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Friday, 14 December 2012
Kores closes deal for 10% stake in Frontier Rare Earths' Zandkopsdrift project for $23.8 mln
Frontier Rare Earths (TSE:FRO) says that Korea Resources Corp (Kores) - the state-owned mining and natural resource investor - has offically acquired the initial 10 per cent stake in the company's Zandkopsdrift rare earth project in South Africa.
Along with the 10 per cent interest, Kores has also acquired an off-take right and obligation for 10 per cent of Zandkopsdrift rare earth production, for a total cash payment of C$23.8 million.
The acquisition is part of a strategic alliance agreement initially signed between the two parties in last December, with an expanded deal announced in late October.
Frontier said the acquisition makes it the only junior company in the rare earths sector to have signed and completed a definitive agreement with a significant strategic partner. Including the $23.8 million payment from Kores, Frontier, with no debt, has a cash balance of around $52 million.
"The acquisition by Kores of a 10% interest in Zandkopsdrift is a strong vote of confidence in both the potential of the Zandkopsdrift project and the management of Frontier," said company president and CEO, James Kenny.
"With our partnership with Kores and a significantly strengthened balance sheet, we believe that Frontier is very well positioned to meet its objective of becoming the next major producer of separated rare earths outside of China."
Under the new deal announced in October, 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.
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.
The Korean company is also to arrange project financing for the entire project development and must committ to provide its pro rata share of funding for the portion of development costs not covered by the financing, in order to exercise the option.
Also under the new deal, Kores will provide its "technical and operating experience" for the design, construction and operation of project facilities. The two parties have committed to cooperate with regards to downstream opportunities in the area of rare earth metals, alloys and magnets.
Frontier said its $52 million cash balance is expected to suffice for both the completion of a preliminary feasibility study and a definitive feasibility study on the property, as well as work on the company's other exploration and development programs.
Kores is also required to pay Frontier 10 per cent of all operating costs and expenses related to Zandkopsdrift from July this year onwards, amounting to around $0.4 million as of the end of November.
The junior rare earths company started the prefeasibility study on the property in April of this year, and says that "good progress" has been made, with most requisite studies now 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.