Peak Resources Approaches Final Hurdles for Rare Earth Development
In the rare earth element (REE) space, a couple of points are difficult to overcome: experience and technology. You see, the economical extraction of materials which comprise only a fraction of the total ore is supremely challenging, and so relatively few people have ever actually achieved it to any significant degree. Furthermore, many hopefuls have been dragged under by the tough metals markets of this last decade, and so only a handful of viable investment options remain intact, regardless of the surging prices of the requisite elements for permanent magnets, neodymium and praseodymium (NdPr).
The Ngualla project in Tanzania, 75% owned by Peak Resources Ltd. (ASX: PEK) (“Peak”), benefits from being one of the highest grade REE deposits ever seen, dramatically cutting the cost of extracting the necessary goods. In addition, Peak’s policy of completely ignoring resources which host rare earths in minerals that have not previously been commercially processed means that the risk of advancing an ultimately useless project is almost zero.
Get our daily investorintel update
For me, the recent promotion of Rocky Smith to the position of CEO is a sign that Peak is going places. Rocky ran the Mountain Pass operations for Molycorp and so represents a significant contribution of experience to the management team. Furthermore, the company has recently completed the necessary filings for a mining license with the Tanzanian government, as well as achieving the major milestone of delivering the Bankable Feasibility Study (BFS) which confirms that the project has the potential be one of the world’s lowest cost rare earth producers of any comparable developer.
The BFS and subsequent optimisation improvements delivered in August 2017 demonstrate the outstanding quality of Ngualla. The project has a slated life of 26 years, and projected annual production is looking healthy at 2,810 tpa of NdPr mixed oxide, 4,230 tpa of lanthanum oxide equivalent and 1,920 tpa of cerium oxide equivalent. The operational savings made in 2017 mean that unit operating costs could now be as low as US$32.24/kg NdPr, meaning the operating margin is an attractive 66% at current prices. Initial capital costs came in at US$365 million, meaning that post-tax net present value (8% discount) is US$612 million.
The sustained rise in prices for NdPr experienced in 2017 is perfect timing for Peak’s Ngualla Project. Prices continue to climb amid predictions of a strong increase in demand for this critical raw material due to the increasing shift towards hybrid and electric vehicles by manufacturers. The mixed neodymium praseodymium oxide (NdPr) price was around US $41/kg when Peak announced the results of the BFS for Ngualla in April 2017, and while the BFS assumed a long-term price of US $85/kg, the NdPr price has increased over 100% since November 2016, and in mid-October 2017 was around US $71/kg.
The strong rise in the NdPr price is particularly important for Peak given that NdPr is Ngualla’s main value driver, representing 90% of the project’s estimated future revenue. The ore material will be separated in Teesside, England via a leach process since the area has access to cheap reagents and is a major port. Crucially, the savings made so far through optimisation of the project have lifted Ngualla far above expectations, and shareholders have recently responded with over US$5m successfully raised to fund further works in the area. Peak’s share price has gained 50% over the last month, and I expect this to surge dramatically when the government of Tanzania comes back with approval. Tick tock.