One of continent’s largest rare earths projects seeks partners, roads

Avalon Advanced Materials (TSX: AVL; US-OTC: AVLNF) is in a new push to develop its Nechalacho rare earths project in the Northwest Territories, with an economic study targeted for the fall and production potentially in three years.  

It’s a full circle move for Avalon, which in 2005 acquired Nechalacho – its first project – and did most of the modern exploration, resource and study work that put it on the map. Vital Metals (ASX: VML; US-OTC: VTMXF), which owns part of the Nechalacho deposit, has been more active at the site over the last five years, though it’s less advanced than Avalon. Nechalacho is about 100 km southeast of Yellowknife.  

“It really came down to rare earths being in vogue again,” Avalon CEO Scott Monteith told The Northern Miner in a June video call. “Washington and Ottawa have realized that the pricing coming out of China is more manipulation-driven than market-driven and the West is now waking up to that reality. The economics and geopolitics are starting to make the Nechalacho project make a lot more economic sense.” 

Avalon’s renewed approach to Nechalacho, one of the largest and most advanced rare earth projects in North America, rides that growing rare earths momentum as it seeks partners and roads for the roughly $2-billion (US$1.42-billion) capital cost project. It also comes as the Northwest Territories seeks new mining projects to fill the economic gap left by closing diamond mines.  

Partners sought 

With market factors and political currents now more favourable, Avalon is considering how to finance the project and get it up and running over the next three to five years. Monteith said he’s speaking with mining and processing companies as well as offtake firms to potentially join as equity partners, joint ventures or other strategic partnerships. He wasn’t able to specify who at this point. 

Like many projects in the Far North, Nechalacho lacks permanent infrastructure connections and is accessible only by barge or ice road. But Avalon is in talks with the N.W.T. government about accessing federal financing under the Critical Minerals Infrastructure Fund to potentially build a road to the site. 

The preliminary economic assessment that Avalon aims to publish in October would update a 2013 study and resource. An updated feasibility study is planned for next year. 

That feasibility study from more than a decade ago pegged Nechalacho’s capital cost at $1.6 billion, but there’s been sharp inflation since then, Christopher Senyk, vice president of corporate development, acknowledged during the call. 

“These things are not cheap,” said Senyk, who sees capital costs at around $400,000 higher now.  

The same study forecast the project’s post-tax net present value at $1.3 billion using an 8% discount rate, and gave it an after-tax internal rate of return of 20%.  

20-year life 

Nechalacho’s Basal zone could produce 9,300 tonnes of total rare earth oxides (TREO) annually over a 20-year mine life. It hosts proven and probable reserves of 14.6 million tonnes grading 1.7% TREO and 0.46% heavy rare earth oxides (HREO).  

Contained reserves total 247,000 tonnes TREO and 67,000 tonnes HREO, which includes dysprosium, terbium and yttrium. Annual production is projected at 19,763 tonnes of zirconium oxide, 2,230 tonnes of niobium oxide and 243 tonnes of tantalum oxide. 

While Vital’s Tardiff zone at Nechalacho has higher estimated annual output of about 14,800 tonnes of TREO, it would have an 11-year life and an NPV less than half of Avalon’s, at about $622.5 million, according to Vital’s scoping study released last summer. Tardiff has initial capital costs of about $400 million and an internal rate of return of 26%.  

Vital’s rights to Tardiff extend from surface to about 150 metres depth and Avalon’s Basal from 150 metres and deeper.  

Headlines 

And yet, despite Vital’s smaller operation at Nechalacho, the Australian company has made far more headlines for its work at Tardiff over the past few years. It was briefly Canada’s first-ever producing rare earths mine on a demonstration-scale basis during 2021-2023.  

But mining ended due to cost overruns, market difficulties and the bankruptcy of Vital’s processing subsidiary in Saskatoon, Sask.   

Vital did not respond to a request for comment.  

Basal is envisioned as an underground mine and Tardiff as open pit. Under an agreement between Avalon and Vital, future mining of the deposits would follow a simultaneous development model and neither company can impede the other.   

But even though Avalon had a strong feasibility study in 2013, it didn’t start developing the site because it couldn’t raise enough cash to build a mine. And so, under its founder and former CEO Don Bubar, the company opted to wait.  

“Don and his small team sat on Nechalacho like a junior miner does,” Monteith said. “They were pretty much waiting around to be bought.” 

Asset sale 

To earn cash, Avalon sold the Tardiff deposit to Vital’s former subsidiary Cheetah Resources for $5 million in 2019.  

“I joined the company to start commercializing assets, and in the spring of 2023 lithium was the focus. Rare earths weren’t in vogue yet,” Monteith said.  

The company was set to open its Yellowknife office in mid-June.  

“Then it becomes its own northwestern identity,” Monteith said. “That helps with relations with First Nations communities and with the people of the Northwest Territories.” 

The upcoming PEA will also incorporate cleaner processing methods for Basal. The company wants to avoid conventional methods of processing rare earths that involve intensive use of chemical acids.  

“We have patented and proven a new processing technology with collaboration from the University of Toronto,” Monteith said. “We now have a process that is eco-friendly, using caustic soda instead of acid.” 

That process would cost about one-third less than the acid-based approach, Monteith said, and Avalon plans to build a demonstration system at the site.  

Power line 

A proposed power expansion that would run a line north towards the diamond mines northeast of Yellowknife could also be connected to Nechalacho through a spur, Project Director Burl Joseph said.  

The company is also working on refreshing negotiation deals for impact-benefit agreements it signed with the Yellowknives Dene First Nation and Lutsel K’e Dene First Nation more than a decade ago.  

As Avalon seeks project financing and looks to its next milestones for Nechalacho, Monteith emphasizes that this time the project benefits from the right alignment of factors and critical metals.  

“We also have zirconium, which is a key material in nuclear power plant construction,” he said. “It’s a very attractive assortment of goodies. As Don Bubar and his team used to call it, it’s the world’s most significant grocery store of rare earths.” 

Avalon shares traded for 4¢ apiece on Wednesday morning in Toronto, valuing the company at $33.8 million. The stock has traded in a 12-month range of 3¢ to 15¢.