Frontier set to make splash in rare earths sector

In the race to bring the world new sources of rare earths from places other than China, Frontier Rare Earths (FRO-T) put itself in a solid position thanks to a deal with a deep pocketed Korean consortium.

While the Chinese have largely cornered the rare earth metals, the country’s recent aggressive moves – evidenced by its limiting the export of the metals to Japan for political reason – has end-users calling for mines outside of the country now more than ever.

The situation helped motivate Korea Resources Corporation (KORES), a government-owned mining company, to make an agreement with Frontier that will help ensure that its
Zandkopsdrift rare earth project in South Africa makes it into production in the coming years.

The increased likelihood of achieving production was reflected in Frontier’s share price as it climbed 13% to $2.25 since announcing the agreement on July 13.

The agreement would see KORES acquire up to a 20% interest in the project and a 10% equity position in Frontier along with the right to buy up to 40% of the project’s rare earth production.

That should pave the way for Frontier to enter into the big leagues of rare earth production as it could be one of the first large scale mines to reach production outside of China.

But like most junior miners on the verge of greater things, Frontier’s alignment for success did not come overnight.

The company’s president and chief executive, James Kenny, began laying the foundation for the venture back in the early 1990s, just as South Africa was coming out of its dark years of apartheid.

It was 1994 and Kenny was an investment banker keenly aware of the fact that despite its abundance of natural resources the country had no semblance of a junior mining sector.

His response was to be a part of the founding of Firestone Diamonds (FDI-L), which currently has two operating mines, one in Botswana and another in Lesotho. Kenny continues to serve as a non-executive director for the company.

“By 2002 we wanted a new company to focus on everything but diamonds,” Kenny says of the origins of Frontier.

With considerable expertise and contacts already build up in the northwestern region of South Africa, an area known as Namaqualand, the team made the easy decision to continue to focus on resource projects there. The riskier move came in the form of deciding on rare earth metals projects at a time long before they were in vogue.

“We did question our wisdom for a couple of years,” he confesses. “People were saying back then that you could get as much rare earths as you wanted from China at basically no cost. We didn’t know how long it would take until [a rare earths project] would catch traction but we were confident that at some point it would.”

By 2005 the company had locked up 500 sq. km of land in an area known for diamond and base metal mining.

It was a good mining address, but rare earth metals were a new game…..or at least that’s what Frontier believed initially.

Its own early exploration work, however, would soon uncover a series of collars left behind by Anglo-American (AAL-L, AGL-J). And while Anglo never reported the results from the drills, some dogged determination from Frontier eventually yielded some answers.

Anglo had discovered rare earth mineralization while looking for phosphate in a 3,500 metre drill program, and had compiled the data and kept it to itself. That is until Frontier was able to acquire it.

“We would have got there without them,” Kenny says of the delineation of the current deposit, “but we would be having this conversation in 3 years time…. It sped things up by a couple of years.”

But the story of Zandkopsdrift isn’t just about the speed of outlining a deposit; it is more succinctly about the quality of that deposit.

Zandkopsdrift is composed of two zones, The A zone, and the B zone which is enveloped by the A zone.

But it is the B zone that has attracted much attention in the world of rare metals.

“It’s sort of like the layers of an onion,” Kenny says of the two zones. “You take off the lower grade and a higher grade zone is within it.”

In fact, the inner zone is composed of material that is 50% higher grade than in the surrounding zone and will be mined for the first 10-12 years as it hosts roughly 450,000 tonnes of ore.

The B zone’s 2.5% TREO grade ranks it third in average TREO grade amongst advanced projects outside of China. And its near surface situation combined with the weathered ore’s highly friable nature, should make mining it uncomplicated.

“We will have challenges with this project,” Kenny concedes as all honest mining executives would, “but mining the ore won’t be one of them.”

The plan is to dig a shallow low tonnage open pit in an area that has no particular environmental sensitivities and in a jurisdiction well equipped for mining.

The project sits 100-km north of Great Western Minerals (GWG-V) Steenkampskraal Mine, and is also situated within good proximity to rail and a port.

With roughly 60% of the resource already in the indicated category, Frontier already has a decent handle on the deposit, and while it is still early days, it envisions building a mine that would process 20,000 tonnes of ore per annum.

That amount would put the project roughly in the same league as Molycorp’s (MCP-N) Mountain Pass project and Lynas’ (LYC-A) Mount Weld projects.

Lynas plans for Mount Weld are to construct an 11,000 tonnes per annum mine in phase one and then take that up to 22,000 tonnes in phase two.

Molycorp is proposing to restart Mountain Pass at 20,000 tonnes per annum and eventually ramp up to 40,000 tonnes.

Those two projects are considered the industry standard both because of their advanced stage of development and their high grades. Both of the projects which rank above Zandkopsdrift in the latter category.

But KORES isn’t complaining about it. The move with Frontier marks its first with a western-based rare earth junior and signals Korea’s seriousness with regards to securing a stable supply of the metals that are so essential in the production of high tech products.

Discussions between the two firms began last year and KORES president and chief executive, Shin-Jong Kim, called Zandkopsdrift a strategic priority project for both his the company and Korea.

“The development of Zandkopsdrift will be a critical element of KORES’ efforts to secure a long term, stable source of rare earth supply,” Kim said in a statement.

The agreement also calls for KORES to provide financial, technical and operational assistance.

A preliminary economic assessment on Zandkopsdrift is currently underway and should be finished in the fourth quarter, Frontier says.

The completion of a definitive feasibility study, which is scheduled for the fourth quarter of next year, would give KORES the right to acquire another 10% of the project.

Frontier holds a 95% interest in the project which is located in the Northern Cape Province of South Africa.

The project currently hosts an indicated resource of 22.9 million tonnes grading of 2.32% TREO for 532,000 tonnes of TREO and an inferred resource of 20.8 million tonnes grading 1.99% TREO for 415,000 tonnes.

Frontier currently has $48 million in the kitty, which it says, will finance it through the Preliminary Economic Assessment and pre-feasibility studies