Patersons Summary:RESEARCH Northern Minerals Limited (NTU) - BUY...

Patersons Summary:

RESEARCH

Northern Minerals Limited (NTU) - BUY

Understanding the ore

Northern Minerals Limited (NTU) has completed scoping studies on capital costs and millings costs to produce a HREE concentrate from its Browns Range project in WA. This has allowed us to value NTU and initiate full coverage with a BUY recommendation and a price target of 0.85/share.
Heavy distribution - The mineralisation at Browns Range is characterised by a dominance of Heavy Rare Earths (>80% HREE) and low levels of Uranium and Thorium. The composition of the Browns Range mineralisation is dominated by yttrium (62.1%) with dysprosium (9.0%), erbium (6.0%) and terbium (1.3%).
Processing xenotime - Xenotime is one of the better understood REE bearing ore types. It has been processed for over 50 years in China and it is typically relatively coarse. Metallurgical work has proven that the Browns Range ore has a low work index and bond equation resulting in lower capital and operational costs.
Understanding the metallurgy - NTU has differentiated itself from other rare earth explorers by allocated significant resources to metallurgical studies in conjunction with drilling programs. This has increased the time required to define a resource but it has provided a greater understanding of the processing flow sheets. NTU has provided samples to potential off-taker and begin scoping studies on capital ($80M) and operating costs (milling costs $25 – 50/t).
Structural deficits – Once the processing plants of first movers such as Lynas and Molycorp come online the fundamentals of the rare earths markets will change. As supply options outside of China increase the individual elements will need to trade more in line with its fundamentals. These indicate that HREE and LREE markets will diverge. Supply for HREE such as dysprosium and Yttrium is not expected to be enough for to satisfy demand.
Catalysts - NTU will deliver a number of significant milestones over the next 12 months. These include scoping studies, pre-feasibility studies and JORC compliant resources which will de-risk the project.

Disclosure: Patersons Securities Ltd acted as Lead Manager and Underwriter for a Rights Issue in October 2010 which raised $9.5m and was Lead Manager and Underwriter for a Rights Issue in March 2010 which raised $3.1m. Patersons received fees for these services