Avalon grows Nechalacho rare earth deposit (September 20, 2010)

VANCOUVER — The largest rare earth element (REE) deposit in Canada just got bigger: a successful winter drill program at the Nechalacho project in the Northwest Territories has boosted the indicated resource in the Basal deposit by 40% for owner Avalon Rare Metals (AVL-T).

The Basal deposit formed the basis for the Nechalacho prefeasibility study completed a few months ago. At the time, the deposit hosted a 14.5-million-tonne indicated resource. Now that resource has grown to 20.5 million tonnes grading 1.75% total rare earth oxides (TREO); 23% of the TREOs are heavy rare earth oxides (HREO), which are rarer and more valuable.

In addition, the deposit now boasts a high-grade subzone defined by a net metal return cutoff grade of $600, in contrast to the $260 cutoff used for the overall resource. The higher-grade zone is home to 1.87 million indicated tonnes grading 2.19% TREO, with HREOs comprising 28.8% of that mineralization. And the high-grade zone sits adjacent to the planned access ramp, which means it could develop into a mine starter area with little adjustment to the mine plan.

Avalon continues to drill at Nechalacho. The company has two rigs turning in its summer program; one is infill drilling the Basal zone to upgrade the inferred resource while the other is drilling large-diameter core to provide bulk sample material for metallurgical pilot plant work. Assays for the infill work will be available starting in late October.

Avalon is also working to move Nechalacho, which sits 100 km southeast of Yellowknife near Thor Lake, through the environmental assessment process.

And in August the company engaged a consulting firm to complete a scoping study on the construction of a rare earth separation plant. Avalon says its prospective customers want separated rare earth oxides, as opposed to a concentrate containing combined metals. At present, the only facilities capable of separating the rare earth metals in a Nechalacho concentrate are in China, which supplies 95% of the world’s rare earths. But China has been cutting back on exports of late, creating supply risk for end users. As such, Avalon says customers are “looking for a complete supply chain to emerge outside of China,” which is why the company is investigating the potential to develop its own separation plant. Developing the plant could involve partnerships and the processing of concentrates from other producers.

The prefeasibility study at Nechalacho gave the project a 12% after-tax internal rate of return and a net present value of $540 million, while predicting a net cash flow of $1.5 billion. The study pegged capital costs at just shy of $900 million, including a conservative 22% contingency. The mine, mill, and hydrometallurgical facility contribute $589.3 million to that amount, while sustaining capital, reclamation and engineering, procurement, construction, and the contingency make up the rest.

Once built, the mine would churn through 2,000 tonnes of ore daily for 18 years to produce four saleable products. Each year the operation would produce roughly 10,000 tonnes of TREO, 18,000 tonnes of zirconium oxide, 1,700 tonnes of niobium oxide, and 100 tonnes of tantalum oxide. The tantalum, niobium and zirconium products do not involve significant additional costs as they occur alongside the HREOs and go into solution easily.

As soon as the prefeasibility study came out Avalon president Don Bubar started talking about expansions beyond 2,000 tonnes per day, based on the project’s resource base. The prefeasibility study only assessed the project’s 12 million tonnes of probable reserve. The project’s resources are much larger: total indicated resources stand at 30.4 million tonnes grading 1.64% TREO while inferred resources add 182.6 million tonnes averaging 1.4% TREO.

Rare earths are the key metals needed for the powerful magnets used in hybrid-car motors, clean technologies related to renewable energy, and even flat-screen televisions. There are 15 in total, known as the lanthanide metals on your periodic table; they usually occur together in varying ratios and then must be separated in order of atomic weight.

On news of the increased resource at Nechalacho, Avalon’s share price climbed 19¢ or 5.4% to $3.69. The company has a 52-week trading range of $1.89-$4.24 and 79 million shares outstanding.