Choosing the “Rocky” Road to Rare Earth Production

Here at Investorintel we often muse about what can be salvaged from the wreckage of Molycorp and while opinions differ wildly on the residual value of the hardware and real estate (not to mention the intellectual property) there are some assets that were embedded at Molycorp that are infinitely transferrable and indeed have already been transferred.

It was a very interesting move to see Rocky Smith captured by Peak as Chief Operating Officer – Development. This became effective from the 5th of January 2016. He was previously the Managing Director of Molycorp’s Mountain Pass Rare Earth complex from July 2009 to August 2015. Essentially Peak has picked up one of the few people with current experience of practical, specialist and technical rare earth operations.

His skillset span management, operations and engineering. Most recently he was responsible for operations at Molycorp’s mining and processing site at Mountain Pass where he managed 500 employees and an annual operational budget of in excess of US$150 million. He recruited, developed and led the team responsible for the implementation of the redesigned and expanded Mountain Pass operation. His work included the establishment of management systems, debottlenecking and the delivery of expansion programs which boosted production capacity by 230% over three years.

Between 1989 and 2000 he worked for FMC Corp and between 2000 and 2008 for the Talc miner, Barretts Minerals.

Before that I worked with Eti Soda in Beypazari, Turkey as a technical expert on a soda ash plant start up in 2009.  From 2000 to 2008 he was employed by Minerals Technology at their Barretts Minerals property (a talc mine) in Dillon, Montana, most of that time as the Plant Manager with responsibility for everything from the mine thru the facility.  From 1989 thru 2000 he worked for FMC, first in gold at Paradise Peak as Chief Metallurgist and then Plant Superintendent, then he moved to the Green River site and again worked as Technical Superintendent for the site and then as an Operations Superintendent for one of their large natural soda ash plants.

In the range of metals dealt with he has also worked in uranium, vanadium, gallium, germanium and base metal sulphide flotation recovery.

He holds a Bachelor of Science degree in Chemistry and has over 35 year’s operations and senior management experience in the mineral processing sector. He has relocated from the United States to Perth, Western Australia.

The number people on the planet, who are not Chinese, that know how to put together the soup to nuts of Rare Earths production can be numbered on one hand (and of someone whose lost a few fingers..) so Peak have bagged themselves someone with a “rare” skillset.

Ngualla

Peak’s sole focus is the Ngualla project in Tanzania which it is pursuing in conjunction with its partners Appian and IFC. Ngualla is a large high-grade rare earth deposit, particularly gifted in the magnet metals neodymium and praseodymium. The PFS mooted capex of around US$367mn, including 30% (US $85 million) contingency.

Ngualla_plant

Peak has commenced the Bankable Feasibility Study for the Ngualla Project and has appointed AMEC Foster Wheeler as the lead engineer for the study. Early indications are that a rejigged scenario for the production process due out in coming weeks could show a sizeable reduction in the previously mooted capex.

Prepping the Marketing Effort

Also in the first few weeks of the New Year, Peak announced that Michael Prassas was joining as Executive General Manager – Sales, Marketing & Business Development. He had previously been Global Account Manager for Automotive Catalysis and Sales Manager – Rare Earth Systems for leading global chemical company Solvay. That Belgian group had acquired Rhodia-STER, the large French REE trading house (and chemical company) in 2011.

He was at Solvay from September 2012 where his primary responsibility was for Rare Earth Mixed Oxide sales in Europe and Africa. He over 20 years’ experience in sales and marketing (also at OEM and Tom-Tom) with his focus being the negotiation of long-term supply contracts with global accounts and developing business relationships and offtake agreements with some of the world’s largest automotive companies.

He has a degree as a Business Economist from the North Stuttgart School of Business Administration where he studied economics, majoring in foreign trade, human resources and financing. He is expected to relocate from France to Perth in the first quarter of 2016.

Clearly Peak are not relying on the failed “build it and they will come” school of thought, that so many others have posited, and want to make sure customers are lined up in advance for Ngualla’s output.

Conclusion

When an explorer moves up to the stage of making the commitment to corraling the team for mine building and operation then one can finally be reassured that the “rubber is hitting the road”. The two most recent hires go beyond mere mine-building and are looking to the end production and selling phase. Beyond that Peak has decided to go for heavyweights with experience in the biggest players in the rare earth space.

In particular its hire of the (re)builder of Mountain Pass comes freighted with “lessons learnt” in constructing a major Rare Earth mine. Peak’s Ngualla development will be much more bite-sized and with management’s feet firmly on the ground the pressure to build something pharaonic will not be there. That Peak feels it can and will be done is further accentuated by the hiring of personnel to move the product out to the marketplace when production starts to roll.

Again, in Peak,  we find a case of “hare & tortoise” with a below-the-radar REE hunter moving further down the road to the end goal, verily as some of the household names of the REE space fold up their tents for the last time having burned through enormous piles of money with nothing to show.  With the team in place we now await the reformed capex plan in the next few weeks and the move to funding.




Peak Resources’ low capex and metallurgical advantages attract IFC financing

images6YO0OPLTPeak Resources Ltd (‘Peak’, ASX: PEK), the Australian rare earths mining company, has obtained a financial commitment of USD$ 25 million from the Appian Natural Resources Fund LP, an investment fund, for its Ngualla rare earth project located in southern Tanzania. Appian will help Peak finance the bankable feasibility study for the Ngualla Project by taking a 13% share of the Company’s capital. Appian has the option to take up to 37.5%, at the cost of some AUD$ 14.1 million. Ngualla deposit is estimated to have the potential to deliver some 170 million tons of rare earth oxides at a grade of 2.24% rare earth oxide content, making it the 5th largest in the world outside of China. Meanwhile, the International Finance Corporation (“IFC”), a member of the World Bank Group, intends to participate in Peak’s venture by joining Appian in a consortium, contributing about 20% of the total investment. Peak’s Ngualla deposit has a maiden mineral resource of 170 million tons at 2.24% REO, making it one of the largest and highest grade rare earth deposits in the world.

This is a significant development for Peak, which gains a reliable financial backer as the IFC makes its first foray into the rare earths, while the IFC has in what is the Institution’s first foray in rare earths. Appian has already invested USD 1 million as the first tranche of a USD$ 3 million bridge loan. IFC’s Board, meanwhile, intends to participate in partnership with Appian in a 20:80 % arrangement (Appian 80% – IFC 20%). IFC also has the right to appoint a member to join Peak’s Board. The Appian and IFC loans will ensure that the Ngualla Project remains well funded while also generating investors’ trust and confidence. In fact, the IFC, is one of the largest lenders to the private sector in emerging economies such as Tanzania. Peak has managed to confront financial risks, allowing for management to focus more on the development and optimization of its assets in order to clear the path ahead to production.

The IFC also performs social and environmental sustainability due diligence as part of its risk assessment procedures. Appian is a private equity fund having a specific mandate to invest in mining. Moreover, last December, Peak announced it had signed a non-binding MOU with a Chinese rare earths company based in Jiangsu Province, northeastern China, to form a strategic long-term partnership to help develop the Peak Resources Ngualla project, which should start production in 2016. The Chinese have offered facilities and technical expertise in the beneficiation, processing and separation of rare earths into high purity rare earth products and an established marketing network. Many Chinese mining firms want to secure positions in projects in Tanzania, which is an ideal area for export logistics to China.

The Ngualla Project is itself one of the ones with the best conditions, which translates to lower costs, allowing for the Company to adopt a relatively simple processing method. The mineralization is not radioactive since the proportion of uranium and thorium is among the lowest of all major rare earth projects in the world. The ratio of overburden occurrence is low and the resource is distributed such as to allow for open pit mining. The deposits are believed to be the fifth largest outside the People’s Republic of China. The capital cost is estimated at USD$ 400 million with an annual income of some USD$ 360 million. Peak Resources wants to set up a pilot project next and then in 2016 start of commercial production. To fully appreciate Peak’s success at securing financial partners for the Ngualla project, consider that, today, REE prices are still much lower than even a few years ago and financing for capital-intensive projects is harder than ever.

Project margins are at risk, which makes it difficult got mining companies to find any partner for mine financing. Only those rare earths companies that offer convincing evidence of the quality and efficacy of their project can draw the right attention from financial partners. Nevertheless, once these partners, especially when these include such institutions as the IFC, it validates management’s performance, minimizing risks and maximizing the prospects of success. Peak’s main advantages are the quality of the resource, the 58 year mine life and very low capital costs (CAPEX). Peak’s scoping and Pre-feasibility studies suggested a CAPEX in the order of USD$ 367 million which allows for a surprisingly quick projected payback period – according to Peak’s management this will happen in the third year of production.

As for the Ngualla Project itself, the property’s rare earths potential was discovered in 2010 and that it has only taken four years to go from discovery to Pre-Feasibility-Study. The Ngualla project is located in southwestern Tanzania, which, is a very good mining jurisdiction. The Ngualla Project itself also offers metallurgical advantages given the fact that the deposits have shown a mineralization, bastnaesite – typically rich in lanthanum, cerium and most importantly in yttrium – with very little uranium and thorium content, which eases processing and reduces capital cost requirements. Tanzania is the third largest gold mining country in Africa, backed by adequate infrastructure and mining legislation, updated in 2010.




Peak Resources attracts new investors, easing path to production

Ngualla ProjectAny discussion about rare earths inevitably leads to China, because it enjoys a near monopoly in the production of rare earths. Years of price dumping have made it very difficult for competitors to enter the market, enabling China to have built an absolutely dominant position in the mining and processing of such metals as neodymium, terbium or dysprosium. However, slowly, new competitors are getting ready to enter the market; some like Molycorp in the United States and Lynas Corp in Australia and Malaysia have already started to produce rare earths, even if mostly light rare earths. China has also started to enforce stricter industrial and customs rules, reducing the amount of rare earths smuggled out of the country, which will force end users to seek alternatives. China’s rare earths dominance should start to ease considerably in the next few years. Africa has the potential to become one of the new sources of heavy rare earths thanks to a series of projects being developed in various parts of the continent. One of the most promising of these is located in Tanzania and it is being developed by the Australian company Peak Resources (Peak: ASX: PEK) the Ngualla Rare Earths Project.

The Ngualla project is located in southwestern Tanzania, which is one of the best mining jurisdictions in Africa. It is rich in the currently high demand ‘magnet metals’ such as praseodymium. Peak has also entered discussions with strategic partners, having entered talks to sign a memorandum of understanding (MOU) with a Chinese rare earth producer based in a port city in northeast Jiangsu Province, with facilities and technical expertise in the beneficiation, processing and separation of rare earths into high purity rare earth products and an established marketing network. China is indeed interested in East African minerals and several Chinese mining firms want to secure positions in projects in Tanzania, which is an ideal area for export logistics to China. The MOU in question is likely to continue pursuing the processing and beneficiation of the Ngualla resource.

The initial studies revealed ideal geological conditions allowing for a relatively simple processing method. The mineralization is not radioactive since the proportion of uranium and thorium is among the lowest of all major rare earth projects in the world. The ratio of overburden occurrence is low and the resource is distributed such as to allow for open pit mining. The deposits are believed to be the fifth largest outside the People’s Republic of China. The capital cost is estimated at USD$ 400 million with an annual income of some USD$ 360 million. Peak Resources wants to set up a pilot project next and then in 2016 start of commercial production.

On September 29, Peak announced that it has secured funding for the Ngualla Rare Earth Project thanks to a USD$ 25 million financing deal arranged through the Jersey-based Appian Natural Resources Fund. The funds will enable Peak to pursue and complete a Bankable Feasibility Study (BFS) and to perform additional beneficiation test work to develop a recent rare earth concentrate grade improvement.Appian runs a special private equity fund for metals and mining that was launched in 2014 specifically for investments in metals and mining company or relevant projects in selected jurisdictions featuring attractive investment opportunities. Appian has a unique cooperative approach to investing, aimed at enhancing the value of mining companies by providing capital and operational know-how. Appian’s participation in the Ngualla Project represents an important ‘vote of confidence’ in its ultimate success. Meanwhile, Peak has managed to confront financial risks, allowing for management to focus more on the development and optimization of its assets and creating long-term value. Appian’s extensive network of financial relationships will enable Peak to benefit from additional support and assets to assist its progress.

Appian has so far agreed to offer Peak a deal structured along two main components: a USD$ 3 million (in two tranches) Bridge Loan Facility (BLF) and a Principal Transaction (PT). The PT is based on an exclusive Non-Binding Term Sheet (NBTS) the closing of which is to occur on or before 30 November 2014. Under the PT terms, Appian has agreed to subscribe for approximately 50.1 million Peak shares at a price of AUD$ 0.09/share (raising approximately AUD$ $4.5 million). Appian will be entitled to nominate two directors to the current Peak board. Appian has agreed to invest up to a further A$14.1 million (approximately) in Peak’s 100% owned subsidiary, Peak African Minerals (PAM), a Mauritius based company that currently owns 100% of the shares in Peak’s indirectly-owned Tanzanian subsidiary PR NG Minerals Limited.

Appian’s investment in Peak represents great confidence in the latter’s recently announced beneficiation process breakthrough at the Ngualla Project in Tanzania. Peak gained some 30% in share price in the span of a month.  The new beneficiation process will enable Peak to reduce its capital costs (CAPEX) as outlined in the Preliminary Feasibility Study (PFS). The savings come in the form of an improved concentrate, reaching 34.4% rare earth oxide, which gives the Ngualla Project a distinct advantage over other rare earths projects. The mineral, bastnaesite, at Ngualla “is very low in phosphate minerals, which have been already taken out of the ore body, leaving only iron as the main source of acid consumption. This produce cost savings as the Company can rely on smaller leach tanks and lower acid consumption, which translate to reduced CAPEX and operating costs. Moreover, less iron means less sulphuric acid consumption in the leaching process.