ree projects, page-20

Peak Resources (PEK.ASX)

Company Info
PEK has a market cap of $42m, with $8.3m in cash and a cash burn of around $3m/quarter.

Ngualla Deposit
Project stats are listed at the bottom. Main thoughts on the project are as follows:

- It’s a light REE deposit with a less favorable distribution of REEs (refer scoping study page 14). This will reduce its chance of attracting buyers or JV partners, and I think it will struggle to gain traction with other low cost, high volume LREE facilities now entering production.
- To their credit, they have made good progress in 2012, but it remains a very early stage project. Every well-developed REE project has taken years of process development and this project has a long way to go - despite the optimistic target of a Q1 2016 startup.
-The deposit size is large at 3.8Mt of contained REO, but only a portion of this (likely 1-1.5mt) belongs to the Bastnaesite Zone. The remainder belongs to the Monazite Zone which is harder to process and mostly a lower grade. At this stage I wouldn't attribute much value to the REO in Monazite zone.
- Concentrate grade is too low at 7%. Its early days so one expects they will improve this, but a light REE project like this one needs a high REE concentrate grade to allow it compete with Lynas and Moly.
- Other than GGG, it is the only REE project I can recall that cracks the concentrate via atmospheric leaching. This will help reduce refining costs.
- The 10ktpa of product is made up of 3.65ktpa of cerium oxide concentrate (low value) and 6.35ktpa of partly separated REO.
- Project NPV looks attractive, but the inputs look very optimistic. For example, they state the capital cost as $400m + contingency (and note that a 35% contingency is normally relevant), then appear to use $400m in the NPV calculation. I also would have liked to see a lower basket price used given approaching market oversupply in La and Ce, and the fact that some products aren’t fully separated.
- I am concerned at the apparent "marketing spin" in the company announcements, particularly the scoping study - which should be an unbiased evaluation of the project. I guess this is understandable given the future capital requirements, but I much prefer to see an "under promise, over deliver" management approach.

At an enterprise value of $34m one could make a case of value, and process breakthroughs could turn it into a viable project. But its a risky prospect IMO.

Ngualla Project Stats
Project Stage: Scoping Study recently finished
In-situ grade: Good – 4.35% (high grade part only)
Deposit size: Large, 3.8mt of contained REO @
HREEs: Low
Extraction costs: Low – near surface
REO Conc grade: Low – approx. 6.4%
Ease of refining: Looks reasonable, but early stage
Saleable by-products: Not significant
Undesirable by-products: Low with in country processing
Capacity: Small <10ktpa
Opex: Quoted at $11/kg in scoping study, but I'm suspect on the numbers.
Capex: $400m + contingency. Some cost components seem low compared to other projects.
Process Risk: Very high at scoping stage
Country / Political Risk: Low as can be expected in Africa
Off-takes: None