been made on the Zandkopsdrift preliminary feasibility study (“PFS”) since the update issued by the Company in March 2013”. The MD&A reflects the fact that Frontier has not suffered any slowdowns in activity from the market weakness of rare earth companies last spring – a rebound is certainly underway. The ‘highlight among the highlights’ is that Frontier is well-funded and has no debt leading up to the completion of the Feasibility Study. Apart from this financing advantage, Frontier has also clearly identified the main ore, monazite, from which it will extract its rare earth products. Monazite offers well known and cost effective processing possibilities because the ore contains cerium, neodymium, praseodymium and lanthanum – sometimes it contains thorium. The other highlights of the MD&A include:
- Most of the PFS studies have been completed, and the remaining studies are expected to be completed on schedule in Q3 2013
- Mining Right Application for the Zandkopsdrift Mine to be submitted in September 2013
- Results of the PFS expected to be announced in October 2013
- The Zandkopsdrift definitive feasibility study (“DFS”) is expected to commence in H1 2014
- As of June 30, 2013 Frontier had a cash balance of US$41m and no debt
- Frontier remains fully funded through completion of the DFS.
Monazite is a soap-like sand that is particularly light and helps to reduce overall production costs. It also can be rich in heavy rare earths such as dysprosium, erbium, gadolinium and yttrium. The well known mineralization at Frontier’s flagship Zandkopsdrift, project, in the Northern Cape, has certainly played its role in securing financing, given that the relevant financing institutions have become more demanding when it comes to processing methods and their willingness to lend.
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For all the glory of science and exploration, the market situation of the past year has put an emphasis on the importance of cost structure and savings in order to secure the financing needed to advance even the most promising – from a geological perspective – projects. Exploration for new materials is certainly necessary and tightening Chinese rare earth sector regulations will make it even more so. However, exploration is also expensive and as the old adage goes: “the money has to come from somewhere”.
Frontier Rare Earths is one of those companies that have found a logical solution to the money problem. The first advantage comes from its choice of project: Zandkopsdrift. Both capital costs and operating at Zandkopsdrift are significantly lower than in many other rare earth projects and it can be assumed that the labor costs will be lower compared to North America while its open pit mining makes it cheaper than underground mining.
Previous work on Zandkopsdrift showed that it holds large reserves of rare earths. The Preliminary Economic Assessment (PEA) showed a mineral resource estimate of 42.5 million tons of TREO (total rare earth oxides) at an average grade of 2.23% or 940,000 tons at 1% TREO, whereby 78% of the resource is labeled as ‘indicated’ – with assays from its 2011 drilling program showed TREO grades as high as 19.5%. Such prospects helped Frontier secure its partnership with the Korean government owned Korea Resources (Kores), which has invested USD$ 53 million, acquiring a 10% stake (as of last December, but expected to grow to reach 50% upon completion Kores has an option to raise its stake in Zandkopsdrift by as much as 50%, giving it full partnership and an off-take agreement in Zandkopsdrift).
Frontier can expect to begin 20,000 tons/year production of REE’s at Zandkopsdrift by late 2015/early 2016. The fact that Frontier has secured, specifically, a Korean partner is very significant, given that Korea has one of the most vibrant high-tech sectors in the world. Companies such as Samsung and Daewoo, to mention a few, are among the leaders in advancing materials science for the alternative energy industry, such as batteries and motors, and consumer electronics, which are highly reliant on rare metals.