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Thursday, 20 December 2012
Euro Pacific Canada says Montero Mining could emerge the first junior rare earth company to cross the line to production
Euro Pacific Canada initiated coverage on Montero Mining and Exploration (CVE:MON) Thursday, starting the rare earths explorer with a "speculative buy" recommendation and a price target of 30 cents - far and above its current trading price of 9.5 cents.
"Montero has made significant advances in metallurgy. The company has produced samples of saleable rare earth products for marketing purposes, including cerium oxide, hydroxide and carbonate mixed rare earth products," notes metals and mining analyst for Euro Pacific, Luisa Moreno.
The company contracted Mintek in South Africa, a firm that specializes in mineral processing and extractive metallurgy, to conduct the preliminary metallurgical research and testwork on the 100-kilogram sample from its Wigu Hill project, from where the samples were produced.
Montero's main Wigu Hill rare earth element (REE) deposit in Tanzania, which is 81 per cent owned by the company, is a steep hill that is 250 metres above sea level, 550 metres above the surrounding coastal plain, with the highest peak at 796 metres above sea level.
The project is located about 65 kilometres south of Morogoro and 200 kilometres southwest of Dar es Salaam in southeastern Tanzania. It covers a 142 square kilometre area and grab samples have yielded results as high as 27.25% total rare earth oxides, with up to 16.68% from drilling.
The junior explorer's plan is to fast track a portion of the large deposit to the mining and production stage, but Montero believes that with a more comprehensive drilling program, it can expand mineral resources from the current 3.3 million tonnes to well above 40 million tonnes.
As a result of its fast track strategy and its decision not to focus on expanding resources, Montero has become one of the first juniors to produce samples of individual and mixed oxides.
"With the metallurgy at well-advanced stage, we believe the company is currently in negotiations with funding partners for the development of the Wigu Hill mine and processing facilities. We believe that Montero could emerge as the first junior rare earth company to cross the line to production."
Indeed, with the exception of Montero, all of the companies in Euro Pacific's rare earth element coverage universe have completed a preliminary economic assessment and are working toward a pre-feasibility study, or a definitive feasibility study.
But a number of other factors were taken into account for Montero, including its "significant progress" in metallurgy, as given the complexity of the REE metallurgy, most REE juniors continue to face delays as they approach the definitive feasibility study.
Moreno notes that as a result of Montero already being able to produce a mixed rare earth concentrate and individual oxides, its project has relatively lower metallurgical risk, and has been able to sign an additional agreement with a strategic partner.
Last month, the Toronto-based company said it signed an arm's length, non-binding term sheet with a strategic investor, for project equity funding for the mineral explorer's Wigu Hill REE mine and refinery complex.
Due diligence is still to be undertaken by the investor, Montero said, the results of which are subject to approval by the executive management and the party's board of director.
This agreement followed others inked earlier this year for the project.
"Montero has signed a number of agreements with various parties…Including KORES for the development of the mine, and Star Earth Minerals, a leading producer of light rare earth compounds for commercial and R&D applications," says the analyst.
Earlier this year, the company signed a non-binding off-take agreement with India's Star Earth Minerals, for the supply of light rare earths from its Wigu Hill project, with discussions for more off-take deals ongoing. This followed the company's success in producing the first samples of saleable concentrated rare earth chemical grade products from its project.
Moreno says that Star Earth also has extensive experience in processing and refining light REEs, which could be beneficial for Montero as the project advances.
Euro Pacific's analyst also takes note of the company's "strong management team", led by president and CEO Antony Harwood, who is an economic geologist with 30 years of international exploration and mining experience. Prior to joining Montero in 2009, he was president and CEO of Africo Resources, a company exploring for gold and base metal assets in Africa.
The Wigu Hill asset is considered a "look-a-like" to Molycorp's (NYSE:MCP) Mountain Pass project in the U.S. as the REEs are hosted in the mineral bastnaesite, found in carbonatite dikes at Wigu Hill. It also carries high grades of lanthanum, cerium and neodymium relative to the other elements in the deposit.
Montero is considering building a second refinery to refine lanthanum, praseodymium, neodymium and possibly samarium. The company estimates 670 tonnes of neodymium and praseodymium production.
Euro Pacific highlights that the project is in a remote area with "relatively good infrastructure". "Local roads are generally poorly maintained compared to Western standards, but are readily upgradable and connect to a well-maintained national road from Morogoro to Kisaki that is 150 kilometres from Wigu Hill," Moreno notes.
Montero may release the results of a preliminary economic study from the project in the first quarter of next year, or continue to work toward a more comprehensive definitive feasibility study, which could be wrapped up before the end of 2013.
The company expects to start mine construction in the third quarter of next year, contingent on a positive feasibility study, and favourable equity and credit markets, with production anticipated to begin the following year.
Montero also has several uranium properties and four phosphate exploration projects in South Africa. It is looking to sell its phosphate assets or co-develop them as it seeks to focus on the development of Wigu Hill.
The junior explorer has no debt and current cash equivalents of around $1 million as at the end of October.
"We estimate the company’s cash burn rate is $100,000/month. Montero estimates that $5.0M would be required to complete a DFS, thus the company will need to raise funds in the near term to support the project," says Moreno, adding that she expects higher valuations for the company once it secures financing for the property.