Despite the down turn facing the resources sector, and general state of industry malaise, some high-quality assets are emerging from the fog.
Greenland Minerals and Energy Ltd (GMEL, ASX: GGG) have kept their eye on the prize, and with a series of positive developments in 2015, capped off with key regulatory developments concerning uranium, the Greenland story is increasingly hard to ignore.
The Asset
The key asset is undoubtedly of immense global significance. The 100% controlled license over the northern Ilimaussaq Complex in south Greenland is known to contain >502 km of prospective terrane for uranium, rare earth and zinc mineralisation. Approximately 15% of this area has been extensively explored, returning a JORC-code compliant resource of >1 billion tonnes across three separate deposits. The global resource base contains a staggering 593M lb’s U3O8, 11Mt rare earth oxide, and 5.3Blb’s zinc, and clearly has immense upside.
Any ore seam that consistently returns true width drill intercepts in the order of 185m @ 442ppm U3O8, 1.2% TREO, 66m @ 474ppm U3O8,1.55%TREO, and 33m @523ppm U3O8, 1.7% REO, and is laterally persistent over 7 by 8 km area, should automatically be lumped in the ‘Tier 1’ category. Year round direct shipping access is simply the icing on the cake.
Potential also exists for different mineralisation styles that are yet to be identified. Significantly, with a mining license application in the system, this license is in the process of being converted to a 30 year mining license in accordance with Greenland’s rules and regulations, with option to extend. This is a focal point of 2016, along with commercial development.
Process Development and Feasibility
Extensive metallurgical studies have been conducted over many years, which have identified a number of processing routes that can effectively treat the ore. These were initially conducted by Danish research agencies, and then by GMEL. The most effective processing route draws on conventional metallurgical processes to generate rare earth, uranium and zinc products. This involves a two stage process of a flotation circuit, followed by a leach circuit, both of which have been effectively pilot plant proven, at internationally recognised laboratories. Pilot plant operations have been conducted in collaboration with the EURARE program, an EU-funded initiative aimed to open new supply channels of strategic raw materials.
In 2015, following completion of a DFS, GMEL finalised a mining license application, and submitted it to Greenland’s regulatory bodies, and this is where things become interesting. Clearly, Greenland Minerals has a supportive government behind it; essential when dealing with uranium. Perhaps even more intriguing, is that Greenland’s regulatory system has been upgraded to be proficient to produce and export uranium oxide, under the auspices of the Danish government. This process is largely complete following the ratification of Greenland’s participation in key international safety conventions in late-2015. On January 19, Denmark and Greenland announced a landmark agreement on uranium exports from Greenland, and this is a reflection of the significance of one project. .
An extensive amount of political capital and bureaucratic resources have now been invested in clearing the path for what is emerging as Greenland’s most important natural resource project.
The underlying technical studies are of high standard, with contributions from internationally recognised consultants. Tetra Tech has received an international award for their work on the feasibility study. SRK Consulting has published a paper on the resource modelling for the project in the Australian Institute of Mining and Metallurgy Bulletin. The World Nuclear Association (WNA) highlights Kvanefjeld as the most significant rare earth – uranium project globally. Updated project metrics are anticipated following optimisation work conducted through the latter half of 2015.
Put simply, a project that was once considered to be bogged in a web of political complexity is undergoing a radical adjustment in risk profile, and the timing is could be just about right.
Uranium – Set to Benefit from Major Nuclear Power Growth
Positive sentiment is returning to nuclear power, particularly in the wake of the UN 2015 Climate Change Conference in Paris, where the phase out of fossil-fuel powered base-load energy has been endorsed. The recent $82M CAD investment of China’s CGN Mining in Canadian uranium play Fission Uranium Corp for a 19.9% stake is a clear indicator of things to come. Many analysts are aware of the expansion of nuclear power capacity that is set to be implemented in the coming years. The WNA (August 2015) indicate a roll-out of 166 new reactors within 8 – 10 years, and 322 proposed by 2030.
The uranium spot price is yet to do anything of substance, but depressed interest rates have allowed peripheral players to participate in the uranium market, which has assisted in keeping prices languishing, and prevented utilities from aggressively locking in new long-term contracts. However, with US interest rates now on the rise, these market elements will inevitably dry up, and primary supply and demand fundamentals will return, driving the uranium price north.
Rare Earths – Key to an Energy Efficient Future
In rare earth world, the game largely remains a Chinese dominated affair. Prices have been suppressed for some time as China looks to consolidate and regulate its industry, and phase out the so-called illegal export conduits which still account for a considerable percentage of the overall market.
Rare earths are fundamentally important to China, with much of the world’s vertical integration and downstream value add located within its borders. Many western companies utilise rare earth products, but much of those are consumed in their manufacturing bases located in China. Demand across the key rare earths is set to grow considerably, largely driven by the necessity for permanent magnets in energy efficient technologies.
As the structure of the industry changes, some of the big Chinese rare earth players are looking abroad for stable new long-term supplies. Chalco’s recent bid of greater than $700M USD for Molycorp assets is testament to this direction, and reports suggest there were notable bids from other Chinese groups. In this context, Greenland stands out like a wondrous display of northern lights. With only a few advanced pre-production rare earth projects globally, Greenland presents a cost-effective and long-life supply option for all the rare earths that matter, in the right proportions. This is delivered through a polymetallic production platform, and simple, effective metallurgy.
Development Strategy and Growth Opportunities
The initial development strategy is focussed on the most advanced of the three deposits – Kvanefjeld, which has an ‘ore reserve estimate’ signed off by SRK Consulting based on 2015 metal prices of 108 Mt. This is sufficient to underpin an initial 37 year mine life; an outrageous start point for any mining project. The ore reserve represents the less than 20% of the Kvanefjeld mineral resource, without any consideration of the other two defined deposits.
Yet behind the initial strategy, is a pipeline of development opportunities that the vast resources provide. Uranium output can be increased through further recoveries from flotation tails, and preferential targeting of uranium from other deposits. This presents both a value add for Greenland, and adds strong appeal to major uranium players.
The long projected mine-life, low-operating costs, expansion/growth opportunities, and stable jurisdiction make the project highly appealing to strategic partners. These factors favour a scenario of project finance being linked to off-take agreements and options over future expansion opportunities.
Positioning Amongst Peers
Realistically, there are very few advanced rare earth and/or uranium projects globally. Even fewer are in the permitting phase. Greenland finds itself grossly undervalued compared to companies with inferior, less-advanced assets, which ultimately makes it a safe bet. It is also noteworthy that GMEL holds 100% of the project (numerous peers do not), which will likely prove to be important in future corporate transactions.
Many higher value peers are either rare earth, or uranium only. GMEL is both, and arguably has the most advanced process development with pilot plant proven metallurgical results on both concentrator and hydrometallurgical circuits. The unique ores are amenable to a simple atmospheric leach; a paradigm shift in the RE sector where complex processing methodologies have been the norm.
Kvanefjeld is set to produce the important rare earths (Nd, Pr, Dy, Tb) in the right market proportions (not another Lynas lookalike). The project will also produce bulk light rare earths in lanthanum and cerium, but these are classed as by-products with little value attributed, and little sensitivity to pricing.
The polymetallic nature of the project means the projected cash flows are considerably higher than single-sector peers. Importantly, the Greenland government has come to recognise Kvanefjeld as a globally unique opportunity, and their actions as demonstrated by regulatory developments would suggest that they want this opportunity developed. With clear political support from both Greenland and Denmark, interest from major industrial players the world over will be inevitable. China Non Ferrous (NFC) is already in the picture, and the list is expected to grow.
The nature of commodity cycles and raw material markets necessitate that persistence is the common denominator to a successful outcome in the resources business. You must be well placed when the light shines your way. After persisting through a series of challenging political, corporate, and market conditions, GMEL may be just about to have its day in the sun.
Why the Low Valuation?
Simple: Registry turnover in a weak market
Like numerous public companies, the current economic climate brings about distressed shareholders. In the case of GMEL, this has included project vendors that have been selling out of once considerable holdings. Most-notably, Rimbal Pty Ltd, a project vendor that has not supported continued project development, is down from 15% to just over 2%. Aggressive selling by Rimbal through 2015 (ASX announcement, 18/12/2015) saw the share price suppressed to all-time lows, but by virtue, creating a great value opportunity for new entrants to the registry.
As a result of progressive turnover in the registry, Northern American based funds now dominate the top 5 on the share registry with Tracor now the major shareholder, and a substantial holding in the Global X Uranium ETF. With the registry turn-over, come greater opportunity and a stronger platform for growth. Tracor has built its position both on-market and via participation in capital raising initiatives since 2011.
GGG Price at posting:
18.0¢ Sentiment: Buy Disclosure: Held
