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Rare Earths Mine Costs - June 2013 - Greenfields Research / Curtin University / University of Western Australia
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Rare Earths Mine Costs - June 2013 - Greenfields Research / Curtin University / University of Western Australia

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  • 1. © Greenfields Research Ltd 2013 RESOURCE COST AND CAPITAL 602 RARE EARTH MINE COSTS John P. Sykes Director, Greenfields Research Provisional PhD Candidate, Centre for Exploration Targeting & Curtin Graduate School of Business john.sykes@greenfieldsresearch.com johnpaul.sykes@postgrad.curtin.edu.au
  • 2. © Greenfields Research Ltd 2013 Rare Earth Mine Costs: Contents 1 What do we know about rare earth mine costs? 2 Back to Principles: How are costs calculated for mining? 3 What costs are there in mining and processing? 4 Differing costs for mining and processing types? 5 The most important cost sensitivities in mining? 6 What about capital costs? 7 Calculating mining costs for rare earth projects 8 Using costs curves as an analytical tool
  • 3. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs What do we know about rare earth mine costs? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 4. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Molycorp
  • 5. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Frontier Rare Earths
  • 6. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Frontier Rare Earths
  • 7. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Quest Rare Minerals
  • 8. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Hudson Resources
  • 9. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Hudson Resources
  • 10. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Lynas
  • 11. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Greenland Minerals & Energy
  • 12. © Greenfields Research Ltd 2013 Very little cost work in rare earths Source: Greenland Minerals & Energy
  • 13. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs Back to Principles: How are costs calculated for mining? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 14. © Greenfields Research Ltd 2013 Mine costs 101 Cost of mining = Cost of moving rock
  • 15. © Greenfields Research Ltd 2013 How much rock is moved? Ore throughput x REO grade x recovery = REO production © Greenfields Research Ltd
  • 16. © Greenfields Research Ltd 2013 Calculating the cost per tonne REO (Ore throughput x cost per tonne of ore) REO production = Cost per tonne REO © Greenfields Research Ltd
  • 17. © Greenfields Research Ltd 2013 Cost examples in rare earths Avalon Rare Metals – Thor Lake/Nechalacho Pre-Feasibility Study (June 2010) Consultancy: Scott Wilson Deposit Mineralogy: Bastnaesite, Monazite Deposit Geology: Alkaline felsics & skarn Deposit Resource: 175.93 Mt @ 1.43% TREO Proposed Mine Type: Underground Annual Ore Throughput: 720 Kt of ore Annual REO Production: 10,000 tonnes Proposed Mine Life: 18 years Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 17,280 / tonne REO Start-up Capital Cost: US$ 810 million Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Consultancy: John T. Boyd Company Deposit Mineralogy: Bastnaesite & Ancylite Deposit Geology: Carbonatite Deposit Resource: 17.5 Mt @ 3.46% TREO Proposed Mine Type: Open pit Annual Ore Throughput: 360 Kt of ore Annual REO Production: 10,400 tonnes Proposed Mine Life: 15 years Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 8,480 / tonne REO Start-up Capital Cost: US$ 87 million ($240 x 720,000 t = $172,800,000) / 10,000 t = $17,280 ($245 x 360,000 t = $88,200,000) / 14,000 t = $8,480 Sources: Avalon Rare Metals, Rare Element Resources
  • 18. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs What costs are there in mining and processing? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 19. © Greenfields Research Ltd 2013 Components of mine costs Cash costs Mining Processing Marketing Freight Price discounts Royalties? Sustaining costs? Corporate cost Administration Mine Closure Exploration Depreciation? Full cost Charges on capital © Greenfields Research Ltd
  • 20. © Greenfields Research Ltd 2013 Inputs to mine costs Fuel Labour Grinding media (steel) Electricity Explosives Reagents (chemicals) Images: Chiakto/Shutterstock, Technocon Engineers (grinding media), Interfroth (flotation)
  • 21. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs Differing costs for mining and processing types? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 22. © Greenfields Research Ltd 2013 Cost sensitivity by operation 0 10 20 30 40 50 60 70 80 90 100 Placer Open Pit Underground Processing Fuel Labour Power Other Vulnerable to fuel costs Vulnerable to labour costs Vulnerable to power costs Data: Greenfields Research (placers); Infomine (hard rock)
  • 23. © Greenfields Research Ltd 2013 Going underground... y = 290.71x + 934.25 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 0.0 5.0 10.0 15.0 Mining+MillingCost(US$/t) Stripping Ratio Indicative depth of discoveries, 1980s, 1990s & 2000s 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Mining+MillingCost (US$/t) Effect of stripping ratio on operating costs Different underground operating costs versus open pit mining Charts: Bahr (2008), Infomine
  • 24. © Greenfields Research Ltd 2013 Alluvial to hard rock + underground 2010 est. Hard rock (Bayan Obo) Alluvial (Ionic Clays) Alluvial (Placers - India & Brazil) JORC/NI 43-101 Resources Prod. Est. Hard rock (Open Pit) Hard Rock (Underground) Alluvial Data: USGS (2011), Greenfields Research Ltd
  • 25. © Greenfields Research Ltd 2013 Mine costs are rising 60 80 100 120 140 160 Open Pit Underground Processing Source: Infomine
  • 26. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs The most important cost sensitivities in mining? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 27. © Greenfields Research Ltd 2013 Grade is King! 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 1.4% 1.2% 1.0% Mining + Milling Cost (US$/t) Milling Mining Global average copper mine head grade, 1978-2018 y = 60.824x-0.701 0 500 1,000 1,500 2,000 2,500 3,000 3,500 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Mining + Milling Cost (US$/t) Increase in mining + milling costs related to grade decline for a hypothetical open pit copper mine with a stripping ratio of 2:1, processing recovery of 95% and producing 100,000 tonnes of copper per year Charts: Bahr (2008), Infomine
  • 28. © Greenfields Research Ltd 2013 Lower future grades, higher costs 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 0.0 200.0 400.0 600.0 800.0 TREOGrade(%) Ore (Mt) Major early stage light rare earth projects Major late stage light rare earth projects Heavy rare earth projects Early stage light rare earth projects Data: Company websites
  • 29. © Greenfields Research Ltd 2013 By-products may contribute too List of by-products associated with rare earth mine projects: • Beryllium oxide (no trade price) • Cobalt • Copper • Iron ore (magnetite) • Gallium oxide • Hafnium oxide (no trade price) • Lead • Lithium carbonate or oxide (no trade price) • Manganese oxide • Molybdenum oxide • Niobium Oxide • Nickel • Phosphate • Tantalum oxide • Titanium oxide (rutile & ilmenite) • Thorium oxide • Uranium oxide • Vanadium oxide • Zinc • Zirconium oxide (zircon) © Greenfields Research Ltd
  • 30. © Greenfields Research Ltd 2013 …but complicate analysis Rare earths as a by- product Very few uneconomic operations More uneconomic operations More high cost operations © Greenfields Research Ltd
  • 31. © Greenfields Research Ltd 2013 Mine cost inputs: USA vs. China 0 20 40 60 80 100 120 1998 2000 2002 2004 2006 2008 GTZ International Fuel Price Survey 2009: Retail diesel (US ¢/l) USA China US CPI 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 World Bank Gross National Income per capita, PPP (US$) USA China Data: GTZ (2009), World Bank
  • 32. © Greenfields Research Ltd 2013 More expensive future supply? Thor Lake Kvanefjeld Hoidas Lake Bokan Mountain Zeus Strange Lake Sarfartoq Mountain Pass Bear Lodge Wigu Hill Kangankund e Steenskampkraal Bayan Obo Chavara Guaju Mt Weld Cummins Range Nolans Bore Dubbo Eco Ridge Eldor Hastings Kutessay II Norra Karr Zandkopsdrift Non-REE mining country REE mining country REE mine REE mine project Potential REE country Only around 300 REE projects worldwide. Less than 35 advanced REE projects globally. Only 4 countries currently produce rare earths. Only 11 countries have advanced rare earth projects. Data: Intierra, USGS, Infomine, Technology Metals Research, Google Earth, IHC Merwerde, Panoramio Buckton Two Tom Foxtrot Niobec Montviel Clay- Howells La Paz Araxa Ngualla TRE Mary Kathleen Narraburra
  • 33. © Greenfields Research Ltd 2013 Forex problematic in rare earths 0.8 0.9 1 1.1 1.2 1.3 1.4 2007 2008 2009 2010 2011 AUD CAD RMB StrongerWeaker Data: CIA World Factbook
  • 34. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs What about capital costs? Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 35. © Greenfields Research Ltd 2013 Inputs to capital costs Pre-production Equipment Labour Tailings Dam Images: Molycorp, Shutterstock
  • 36. © Greenfields Research Ltd 2013 Capital sensitivity by operation 0 10 20 30 40 50 60 70 80 90 100 Open Pit Underground Processing Equipment Labour Pre-production Tailings Other Data: Infomine
  • 37. © Greenfields Research Ltd 2013 Capital costs soaring 60 70 80 90 100 110 120 130 140 150 Open Pit Underground Processing Data: Infomine
  • 38. © Greenfields Research Ltd 2013 Battling with grades & scale 1.00 1.02 1.04 1.06 1.08 1.10 1.12 2006 2007 2008 2009 2010 CPI Surface Mines Underground Mines Mills 0.0 200.0 400.0 600.0 800.0 1000.0 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% Mining+MillingCapex(US$M) Ore Grade Mining Milling y = 6.2093x-0.818 0.0 100.0 200.0 300.0 400.0 500.0 600.0 0.0% 0.5% 1.0% 1.5% 2.0% Mining+MillingCapex (US$M) Ore Grade US Capital Cost Indices versus US Consumer Price Inflation Increase in mining + milling capital costs related to decreasing resource grade for a hypothetical open pit copper mine with a stripping ratio of 2:1, processing recovery of 95% and producing 100,000 tonnes of copper per year Data: Infomine
  • 39. © Greenfields Research Ltd 2013 Rare earth capital costs: breakdown Source: Frontier Rare Earths
  • 40. © Greenfields Research Ltd 2013 Rare earth capital costs: breakdown Source: Quest Rare Minerals
  • 41. © Greenfields Research Ltd 2013 Rare earth capital costs: breakdown Source: Hudson Resources
  • 42. © Greenfields Research Ltd 2013 Rare earth capital costs: breakdown Source: Pele Mountain Resources
  • 43. © Greenfields Research Ltd 2013 Rare earth capital costs: compared Source: Frontier Rare Earths
  • 44. © Greenfields Research Ltd 2013 Rare earth capital costs: compared Source: Frontier Rare Earths
  • 45. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs Calculating mining costs for rare earth projects Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 46. © Greenfields Research Ltd 2013 Which is the cheaper operation? Avalon Rare Metals – Thor Lake/Nechalacho Pre-Feasibility Study (June 2010) Consultancy: Scott Wilson Deposit Mineralogy: Bastnaesite, Monazite Deposit Geology: Alkaline felsics & skarn Deposit Resource: 175.93 Mt @ 1.43% TREO Proposed Mine Type: Underground Annual Ore Throughput: 720 Kt of ore Annual REO Production: 10,000 tonnes Proposed Mine Life: 18 years Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 17,280 / tonne REO Start-up Capital Cost: US$ 810 million Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Consultancy: John T. Boyd Company Deposit Mineralogy: Bastnaesite & Ancylite Deposit Geology: Carbonatite Deposit Resource: 17.5 Mt @ 3.46% TREO Proposed Mine Type: Open pit Annual Ore Throughput: 360 Kt of ore Annual REO Production: 10,400 tonnes Proposed Mine Life: 15 years Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 8,480 / tonne REO Start-up Capital Cost: US$ 87 million Cheaper operation? Source: Avalon Rare Metals, Rare Element Resources
  • 47. © Greenfields Research Ltd 2013 The problem with $/REO costs Cummins Range Resource Composition Metal Sept 2011 oxide price (US$/kg) Proportion in resource (%) Value of resource oxide blend (US$/kg) Lanthanum 110.00 27.3 30.03 Cerium 110.00 47.7 52.47 Praseodymium 248.50 4.8 11.93 Neodymium 309.17 15.2 46.99 Samarium 128.50 1.6 2.06 Europium 4,810.00 0.4 19.24 Gadolinium 192.50 1.0 1.93 Terbium 3,710.00 0.1 3.71 Dysprosium 2,290.00 0.5 11.45 Others - 1.4 - Total 100.0 US$179.80/kg 100 150 200 250 300 350 400 Thor Lake Dubbo Lake Hoidas Nolans Kvanefjeld Cummins Range Mt Weld Steenkampskraal Bayan Obo Bear Lodge Mountain Pass Resource oxide blend (US$/kg) Not all REO oxides are created equal !!! Data: Metal Pages (prices), Technology Metals Research (resources)
  • 48. © Greenfields Research Ltd 2013 Which is the cheaper operation? Avalon Rare Metals – Thor Lake/Nechalacho Pre-Feasibility Study (June 2010) Consultancy: Scott Wilson Deposit Mineralogy: Bastnaesite, Monazite Deposit Geology: Alkaline felsics & skarn Deposit Resource: 175.93 Mt @ 1.43% TREO Proposed Mine Type: Underground Annual Ore Throughput: 720 Kt of ore Annual REO Production: 10,000 tonnes Proposed Mine Life: 18 years Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 17,280 / tonne REO Basket value (REO): US$ 353,190 / tonne REO Profit Margin (REO): US$ 335,910 / tonne REO Start-up Capital Cost: US$ 810 million Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Consultancy: John T. Boyd Company Deposit Mineralogy: Bastnaesite & Ancylite Deposit Geology: Carbonatite Deposit Resource: 17.5 Mt @ 3.46% TREO Proposed Mine Type: Open pit Annual Ore Throughput: 360 Kt of ore Annual REO Production: 10,400 tonnes Proposed Mine Life: 15 years Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 8,480 / tonne REO Basket value (REO): US$ 147,920 / tonne REO Profit Margin (REO): US$ 139,440 / tonne REO Start-up Capital Cost: US$ 87 million Greater margin Source: Avalon Rare Metals, Rare Element Resources
  • 49. © Greenfields Research Ltd 2013 What’s missing here? Source: Molycorp
  • 50. © Greenfields Research Ltd 2013 One alternative? Margin costing? Avalon Rare Metals – Thor Lake/Nechalacho Pre-Feasibility Study (June 2010) Consultancy: Scott Wilson Deposit Mineralogy: Bastnaesite, Monazite Deposit Geology: Alkaline felsics & skarn Deposit Resource: 175.93 Mt @ 1.43% TREO Proposed Mine Type: Underground Annual Ore Throughput: 720 Kt of ore Annual REO Production: 10,000 tonnes Proposed Mine Life: 18 years Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 17,280 / tonne REO Basket value (REO): US$ 353,190 / tonne REO Profit Margin (REO): US$ 335,910 / tonne REO Start-up Capital Cost: US$ 810 million Opex / $1,000 REO: US$ 48.93 / $1,000 REO Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Consultancy: John T. Boyd Company Deposit Mineralogy: Bastnaesite & Ancylite Deposit Geology: Carbonatite Deposit Resource: 17.5 Mt @ 3.46% TREO Proposed Mine Type: Open pit Annual Ore Throughput: 360 Kt of ore Annual REO Production: 10,400 tonnes Proposed Mine Life: 15 years Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 8,480 / tonne REO Basket value (REO): US$ 147,920 / tonne REO Profit Margin (REO): US$ 139,440 / tonne REO Start-up Capital Cost: US$ 87 million Opex / $1,000 REO: US$ 57.33 / $1,000 REO ($1000 / $353,190) x $17,280 = US$48.93 / $1,000 REO Source: Avalon Rare Metals, Rare Element Resources
  • 51. © Greenfields Research Ltd 2013 One alternative? Margin costing? • Essentially the cost of producing $1,000 revenue Advantages • Allows comparison of projects with very different rare earth product values • Simple calculation using common rare earth industry metrics • Reflective of likely profitability Disadvantages • Relies on an assumption of revenues • Relies on questionable practice of basket value • Possibly just easier to calculate overall margin Margin Cost = ( $1,000 / Basket Value of REOs ) x Cost per tonne REO
  • 52. © Greenfields Research Ltd 2013 Another alternative? Nd costing? Avalon Rare Metals – Thor Lake Pre-Feasibility Study (June 2010) Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 20,602 / tonne REO Operating Cost (Nd): US$ 114,103 / tonne Nd Non-Nd REE Revenue: US$ 403,625 / tonne Nd Nd Net of REE Cost: US$ -289,522 / tonne Nd Non-REE By-Product Rev: US$ 18,008 / tonne Nd Nd Net By-Product Cost: US$ -307,529 / tonne Nd Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 9,708 / tonne REO Operating Cost (Nd): US$ 53,574 / tonne Nd Non-Nd REE Revenue: US$ 224,889 / tonne Nd Nd Net of REE Cost: US$ -171,315 / tonne Nd Non-REE By-Product Rev: US$ 0 / tonne Nd Nd Net By-Product Cost: US$ -171,315 / tonne Nd ([$240 x 730,000] / 1,535) - $403,625 - $18,008 = -$307,529/t Nd Source: Avalon Rare Metals, Rare Element Resources ([$245 x 415,000] / 1,898) - $224,889 - $0 = -$171,315/t Nd
  • 53. © Greenfields Research Ltd 2013 Another alternative? Dy costing? Avalon Rare Metals – Thor Lake Pre-Feasibility Study (June 2010) Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 20,602 / tonne REO Operating Cost (Dy): US$ 741,668 / tonne Dy Non-Dy REE Revenue: US$ 2,596,769 / tonne Dy Dy Net of REE Cost: US$ -1,855,101 / tonne Dy Non-REE By-Product Rev: US$ 117,050 / tonne Dy Dy Net By-Product Cost: US$ -1,972,151 / tonne Dy Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 9,708 / tonne REO Operating Cost (Dy): US$ 2,892,979 / tonne Dy Non-Dy REE Revenue: US$ 16,460,748 / tonne Dy Dy Net of REE Cost: US$ -13,567,769 / tonne Dy Non-REE By-Product Rev: US$ 0 / tonne Dy Dy Net By-Product Cost: US$ -13,567,769 / tonne Dy ([$240 x 730,000] / 236) - $2,596,769 - $117,050 = -$1,972,151/t Dy Source: Avalon Rare Metals, Rare Element Resources ([$245 x 415,000] / 35) - $16,460,748 - $0 = -$13,567,769/t Dy
  • 54. © Greenfields Research Ltd 2013 Alternative? Nd or Dy costing? • Essentially the cost of producing $1,000 revenue Advantages • Comparison of mines with differing rare earth product values • Can determine the competitiveness of mines in producing a specific rare earth of interest i.e. Nd or Dy • Doesn’t rely on revenue assumptions to calculate initial cost Disadvantages • By-products netted off, which is a questionable practice • Costs often “negative” which is counter-intuitive Nd Cost = ( Total Annual Operating Expense / Nd Production ) – Non-Nd REE Revenues – By-Product Revenues
  • 55. © Greenfields Research Ltd 2013 Alternative? Value based costing? Avalon Rare Metals – Thor Lake Pre-Feasibility Study (June 2010) Operating Cost (ore): US$ 240 / tonne ore Operating Cost (REO): US$ 20,602 / tonne REO Value Based REE Cost (Nd): US$ 21,076 / tonne Nd Value Based REE & By- Product Cost (Nd): US$ 20,336 / tonne Nd Value Based REE Cost (Dy): US$ 143,167 / tonne Dy Value Based REE & By- Product Cost (Dy): US$ 138,142 / tonne Dy Rare Element Resources – Bear Lodge Preliminary Economic Assessment (Sept 2010) Operating Cost (ore): US$ 245 / tonne ore Operating Cost (REO): US$ 9,708 / tonne REO Value Based REE Cost (Nd): US$ 15,487 / tonne Nd Value Based REE & By- Product Cost (Nd): US$ 15,487 / tonne Nd Value Based REE Cost (Dy): US$ 105,201 / tonne Dy Value Based REE & By- Product Cost (Dy): US$ 105,201 / tonne Dy Source: Avalon Rare Metals, Rare Element Resources
  • 56. © Greenfields Research Ltd 2013 Alternative? Value based costing? • Essentially the cost of producing $1,000 revenue Advantages • Comparison of mines with differing rare earth product values • Can determine the competitiveness of mines in producing a specific rare earth of interest i.e. Nd or Dy • Attributes a cost to all products sold • Easily incorporates non-REE by-products Disadvantages • Fairly complex calculation • Relies on revenue assumptions Value Based Nd Cost = Total Annual Operating Expense x ( Nd Revenue / [ ND Revenue + Non-Nd REE Revenues + By-Product Revenues ] )
  • 57. © Greenfields Research Ltd 2013 602 Resource Cost & Capital: Rare Earth Mine Costs Using costs curves as an analytical tool Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8
  • 58. © Greenfields Research Ltd 2013 Assessing industry structure • A recent Macquarie Commodities Research report (21st March 2011) highlighted that the high commodity prices over the last few years due to demand from China were encouraging new supply on stream but that it was mainly marginal and this was increasing the gap between marginal and low cost operations. • In the short term this will lead to super profits for low cost miners, which will encourage capital reinvestment into new low cost supply. • Ultimately though this will lead to new low cost supply lowering commodity prices in the medium term, as described in previous slides. Large gap between price and cost – new supply needed Large gap between high and low costs, will make low cost sector very profitable and encourage re- investment
  • 59. © Greenfields Research Ltd 2013 So what about rare earths? Rare earths as a by-product Future low cost supply (generally less advanced) Future marginal supply (generally more advanced)
  • 60. © Greenfields Research Ltd 2013 Lights versus heavies? Lights Heavies
  • 61. © Greenfields Research Ltd 2013 Capital costs: What is affordable? Kvanefjeld (Greenland Minerals & Energy) Mt Weld (Lynas) Mountain Pass (Molycorp) Zandkopsdrift (Frontier Rare Earths) Nolans Bore (Arafura Resources) Dubbo (Alkane Resources) Strange Lake (Quest Rare Minerals) Eco Ridge (Pele Mountain Resources) Hastings (Hastings Rare Metals) Bear Lodge (Rare Element Resources) Sarfartoq (Hudson Resources) Thor Lake (Avalon Rare Metals) Kipawa-Zeus (Matamec Explorations) Market Capitalisation (equiv. US$10 million) Project Capital Cost (equiv. US$100 million)
  • 62. © Greenfields Research Ltd 2013 Rare Earth Mine Costs: Contents 1 Limited publicly available data on rare earth mine costs 2 A return to mine cost principles is therefore required 3 Key inputs for mining are fuel, labour, power & consumables – likely to be similar for rare earths? 4 Different mine types have differing cost structures – rare earths mining maybe moving from alluvial to hard rock? 5 Grade, geography and by-products are important sensitivities in mine costs – also for rare earths? 6 Key capital inputs are construction, labour & ground works – the industry is increasingly capex sensitive 7 Rare earths costing faces significant challenges in multi- product costing – different costs create different results? 8 However we are beginning to understand cost evolution in the industry and it raises questions about viability
  • 63. © Greenfields Research Ltd 2013 References from this section • The Bear Lodge project, Rare Element Resources, http://www.rareelementresources.com/s/BearLodge.asp • The Nechalacho project, Avalon Rare Metals, http://avalonraremetals.com/projects/thor_lake/thor_lake_intro/ • Infomine Mining Cost Service 2011, Infomine, http://costs.infomine.com/ - subscription required • Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, Robin Bahr, Credit Agricole, 14th April 2011, http://www.icsg.org/index.php?option=com_content&task=view&id=86&Itemid=64 • Extractive Metallurgy of Rare Earths, C.K. Gupta & N. Krishnamurthy, CRC Press, 2005 – not available online • TMR Advanced Rare-Earth Projects Index, G. Hatch & J. Lifton, Technology Metals Research, http://www.techmetalsresearch.com/metrics-indices/tmr-advanced-rare-earth-projects-index/ • Tin mine costs provided courtesy of ITRI, http://www.itri.co.uk/ • GNI per capita PPP data, World Bank, http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD?page=2 • International Fuel Prices 2009, 6th Edition, GTZ Transport Policy Advisory Services, Federal Ministry for Economic Cooperation & Development, Germany, http://www.gtz.de/de/dokumente/en-int-fuel-prices-6th-edition-gtz2009-corrected.pdf • Infomine mine project information, http://www.infomine.com/ • Intierra mine project information, http://www.intierra.com/Homepage.aspx • Cranking up the cost curve gradient, Commodities Comment, Macquarie Commodities Research, 21st March 2011 – not available online
  • 64. © Greenfields Research Ltd 2013 References from this section • Developing Zandkopsdrift a world class rare earth project, February 2012, Frontier Rare Earths, http://www.frontierrareearths.com/images/pdfs/Frontier_PEA_Presentation_21-02-12.pdf • Mountain Pass photos, http://www.molycorp.com/ • The Next Rare Earth Era: Global Diversity in RE Manufacturing, Mark Smith, Molycorp, Sept 15th 2010 – not available online • Metal prices, Metal Pages, https://www.metal-pages.com/ • Photo of grinding media, Technocon Engineers, http://www.steelmedia.com/grinding-media.htm • Photo of reagent bubbles, Interfroth, http://www.interfroth.com/flotation-reagents.html • Quest Rare Minerals Receives Results of Preliminary Economic Assessment (PEA) for Strange Lake B-Zone, Quest Rare Minerals, Sept 9th 2010, http://questrareminerals.com/pdf/create/pdf.php?page=news_.php%3Furl%3Dhttp%3A%2F%2Fcnrp. marketwire.com%2Fclient%2Fquest_uranium%2Frelease_xml.jsp%3FactionFor%3D1316109 • Preliminary Economic Assessment on the Sarfartoq Rare Earth Element Project, Greenland, Hudson Resources, Nov 25th 2011, http://www.hudsonresources.ca/files/HUD-PEA-SARFARTOQ- 2011.pdf • Investor Presentation, Lynas Corporation, March 2010, http://www.lynascorp.com/content/upload/files/Presentations/Investor_Presentation_March_10_8235 34.pdf • Kvanefjeld Multi-Element Project Pre-Feasibility Study – Interim Report Market Summary, Greenlands Minerals and Energy, 1st February 2010, http://www.ggg.gl/userfiles/file/ASX/GGG%20Pre-feasibility%20Announcement.pdf • Technical Report on the Eco Ridge Mine Rare Earths & Uranium Project, Elliot Lake, Ontario, Canada, Pele Mountain Resources, 19th August 2011, http://www.pelemountain.com/pdf/09072011pea.pdf
  • 65. © Greenfields Research Ltd 2013 Contact details John P. Sykes MSci (Hons) MSc ARSM MAusIMM FGS Director, Greenfields Research Ltd (UK) Provisional PhD Candidate, Centre for Exploration Targeting & Curtin Graduate School of Business Australia Mobile: +61 448 658 656 Australia Office: +61 8 9467 1860 Email: john.sykes@greenfieldsresearch.com Web: www.greenfieldsresearch.com Linkedin: http://www.linkedin.com/in/johnpsykes