Avalon progresses Nechalacho REE project, with NPV of $1.3bn
Avalon Rare Metals (TSX:AVL, AMEX:AVL) announced Monday that it has made significant headway in advancing its Nechalacho rare earth elements deposit in Thor Lake, Northwest Territories, having just released improved project economics late last week.
On Thursday, the company announced the results of an updated prefeasibility study, which was prepared to reflect a new mine plan based on Avalon's latest January mineral resource report, as well as higher product prices than those used in the study from June 2010.
According to the latest economics assessment, the project is now estimated to yield a 34% internal rate of return, on an after-tax basis, compared to the prior estimate of 12%. The after-tax net present value also rose to C$1.27 billion, at a 10% discount rate, versus the earlier C$97 million.
The company said it has already entered into non-binding, or memorandum of understanding, agreements with three Asian industrial companies seeking to get in on the action, by investing or providing technical expertise in exchange for off-take rights. Terms have not been announced as no definitive agreements have yet been completed.
The deposit's 20-year mine life was based on a new probable mineral reserve estimate of 14.5 million tonnes of 1.53% total rare earth oxides (TREO), 2.90% zirconium oxide (ZrO2), 0.38% niobium oxide (Nb2O5) and 0.04% tantalum oxide (Ta2O5).
Indeed, the average TREO price used for the mine plan was also $46.33 per kilogram, a significant boost from the $21.94 per kilogram price used in June of last year.
"While higher levels of profitability based on a higher price assumption was not an unexpected result, a significant part of the improved economics arises from the higher grade heavy rare earth subzones discovered in 2010, which result in substantially increased revenues during the early years of production," said president and CEO, Don Bubar.
"Furthermore, we continue to use a relatively conservative price assumption for rare earth oxides relative to current prices, on the expectation that prices will ultimately decrease from current record levels as new supply comes into the market.
"Interestingly, if one applies current prices in our model, it generates an impressive 102% IRR pre-tax and 89% IRR after-tax. The NPV at a 10% discount rate would be CAD$7.65 billion pre-tax and CAD $5.59 billion after-tax."
The 100%-owned Nechalacho Deposit is emerging as one of the largest undeveloped rare earth elements resources in the world. Its enrichment in the more valuable 'heavy' rare earth elements, which are key to advancing green energy technology, is one of the few potential sources of these elements outside of China, currently the source of 95% of world supply.
Avalon expects to put the project into production by 2015, with an anticipated year one 1,833 tonne per day production schedule, ramping up to 2,000 tonnes per day in year two. Total capital costs are estimated at $902 million.
The company has already completed and filed its environmental impact statement for the project, reducing the potential for delays in the permitting process, and also said that further metallurgical testing is underway, with pilot scale work expected to begin later this fall.
In addition, geotechnical drilling is currently being completed to test the proposed route for the production ramp from the planned plant site, with a second rig focused on upgrading resources to the measured category. Updating of mineral resources is not expected to begin before September, the company said.
The mineral reserve estimate used in the latest report was based on indicated resources of 57.486 million tonnes of 1.56% TREO and 0.33% HREO (heavy rare earth oxides).
