Scoping Study

RNS Number : 4091A

Rare Earth Minerals PLC

22 December 2014

 

22 December 2014

Rare Earth Minerals Plc.

("Rare Earth Minerals", "REM" or "the Company")

Scoping Study

 US$2 Billion NPV Valuation of El Sauz and Fleur Lithium Project, Mexico.

Rare Earth Minerals Plc (London AIM: REM) is pleased to announce the results of its Scoping Study ("Scoping Study") on the El Sauz and Fleur Lithium Project in northern Mexico, in which it has an economic interest of 38.4%. As a result of the Scoping Study which is summarized below, the Board of REM believe the El Sauz and Fleur lithium project has the identified potential to be one of the world's largest Lithium Carbonate ("LCE") producers, capable of producing up to an average of 75,600 tonnes LCE per annum which is equivalent to approximately 45% of the estimated global production in 2012 (note 1).

HIGHLIGHTS

·     Pre-tax net present value ("NPV") of US$2,023 million based on a discount rate of 8% and a Lithium Carbonate Equivalent (LCE) price of US$6,500 per tonne.

·     Average total cash cost of US$2,525 per tonne of LCE over life of mine, with an average operational cash flow of US$233 million per year.

·     The NPV is achieved with a constrained optimised pit shell of an average of 69,800 tonnes of lithium carbonate per annum over an initial 20-year mine life, with an average of 75,600 tonnes of lithium carbonate per annum between years 2-19.

·     Mined from a single open pit, 2.75 km long, 1.4 km wide and 400 metres deep containing 1.39 million tonnes of lithium carbonate (recoverable).

·     Plant and infrastructure capital cost of US$422 million for a plant with a rated maximum capacity of 11.7 million tonne per annum ("Mtpa").

·     Payback period of 3.3 years, after taxes and royalties.

David Lenigas, the Company's Chairman, commented: 

"We believe the results of this REM commissioned Scoping Study demonstrates that the El Sauz and Fleur Project has the potential to be one of the largest Lithium Carbonate producers in the world, supplying a significant percentage of the expected increase in global lithium demand. Consequently, it is capable of generating strong returns for all of its stakeholders."

"We believe that the project should be advanced to the next stage of project development, and we will be working closely with Bacanora Minerals Limited, independent consultants, specialists and potential industry partners to assist bringing this world class project into operation.

"The lithium deposit remains open along strike and at depth and drilling continues on the surrounding quarter of a million acres to determine the full extent of lithium mineralisation in the newly discovered Sonora clays."

Ownership:

REM has a 12% shareholding in Bacanora Minerals Limited ("Bacanora"), the Company's joint owner of the El Sauz and Fleur and Mexalit assets in Mexico. This interest, when aggregated with REM's 30% direct interest in the El Sauz and Fleur Lithium Joint Venture and the 30% direct interest in the Megalit Joint Venture, results in a total economic interest in each of these joint ventures of approximately 38.4%.

Note1: This figure is based on an independent commodity analyst's estimate of 2012 global production of approximately 168,000 tonnes per annum.

Overview of the Scoping Study:

The El Sauz and Fleur Scoping Study was commissioned by REM to assess the project's viability and to estimate the production rate which would deliver the best net present value over an initial 20 year mine life.  The results show that an annual average 8 Mtpa of ore processed has been identified as providing the best net present value ("NPV").

The Scoping Study supports the scenario of processing of an average of 8 Mtpa of lithium ore from a single open pit mining operation producing an average of 69,800 tonnes of lithium carbonate per annum over an initial 20-year life, with an average of 75,600 tonnes of lithium carbonate per annum between year 2 and 19.

The ore processing is based on both detailed bench scale and pilot plant test work carried out by Bacanora and their independent processing specialists, Inspectorate, who focused their work on the recovery of lithium in to solution using a simple roast-leach process utilising known technology. These prior reported tests were successful in demonstrating that up to 89.3% of the lithium in the clays could be put into solution. Further tests on the resulting solution by Inspectorate demonstrated that a battery grade (in excess of 99.5% Li₂CO₃) lithium carbonate could be precipitated from concentrated solutions (Redfearn and Grcic, 2014). These tests were also duplicated on material from the adjacent La Ventana deposit in Bacanora's purpose built pilot plant in Hermosillo. Further work is still required to refine the engineering parameters and to refine both the capital and operation cost inputs. Hatch and other key consultants in the USA have been engaged by Bacanora to assist with this work.  

This Scoping Study contemplates an integrated mining and processing operation generates a pre-tax NPV of US$2,023 million and a pre-tax IRR of 42% at a lithium carbonate price of US$6,500 per tonne and at an 8% discount rate. The project requires an initial capital cost of US$485 million (including contingencies) for plant and infrastructure. The total payback period after tax and royalties is estimated at 3.3 years. 

The key technical, operational and financial parameters for the scenario are summarised in the following Table 1:

Table 1: Operational and Financial Project Summary.

Parameter	Unit	Value
Mine Life	Years	20
Total Mill Feed	Mt	160.9
Total Waste	Mt	685.3
Strip Ratio	Waste : Mill feed	4.3
Total Mined	Mt	846.3
Plant Throughput	t/d	22,054
LOM Mill Feed Head Grade
Li	ppm	1,810
LCE	%	0.96
Production LCE	Tonnes	1,396,345
Average LCE produced	Tonnes / annum	69,817
LOM Operating Costs	$M	3,525
	$/t processed	21.9
Capital Costs
Pre-Production Capital	$M	421.5
Pre-Production Contingency	$M	63.2
Total Pre-Production Capital Costs	$M	484.7
	$/t processed	3.0
Sustaining & Closure Capital	$M	157.7
Sustaining & Closure Contingency	$M	23.7
Total Sustaining & Closure Capital Costs	$M	181.4
	$/t processed	1.1
Total Capital Costs (incl. contingency)	$M	666.1
	$/t milled	4.1
Cash Flow
Avg. Operating Cash Flow during Production Prior to Taxes and Royalties	$M/yr.	233
Economic Results
Pre-Tax NPV8%	$M	2,023
Pre-Tax IRR	%	42.4%
Pre-Tax Payback	Years	2.7
After-Tax NPV8%%	$M	1,124
After-Tax IRR	%	22.6%
After-Tax Payback	Years	3.3

* Totals are subject to rounding to the appropriate precision and some columns or rows may not compute exactly as shown.

Operating Costs:

The Scoping Study has demonstrated total cash costs of US$2,525 per tonne of lithium carbonate produced, over the life of mine ("LOM").  Mining operating costs include labour, materials, consumables and other services and are based on the operating plans and schedules driven from the designed mill capacity. Processing and some associated infrastructure operating costs were estimated using a range of data sources and first principle estimates.

A breakdown of the life of mine operating costs (excluding royalties and taxes) per tonne of Lithium Carbonate produced is outlined in Table 2.

Table 2: Life of Mine Operating Costs:

Description	%	US$ / Tonne LCE Produced
Mining - Ore	11.4%	288.2
Mining - Waste	48.6%	1,227.0
Labour Costs	1.3%	32.2
Sub Total - Mining	61.3%	1,547.5
Power Costs	16.8%	425.0
Natural Gas Costs	2.2%	55.0
Water Costs	0.1%	0.9
Fuel Costs	0.8%	21.3
Labour Costs	1.3%	32.2
Transport Costs	7.5%	190.3
Reagent Costs	9.2%	232.9
Sub Total - Processing	37.9%	957.6
Sub Total.-.G&A	0.8%	19.4
Total	100.0%	2,524.5

* Totals are subject to rounding to the appropriate precision and some columns or rows may not compute exactly as shown.

Capital Costs:

The Plant and Infrastructure Capital Cost for the Project is US$422 million, plus an engineering contingency of US$63 million. The Total Sustaining and Closure Capital over the LOM includes the mine closure costs and the maintenance of the infrastructure and the processing plant.

Costs for on-site and off-site infrastructure including construction and installation were based on previous experience and costs quoted from past similar projects. Final equipment sizing and detailed equipment lists have not been developed for the processing plant. Given this, the capital costs associated with the processing plant have been estimated using the application of a factored approach for scale. Based on experience a six and a half tenths factor was used for factored capital estimates.

Based on the degree of engineering, the input accuracy of this estimate is in the order of +35/-5%. A Summary of the estimated life of mine capital costs is summarised in table 3.

Table 3: Summary of the Life of Mine Capital Costs:

Capital Cost Category	Pre-Production ($M)	Sustaining & Closure ($M)	Total Capex ($M)
Site Development	4.8	0.00	4.8
Open Pit Mining	10.1	0.00	10.1
Processing Plant Operations	299.9	134.9	434.8
Tailings	9.4	0.00	9.4
On-Site Infrastructure	23.4	6.4	29.8
Off-Site Infrastructure	19.2	6.4	25.6
Project In directs	23.3	0.00	23.3
EPCM	27.0	0.00	27.0
Owner Costs	4.5	0.00	4.5
Closure	0.0	10.0	10.0
Total Pre- Contingency CAPEX	421.5	157.7	579.2
Contingency (15%)	63.2	23.7	86.9
Total CAPEX including Contingency	484.7	181.4	666.1

* Totals are subject to rounding to the appropriate precision and some columns or rows may not compute exactly as shown.

Geology:

As announced on the 4 June 2014, a total indicated resource, based on CIM Definition Standards for Mineral Resources and Reserves (2010), was estimated for each of the lithium-bearing units, using a polygonal method. This resource is summarised in Table 4.

Table 4: Indicated Resource Estimate - El Sauz and Fleur Deposit:

Cut-off	Tonnes	Li ppm	LCE%	Tonnes
(ppm)				LCE
Upper Clay Unit
1000	97,080,000	1,657	0.88	856,000
2000	47,360,000	2,222	1.18	560,000
3000	18,390,000	3,773	2.01	369,000
Lower Clay Unit
1000	98,250,000	3,028	1.61	1,584,000
2000	73,630,000	3, 698	1.97	1,450,000
3000	58,910,000	4,140	2.20	1,298,000
Upper & Lower Clay Units Combined
1000	195,330,000	2,347	1.25	2,440,000
2000	120,990,000	3,120	1.66	2,010,000
3000	77,300,000	4,053	2.15	1,667,000

To generate the grade and tonnage block model required to design an NPV optimised pit shell REM used Ordinary Kriging. The new block model was generated for mine scheduling purposes using 50 x 50 x 5 metre blocks in the X, Y and Z directions. This block model was further validated by visual inspection of block grade in plan and section and comparison with drill hole grades and the comparisons of global mean block grades and sample grades within mineralised domains. The results confirmed that the block model grades are a reasonable reflection of the available sample data.

This kriged grade and tonnage block model was used to develop the open pit optimisation and mine scheduling model. The mine schedule was developed through an iterative process with the ultimate pit shell and pushbacks being defined in a NPV Scheduler in order to select a realistic sequencing option designed to maximise the NPV of the project. A constrained optimisation scenario was then developed within a defined mining boundary to generate intermediate pit shells for scheduling of a 20 years of mine life.

Mine Plan:

The Scoping Study assumed EL Sauz and Fleur is developed and mined as a single open pit. It was assumed the design was for a conventional bulk truck and shovel mining operation  based on a contractor scenario with the contractor taking responsibility for drill and blast, mining and hauling ore to the processing plant and waste to the waste dumps.

Under the Scoping Study assumptions, the optimised mine plan over the 20 years of operation delivers a total of 160.9 million tonnes of lithium ore to the processing plant over the life of mine, at an average head grade of 0.96% Lithium Carbonate Equivalent. The resulting strip ratio is relatively low at 4.3:1 due to the gently dipping nature of the mineralised zones.  Additional technical details of the pit design are outlined in Table 4:

Table 5: Mine Plan Technical Details

Aspect of Mine Plan
Estimated Open pit length	2.75 km
Estimated Open pit width	1.40 km
Estimated Open pit depth	400m
Slope design - primary	45 degrees

The life of mine plan in the Scoping Study, commissioned by REM, focuses on achieving a consistent production rate for the processing plant, while also balancing grade consistency with the waste stripping requirements over the life of the project.

Scoping Study Preparation:

This Scoping Study has been prepared for REM by consultants Amerlin Exploration Services Ltd in conjunction with assistance from other outside consulting groups.

The Scoping Study is conceptual in nature as it includes grade and tonnage estimates that are not categorised as mineral resources and that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves. There is no certainty that the Scoping Study will be realised. In order to make the Scoping Study economic the consultants have used forward looking information including, but not limited to assumptions concerning lithium commodity prices, cash flow forecasts, project capital and operating costs, commodity recoveries, mine life and production rates. Readers are cautioned that actual results, should they be realised, may vary from those presented. Further testing will need to be undertaken to confirm economic feasibility of the El Sauz and Fleur deposit. There have been no prior pre-feasibility or feasibility studies undertaken for the El Sauz and Fleur deposit.

Qualified Person:

Carl G. Verley, P.Geo. a qualified geologist and member of the Association of Professional Engineers and Geoscientists of British Columbia, with 40 years' experience, is the lead author with overall responsibility for the REM Scoping Study and review of the technical contents of this news release. Carl G. Verley is an employee of Amerlin Exploration Services Ltd.

Cautionary Statement:

The Scoping Study referred to in this announcement is an indicative analysis subject to follow up work. It is based on a low level technical and economic assessment, and is insufficient to support estimation of Mineral Reserves or to provide assurance of an economic development case at this stage.

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For further information please contact: 

Rare Earth Minerals plc                                                                   [phone]

David Lenigas

Kiran Morzaria

WH Ireland Limited (NOMAD & Joint Broker)                               [phone]

James Joyce

Mark Leonard

Hume Capital plc (Joint Broker)                                                     [phone]

Guy Peters

Jon Belliss

Square1 Consulting

David Bick, Mark Longson                                                                  [phone]

 

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