Tasman – Taking the Rare Earth High Road.
It is said that Michelangelo had the ability to see a large block of raw marble and view the eventual statue as something akin to a figure “trapped inside the stone” that only needed his hammer and chisel to set it free. The hot off-the-press PFS on the Norra Karr project reminds us of that block of marble with a David trapped inside yearning to be set free.
While most about them are cowering in the fall-out shelters waiting for the nuclear winter in the REE space to end, Tasman Metals Ltd. (TSXV: TSM | NYTSE MKT: TAS) have been forging ahead with their Norra Karr project, hoping to bring the project to fruition as the premier European REE producer.
This week’s PFS publication gives a roadmap of one way to get where the company wants to go with this project. Now it’s time to turn on the GPS and find the shortest, fastest and most fuel efficient way to get from A to B rather than taking the consultant’s “scenic route”.
The main salient features of the PFS are:
- After-tax Net Present Value (NPV) of US$313 million using a 10% discount rate
- Internal Rate of Return (IRR) of 24% pre-tax and 20% after tax using a 10% discount rate
- Initial capital cost of US$378 million including contingency
- Major exposure to the most critical REE’s, with 74% of revenue from magnet metals Dy, Nd, Pr, Tb, Sm
- Project able to produce more than 200 tonnes of dysprosium oxide per year for at least 20 years
- Unconstrained mine life is in excess of 60 years with extensive mineralization below and along strike from 20-year pit
The Norra Kärr project located approximately 300 kms south of Stockholm. The project is near the towns of Jönköping and Linköping, from whence would come the required workforce for the mining operations.
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The property was initially discovered in 1906. It was explored by the Swedish mining giant, Boliden AB, for nepheline in the late 1940’s, and for Zirconium and Hafnium in the 1970’s. However it was relinquished in 2001 and data from these previous efforts was only made available in 2009. The Swedish government declared it to be a “Project of National Interest” in 2002 which prevented conflicting land use.
Tasman claimed the ground in mid-2009 and first drilling began in December 2009 with a goal of proving up a heavy rare earth and zirconium resource. The deposit now has in excess of 100 holes amounting to around 12,000 metres. The first NI43-101 compliant resource was released in November 2010 and an updated PEA came out in July 2013.
The Norra Karr REE deposit, as modelled in this PFS is a single body of mineralization, some 300m x 700m in size at surface, which begins under 0.5m average of soil cover. The mining method envisioned in the PFS is conventional open pit mining with a single simple open pit that will extend from surface to a maximum depth of 160m. This is expected to have a constrained 20-year life of mine and a stripping ratio of 0.73. It is anticipated that average annual tonnes of ore mined would be 1.18 million while waste rock mined would be 0.84 million.
The fatal flaw in all REE projects these days is the capex. That of the Norra Karr project according to the PFS is a chunky US$378mn. It also estimates that an additional US$44.3mn will be required during the life of the project in sustaining capital. The breakdown of the capital items is shown in the table below. We would have liked to have seen more granularity in the omnibus “Process & Tailings” number so we could pares its individual constituents and compare against other projects.
Mining is admirably low and the infrastructure spend is kept down due to the facility’s well-serviced location. As usual with the consulting crowd they have liberally larded the budget with padding to make sure there is no blowback in their direction. It’s now up to management to mark the consultants’ performance report with “can do better” and show them how to get the budget in at a much lower figure that is financeable in the current tough environment. If any REE company’s management are up to the task of coming up with a better plan, then it is the very hands-on and practical crew at Tasman.
A Baltic Combination?
As we have said before Tasman remains one of the prime takeover (or better, merger) targets in the REE space. The deal that strikes us as most obvious is some sort of arrangement with the 800-lb gorilla in the REE space, Molycorp. The rationale behind this one is simple in that Molycorp owns the Silmet processing plant in Estonia which used to source the bulk of its material from the Russian loparite mines. With those mines in a state of decay, the next obvious source with reasonable proximity is Norra Karr with a rather short maritime voyage away. Molycorp is not in the healthiest of conditions itself these days, but should it survive this current swoon then the synergies between these two assets are pretty clear. It would be interesting to know what sort of savings on the Tasman capex might be able to be achieved by exploring this possibility of a tie-up.
There is an old adage that those packing for a trip should pack the suitcase and then throw half of the stuff out of the suitcase. Having spent years watching the machinations of mining consultants with their ass-minding, fee-generating ways we have come up with our own spin that one should take a capex number, halve it and then get the consultants to justify every cent when growing the number again. The on-going use of sizeable contingencies (20% in this case… though down from the 25% fashionable a couple of years back) shows that the mining industry is yet to grasp the concept used in building a McDonald’s store that the project must come in on budget.
We have resolved to finally retire our old REE mantra of chemistry, chemistry, chemistry and replace it with right-sizing, right-sizing, right-sizing. The current projected capex at Norra Karr is a good starting point for revisionism. While the capex number is not one of the largest numbers out there, if one takes away those projects (which shall go unnamed) that have now being sotto voce mothballed, Norra Karr ends up “out there” at the higher end of the unbuilt projects that remain viable.
In light of the uber-competence of the management group at Tasman (and sister entities) we would not be surprised to see the consultants sent to stand in the corner with the dunce’s cap on to rethink what they have come up with and right-size the PFS as the basis for the DFS and actual building.
Hopefully in the meantime some reconfiguration of the assets of Molycorp could create a combination with Tasman on the shores of the Baltic that makes Tasman the primus inter pares in the mammalian survivors of the Great Extinction Event, which will see Lynas and Molycorp marched off to the dinosaur hall of the Natural History Museum.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>