EDITOR: | September 25th, 2014 | 1 Comment

Mackowski Success Factors for Rare Earths Development – Part 6

| September 25, 2014 | 1 Comment
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MackaI trust, in the last week, you have practiced the process of MUST and WANT consideration and have a better understanding of how the modified / expanded Kepner-Tregoe Decision Analysis tool can help when looking at success factors, in general, and more specifically for REO development. As this is part of a series, it is important to read and understand the logic being developed in the other articles to follow the journey.

Parts 1 and Part 2 – How mineralogy is the KEY success factor (1)
Part 3 – How a new view of “basket price” can point the way as a cover-all financial success factor (2)
Part 4 – How the capability of the Board and Management can be viewed as a success factor (3)
Part 5 – Introduction of “Mine to Market Place strategy” (4) as a success factor

I also trust that you have given some thought to how you can quantifiably rank “Mine to Market Place strategy” as a success factor. Let’s reference some excellent work presented by Dudley Kingsnorth, a world renowned researcher and commentator to the REO space. In 2011, Dudley presented the “Path to Production” for REO projects. This Path is a series of activities:

Let’s look at each step in the Path and think about how this step fits into the “Mine to Market Place strategy”.

Step 1. Resource. It seems overly simple to state that you need a resource to develop your strategy but it is not so simple. You need to consider that the strategy is a long term one. The end user is going to rely on you for a long time. He is probably going to co-develop some of his technology to fit your quality capabilities (think phosphors and their specification reliance, for example). He certainly needs to understand how long you intend to be in business and at what scale. So how much assured resource do you need? It would be my estimate that a light REO (LREO) project would need to produce ~10,000 tonnes per annum (or more) of contained REO for at least 10 years (or more) to satisfy the long term requirements of an end user. If you are a heavy REO (HREO) dominant project then the output would need to be more like 2,000 tonnes per year. And again for at least 10 years. It goes without saying that the quality and quantity of the resource must be adequately de-risked. That is, the resource statement must meet the requirements of the Australian JORC Code (Joint Ore Reserves Committee) or the Canadian National Instrument 43-101. So in the development of ”Mine to Market Place strategy” as success factor 4, I see Resource as a MUST attribute.

Step 2. Mineralogy. It is true that different mineralogy presents different challenges. Some ore types are historically more well known and easier to process. However, difficult mineralogy does not preclude a project from development. Some projects just have a head-start and some have more work to do. What you MUST have though, is a sufficient understanding of the mineralogy so that an economic flow sheet can be developed. A flow sheet that clearly shows effective and efficient treatment of the valuable components of the ore to produce products of commercial quality and effectively manages all wastes.

Step 3. Scoping Study. A Scoping Study (or Preliminary Economic Assessment) is a statement on the viability of the Project. It looks at a range of factors, including resource, flow sheet, CAPEX, OPEX, environmental and social, and compiles them all into a document that defines the Project. A potential end user will require this document as a minimum component of due diligence. So the Scoping Study is also a MUST in the “Mine to Market Place strategy”.

Steps 4, 5 and 6. Pilot Plants for Beneficiation, Extraction and Separation. Pilot Plants are classically used to prove the flow sheet and to provide chemical and engineering data for the design of the Project, particularly the processing sections. With reference to the “Mine to Market Place strategy”, this is where the first samples are produced that a potential end user can look at in his assessment of your project. So again a MUST.

Step 7. Environmental Approval. I’m a little less insistent here for the purpose of looking at the “Mine to Market Place strategy”. You will have identified all of the issues in the baseline environmental studies conducted as part of the Scoping Study, and those issues will have been appropriately evaluated, plans made etc such that there are no surprises. Questions can be answered and queries investigated. In our current success factor context, this step is not being considered.

Step 8. Marketing Plan. What are the phases? How do we quantify? How do we rank?

  1. Do we have a vision for the market place that we wish to service? That is, its geography, its products, its quality requirements. Does it make production sense? Can it work?
  2. Have we signed “Letters of Intent” with potential end users? Do these letters meet the philosophical visions? Ie domestic production chain only.
  3. Has a “Memorandum of Understanding” been signed? Is it binding?
  4. Has an “Off Take Arrangement(s)” been agreed? Have binding contracts been negotiated and finalized?
  5. Has the completion of the marketing plan resulted in the project being in a financial position that will enable the project to fund the Definitive Feasibility Study (DFS)?
  6. Has the completion of the marketing plan resulted in the project being in a financial position that will enable the project to fund the Construction and Start Up? (generally dependent on the financial success of the DFS)

Grading the significance of these 6 phases is a challenge in developing diligent ranking methodology. It is not linear. It takes considerable time and effort to progress through these phases as any current developer of an REO project can attest. As far as I am aware, after Molycorp and Lynas, there are no REO developments that have completed the 6 phases. An understanding of where each project fits here is critical in determining that project’s chances of success. It is also a very good reflection on the capability of the Board and Management as to how they are progressing through their Marketing Plan (Dudley’s Step 8).

Where to from here? I have been asked by a number of readers to select the leading REO projects using the success factor discussion as presented in this series. I will decline. I do not give investment advice. I prefer the “teach him how to fish approach”. This series and the previous one on Separation contain all the tools, thought processes and logic that you need to be better informed, gain a better understanding, and quantifiably review success factors. What you do with the results is your call.

This now ends this series. Future works will be specific and tailored to issues of the day. Thanks for all the comments, questions and thoughts. I trust you are in a better position to understand and enjoy the REO space.


Steve Mackowski

Editor:

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>


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Comments

  • Urban Girl

    Steve, just a quick thank you for this series and yes I do have a better understanding. Very much looking forward to your next piece.

    September 25, 2014 - 10:19 AM

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