Tuesday, 27 November 2012

Frontier Rare Earths extends initial payment deadline for Kores agreement

Frontier Rare Earths (TSE:FRO) updated Tuesday on the status of its strategic partnership to advance its rare earth Zandkopsdrift project in South Africa with Korea Resources Corp (Kores), the Korean government-backed mining and natural resource investor. 
In late October, shares in Toronto-based Frontier moved higher after the company announced an expanded strategic deal with Kores. Under the new deal, Kores has the option to increase its interest in the project to up to 50 per cent, becoming an equal partner with Frontier, with an off-take right and obligation for up to 50 per cent production from Zandkopsdrift. 
So far, Kores has acquired an initial 10 per cent interest in the property, along with an off-take right and obligation for 10 per cent of rare earth production from Zandkopsdrift, for a cash consideration of C$23.8 million. 
This payment was initially due on November 30, but Frontier said that at the request of Kores, the payment deadline has been extended to December 14, with no other changes to the agreement. 
The option to increase Kores' interest will be given when Frontier files its definitive feasibility study for the project - currently slated for the fourth quarter of next year. 
Earlier this month, the company said that work on its preliminary feasibility study is ongoing, with the requisite studies either completed or at an advanced stage. The report is now targeted for the first quarter of 2013 - a result of delays in the start of the final phase of metallurgical test work, which is now underway. 
The rare earths miner plans to start work on the definitive feasibility study immediately after it wraps up the preliminary study, with the final study schedule estimated to be anywhere from 9 to 12 months. 
Frontier's preliminary economic assessment (PEA) 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.

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