A preliminary economic study on Frontier Rare Earths’ (FRO-T) Zandkopsdrift rare earth element deposit in South Africa predicts that it could be a high-margin producer of the specialty minerals, churning out 20,000 tonnes of separated rare earth oxides per year over a 20-year mine life.
The study estimated capital costs at Zandkopsdrift, which could start production in the second half of 2015, at US$910 million. That investment would produce a 1-million-tonne-per year project with an after-tax net present value of US$3.65 billion (at an 11% discount rate) and an internal rate of return of 52.5%. The payback period is estimated at two years.
Annual revenue was pegged at US$1.1 billion with an estimated operating margin of 78%.
The study outlined an open-pit mining scenario that would focus on the high-grade Central zone of the carbonatite deposit with metallurgical recoveries estimated at 67%. An onsite plant would produce a high-purity mixed rare earth carbonate concentrate, which would then be trucked 300 km to a rare earth separation plant located at Saldanha Bay, in Western Cape Province, where high-purity separated rare earth oxides (REOs) would be produced.
A rare earth oxide basket price of US58.23 per kg was used, based on average three-year China FOB prices and Roskill price forecasts for 2015. Operating costs are pegged at US$13.08 per kg of separated REOs.
A prefeasibility study on Zandkopsdrift is due to follow by the end of the year, with a full feasibility slated for 2013. The project is located 420 km north of Cape Town, in Northern Cape Province.
According to a 2011 resource estimate for Zandkopsdrift, the Central zone hosts 16 million indicated tonnes grading 3.09% for 495,056 tonnes TREO, plus inferred resources of 4.5 million tonnes grading 2.85% TREO for 129,162 tonnes TREO. A cutoff grade of 2% TREO was used for the Central zone. The prefeasibility will look at the viability of mining lower-grade resources as well. (Those include an indicated resource of 32.4 million tonnes grading 2.28% TREO at a cutoff grade of 1% TREO, plus 10.1 million inferred tonnes grading 2.08%.)
Frontier has already secured a partner in the form of Korea Resources Corp. (KORES) to help it advance the project. In December, the two parties signed a deal under which KORES will form a consortium that will acquire an initial 10% interest in Zandkopsdrift shortly, now that a PEA has been completed. The price will be based on a predetermined formula that considers the valuation of Zandkopsdrift and Frontier’s direct 74% shareholding in the project (or 95% economic interest), and the company’s enterprise value. The consortium can acquire another 10% of Zandkopsdrift and up to a 10% interest in Frontier after a full feasibility for the project is released next year.
As part of the agreement, the consortium will enter into a long-term offtake agreement for up to 31% of production from Zandkopsdrift at market prices, and provide financial and technical assistance to Frontier. The parties will also look into forming downstream businesses together (metals, alloys and magnets).
Shares in Frontier closed more than 8% higher at $1.25 apiece, after spiking as high as $1.34 during the day on the news. The company has a 52-week trading range of 80¢-$3.28 and 89.6 million shares outstanding.
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