As painful as the ongoing weakness in the rare earths space may be, at least it has given us plenty of time to build our Rare Earth Data Visuals while the race to the finish line is still early and hotly contested. In our Visualizing Rare Earth Projects analysis, for example, we introduced our readers to the usefulness of interactive data graphics and identified Tasman Metals (TAS) as the key go-to heavy rare earth elements (HREE) developer.
Tasman's Norra Karr deposit in Sweden may be relatively low grade (~0.5%) but that is typical for the heavy rare earths endowed deposits. Grade of course is just one factor in valuing a deposit and perhaps more important is development potential -- things like proximity to infrastructure and power, climate, the ability to mine using a low cost open pit, etc. Norra Karr scores highly on all of these measures while its heavy, heavy rare earths component actually means that its rock still ranks among the most valuable of its peers. But before we get to that, first let's look at exactly how the raw and overall grade distribution compares to other rare earth deposits.
The snapshot above shows the raw (not relative) rare earth grade of each deposit with the heavy REE raw grades being highlighted. Norra Karr's grades for heavy REE compare favorably to all the other deposits, including high grade but predominantly light REE deposits such as Mt. Weld. Despite its low overall grade, it ranks in the top 5 for dysprosium and yttrium while also being well-endowed with terbium.
This next chart shows essentially the same thing but with the grade distribution being displayed as a relative percentage of the total distribution instead of the raw grade (lower panel). The highlighted items include the "middle" rare earths -- in our breakout, Samarium and Europium -- this time as well. Clearly Tasman's Norra Karr has a very good middle to heavy rare earths distribution among the "true" heavy rare earth deposits ... all of which have an overall grade under 1%. Yet there is still a substantial difference between a project like Hastings -- with arguably the best heavy rare earth distribution but a very low overall grade -- and Norra Karr, with its better balance between overall grade and RE distribution.
The interplay between grade and RE distribution becomes even clearer when we look at the final chart in this analysis, which takes the seven projects with the largest heavy RE distribution and compares the in situ deposit values and metal basket prices using a given metal oxide price, in this case the conservative Jacob Securities 2015 price projection. Please note that our visuals allow the user to select different pricing scenarios (as well as different resource categories).
We can see in the leftmost of the three bar graphics that Quest's (QRM) Strange Lake is the largest deposit by total metal endowment followed by the decent-sized Norra Karr and then trailing off quickly in size. While overall size is not very critical, you do want a deposit that is large enough to have a long mine life in order to justify the lengthy and expensive mine and processing plant development and construction effort.
The middle bar graphic above indicates the value per tonne of ore based on separated rare earth oxide prices and ignoring other by-products with all but two deposits being over $400 per tonne (again, using the conservative Jacob Securities 2015 price projections). It is interesting to note how dominant dysprosium value is for each of these deposits -- 50% or more with the exception of Dubbo -- but of course this is a function of the selected pricing scenario. The value per tonne of ore is important because it determines the potential profitability of a deposit. For example, an RE mining and processing operation could have a total cost approaching $200 per tonne of ore mined and obviously such a mine would not work if the value per tonne of ore is around $200.
The rightmost bar graphic above is the unit basket price per kilogram of the hypothetical separated rare earth oxides to be produced from the deposit (this is important because separation of rare earths into individual oxides is difficult and expensive) and here again Norra Karr looks very good. In sum total, Tasman's Norra Karr clearly belongs among the very best HREE deposits based on in situ values.
Please note that the above charts are not valuation tools per se -- they exclude important factors such as metal recoveries, type of product to be sold (e.g., concentrate vs. separated rare earth oxides), by-product credits (niobium, tantalum, zirconium, etc.) and costs -- but rather a method for making high level comparative distinctions. As these deposits reach feasibility stage it will be possible to incorporate more of the valuation factors into our data visuals and we intend to do so.
Given Norra Karr's high placement among rare earth and specifically HREE deposits as illustrated by our charts, it is clearly a valuable project. The recently released Preliminary Economic Analysis goes a long way to demonstrating its potential attractiveness although other companies have put out PEA's that look compelling as well. The difference with Norra Karr, however, lies in the development potential. As already mentioned, its proximity to infrastructure and a source of energy, deposit characteristics and other qualitative factors mean that Norra Karr has reasonable prospects for development in the near future. In particular the low strip open pit potential, road access and low thorium/uranium content of the deposit are second to none. Therefore it has fewer hurdles compared to most other REE projects (especially HREE). Finally, its focus on the European market means that it may have a unique niche to profitably exploit.
Of course there is still plenty of risk including the difficulty of developing a commercial, economic mineral concentration and extraction process for this type of ore (eudialyte, for which there is currently no confirmed commercial ... or even pilot ... scale separation process although there have been encouraging advancements), but these should be surmountable given sufficient time and considering Norra Karr's potential value as a mine. Let's not forget that Tasman has the only major rare earth deposit in Europe and its strategy is to be the preferred supplier of rare earths to the European market.
We do own Tasman in our portfolios and plan to continue buying on weakness.
Disclosure: I am long TAS.