Great Western one step closer from Rare Earth Processor to Producer
Great Western Minerals Group Ltd. (“GWMG”; TSXV: GWG) is one of the few truly integrated companies in the REE field outside of China and its Steenkampskraal project in South Africa project enhances this aspect. The fits within Great Western’s reputation as one of the most vertically integrated companies in the rare earths sector. The Company has pursued and developed mining and processing capabilities in Europe, North America and South Africa. Great Western has also cultivated important relationships in China such that in 2010, the Company established a joint venture agreement with Ganzhou Qiandong Rare Earth Group. The exploration side is complemented by two specialty alloy manufacturers supplying the aerospace, battery and magnet sectors.
The Steenkampskraal project will also provide raw material to the development of the Company’s processing units. On March 18, 2013, GWMG released a very favorable Preliminary Economic Assessment (PEA) for the Steenkampskraal project. The PEA was announced just days after GWMG announced that its wholly owned subsidiary of Less Common Metals Limited (“LCM”) has now started commercial production rare earth specialty alloy using a new rare earth alloy strip casting furnace, delivering the products to three customers with more deliveries planned before the end of the Quarter while a second strip casting furnace is expected for delivery later this spring, adding to GWMG’s commercial capacity and a establishing an additional source of revenue growth. The fact that GWMG has invested in the special furnaces suggests that the Company is confident in the market potential for rare earth alloys. As for the PEA, the highlights as described in the official release include:
- $555 Million after-tax net present value (“NPV”) applying a 10% discount rate and a 28% South African corporate tax rate
- 66% after-tax internal rate of return (“IRR”)
- 4.3 year estimated Project payback period, on an after-tax basis, from start of underground mining production.
- 11 year potential life of mine
The PEA is based on the recently filed SEDAR filed Resource Estimate for the Project, the highlights of which are Inferred mineral resources of 278,000 tons (avg. 15.2% TREO) and Indicated Resources of 176,000 tons (avg. 18.2% TREO). The high grades of the resource allow GWMG to produce higher grade products at lower production costs, which when added to the growing alloy business suggest the project is fully on track. GWMG also said it is very interested in studying off-take agreements to further facilitate the financing of the project while establishing the basis for long term supply customers. The NI 43-101 resource estimate for the Steenkampskraal Rare Earth mine issued last spring indicated 45,500 tons with 22.3% total rare earth oxides (TREO – including Yttrium), 21.46% light rare earth oxides (LREO) and 0.86% heavy rare earth oxides (HREO). The results fulfilled Great Western’s expectations warranting the Company to pursue further exploration to expand the resource base.
The updated estimate has virtually more than doubled the tonnages with indicated resources of 176,000 and inferred resources of 278,000 with TREO percentages of 18.2% and 15.2% respectively. GWMG is well integrated, owning downstream facilities that produce special alloys for the aerospace industry in the USA and UK. By expanding the resource GWMG can expect to feed its own and others’ downstream activities such as to become one of the premier HREO suppliers in the world, making it one of the most vertically integrated companies in the rare earths sector. GWMG also is also exploring properties in North America and has secured ties to China’s Ganzhou Qiandong Rare Earth Group through a joint venture deal. Great Western, therefore, has an advantage in the race to offset China’s dominant position in rare earths production. GWMG expects to begin mixed rare earth chloride production no longer than two years after obtaining full project financing (at about 5,000 tons/year REO a year) such as to launch separated REO production a year after that.
The Chinese government’s continuing consolidation and tighter supply of the REE industry, which has stimulated the re-opening of REE mines and exploration outside of China, has contributed greatly to investors’ interest in this sector. While, China is always in a position to start flooding the REE market (even though there are substantial political and economic reasons for which this is less likely than last year) However, there is always the lingering awareness that China, which is to REE what Saudi Arabia is to oil, could decide to reverse its policy (not that there is any chance of that now) and flood the market with cheap rare metals. Great Western’s proposition is that it helps to meet the current demand for the rare earths while also controlling rare earth deposits in more than one continent.
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