Negotiations for the "significant expansion" of a strategic deal between Frontier Rare Earths (TSE:FRO) and state-owned Korea Resources Corp are at an advanced stage, said Frontier on Monday.
The update on the joint venture, which was initially signed last December, was provided late yesterday in a statement about the development of Frontier's Zandkopsdrift rare earth project in South Africa.
In December 2011, Frontier and Korea Resources Corp, or Kores, signed a definitive strategic partnership agreement to advance Frontier's Zandkopsdrift property, giving Kores an initial 10 per cent stake in the asset, along with off-take rights for 10 per cent of the rare earth production.
Kores also has the option to acquire a further 10 per cent stake in the project, and a 10 per cent interest in Frontier following a definitive feasibility study, giving Kores off-take rights for a total of 31 per cent of Zandkopsdrift's rare earth production, if exercised.
Earlier this summer, however, Frontier said Kores approached the company with a proposal to "significantly increase" its potential interest in Zandkopsdrift, and its involvement in the financing, development, and operation of the proposed rare earth mining and processing operations.
Frontier said the proposal, which it considers to be of "potentially significant benefit" to the company, has been the subject of what it called "extensive" discussions and negotiations between the two parties.
The rare earth miner added that the discussions are now at an advanced stage, and expects them to be concluded this month.
"Frontier believes that the proposal from Kores to significantly expand our current joint venture arrangements is a strong vote of confidence in both the management of Frontier and the potential of our Zandkopsdrift project," said Frontier president and CEO, James Kenny in a statement last night.
"While the existing agreement with Kores already offers significant benefits to Frontier and to our plans for the development of Zandkopsdrift, the possible expansion and deepening of our partnership with Kores, with whom we have developed a very good working relationship, would be very welcome."
The Korean government-owned mining and natural resources company is currently responsible for its share of all operating costs and expenses related to the Zandkopsdrift project, proportionate to its initial 10 per cent interest in the rare earths property.
Korea's high tech sector is a prime target for rare earth mining companies outside China looking for a financial partner to help develop their assets as rare earths demand is driven, in large part, by two fast-growing sectors - energy and high technology.
Frontier said that in light of the negotiations between the two companies, Kores has requested that the payment date for the C$23.78 million due under the initial agreement be extended from September 30 to November 30.
If an expanded deal is not reached by the new date, the terms of the original agreement will remain binding, and the payment due by Kores will be required by the November deadline.
Frontier's preliminary economic assessment report on the project, released in February, reported that Zandkopsdrift is estimated to contain roughly 950,000 tonnes of total rare earth oxide (TREO), applying a one per cent TREO cut-off, and gave a whopping net present value of $3.65 billion, after tax and royalties, at an 11 per cent discount rate.
Internal rate of return for the project was seen at 52.5 per cent, 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 year over a 20-year mine life, with production due to start in the second half of 2015.
Zandkopsdrift's "key to success" is mineralogy - as the property contains conventional rare earth minerals, with 97 per cent being monazite, for which commercial extraction processes already exist.
Frontier said a few months back that the definitive feasibility study for the property is scheduled for completion in the third quarter of 2013.
At the end of June, the company received final assay results from its 2011 drilling program at Zandkopsdrift that yielded TREO grades as high as 19.5 per cent.
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