With all things Gifford Ck in two days, maybe I should unpack HAS the TMT offtake expanded to rare earth concentrate under the Stage 1 development deal. Not that they had much choice, but this eloquent solution also speaks volumes of the current circumstances and bind Yangi finds itself in.
TMT are a trading house. "mill-independent", meaning they have no mills of their own or locked-in affiliation with anybody else's monazite mills. In short TMT are a middleman, who take a cut of the mon-con sale revenue for organising an end buyer for Yangi. Far from a "profit-share model" as envisioned in the Stage 1 update, or some ill-thought-out NEO JV arrangement, a decent slice of Yangi margins go to TMT to on-sell the mon-con.
In reality, there is no spare capacity mon-con mills outside China atm, and probably won;t be for years to come, if ever. LYC and ILU are full of their own NdPr mill capacity in their own mon-con, and only ILU is contemplating DyTb-con from NTU as a secondary party off-take feed. Energy Fuels in the US are small, full with Chemours, Iperonix Titan when it gets developed and their own Brazil mon-con for future expansions. Commercial reality and feed security means future mon-con mills are likely to be either owner-feed operated, or bult under definitive off-take arrangements (like HAS was seeking but couldn;t find). Even then mon-con mill production can only expand in the West at the same rate downstream MREC capacity is bult out... so expect the very best, lowest cost deposits (hard rock or ionic clay) to supply MREC into slowly expanding RE-Oxide refining capacity.
But HAS needed "offtake terms will satisfy the Project’s debt financing and bankability requirements underpinning the optimal funding structure."... so no offtake no finance. It's pretty clear an offtake to a metals trading house is actually a 'claytons' offtake, the offtake you have when you don;t have an offtake (for those old enough to remember the meme). An elegant solution though, because it ticks the off-take box, with a 'western company', brings a guaranteed revenue, so opening the possibility of funding. TMT are in the same boat as HAS however, there is no 'western' mon-con mill capacity now and maybe won;t beyond the 5 year opff-take agreement. So how and why does TMT take on this risk ?
The distasteful and hypocritical reality is TMT will simply sell Yangi mon-con to China, referenced at the 90 day average China ex-works mon-con price (adjusted for reo, NdPr content etc). HAS would probably have got a better priced deal and certainly saved on the middleman ticket clipping if they just did the same offtake directly with China... obviously. Unfortunately, they can't be seen selling directly to China however, because all the guvvie finance and hoped for Oz/US critical mineral grants are predicated on developing a western RE supply chain, not feeding the Chinese Re machine...
An argument can be made that 5 years of mon-con going to China is an OK price to pay if it provides the profits to eventually build an MREC plant in Oz, or mon-con mill elsewhere, that will send the NdPr to western downstream processors. No doubt that argument will be made to governments if they are smart enough to work out the shell game and ask questions. I don;t think the argument stacks up though, mostly because there will be lower cost mon-con and MREC suppliers coming online over tiem to fill western downstream REO refining and magnet manufacture. The only thing subsidising a new Australian RE mine that sells it's mon-con to China, is that it keeps China in high supply of cheap REO for their own hugely profitable and strategically important downstream RE-magnet industry. Just like PEK and others looking to sell to China, by continuing to supply China's supply and dominance, it guarantees low REO prices (no incentive for China to raise prices and attract more RE-feed) which in turn stymies western development of profitable RE-mines or downstream processing.
The cure for low prices is low supply, from only profitable deposits, which in turn puts all downstream RE-magnet processors on a similar footing as the Chinese. If the west is going to throw money at subsidising critical minerals, they need to do it sensibly and strategically, not keep exporting subsidised RE to our Chinese 'enemies' Governments should only be subsidising mines that clearly form part of a Western mine-to-magnet supply chain now and in the future... not now and maybe in the never-never.
So where does that leave Gifford Ck? Well HAS has first mover studies, permits, development, equity and government debt advantage, but the highest cost ironstone deposits. DRE has the best, lowest cost ironstone deposit at YIn, albeit with a lower NdPr:TREO ratio. Subsidising Yangi that almost certainly won;t ever be profitable enough to move beyond shipping mon-con to China on life-support makes no sense. Subsiding a JV between HAS and DRE, starting off with 7+ years of much higher grade, cheaper to mine YIN deposit, at least lowers the hurdle for future profits and an industry competitive REO supplier to western downstream RE offtake industry as it's built out. In that respect, the couple of years delay in bringing on YIN as a JV development deposit might neatly provide the time for a downstream western offtake partner to ready themselves and commit to a Gifford Ck offtake and by-pass feeding the Chinese machine at all?
Food for thought, clearly it all starts with the government's strategic and tactical view of subsiding Yangi just to end up selling to China via the back door.
GLTAH
HAS Price at posting:
97.0¢ Sentiment: None Disclosure: Not Held
Governments should only be subsidising mines that clearly form part of a Western mine-to-magnet supply chain now and in the future... not now and maybe in the never-never.
(20min delay)
