wondering about this commentary from Warick Grigor of fareast capital.
does it give you any reason to think that it may be viable?
Australian Rare Earth is making good progress
Australian Rare Earths (AR3) was a spectacular performer
in the market after the IPO in June 2021, rising from 30¢ to
a high of $1.07 by November of that year. However, since
then the price has dropped down to 19¢ before recovering
to 21.5¢ on Friday’s close. One would have been forgiven
for thinking that the wheel had fallen off, but that is not the
case. Read on.
A very large scale project
Last week AR3 announced a 25% increase in its 100%
owned Koppamurra JORC Mineral Resources to 101 Mt at
818 ppm TREO, with the Indicated category increasing by
40% to 63 Mt at 839 TREO. More spectacularly, the
Exploration Target range has increased to between 330 Mt
and 1.4 billion tonnes. This is really growing in scale.
The project has the enormous dimensions of 140 km in
strike and 30 km in width. The ore horizon is generally 2-3
m thick, overlain by 2-3m of overburden. It has been very
cheap to drill out with the 4,500 holes only going down to
an average depth of 10m. It traverses the SA/Victorian
border but there are no prizes for guessing which side of
the boundary is receiving the greatest exploration effort.
The near surface, soft host mineralisation will enable very
low mining costs, presumably with scrapers. A mining
operation would probably involve depositing the extracted
overburden and tailings back into the shallow pit as
operations progress along strike. The 3,700 tonne trial pit
already provides good evidence of how the pit can be
quickly and progressively rehabilitated, returning the
ground to its original agricultural purpose.
Source geology still being assessed
Unlike many of the WA rare earth clay deposits based on
in-situ weathering of granite, Koppamurra seems to be a
sedimentary deposit that has formed through the
concentration mechanism of the rising and falling water
table above a limestone basement, over a million years or
more.
The deposit seems to be void of monazite and radioactive
elements. Yet, the NdPr component is a healthy 21.5% of
the total rare earths in the deposit.
Ionic or not ionic, that is the question.
Some companies have been fairly loose in the way they
describe their clay deposits as being ionic, so let’s look at
what the term really means.
The term refers to how the rare earths elements are
bonded to the clays, with the recovery of the REO being
achieved by breaking the ionic bonds that hold them in
place. It is common for clay deposits to have some degree
of ionic material, but technically you need for the proportion
to be up around 40% to justify the tag.
A standard diagnostic leach test is used to see what sort of
REO recoveries can be achieved in acid with a pH of 4. If
you can recover 40%, you are in the ball park, though 60%
is obviously better. Of course, you can recover a much
higher percentage if you drop the pH to 2 or 3, but when
you do this you dissolve a lot of the gangue material, which
introduces contaminants such as aluminium, iron and
silicon which have to be subsequently removed.
Nevertheless, a commercial operation is likely to work off a
pH in the range of 2-3 in order to maximise recovery of the
rare earths.
As you subsequently lift the pH of the concentrate above 5,
you see the impurities drop out of solution. Rare earths
themselves drop out at a pH of 7.
The rare earths are recovered into a mixed rare earth
carbonate concentrate (MREC) that is then fed into a
separation facility to extract the rare earths using a solvent
extraction process. There are very few facilities outside of
China that have a separation facility. As an example, Neo
Performance Materials Inc has the only commercial rare
earth separation operation in Europe. (Recall that Hastings
Technology Metals acquired 22.1% in this TSX listed
company).
In good company with Neo and ANSTO
Neo appears to be taking AR3 seriously as it has signed a
non-binding MoU with the company to provide assistance in
the development of the project. It also contemplates buying
50% of the project output for the first production module.
While being non-binding, Neo has received value with the
receipt of 3.5 million options over shares in AR3 with a
strike price of 48¢.
AR3 has used ANSTO to conduct metallurgical test work
and successfully achieved pilot scale production of a
MREC from an 800 kg bulk sample of ore, being the first
Australian project to achieve this milestone. While it is still
early, AR3 thinks that a reasonable initial production rate
would be 2,000 tpa REO contained within MREC.
The bottom line
The market capitalisation of AR3 is a modest $23m but if
you add the stock that is escrowed until June this year, this
figure increases to $31m. The cash balance as at 31
December 2022, was $9m. Now that the hot air in the stock
price has cooled down, it may be that the shares are very
modestly priced as these levels for a company operating in
a sound jurisdiction like South Australia, having achieved
the progress already reported. Traders might wait for a rare
earths pricing signal before moving on the stock, but longer
term investors could get set at these levels without
competing with hot money.
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