Mackowski Success Factors for Rare Earths Development – Part 3
In the previous two articles, “Success Factors for Rare Earths Development – Part 1 and Part 2, I discussed what I consider to be the KEY success factor for the development of a rare earth project; mineralogy. As a quick summary, I see mineralogy as being the key due to its huge influence on the flow sheet and the resultant capital cost (CAPEX) and operating costs (OPEX) of the processing plant. It is made more so by “todays” difficulty of obtaining the funding of that CAPEX that forces me to make low CAPEX very important, and mineralogy is the key to having a lowered CAPEX. Always remember that things change, and what is a success factor today may not be as significant at a later time. I say this with an expectation that when Lynas and Molycorp are performing strongly, todays perceived inherent risk in rare earths projects in general, as seen by the current funding constraints, may lessen in importance.
OK, if mineralogy is the KEY success factor, what is next? I have had a few suggestions and thanks for that, but I am being very thoughtful about the ranking of my thoughts and your suggestions. I am being thoughtful due to the issue of demonstration of success. How can I say to you in a diligent manner that success factor No 2 is ranked higher than success factor No 3 if I have little evidence? What logic can I bring to you? What examples? Let me explain. If you asked what are the success factors for gold project development, you would look to successful gold companies and analyze their development and ongoing performance and the success factors jump out at you. Grade, throughput, cost per ounce, easy stuff. Rare earths is not that easy since we do not yet have sufficient examples to look back on as reference cases. There has been considerable commentary on the negative issues faced and solved by Lynas and Molycorp, but I have not seen any positive commentary on why they have succeeded in getting to their envious current position (ongoing debt levels aside). We are faced with looking at the entire rare earths space and asking ourselves what could be the success factors. My views are my own and come after many years of thinking about this issue. And by the way, thanks Tracy for asking me to write these articles. You have forced me into documenting my thought processes in ways and with the diligence that would not have been required with a more casual approach.
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So the next success factor? Be patient with me as I develop the thought process.
Is grade important? Of course it is, but how important? Would you prefer a 6% TREO grade and no possibility of beneficiation, or a 1% TREO grade that beneficiates cheaply to produce an ideal chemical plant feed stock?
What are your views on the “basket price” factor? What is the “basket price” really telling us? The basket price concept came into the REO space ten years ago, and was developed and used to differentiate projects based on quantifying the different REO distribution spectra and the different values of the different rare earths. But ten years ago, the technological impact of the heavy rare earths was not yet evident. So back then, the basket price difference was really a way of showing that the more neodymium/praseodymium you had in your light REO project the better you looked. Now is that of itself a highly ranked success factor? It is a point of difference if you are project A and have 24% of your TREO as Nd compared to some other project B with 17%. But what if the TREO grade of project B is double that of A? More contained Nd per tonne of ore is a better measure of success potential. Gareth Hatch of Technology Metals Research (TMR) is getting closer when he plots current (ie todays) in ground TREO value of atonne of ore against in ground basket price. So you obviously want a high value per tonne of ore. So you want a high TREO grade AND you want a high basket price. If you follow my logic, the basket price merely reflects the Nd : TREO ratio for a light rare earths project or the Dy+Y : TREO ratio for a heavy rare earths project. Where my thought processes are taking me is the TMR plot does not tell enough of the whole financial story to be a success factor in its own right, or perhaps not a super important one. It does point us in the right direction however, but what about CAPEX and OPEX considerations? My financial training always takes me to Net Present Value, (NPV) as the way to determine success. But, and this is a big but, a very large NPV generally requires a large CAPEX, eg a $2 billion NPV is fantastic for any REO project but not when it (the $2B) is needed to even think about justifying a $1 billion CAPEX in today’s financial market. So NPV is an important success factor but it is not my next choice. Neither is the grade of the resource.
What I see as being the next key success factor is the contained REO value of the material presenting as feed stock to the chemical plant. And yes, this is very dependent on mineralogy, but it helps to clarify the lights and heavies issue a little. You have to be aware here that a lights plant is going to be ~5-10,000 tpa TREO whilst a heavies plant is going to be ~2-3,000 tpa TREO. The basket prices are very different obviously. But what is similar is the flow sheet and hence the operating cost. As an approximation and average, the operating cost of the chemical plant (exclusive of separation) is of the order, $200/tonne of feed material. This is an approximate figure that can be used for both lights and heavies plants. So the higher the value of the material presenting to the chemical plant, that is after any possible beneficiation, (minus the $200/tonne OPEX), then the higher the resultant profit potential. It is this profit potential that leads me to define the chemical plant feed value (the new and more relevant “basket price”) as the next most important success factor. Note, I am not ranking lights against heavies. Well not yet anyway. They are so different to each other in market terms that it would be like comparing apples and oranges.
Added after further thought – in the calculation of the new basket price, the value of the feed material to the chemical plant after beneficiation, only include those REO that are in demand and offer price certainty “today”. That is for a lights project only value the Nd and Pr; and for a heavies project only value the Dy and Y; the other REO present are of little consequence to the overall assessment, and are also those most likely to be discounted in any financial consideration. Caveat emptor! Watch the “today” issue as prices change over time and REO other than Nd, Pr, Dy and Y may become more important to the financial equation.
As I stated last article, we are looking at success factors “today”. Next week, I will look at what I consider to be the third most important success factor. Again, I would be interested in any comments between now and then to see if you and I are on the same page.
Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>