Commerce Resources’ Ashram REE project boasts $2.3B NPV

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

The company plans to extract 4,000 tonnes per day from an open pit at its northern Quebec Eldor property, which is enough to produce 16,850 tonnes of rare earth oxide per year. Owing to a 0.19-to-1 strip ratio and the reduced costs of using open pit, 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 can sell its REEs for, given the uncertainty of China’s export quotas, the many other REE projects in the pipelines and the product’s limited market.

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 these 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 the 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 yields a pre-tax and pre-finance net present value (NPV) of $2.3 billion with a 10% discount rate, an internal rate of return (IRR) of 44% and a payback of 2.3 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 another big 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 is working on metallurgical testing on the deposit, with the best result so far showing it could produce a concentrate grade of 10.4% at a 73.4% recovery, and an 11.2% 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 commercial extraction processes for REEs.

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 ship it out during the three or four months per year of ice-free shipping. Commerce thinks it could 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 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 grade.

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 measured resources, 6.7% of indicated and 6% of inferred.

Along with its Eldor property, Commerce holds the Blue River property in east-central B.C. 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.