race to the finish line

Great article by Carolyn Dennis on The Critical Metals Report | May 2, 2012

Rare earths miners race to the finish line

http://www.mining.com/2012/05/02/rare-earths-miners-race-to-the-finish-line-carolyn-dennis/

Carolyn believes the light rare earth (LREE) market is going to be largely satisfied by Molycorp Inc. (MCP:NYSE) and Lynas Corp. (LYC:ASX), among a few others.

The real crunch is going to be in the heavy rare earths (HREEs) neodymium and praseodymium, based on expectations of growing demand for permanent magnets and phosphors.

Carolyn identifies four filters she uses to separate the pretenders from the contenders:

1) rare earth oxide (REO) distribution;

First she looks at the REO distribution by generating an index number that sums up the grades of the critical elements neodymium, praseodymium, dysprosium, terbium, europium and yttrium. Then she divides that by the sum of the grades of cerium and lanthanum.

That determines which deposits have more of the “right stuff” and less of the elements that will be in oversupply, in her opinion.

It’s important to understand which REEs the companies will be exposed to in order to determine the long-term revenue assumptions and the viability of the project.

2) mineralogy, metallurgy and processing;

Next she looks at metallurgy, starting with mineralogy. That’s a determining factor, not only in the distribution of the rare earths, but in the economic viability of processing the deposit. The minerals in the deposit determine how long it’s going to take to extract them. She also looks at how far along the companies are in their engineering studies and whether or not they’ve started a development pilot plant. She says that’s the key step to solving the metallurgy. Even if it’s believed to be simple, they still have to test it. All companies deal with this hurdle, even if they have minerals that have already been processed commercially. Their analysis indicates that there are only five companies that have full-scale pilot plants, including Molycorp and Lynas. That underscores the risk in the sector. The other three companies with full-scale pilot plants include Avalon Rare Metals Inc. (AVL:TSX; AVL:NYSE; AVARF:OTCQX) and two Australian companies, Alkane Resources Ltd. (ALK:ASX) and Arafura Resources Ltd. (ARU:ASX). Greenland Minerals & Energy Ltd. (GGG:ASX) also has a development pilot plant on a smaller scale.


3) mineability

This relates to basic mining logic. It looks at capital and operating expenditures, deposit size, grade and the mining plan.


4) marketability

Finally she looks at the downstream supply chain and marketability. Industrial minerals are not commodities and are generally sold on contract. Therefore, companies with partnerships or those that are vertically integrated should realize value for their product.


It looks like an excellent methodology to me.


I can see logical reasons to rate Northern Minerals highly in each of the above criteria, and more so once we have a JORC and sales contracts in place.