Tasman Metals unveils PEA for “low-cost” Norra Karr with projected $1.46 bln NPV, near 50% IRR

Tasman Metals (CVE:TSM) (AMEX:TAS) announced late Wednesday its preliminary economic assessment (PEA) results for its flagship heavy rare earth and zirconium Norra Karr project in southern Sweden, unveiling a low cost, and "stand out" asset.
The company, the holder of the only NI 43-101 compliant rare earths resource in mainland Europe, said the project has a very high percentage of the high value heavy rare earths, with little revenue exposure to the light rare earths that risk oversupply in 2013.
The rare earth company's shares rose more than 3.5 percent in early morning trade Thursday, to $2.35.
Tasman's PEA report, completed by Pincock, Allen & Holt, estimated a pre-tax net present value of $1.46 billion at a 10 percent discount rate, with a 49.6 percent internal rate of return (IRR), and a payback period of 2.6 years.
The project is also forecast to generate $5.3 billion in revenue over the first 20 years, and $10.9 billion over the 40 year life of the mine.
Initial capital expenditures are estimated at $290 million, including a 30 percent contingency, which vice president of corporate development Jim Powell says shows Norra Karr is expected to be one of the "lowest initial capex cost, heavy rare earth assets out there".
Indeed, the $290 million initial capex compares to anywhere between $600 million to $1 billion for peer projects, though Tasman ‘s Norra Karr project is smaller in scale and well sized for the potential end market it is serving, says Powell.
The capex estimate includes mining costs, metallurgical processing to produce a rare earth element (REE) concentrate and a zirconium carbonate product, as well as tailings.
Average annual operating expenses are seen at $74.3 million or $10.93 per kilogram of mixed total rare earth oxide (TREO) concentrate, the majority of which is comprised of metallurgical processing costs.
If zirconium by-product credits are included at a $3.77 selling price, cash costs are estimated at $2.72 per kilogram, the rare earth miner said.
Tasman also used a conservative price basket of US$51 per kilogram - versus the current China FOB basket price of US$184.85.
Increasing the basket price by 30 percent to US$66.30 per kilogram, the net present value of the project jumps to $2.06 billion using a 10 percent discount rate, with an IRR of 63.4 percent.
The long-term discounted price used in the model was US$31.60 per kilogram of rare earth oxide to account for separation costs, Tasman said, with the company currently exploring a number of options for separation, including new technologies, toll based separation and partnerships.
Rare earths refer to a group of 15 specific elements, known as lanthanides, plus scandium and yttrium, 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.
Demand for the metals is expected to continue to grow steadily as China, which produces 97 percent of the world’s rare earths, has cut exports by more than half of 2004 levels to 30,000 tons in 2010.
What makes the Norra Karr project a "stand out" is its significant enrichment in dysprosium and yttrium, with the property believed to be the highest grade dysprosium deposit in the world.
Demand for dysprosium is expected to soar over the next decade from both the traditional automotive and emerging electric car and wind turbine industries.
Supply of the metal, which is a key contributor to high temperature magnets, has become tight over the past year, with prices increasing more than 600 percent since January 2011.
The largest contributor to Norra Karr's projected revenue is dysprosium, accounting for 43 percent of rare earth oxide revenue, the company said.
Critical rare earth elements, or those expected to be in the most demand over the next several years, such as dysprosium, neodymium, terbium, and yttrium, account for 70 percent of the project's total revenue, or 86 percent of rare earth oxide revenue.
"The PEA clearly demonstrates the strong economics of this highly strategic project, with the majority of the projected cash flow sourced from the production of the critical heavy rare earth elements, dysprosium, terbium and yttrium," said president and CEO, Mark Saxon, in a statement.
"Norra Karr is one of the largest and most economically robust projects amongst its peers, due to the high contribution of the high value critical rare earth elements, the substantial capital and operating cost benefits provided by existing infrastructure, and the simple mineralogy that allows ambient temperature and pressure processing."
The low radioactivity project is located in southern Sweden, 300 kilometres southwest of the capital Stockholm and lies in mixed farming and forestry land.  The site is well serviced by power, roads, rail, operating ports, and water, allowing all year round access, and is situated within a "mining friendly" region with low mining costs and "skilled personnel".
This minimizes the need for offsite infrastructure to be built nearby the asset.
Since over 95 percent of rare earth element supply is sourced from China, the European Union is also supporting policy to ensure the domestic supply of the metals, which can only be helpful to Tasman.
The company also has no peers in mainland Europe, with its project within an overnight driving distance to key markets. Saleable products will be transported off site by existing road and rail networks.
The report released also includes two new resource updates for the project, a global mineral inventory and an in pit resource. The global mineral inventory represents the ore body as it is currently known in its entirety at 69.1 million tonnes at 0.6% TREO and 1.82% zirconium, with a 52% heavy rare earth oxide (HREO)/TREO ratio, at a 0.4% TREO cut-off grade.
This represents an increase in both grade and total tonnage from the estimate in November 2010, said Tasman.
The in pit resource, which is included in the economics of the PEA model, totals 41.6 million tonnes of 0.57% TREO and 1.7% zirconium in the indicated category with a 51 percent HREO/TREO ratio, and 16.5 million tonnes at 0.64% TREO and 1.7% zirconium in the inferred category with a 49% HREO/TREO ratio.
The mine life, based on the in pit resource and a 1.5 million tonne per year mining rate, is seen at 40 years. At the full run rate, mixed TREO concentrate output per year is estimated at 6,800 tonnes, including 290 tonnes of dysprosium, 43 tonnes of terbium and 2,360 tonnes of yttrium.
Average annual production of zirconium carbonate concentrate, which is a high value product used in the production of zirconium chemicals, is seen at 15,000 tonnes. All zirconium carbonate is derived from the cracking of zircon, and is primarily used in the production of antiperspirant actives, paint driers, leather tanning products, paper coatings and automotive catalysts.
REE recoveries are projected at 80 percent, with a by-product zirconium recovery of 60 percent, Tasman said.
Development of the project will be accomplished as an open pit mine, with crushing, grinding, beneficiation and mineral dissolution occurring in the immediate vicinity of the pit.
Powell says further metallurgical testing is planned for this year, with the aim of starting up a pilot plant in the spring or summer of this year. A completed pre-feasibility study is targeted for the middle of 2013.
"When in production, the project will make a very significant contribution to the availability of heavy rare earth elements outside of China, and provide long  term security of these metals for Europe," continued Saxon.
"With this encouraging independent assessment in hand, Tasman shall accelerate progress during 2012, with additional drilling, further refinement of our metallurgical process, extensive work on permitting and initiation of a full Pre-Feasibility Study (PFS)."
Under the planned prefeasibility study, the company will undertake process optimization, including testing of individual ore types, and testing of additional digestion and precipitation mechanisms to reduce reagent and effluent streams.
Tasman is also working on submitting a mine lease application in the second quarter of this year for the project.
Recent drilling results from the property, which is the fourth largest heavy rare earths oxide deposit globally by contained metal, include 221.4 metres at 0.63% total rare earth oxides (TREO), with 47.9% heavy rare earth oxides (HREO).
The Scandinavian-focused miner also has the Olserum project, which it acquired last October and is located 100 kilometres east of Norra Karr. Drilling is due to start at this asset soon, to allow for an initial compliant resource.