Scoping Study

RNS Number : 4091A
Rare Earth Minerals PLC
22 December 2014
 

 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 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.

 

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").  

 

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:

 

* 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:

 

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.

 

-END-

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