Search Minerals is well positioned for any potential trade crisis over rare earths
If you have been keeping up with the latest on the US-China trade wars, by now you will be familiar with the rare earths story. Rare earths are called critical elements for a reason and that is because rare earths are essential materials for many of our everyday devices such as magnets, computers, cell phones, electric vehicles (EVs), wind turbines, fluorescent lighting, catalytic converters, military applications and much more. Rare earths are forecast by UBS to increase 655% in a 100% EV world. Right now there is a concern that if the US-China trade war worsens China may cut off the supply of rare earths to the US, as China controls ~90% of supply and also consumes 60% of rare earths.
Search Minerals Inc. (TSXV: SMY) is focused on finding and developing critical rare earth element mineral assets in Labrador, Canada. The Company controls properties in three distinct areas of this region; the Port Hope Simpson (PHS) Critical Rare Earth Element District in SE Labrador; the Henley Harbour Area in Southern Labrador; and the Red Wine Complex located in Central Labrador.
Projects location map
The Port Hope Simpson District
The Company’s Port Hope Simpson (PHS) District 100% owned property includes three promising discoveries known as Foxtrot, Deep Fox and Fox Meadow.
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The flagship Foxtrot resource covers a 70 km long and 8 km wide belt. The Foxtrot resource, alongside in-channel samples assayed at the Deep Fox and Fox Meadow discoveries, show mineralized zones with high concentrations of Dysprosium (Dy), Neodymium (Nd), Praseodymium (Pr), Terbium (Tb) and Yttrium (Y). Looking at the table below, the higher grades of the very valuable neodymium jump out. Nd, Pr and Dy are the key valuable battery rare earths.
The Foxtrot resource is well developed and as shown below the total indicated resource for Foxtrot is 7,390,200 tonnes of ore with neodymium grades of 1,485 ppm.
Assay results from Foxtrot, Deepwater Fox and Fox Meadow
David Dreisinger, Director & Vice President of Metallurgy for Search Minerals Inc. stated: “The ones that we are finding, that are most economically interesting, are the neodymium and the praseodymium. Also, dysprosium and also terbium. They are basic magnet making materials. They go into the high-intensity magnets used for the electrification of our society. We see huge increases in demand for these materials as electrification takes place.”
Preliminary Economic Assessment
The April 2016 updated Preliminary Economic Assessment (PEA) on the Foxtrot Deposit resulted in a post-tax NPV10% of C$48 million and a post-tax IRR of 16.7%, based on a 14 year mine life, and applying Search Minerals’ proprietary Direct Extraction Process. The PEA included a low initial capital cost of C$152 million (including a $33 million contingency), and an after tax payback period of 4.4 years. Revenue estimates are dominated by Nd (39%), Dy (29%), Pr (14%) and Tb (8%), all elements that are projected to remain in supply deficit.
In 2017 Search completed a $2 million pilot plant using a breakthrough hydro-metallurgical process. The plant produced a 99% high purity mixed rare earth oxide concentrate from over three tonnes of Foxtrot material.
With a primary objective to extend the mine life to 14 years, the Company will develop Foxtrot and Deep Fox as their initial projects. Search Minerals is currently optimizing the flow-sheet to enhance recoveries and lower capital and operating costs. While the Company has identified more than 20 other prospects in the District, its primary objective and focus remain the development of Foxtrot.
Search Minerals catalysts and timeline to production
In 2010 a boundary dispute between Japan and China resulted in the slowing of rare earth exports to Japanese industry, which caused rare earth prices to skyrocket. Right now there is a very real chance of a repeat involving China and the USA.
Search Minerals offers investors significant exposure to rare earths in the safe mining jurisdiction of Canada, reasonable initial economics including a low start-up CapEx, at a time when the globe needs rare earths supply outside of China. The Company believes their low capital cost and scalable Foxtrot Project is well positioned for any potential trade crisis.
Investors should remember that the Foxtrot NPV10% of C$48 million should have considerable upside assuming the mine life can be extended to 20 years and beyond. Foxtrot is just one of three discoveries at Port Hope Simpson, and other options exist at Henley Harbour and Red Wine Complex. Hence the “scalable” point should not be missed by investors. At current prices, Search Minerals offers plenty of optionality on rare earths.
Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>