Mackowski Success Factors for Rare Earths Development – Part 5
As we approach the end of this series, I will recap on the Success Factors discussion. This is important as from the questions I have received the Kepner-Tregoe Decision Analysis tool and its modified / expanded use requires a little more explanation to show where the Success Factor argument takes us. I will, as an example, use the purchasing of a motor vehicle as the decision to be made. When you select a motor vehicle, you select on the basis of your MUST and WANT attributes. The vehicle MUST be an RV or it MUST be a sedan or it MUST be a sports car. There is no decision here; it MUST be one or the other. I will introduce the country of manufacture here as it influences my later REO argument. Let’s assume we are all in the US. MUST the vehicle be US made or is an import acceptable? If an import is not acceptable, then US made is a MUST and therefore excludes all other options. If an import is acceptable, but you would prefer a US made, then that attribute becomes a WANT. I prefer US made but other factors may influence me to decide to choose an import. Is price a MUST or a WANT? It can be both. The vehicle MUST be less than $40,000. So anything over that is excluded from the decision process. I WANT a vehicle with as low a price as possible. So you rank price as excellent if its $30,000, OK if its $35,000 and poor if its $39,999. You will do this ranking with all your factors (and do it quantitatively). Price, quality, fuel consumption etc. So you end up with MUST be a US made RV. You then select between say, three US made RV models priced between $30 and $40,000, balancing price as the critical factor against the other lesser important factors, quality, fuel consumption etc. Now for the Rare Earths Development.
The Success Factors we are looking at are based on the development of a rare earths project that will produce and sell rare earth products into the market place. In the previous articles, “Success Factors for Rare Earths Development – Part 1 and Part 2”, I introduced and discussed what I consider to be the first KEY success factor for the development of a rare earth project; mineralogy. Again as a quick summary, I see mineralogy as being the first key success factor 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 of critical importance, and mineralogy is the key to having a lowered CAPEX. “Success Factors for Rare Earths Development – Part 3” introduced the newly defined “basket price”; the value of the contained REO in one tonne of feed material to the chemical plant. This new basket price is my second Success Factor as this presents profit potential in a quantifiable economic metric that can clearly differentiate between projects. “Success Factors for Rare Earths Development – Part 4” discussed the capability of the Board and the Executive Management team as Success Factor 3 as without having people with the right track record in project development of similar scale and complexity, the road to Operations is long, difficult and expensive.
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I mentioned in Part 4 that the next Success Factor, number 4, “Mine to Market Place strategy”. This seems like a fairly obvious and simple issue and it would be if you were producing gold where you can sell onto a Metal Exchange at transparent prices. Or you could hedge into a whole world of people who work in and understand the market and run businesses within that. REO is different. It is different because that strategy will be different if you are a light REO project or a heavy REO project. Why? Because the markets are different. Selling a commodity like cerium into a diverse, global market place with standard marketing and financing models is a piece of cake compared to trying to predict the future of dysprosium; its pricing; its technological need; its geography. It also depends on your definition of my market place. If I am an African producer who is going to produce a mixed REO carbonate as feed to a Chinese separation facility and offtake arrangements are in place, I have a very clear “Mine to Market Place strategy”. If I am Alkane Resources; producing mixed REO concentrates with arrangements into Japan; producing ferro-niobium concentrate with arrangements into Europe; I have a very clear “Mine to Market Place strategy”. But, if I have a MUST attribute of only selling into my domestic market, that is, taking my mixed REO concentrate that was produced in my country, processing through a domestic separation facility to produce separated REO, and there is then no domestic capability to take those individual separated REO further through metals, magnets and OEM (Original Equipment Manufacturer), for example, then my strategy doesn’t work. If I have a domestic only MUST and cannot get to OEM due to lack of domestic capability I have designed a business model that cannot work.
This clear and workable “Mine to Market Place strategy”, and developing quantitative ranking criteria to use this as Success Factor 4 has been quite a mental challenge. I have arrived at Success Factor 4 being both a MUST and a WANT. The strategy MUST work! There must be a production model that goes from Mine to Market Place (and that market place must consider the OEM), and that production model must be clear and transparent. It then passes the MUST attribute test. The strategy can then move on to the WANT attribute where we look at those attributes of strategy that can be used to rank opportunities. I may prefer (a WANT attribute) to maximize domestic value add; I may prefer (a WANT attribute) not to add value or operate in Country X; but other factors may, on balance, take me there. However, if I rule out Country X by making it a MUST attribute, then my strategy needs to reflect that.
So how do you quantifiably rank “Mine to Market Place strategy”? If you are still reading and are still interested, think about the question over the next week. Try the approach by selecting a restaurant, plan a holiday, get ready for some heated discussion with your partner over what is a MUST or a WANT. Be ready to challenge the way you rank the identified WANT attributes. For this process to be of real value, you have to think. You have move from the gut to raw logic.
Nah. I still bought the red Mustang!
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>