Thursday, 7 March 2013

Frontier Rare Earths buys back more shares, armed with $51 mln of cash along with strategic offtake

Frontier Rare Earths (TSE:FRO) has just bought more shares of its stock according to recent filings, acquiring 50,500 shares in the last half of February alone. 
The share buybacks, which come after the rare earths explorer recently took the podium at the Proactiveinvestorsannual Rare Earth Power Breakfast, are part of a normal course issuer bid authorized in June of last year, which allowed the company to acquire up to 1 million shares over the course of 12 months. 
So far, the Canadian company has acquired close to 800,000 shares. Frontier has 89.5 million shares in issue, with a current market cap of $58 million. 
CFO Paul McGuinness recently told Proactive Investors in emailed comments  that no insider to the company has sold a single share in Frontier since the IPO, indicating that management and insiders believe Frontier to be "severely undervalued" and that they are prepared to act on this conviction. 
He also noted that unlike many of its peers whose shareholders have and will continue to experience dilution of their interests as a result of fundraisings, Frontier has sufficient funds to complete its definitive feasibility study for its Zandkopsdrift rare earth element project in South Africa. 
Investors are more and more anticipating the value creation from its project in South Africa, with the company's shares picking up of late as a preliminary feasibility study is expected out this quarter. 
Indeed, management's confidence in the asset and the company was evident at the Rare Earth event in Toronto last Sunday, with board chairman Philip Kenny speaking to investors.
The company’s flagship asset is Zandkopsdrift, which is one of the largest undeveloped rare earth deposits worldwide containing approximately 950,000 tonnes TREO. The Zandkopsdrift B Zone has the highest TREO grade and the highest grade of high value HREOs of significant advanced deposits outside of China. 
Kenny noted that the project is a very big, high grade deposit, with “very good distribution” of critical rare earths – neodymium, europium, terbium, dysprosium and yttrium - which he highlighted as being of most importance in the rare earth space.
“By tonnage, 22 per cent of our tonnage will be critical rare earths or 70 per cent by value,” he said. “This is what insulates us from the current downturn and any future downturn.”
Kenny noted that Frontier’s single biggest accomplishment in 2012 was the signing of its strategic partner, Korea Resources Corp (Kores) - the state-owned mining and natural resource investor which officially 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.
Kores also 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. 
“We are the only junior in the rare earth business to get a strategic partner for offtake,” Kenny noted.
“We also have more cash in the bank than anybody in the sector, which is critical. If you don’t have the cash, you are not going to survive.”
“We have $51 million in the bank and it will probably take us $20 to $25 million to get to completion of definitive feasibility study (DFS), so we’ll be done with $25 million in the bank which gives us a very good feeling.”
As mining goes, Kenny said that Zandkopsdrift “is as easy as it gets” because the deposit outcrops on the surface and the company plans to drill to a total depth of 100 metres in the open pit.
“We have about 1 million tonnes of rare earth defined, which is plenty for a 30 to 40-year mine life with a PFS,” he added, noting that the project also has good mineralogy and metallurgy which is what will make rare earth companies succeed or fail in the future.
“When the market does return I think we’re in a good position. We have a great deposit, and our objective is to be the next major, low-cost producer of separate rare earth oxides outside China.”

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