Frontier Rare Earths (TSE:FRO) Tuesday announced the results of a Preliminary Economic Assessment (PEA) for its Zandkopsdrift rare earth element (REE) project in South Africa, outlining a potentially lucrative mining operation for the production of separated rare earth oxides.
The results of the PEA indicate that the proposed development of the Zandkopsdrift project is both technically feasible and economically robust, with a low risk profile, the company said.
Frontier Rare Earths president and CEO, James Kenny, said: "Frontier is now well-positioned to achieve our objective of becoming one of the first significant new producers of separated rare earths outside China by 2015.
"The results of our PEA demonstrate the economic attractiveness of our project, and we have a world-class partner in Korea Resources Corporation (KORES). KORES intends to invest in Zandkopsdrift, provide technical and financial assistance, and secure off-take of up to 31 percent of Zandkopsdrift production."
KORES is the Korean government-owned mining and natural resources investment company.
In July 2011, Frontier inked a partnership with KORES to help accelerate the development of Zandkopsdrift. The deal marks Kores'
first investment in a rare earth mine development project worldwide.
Under the terms of the agreement, KORES will acquire up to a 20% interest in Zandkopsdrift, as well as up to a 10% stake in
Frontier, and the right to purchase up to 40% of the mine's rare earth production.
Tuesday's PEA gave the Zandkopsdrift project a whopping net present value of $3.65 billion, after tax and royalties, at an 11 percent discount rate. Internal rate of return for the project was seen at 52.5 percent, after tax and royalties, with a two year payback from start of production.
Average production was pegged at 20,000 tonnes of separated rare earth oxides per annum, generating average annual revenues of $1.1 billion, and an estimated operating margin of 78 percent.
Zandkopsdrift is projected to have a 20-year mine life, supported by the mining and processing of 19.5 million tonnes of material with an average in-situ grade of 3.12% total rare earth oxides (TREO), at an average metallurgical recovery of 67 percent.
Frontier said there is also potential for the life-of-mine to be extended beyond the initial 20 years, as the PEA mine plan only exploits around 60 percent of the current estimated TREO resource at Zandkopsdrift.
Capital costs were calculated at $910 million for a one million tonne per annum open-pit mining operation, along with concentration
and rare earth separation plant facilities. In addition, start-up costs, spares and the cost of skills and local development programs totalling $26.7 million, have been estimated.
A pre-feasibility study (PFS) is now underway, Frontier Rare Earths said, with completion scheduled for the fourth quarter.
The company's current cash resources of approximately $38 million are expected to be sufficient to complete the PFS, at an estimated cost of $7.5 million, and to complete a Definitive Feasibility Study (DFS) in 2013.
Based on the Zandkopsdrift project development plan as outlined in the PEA and the published development plans of other potential
western producers, Frontier said it would become one of the largest producers of rare earths outside China after Molycorp (NYSE:MCP) and Lynas (ASX:LYC), and the second-largest producer of scarce and more valuable heavy rare earth oxides outside China.
Kenny added: "This is the first NI-43-101 compliant independent economic study on a rare earth project published by any company encompassing mining through to separation of individual rare earth oxides.
"The PEA indicates that the Zandkopsdrift project demonstrates robust economics over a range of discount rates and that the
development of mining, rare earth processing and separation facilities are both economically and technically viable.
"With a positive PEA in place, a strong working capital position and the benefit of a significant strategic partnership with KORES, Frontier is very well positioned to meet its objective of becoming a major global supplier of rare earths, starting in 2015."
Frontier's flagship asset, the Zandkopsdrift rare earth carbonatite, is located 420 kilometres north of Cape Town in the Northern
Cape Province of South Africa and is recognized as one of the largest undeveloped rare earth deposits worldwide.
The deposit's favourable location and geological setting are expected to provide significant advantages in relation to capital and
operating costs and development time compared to other rare earth projects currently being evaluated, making Frontier well positioned to become one of the first significant new producers of separated rare earths outside China after Molycorp and Lynas.
Frontier plans to produce 20,000 tonnes per annum of separated rare earths from Zandkopsdrift, with production scheduled to commence in second half of 2015.
At a cut-off grade of 1%, Zandkopsdrift has an NI 43-101-compliant inferred resource of 10.13 million tonnes at 2.08% TREO for
210,420 tonnes TREO. The indicated resources are 32.35 million tonnes at 2.28% TREO for 738,881 tonnes.
Operating costs at the Zandkopsdrift project for producing separated REOs have been estimated at $13.08 per kg.
The PEA was carried out by Venmyn Rand, one of South Africa’s advisors specializing in the technical and economic evaluation of mineral projects, with contributions from a number of specialist consultants.
Rare earths refer to a group of 15 specific elements, known as lanthanides, used for everything from smartphones to guided missiles.
While some rare earths are relatively common, they are dispersed in a way that makes it difficult to find deposits with high enough
ore grades to economically exploit.