Peak Resources: low development cost, long life mine and high (for Tanzania) hopes of mineral diversity
In 2012 gold made up 94% of Tanzania’s mineral exports. The country is the third largest gold producer in Africa, but now it wants to do more. A report out of Britain this week shows that the country is, by 2018, looking to diversify into other metals. The Business Monitor International report cites coal, nickel and uranium as new areas, but the quarterly report out this week from Peak Resources (ASX:PEK) reminds us that Tanzania is likely soon to be a player in the rare earth sector, with that company aiming to produce 10,000 tonnes a year. Apart from the minerals already mentioned, Tanzania is known to have significant deposits of cobalt, diamonds, niobium and silver. the government in Dar es Salaam has also cracked down on illegal tin mining and exporting in order to legalised tin exports so they contribute to the country’s foreign income earnings. Incidentally, Tanzania has now overtaken South Africa in terms of foreign investment in oil and gas exploration.
Peak has what it claims to be one of the largest and highest grading rare earth deposits in the world. Not that, so far at least, this has earned them much acknowledgement from the market. Peak’s shares are trading at A$0.077, well down from 2011 when they were nearly 10 times that.
The tendency is to take the latest quarterly report, note the main facts and leave it at that. (By the way, the June quarterly report has just been posted on the Investor Intel site so you can check that out for yourself.) But let’s look back to earlier quarterlies, progress reports and recent presentations and examine some of the salient points as to where Peak is heading.
Set aside the size and the grade, just look at the economics. Peak Resources has so far spent just A$16 million to get where they are today: extensive resource drilling, a scoping study and a pre-feasibility study. Capital cost for the mining operation has been slashed by 24% to $91 million. Estimated mine life is 58 years at 10,000 tonnes a year of rare earth oxides. Its latest study shows a net present value for the project of $1.005 billion.
The project itself has the following mix: Lanthanum comprises 27.1%, cerium 48.2%, and praseodymium 4.81% and neodymium 16.3%. But when you look at the output in terms of value, the picture seems quite different that the first impressions. Cerium will provide just 9% of the overall production value (4,545 tonnes a year) and lanthanum 8% (3,043 tonnes). By contrast, the 1,737 tonnes a year of neodymium will provide 47% of the mine’s output value, the 504 tonnes of praseodymium another 24%. A further 8% will come from the small amount of europium produced. Moreover, the praseodymium and neodymium coming from the Ngualla project in Tanzania will be less than the projected annual increase in global demand for those two rare earth elements: that rise in demand is projected to be 581 tonnes for praseodymium and 2,500 tonnes a year for neodymium.
Peak Resources is clearly straining at the bit to be the next new rare earth mine getting into business. As the quarterly notes, the company has had what it calls positive discussions with potential strategic partners from China and the Middle East, also discussions with financial institutions in Europe, the United Kingdom and Australia. Due diligence is now under way. There is also, the company says, strong interest from an unnamed party for a portion of the annual 10,000 tonnes of output.
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Another significant passage in the latest quarterly report shows that, with all the financing problems of the past couple of years, rare earth companies are learning to be more adaptive in their approach to gaining a key partner. What Peak says it is looking for is a partner with the following attributes: technical expertise, access to low-cost debt, off-take capability and “cradle to grave” financing solutions. A tall order, true, but no doubt realistic if you are going to launch a technically complex thing like a rare earth mine.
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