Rare Earths Success Factors – Revisited
I have recently been queried concerning my views of the success factors (or ticks) for specific projects. I am declining to comment as I see that as providing investment advice and that has never been my intention. After many years in the technology development arena, and in particular, the rare earths space, I felt it was a responsibility to address what I perceived as a lack of understanding, a misrepresentation of the full suite of issues, and, a degree of ignorance on the technology development required in the REO space. So my articles on separation and success factors were aimed to be educational. I know people out there want (and are) using these tools for their investments but caveat emptor! I only provide an explanation of the logic!
“Success Factors” is a term I use to list those critical components of project development. These factors are not absolute. By that I mean that they are not the only means of assessing project success. Take resource, for example. Project A has a resource that will meet targeted market demand for 20 years. A tick. Its resource success factor is very good. Project B has a similar quality resource but only meets 10 years. Probably still a tick, but the relativity of the success factor is less than Project A. But what of Project C who has yet to define a resource? Where does its success factor fit? Well it depends on where you are looking from. If you are a party looking for a long term supply contract, this project probably does not meet your success factor criteria. But if you are a speculator and you believe in the ability of the exploration team to find resources on their tenements then Project C may indeed pass your resource success factor. So the success factor assessment is very importantly in the eye of the beholder. So again I will present the logic and some of the basic theory to assist your understanding. I’ll use an imaginary project to further develop the understanding.
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Imagine Project L. It is termed L due to its similarity to the Lynas project. It has a large resource (Success Factor 1) of ~10% TREO (mainly lights); it has a processing capacity of 10,000 tonnes per annum TREO; and; has a CAPEX of ~$ 1 billion. How does Project A stack up if it has a resource grade of 2% TREO and similar REO spectrum? All other things being equal (which they never are), Project A will need to mine and process 5 times the ore compared to Project L to get the same output. That is, mining costs will be 5 times higher and the beneficiation plant will be 5 times larger. Mine development CAPEX will be of the order of 3 times higher for Project A versus Project L.
How about Success Factor 2 (mineralogy). Well, Project L can produce a mineral concentrate at 40% TREO compared to 8% TREO for Project B. All other things being equal (caveat emptor), the downstream hydrometallurgical plant for Project B will need to process 5 times as much mineral concentrate (at 8% TREO) than Project L (at 40% TREO). Therefore processing costs will be 5 times higher and the hydrometallurgical plant CAPEX will be of the order of 3 times higher.
Now this doesn’t mean that Project A or B will be a failure. Neither does it necessarily mean that Project L will be a success. What the logic shows is that Project A and B is going to be much more expensive to build and operate than Project L (all other things being equal).
So how do you compare the various projects around the world with their varying degrees of success factors? You need to organize sufficient of the various factors to be able to make a valid and meaningful comparison. You have to devise a transparent and honest ranking system that meets your views. NB ranking of success factors by you will be very dependent on your appetite for risk. Your risk/reward profile will influence how you do that. Be honest with yourself. Then devise a process of balancing the ranking or order of your views of success factors and then the challenge of scoring individual projects can begin. Repeat caveat emptor and good fortune!
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>