Commerce Resources’ Ashram rare earth project at $2.3bn NPV

VANCOUVER — Commerce Resources (CCE-V) has outlined the financial case for its remote Ashram rare earth project in a preliminary economic assessment.

The company plans to extract 4,000 tonnes per day from an open pit at its northern-Quebec Eldor property, enough to produce about 16,850 tonnes of rare earth oxide per year. Thanks to an especially low strip ratio of 0.19 to 1, and the reduced costs of using open pit in the first place, Commerce thinks it can achieve operating costs of $95.20 per tonne treated or $7.91 per kg of rare earth oxides.

The big question these days, however, is how much the company might be able to sell its rare earths for, given the uncertainty of China export quotas, the many other rare earth projects in the pipelines, and the somewhat limited market for the products.

The Ashram deposit has all five of the so-called critical rare earths including neodymium, europium, dysprosium, terbium, and yttrium, which range in assumed prices from $28 per kg for yttrium to $980 per kg for terbium. By combining those five elements with the other five present in the deposit and using a variety of sources to predict 2017 pricing, Commerce set a basket price of $38.43 per kg for the in-pit resource. Because the company plans to sell a concentrate with the elements lumped together, it discounted that price by 25% and used a basket price of $28.82 per kg for the study.

Combining the production and price assumptions over a 25-year mine life yield a pre-tax and pre-finance net present value of $2.3 billion with a 10% discount rate, an internal rate of return of 44%, and a payback of 2.25 years. The financials are most  sensitive to the assumed rare earth oxide prices, with a 30% reduction in the basket price resulting in a 54% drop in the NPV to $1 billion and the IRR to 25%.

Oxide recoveries provide the other biggest variable in the model. A 30% reduction in recoveries from the assumed 67% to 47% yields similar results to the 30% price drop. The company continues to work on metallurgical testing on the deposit, with the best result so far showing it could produce a concentrate grade of 10.37% at a 73.4% recovery, and an 11.18% concentrate at 68.5% recovery using conventional flotation with no optimization. The PEA itself was based on a 10% concentrate at a 70% recovery. Rare earths at the project occur primarily in monazite and to a lesser extent bastnaesite and xenotime, which the company notes are the dominant minerals in known commercial extraction processes for rare earths.

Meanwhile the project stands up better to variations in the capital and operating expenses, helped in part by the relatively low operating costs. The study set capital costs at $763 million, which includes $42 million for port upgrades at Mackay’s Island, $287 million in mine site infrastructure including an airport and power plant, and $204 million for a 185-km road to Ungava Bay. The company plans to haul the concentrate to the port at Mackay’s Island and then ship it out during the three or four months per year of ice-free shipping. Commerce thinks it might be able to reduce capital costs by coordinating with the Quebec government and its ambitious Plan Nord, which includes planned road and hydro lines running within 35 km of  the company’s property.

And while infrastructure costs have been factored into a 25-year mine life model, the Ashram deposit actually hosts enough material to support more than 175 years of open pit and underground mining at a 1.25% cut-off grade, or 300 years at a 0.51% cut-off.

As of a March update, the deposit hosts 1.6 million measured tonnes grading 1.77% total rare earth oxides (TREO), 27.7 million indicated tonnes grading 1.9% TREO, and 219.8 million inferred tonnes grading 1.88% TREO. Middle and heavy rare earths represent 9.8% of the measured, 6.7% of the indicated, and 6% of the inferred resource.

Along with its Edlor property, Commerce holds the Blue River property in east-central British Columbia that hosts the Upper Fir tantalum and niobium deposit. In November the company put out a PEA on the deposit that established a pre-tax NPV of $18.5 million using an 8% discount rate and a 9.1% IRR.

Commerce Resources’ share price jumped 8¢ or 36% to close at 30¢ on the Ashram news with 2 million shares traded. At the end of January the company had $323,000 in cash on hand and 143.8 million shares outstanding.