Rare Element bullish on Bear Lodge

Rare Element Resources (RES-T, REE-X) says its prefeasibility study on the Bear Lodge project in Wyoming indicates that the rare earths project is technologically feasible and offers robust returns on invested capital. 

The study looked at a variety of project aspects including infrastructure, open-pit mining, mineral concentration, hydrometallurgical processing and analyzed production schedules based on a nominal model, or base case, and a maximum model. The nominal model considered 23,111 tons per year of concentrate production at 45% rare earth oxides (REO) for a 19-year mine life, and the maximum model evaluated 73,080 tons of annual production of concentrate at 45% REO for a 10-year mine life.

Under the nominal case scenario, Bear Lodge yields a 44.9% pre-tax internal rate of return (IRR) and a US$1.7-billion net present value (NPV) at an 8% discount rate, with US$375.2 million in initial capital cost payback within two years.

Under the maximum case, the pre-tax IRR jumps to 99.3% and the NPV to US$4 billion, with initial capital payback in one year.

Total life-of-mine capital costs for the project have been estimated at US$445.9 million, including a 25% contingency of US$89.2 million. The initial capital cost of US$375.1 million includes US$127.2 million for the physical upgrade plant and mine — including replacement capital — and US$133.8 million for the hydromet plant.

Initial capital expenditures are expected to span the first four years, with infrastructure heavily weighted in the first two years and plant construction weighted in the second two years.  

The nominal base case and the maximum case assumed an average price of US$17.36 per kilogram of bulk mixed rare earth concentrates with an average 45% grade of total rare-earth oxide (TREO). The price is a three-year trailing average from Metal Bulletin prices.

The output concentrate produced from the Bull Hill mine will be a “basket mix” of individual rare earth oxides. A 40% discount was assumed for the pricing in the company’s economic models.

The economic analysis also calculated that the break-even cash flow price for rare earth concentrate is US$4.42 per kilogram, which is 75% below the US$17.36 price used in the models. The price required to achieve a 30% IRR is US$11.70, which is 33% lower than the price assumed for both cases.

The mine would be operated as a conventional truck-shovel, open-pit mine and the project’s development would comprise the open-pit mine operations, thePUG plant on-site at the Bull Hill mine and the hydromet plant at Upton, Wyo., next to the rail line. Upton is 64 km from the Bull Hill mine.

The PUG plant would maximize the rare earth ore and turn out a pre-concentrate using gravity-separation, screening and washing. This pre-concentrate would be taken to the hydromet plant at Upton, where a rare earth concentrate will be produced.

The PUG plant is designed to process 1,000 short tons per day of high-grade oxide material and 1,000 tons per day of oxide carbonate and stockwork material, which would be blended to meet mine-pit production plans and market demands.

The PUG process uses a series of crushing, attritioning, washing and screening methods to concentrate the rare earth fines and reduce the physical mass. Harder stockwork ores are used to break up the clay-like oxide ores. There are areas of the Bull Hill mine that contain variable amounts of weathered oxide ores and other areas that contain intermittent stockwork. Each of these ore types has a different upgrade percentage and mass reduction in the PUG circuit.

The product streams from the different ore types are designed to produce a pre-concentrate with the overall processing strategy to maximize rare earth grade and recovery and minimize the mass, or tonnage, of the pre-concentrate that is transported to the hydromet plant.

The hydromet plant has been designed with two parallel circuits to process the pre-concentrate from the PUG plant. The nominal rare earth oxide production rate is expected to be 10,400 tons per year. The hydromet process would use a hydrochloric acid solution heated to 90°C to leach the rare earth elements from the concentrate. Afterwards, iron precipitates from the solution, and calcium and manganese are extracted by an ion-exchange process. In the end rare earth elements precipitate as carbonates, using sodium carbonate.

The nominal, or base case, and the maximum case used only the Bull Hill deposit.

Rare Element Resources says exploration will continue at the outlying deposits where drilling has indicated prevalent heavy rare-earth elements. If these deposits contain economically feasible mineral reserves and resources, there would be an opportunity to prolong the mine-life or increase annual production of rare earth element concentrate.

Life-of-mine operating costs under the nominal base case have been estimated at US$254.73 per ton and US$247 per ton for the maximum case.

Several analysts were unimpressed by the results of the prefeasibility, however. 

Jon Hykawy, head of global research and clean technologies and materials analyst at Byron Capital Markets, has lowered his price target on the stock from C$18.75 per share to C$8 per share following the prefeasibility results.

“It will, in our opinion, become blindingly obvious to all that the only sensible approach to the rare earth industry is to move downstream, reap the reward of revenue multiples that accrue to companies with the hardware and know-how to separate and purify rare earth oxides, convert those oxides to metal, take the metals and create alloys and, ultimately, perhaps even make magnets or other products from those alloys,” he reasons in a research note to clients. 

“RES will likely come to the same conclusion, eventually. If the company does nothing more than follow the business plan outlined in its prefeasibility study, we believe that the NPV of the firm is negative and our recommendation would be ‘sell.’ But if the company finds a partner with which to share the burden of separation and purification of rare earths, perhaps a partner that can extract additional value from a payment in the form of REOs, then a C$8 target price per share is supportable.”  

Newsletter writer John Kaiser was more negative, describing the prefeasibility study as “sadly lacking in detail compared to those recently published by Matamec Explorations and Frontier Rare Earths for their earlier-stage preliminary economic assessments,” adding that “what the new brass CEO Randall Scott and chief operating officer Jaye Pickarts did outline makes it clear that Rare Element’s fully owned Bear Lodge rare earth project offers poor absolute ‘speculative’ at the current $5.75 price, and should be sold immediately by Spec Value Hunters before the bears behind the short position of 6,388,470 as of mid-February figure out how to make hay out of the prefeasibility numbers.”

Kaiser “plugged the PFS mine parameters and capital and operating cost assumptions into an after-tax discounted cash flow model and determined that with a 10% discount rate, the net present value is only US$7.47 per share using the domestic, spot-based basket price of US$38 per kilogram, which has yet to establish a bottom since peaking at US$107 per kilogram in July 2011,” he writes. “Using the 2016 Toyota-Kipawa price deck which is pessimistic about light rare earths, which represent 96.8% of Rare Element’s basket, while optimistic about
heavy rare earths, which are only 3.2% of the basket, the basket price is only US$29 per kilogram, which generates a price target of only US$2.08 per share based on 48.7 million shares fully diluted.”

At presstime Rare Element Resources traded at C$5.33 and US$5.05 per share within a 52-week range of C$3.16 to C$15.92.