On April 28, 2023Platina Resources Ltdannounced that it had sold its Owendale scandium project to Rio Tinto for up to USD $14 million which in the currency that matters to an ASX-listed junior would be AUD $21.2 million. Of course, headline numbers are misleading, but what managing director Corey Nolan will get in the door as soon as NSW approves the deal injects life into the gold focus Platina has developed since giving up on both platinum group metals and scandium. Nobody these days seems to care much about gold, but what Platina has recognized in the 5 years since it produced a DFS for Owendale is that nobody may ever care about scandium. This deal, if it closes, is a liberation event for Platina, for it frees it from the fantasy that one day scandium will matter big time, and gives Platina the financial means without equity dilution to create value a lot quicker than for those betting on the idea that one day scandium will turn aluminum into a superstar rather than a not so strong solution. Platina will get USD $7 million up front, and another $1 million within 30 months. An additional USD $6 million linked to milestones that include a Mining Lease is payable but the timing is uncertain. On December 13, 2018 Platina published a DFS for a 30 year mine life that would start with producing 20 tpa scandium oxide and eventually double that to 40 tpa. The DFS estimated an after-tax NPV of USD $166 million at an 8% discount rate with an IRR of 29% using $1,550/kg as a base case price. CapEx was estimated at USD $48.1 million so the DFS cleared key development hurdles. Despite that, nothing further happened. At the current exchange rate that NPV translated into AUD $252 million. Assuming New South Wales approves the title transfer, Platina is getting AUD $12 million for sure, and potentially AUD $21 million for an asset its DFS once said was worth $252 million. This is 5%-10% of the estimated value. Either Rio Tinto got an incredible bargain or it paid USD $8 million for a lemon whose future milestone payments will never need to be made. This new development has positive and negative implications depending on your perspective. For example, what does this say about the value of the Nyngan project owned byScandium International Mining Corpwhose May 2016 DFS projected an after tax NPV of USD $225 million at 8% discount rate and 33.1% IRR with $87.1 million CapEx and a $2,000/kg base case price for an operation that would produce 38 tpa over 20 years from a resource that implied a 200 year mine life? Just over a year ago in April 2022 the largest shareholder ousted the management team headed by CEO George Putnam and CTO Willem Duyvestyn, shuttered the critical metal recovery and HPA recovery project at Barrick's Phoenix copper-gold mine in Nevada, and raised $3.5 million at $0.09 with a full five year warrant at $0.1075 to clean up the balance sheet and allow the company to survive as a scandium optionality play. The interim CEO Peter Evensen pretty much declared at an October 2022 scandium conference that the company would wait as long as it takes for somebody to make an offer to develop Nyngan as a primary, scalable scandium mine. The stock subsequently sagged 50% below the private placement price as the market realized SCY had become a dead money play run by people who didn't understand the chicken-egg curse that plagues scandium. The web site is largely unchanged, no marketing effort has been undertaken, and there has been no press release since late November when SCY threatened to delineate the Honeybugle scandium deposit. Some of my subscribers are mumbling that SCY was better off under the prior management. They are not happy these days because on the surface this Owendale purchase by Rio Tinto appears to be bad news for Scandium Intl. They feel they got snookered by being encouraged to think a management turnover might light a fire under SCY. To understand why this move by Rio Tinto causes concern for SCY shareholders, first consider some background on scandium and its chicken-egg curse. Scandium is an element which is an ideal alloying partner for aluminum. It makes aluminum stronger and corrosion resistant. It does not lower aluminum's conductivity. And aluminum-scandium alloy can be welded, which means that the weld joint is as strong as the rest of the metal, a big problem for aluminum. The alloy also has a higher melting point than aluminum. Scandium's crustal abundance is about 26 ppm, which puts it in 31st place ahead of lead at 10 ppm in 36th place. In 2022 the world produced 4.3 million tonnes of lead worth about $9.3 billion. But only about 20-25 tonnes of scandium oxide or 13-16 tonnes elemental scandium was produced last year with a value less than $50 million. At the same time 69 million tonnes of aluminum worth $111 billion was produced. Aluminum's crustal abundance is 81,000 ppm, in third place behind silicon and oxygen. Master aluminum-scandium alloy is 2% scandium, beyond which scandium yields no additional improvements. If scandium is more abundant than lead and does such wonderful things for aluminum, why doesn't every aluminum product include scandium and support annual scandium oxide supply in the 500,000-1,000,000 tonne range? The answer is that scandium is a dispersoid, which means individual atoms repel each other. It is this tendency coupled with its higher melting point than aluminum which gives aluminum-scandium alloy its special properties. When you feed molten master alloy into an aluminum melt, the scandium atoms disperse. Because they have a higher melting point the scandium grains crystallize first as a type of matrix around which the aluminum crystallizes as it cools. But, unlike lead, this dispersoid nature also prevents scandium from being concentrated by geological processes. In certain iron deposits such as Rio Tinto's Lac Tio in Quebec and carbonatites such as Niocorp's Elk Creek in Nebraska its grade can get into the 50-100 ppm range. The Soviets mined 120 ppm scandium from the Zovti Vhody iron deposit in the Ukraine to supply Al-Sc alloy for their Mig fighter jets. The extraction cost of scandium at these grades is simply too high to make the aluminum-scandium affordable unless there is a functionality whose value exceeds the cost, as in certain military applications. All this changed about 15 years ago in New South Wales of Australia when laterized ultramafic bodies which were being explored for nickel, cobalt and platinum group potential turned out in some cases to have scandium grades elevated into the 300-600 ppm range, 10-20 times crustal abundance, and 5-10 times higher grade than found in iron and carbonatite deposits. The best among them were SCY's Nyngan deposit and the cluster in the Fifield area to the north: Platina's Owendale, Sunrise Energy's Syerston, and Australian Mines' Flemington (found by Jervois) deposits. Metallica Minerals had a similar somewhat lower grade deposit called Lucknow in Queensland that was part of its Sconi (scandium, nickel cobalt) project which it eventually sold to Australian Mines after giving up trying to solve the scandium chicken-egg problem. The chicken-egg problem is that scandium has never been recovered as a primary metal from a deposit, and, even though these NSW laterite deposits are ten times richer than scandium's grade as a by-product in other deposits, they do involve complex and expensive flow-sheets. The result is that scandium oxide will need to be $1,000/kg or higher to be worth mining, assuming the flow-sheet works as promised. But because so little scandium is currently produced and consumed, any investor putting up the CapEx for a mine that will double or triple global consumption will want a meaningful offtake deal in place from an end-user. However, the end-user will have to develop and market a new material whose higher cost thanks to the expensive scandium input needs to be justified by added functionality. There will be at least two years between doing an offtake deal and receiving master alloy during which the mine gets build and commissioned, with no certainty it will perform as expected. So what end-user would want to take on that risk? Every junior which took a primary scandium project through feasibility, and this includes Robert Friedland'sSunrise Energy Metals Ltdwith Syerston before it pivoted to a much larger scale nickel-cobalt scenario with a scandium by-product, has seen its dream crushed by this chicken-egg problem. Groups like Sunrise and Australian Mines have focused on developing low grade nickel-cobalt deposits that could deliver scandium as a by-product, though despite all the clean energy related battery hype these projects do not work at prevailing nickel and cobalt prices. The scandium content is not much of a help because in these ultramafic laterite systems the scandium enrichment takes place on the margins where the other metals get depleted, with the opposite occurring in the middle where nickel and cobalt are elevated. New hope about breaking the chicken-egg curse emerged in June 2020 when Rio Tinto announced that it had developed the ability to recover scandium from its smelter operation at Sorel-Tracy north of Montreal. Rio Tinto mines iron-titanium ore at its Lac Tio deposit farther north close to the St Lawrence Seaway and barges it to Sorel-Tracy. After recovering the iron by smelting the ore it ends up with a slag that runs about 80% TiO2 (titanium dioxide) which Rio Tinto historically sold to pigment makers using an older technology that they have been gradually replacing with newer technology that requires a feedstock with rutile purity equivalence (95% TiO2). Rio Tinto faced a crisis where it was in danger of losing this lucrative by-product market and incurring a slag disposal cost. So it undertook a research program to upgrade the titanium slag, an ode to the concept that "necessity is the mother of invention". It turned out that during the smelting of the raw ore the 50-70 ppm scandium content of the Lac Tio ore reported to the slag. Rio Tinto figured out how to extract the scandium as part of the upgrading solution. Based on what we know is the grade of scandium in the Lac Tio ore, at the Lac Tio mining scale the recovery limit is in the 30-50 tpa Sc2O3 range, which would double estimated global output. Rio Tinto saw the synergy with its Alcan division and created itsElement North 21division to develop markets for scandium. The last word in early 2022 was that Rio Tinto was having sufficient success to justify expanding recovery capacity to 12 tpa though it has been silent for a while about progress. That is a third of the limit its by-product Sorel-Tracy facility could deliver, so the market drew the negative conclusion that Rio Tinto was not having a lot of success building the offtake market. The deal with Platina on Owendale thus is something of head-scratcher. By incrementally developing the global scandium offtake market toward 50 tpa using its internal Sorel-Tracy supply Rio Tinto could bring scandium demand to a tipping point where it is less risky to develop a primary scandium mine. This was a potential solution to the chicken-egg problem which gave owners of primary scandium deposits hope that Rio Tinto or perhaps even an aluminum competitor like Alcoa would buy out scalable deposits like Nyngan or Owendale. The surprise decision by Rio Tinto to purchase Owendale for USD $8 million up front can be interpreted as meaning that Rio Tinto does see scandium offtake demand growing but it will take quite a few years. This is not what SCY shareholders want to hear. To appreciate this interpretation one needs to understand the challenges Platina faces. Owendale does not yet have surface rights and all the local water rights are controlled by Friedland's Sunrise Energy Metals. That is why the Owendale DFS proposed to truck raw ore 70 km south to a facility where water was available, and then truck the tailings back to fill the pits. That is not a very scalable mining plan, so one would imagine that Rio Tinto might want to process Owendale at the mine site, though that would require dealing with Robert Friedland for water rights. Owendale also does not yet have a Mining Lease. The negative spin for SCY's Nyngan project is that not only is the world still a long way from reaching the scandium offtake tipping point, but when it does happen Rio Tinto will have all the scandium it needs from Owendale which is a world class scandium deposit. The Platina news release mentions that it did not use any intermediaries and thus does not have to pay any fees related to the sale of Owendale. This can be interpreted to mean that Rio Tinto approached Platina whose Corey Nolan would have been aware of Owendale's development hurdles, was running a company that had completely refocused on gold exploration plays in Western Australia, and saw the wisdom of quickly getting AUD $11 million for its gold exploration plays. From this perspective the Owendale sale is bad news for SCY's hopes that Rio Tinto will want to buy out and develop Nyngan which already has a Mining Lease and owns the surface rights to the western half of the property where all infrastructure will be located and the first ten years of the DFS mining plan would be executed. But there is another somewhat twisted perspective where this development is good news for SCY. Suppose, instead of Rio Tinto thinking it will be another five years before it needs scalable primary supply, it actually thinks it is much closer to a demand tipping point. Rio Tinto may have approached SCY management about a deal, but obviously with 428 million fully diluted, the company sufficiently funded to wait for years, and a management with no fire in its belly and independently wealthy, a buyout would cost north of $100 million, assuming $0.20-$0.30 per share represents management's greed threshold. To do such a common sense deal with SCY as its first move would be a strategic blunder for Rio Tinto because it might stir Robert Friedland off his Sunrise pot, possibly by doing a cheap deal with Platina for Owendale which Sunrise could provide with water rights and, because it is a separate property and deposit, could be permitted as a standalone primary scandium mine similar to what Sunrise envisioned for Syerston before the pivot to the larger scale nickel-cobalt scenario effectively sterilized Syerston. This would allow Friedland to keep the nickel-cobalt mine dream alive while developing a scandium only mine next door. In this scenario the Owendale purchase by Rio Tinto is a strategic sterilization of this potential scandium supply, taking it offline from Sunrise or an aluminum competitor at a cheap price of USD $8 million. Is it possible that Rio Tinto has its eyes on Sunrise itself? That is not likely because a September 2020 update of the nickel-cobalt feasibility study indicated that Sunrise was not worth developing unless you decorated it with all sorts of ESG and clean energy bells and whistles. In addition, the battery makers have worked hard to move away from relying on cobalt, and Indonesia has ramped up its nickel supply. Plus there is no love between Robert Friedland and Rio Tinto thanks to their experience over Ivanhoe's Oyu Tolgoi copper-gold project in Mongolia which Rio Tinto now finally owns outright. If this branch of wishful thinking is real, and scandium offtake lift-off is a lot closer than it seems, it would make strategic sense for Rio Tinto to do a development deal with SCY on Nyngan. SCY's interim CEO has stated publicly the junior is open to partnering on Nyngan, which wasn't what SCY shareholders wanted to hear because it implied no soon and lucrative exit. But Nyngan is something of a mess. In late 2018 SCY was blindsided by a Mining Lease Review when it turned out that the farmer who had sold the surface rights to the western half but still owned the eastern half had in 2016 filed an objection to SCY's mining lease application which he never told anybody about but which the NSW permitting department managed to lose and thus never addressed. When the farmer complained in 2017 after the permit was granted the department blew him off because the letter did not "exist". But then somebody found the letter misfiled in an unrelated folder and the NSW permitting department realized it had screwed up. The mining lease was suspended in early 2019 while the department undertook a review of the farmer's claim that his property should be treated as agricultural land protected from a future eminent domain acquisition by SCY. This was clearly a shakedown attempt which the farmer lost when NSW ruled that the land did not qualify for special status, a status that would in any case disappear the instant the farmer sold the surface rights to SCY for a pretty penny. Those surface rights are still a loose end, which makes developing the western half as a type of pilot plant study that will churn out 37 tonnes annually for a decade an ideal stepping stone for Rio Tinto as it builds its scandium market beyond what Sorel-Tracy could produce. A Nyngan farmout deal with Rio Tinto would not mean SCY will be an eternal market dog. One of the loose ends the former CEO never tied up was converting the Honeybugle scandium system it drilled in 2014 into a JORC resource estimate. The reported grades were similar to Nyngan and in some cases better. The property is about 25 km southwest of Nyngan and has a scale equivalent to or even bigger and better than Nyngan. Of course the surface rights would still have to be acquired. In late November 2022 SCY stated it planned to conduct drilling on Honeybugle though it has not disclosed whether or not such program was undertaken. However, given that the current management believes in marketing even less than the former CEO, it is possible that we could get news on Honeybugle which would not be entirely negative because the drilling will have included infill drilling to allow a resource estimate for what we already know is a scandium enriched part of the property. If Honeybugle can be shown to be similar to Nyngan, it opens the possibility that if Nyngan gets developed on a small scale as a sort of pilot study that helps feed rising scandium offtake demand cultivated by Rio Tinto, rather than undertake a messy expansion of Nyngan, why not develop a much larger scale operation at Honeybugle when the time is right? The risk for Rio Tinto, whether or not it has become a partner in developing Nyngan, is that another party takes out SCY. And that could even be Friedland's Sunrise Energy Metals whose shareholder base is getting antsy about the stalled Sunrise nickel-cobalt project. SCY's stock price started creeping higher a couple weeks ago before the Platina news, and has not sagged as it should have on the basis of the more obvious negative implication of the Owendale purchase by Rio Tinto. Maybe sun is finally rising for scandium. (SeeKW Sept 20,2022: Will scnadium's time ever come?.) | 
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