Monday, 14 January 2013

Frontier Rare Earths shares rise as Zandkopsdrift PFS expected this quarter


Frontier Rare Earths (TSE:FRO) shares picked up Tuesday as investors eagerly await the preliminary feasibility study for the company's Zandkopsdrift rare earth project in South Africa - expected out in the first quarter of this year. 
Shares in the junior rare earths company were up almost 7 per cent to 80 cents Tuesday afternoon.
In December, the company said that Korea Resources Corp (Kores) - the state-owned mining and natural resource investor - offically acquired the initial 10 per cent stake in Zandkopsdrift. 
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 December 2011, with an expanded deal announced in late October last year.
Under the expanded 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. 
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. 
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. 
As of late December, the company had $52 million of cash under its belt, which is expected to suffice for both the preliminary and definitive feasibility studies, as well as work on other exploration programs. 
The junior rare earths company started the prefeasibility study on the Zandkopsdrift 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 targeted for the first quarter of this year, after which the company expects to immediately start work on the definitive feasibility study. 
Frontier's preliminary economic assessment (PEA) report on the project, released last 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.
Under the deal with Kores, the Korean company is also to arrange project financing for the entire development and must committ to provide its pro rata share of funding for the portion of  costs not covered by the project financing.

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