Great Western Minerals Group (CVE:GWG) has taken another crucial step toward de-risking its Steenkampskraal rare earth mine in South Africa, announcing a strong preliminary economic assessment (PEA) of the project with an IRR of 66 percent after tax.
The rare earths processor, which is transitioning to a fully integrated rare earths producer, makes specialty alloys used in the magnet, battery, defence and aerospace industries from two facilities in the U.S. and U.K.
Its development program at its Steenkampskraal rare earth mine, which includes a restart of the historical mine, is central for a strong flow of feedstock for its downstream processing unit.
The preliminary report for Steenkampskraal shows a $555 million net present value after tax, when applying a 10 percent discount rate, with a 66 percent internal rate of return (NYSE:IRR).
Capital costs, for mining operations and a rare earth chloride plant, pre-production of rare earth chlorides, were estimated at $44.53 million, with sustaining capital post-production of rare earth chlorides seen at $10.51 million. Costs for the rare earth separation plant Great Western is planning to build 100 km from mine were pegged at $62.06 million.
The payback period, on an after-tax basis, was projected at 4.3 years, from the start of underground mining production, with a potential mine life of 11 years.
"The PEA conducted on the Steenkampskraal project confirms our internal projections of a high grade and excellent distribution of the critical rare earth elements," said president and CEO of Great Western, Marc LeVier, who was brought in January to help the company transition to a rare earth producer.
"The impressive, high-grade nature of Steenkampskraal translates into lower tonnages for processing, which in turn, results in low capital cost requirements relative to other REE projects."
He added that the work on the project so far, including accelerated metallurgical testing, is designed to allow the company to advance the project quickly.
"This 'early mover' status, combined with GWMG's existing alloy manufacturing capacity, positions GWMG very favourably," LeVier continued.
Using a total rare earth oxide (TREO) basket price per kilogram of $53.13, total revenue over the life of the mine was estimated at $2.65 billion, or $257.2 million per year at a state of full production, with 5,000 tonnes of output per year.
Mining operating costs were pegged at $1.68 per kilogram of contained rare earth oxide, while rare earth chloride costs were seen at $5.98 per kilogram. Operating costs for separated rare earth oxides were projected at $5.13 per kilogram.
The company's plan is to start mixed rare earth chloride production within two years of the completed project financing, at a design capacity of around 5,000 tonnes per year of contained rare earth oxides.
Production of separated rare earth oxides, meanwhile, is expected to start the following year, at a design capacity of around 5,000 tonnes per year.
The preliminary economics report is based on the resource estimate for the project that was filed on SEDAR earlier this month, which includes 278,000 tonnes of inferred mineral resources at an average grade of 15.2% TREO and 176,000 tonnes of indicated mineral resources at an average grade of 18.2% TREO, each using a 1% TREO cut-off grade.
The resource estimate includes the historic mine area - known as the Monazite Mine Area - and the exploration areas to the east and west of the past producing mine, as well as the historic upper tailings and lower tailings. The project is based on a high grade / narrow vein underground mine, which was operated by Anglo American to recover thorium between 1952 and 1963.
Design work for the mine and processing plants has already started, with the company working with DRA Mineral Projects of South Africa.
Great Western's plan is ito be one of the first to produce significant quantities of the more valuable heavy rare earth oxides, which are important materials for alloys. It recently announced a series of management changes to prepare for a new stage of life in the company, including the promotion of Vic Fitzmaurice to the position of Steenkampskraal managing director.
Last month, its shares rallied after it said its rare earths processing unit, Less Common Metals (NYSE:LCM), started commerical production with its first rare earth alloy strip casting furnace as part of Great Western's plan to boost the facility's capacity in preparation for Steenkampskraal coming online.
The second strip casting furnace ordered by the unit was fully commissioned in China last November and is now in transit to Less Common Metals' facilities in the U.K., with an estimated arrival time of late in the first quarter.
"The alloy manufacturing capability of LCM provides the company with ready access to international markets," Great Western said in its statement today.
Shares of Great Western, which had $51.4 million of cash on hand at the end of last year, closed at 20.5 cents on Friday.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.