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Resource Intelligence: Quest Rare Minerals has had an incredible year in which the company has “Wowed” investors repeatedly with amazing news and consistent increases in share price. Most recently Quest raised $50 million — enough to build a small mine. But then with over 100 million tonnes of ore, this is no small deposit.
From Quest Rare Elements I’m joined by Peter Cashin, the company’s president and CEO.
Congratulations Peter. Quest was awarded the prospector of the year award. How did that come to be?
Peter Cashin: We were awarded the award on the basis of the Strange Lake discovery–and not the fact that it was a large and significant discovery but all the associated activity that followed the announcement of the discovery. There was a bit of a staking rush. This past summer there were quite a number of companies that were doing some exploration on that ground. So our Strange Lake discovery really generated quite a bit of activity in the area and that is one of the provisos for the award.
I am very proud of Quest and the Quest team for what they did. We’ve done that in short order. We’re a fairly new company. We launched in January 2008 and now we’re developing probably one of the world’s most significant rare earth deposits.
RI: How much of the global demand for rare earths could Strange Lake satisfy?
PC: Strange Lake would feed out about 6% of the world consumption. So not enough to flood the market and depress the prices but certainly enough to feed into a very important aspect of the rare earth element sector that the Chinese don’t deliver out to.
RI: What does your PEA suggest as an annual output in rare earths?
PC: The PEA is looking at about 4000 tons of open pitable material a day and we would deliver out from our assumptions about 12,500 tons of rare element oxides per year.
RI: American demand according to USGS is about 10,000 tonnes per year. Your mine, when built, could satisfy the entire US need for rare earths?
PC: That is correct. But that is for the full spectrum of rare earths. Because of the high proportion of “heavies” at Strange Lake it obviously feeds into a specific sector within that 10,000 tonnes. A lot of the new technologies that are being developed now, especially the military applications and some of the new high tech electronics are showing a preference for the use of heavies. But up to this point there has not been a primary source of the heavy rare earths. Strange Lake will be able to deliver on that to the markets.
RI: For somebody who doesn’t understand the importance of rare earths and possibly more importantly heavy rare earths, explain what is going on?
PC: Rare earths are feeding into what I would consider to be the technological economy, in other words, those sectors of the economy that are fairly recent developments. I would say that for the past 20-25 years these things have come to be. Wind turbines and hybrid automotive, cells phones and flat screens. Rare earths are small contributions in terms of physical dollars at the cost of those technologies but they are critically important and they can’t be replaced. There are no substitutes for their use. Without them those applications just won’t work.
I think the big issue related to the nature of these metals is the fact that they are very heat tolerant. The heavies of course are atomically heavier but they are also much rarer. What they impart is even further heat tolerance to those same applications.
RI: When did your Preliminary Economic Assessment come out and why did you focus on the B Zone specifically?
PC: We delivered the PEA in September. What we liked about the B zone is that it was fully in Quebec and up to this point the only known deposit is the historical IOC what we called the main zone, which straddled a provincial boundary that has not been surveyed yet. So there are issues related to the true position of the boundary and not really knowing what percentage of the deposit would be available to us.
The B Zone on the other hand is well away from the border. It is in a positive jurisdiction. It is large. Its open pitable. We’ve done metallurgy on that and it is conventional acid leach with very good recovery. It’s a much better deposit.
RI: How many mineral phases are there?
DC: The elemental suite is gadolinite, gittinsite and kainosite. Those are calcium-bearing heavy rare earth elements, silicates and carbonates. They have been re-crystallized so they are very amenable to acid leach It’s almost like mother nature did a lot of the pre-cracking to a lot of these deposits that is required to liberate the rare earths.
RI: That led you to a very low operating cost. About $100 per tonne you’re estimating?
DC: Yes. $102 to $105. That leads into the fact that it’s open pitable so it’s $5 a ton vs. your underground which is in the order of $50-$60.
RI: Last year when I spoke to John Kaiser he had done an evaluation on each of the elements and came up with a value of $304 per tonne at Strange Lake. What is that now?
DC: It’s gone up leaps and bounds with the Chinese cutbacks on their export quotas. I can’t even estimate what it is. I think it is in the order of about $500 per tonne. It’s just gone through the roof.
RI: What is your NPV and what are your revenues expected to be?
DC: The IRR is a very robust 36%. The NPV at a 12% discount rate came out to be about $1.4 billion over a 25-year production period.
RI: You say that you have a mine life of about 25 years but actually you’ve got enough tonnage for 62 years. Why the discrepancy there?
DC: The thing is once you go past the 25-year window the rest is all gravy. To be honest with you we just wanted to show and establish the economic model in a reasonable time frame. That was based on last years resource estimate. We’ve done subsequent work now and we know that we are going to be well past that time line.
RI: What prices did you use then? You say a payback of 3-4 years, which is incredible. Are those recent prices?
DC: We used a trailing 3-year average price from 2007 to 2010. So it is actually a fairly discounted price. The price assumption we used at Strange Lake is about a third of the current market prices. So it’s pretty conservative.
RI: Lets talk about the geographical aspect of it. You don’t have any First Nations issues or anything and Quebec is a fantastic place to build a mine. What about infrastructure? Have you had issues there?
DC: I’ve had to answer a lot of shareholders about the concern for lack of infrastructure. If Strange Lake were a small deposit I would be very concerned. If infrastructure difficulties would have been an issue for such mines as Voisey’s Bay copper/nickel deposit or the Raglan nickel deposit or the Echo Bay gold deposit or Red Dog lead/zinc deposit they would never have happened. In actual fact what made those projects is that fact that they were very large and very rich and because of that they gave the comfort that the companies getting involved with them that richness would give them such a significant margin that it would mitigate the potential risk of opening an operation. So I don’t think from an infrastructure standpoint that it’s unattainable.
RI: When do you foresee going into production by?
DC: I’ve got a model of a startup about 2015/16. I think that is much in keeping with my philosophy of under-promising and over-performing in what we deliver out. What is nice about an open pit opportunity is that its more easily scalable if you want to fast track it and its looking very good and the economics continue to be very positive and you’ve got indications from end users for wanting the material you can deliver out then you can probably accelerate that in the order of 2014.
RI: Do you see that as very important in terms of other peers or competitors that you have to compete with to beat them to market?
DC: We are really talking to a different sector of the rare elements base because of the heavies. Strange Lake stands alone with that fact of the extreme enrichment, the size of the deposit, the amenability to conventional metallurgy.
RI: Based on all of these green lights that you seem to be getting, is this a fait du compli?
DC: No. There could be bumps in the road all the way through development. But I think the project and the deposit is such that a lot of our concerns and risks have been mitigated by the nature of the deposit itself.
RI: I think the market speaks a great deal as well. When you look at how you’re trading and how quickly your price has escalated and has managed to hold the course so far.
DC: I think that the deposit speaks and I think that the last time you and I spoke I did say that the true success of a junior exploration company is to first and foremost ensure the technical integrity of the program and bring those along and develop your resources first before you go out and promote them. We’ve done that and the proof is in the pudding.
RI: You’ve had a lot happen in the last year. What will happen between now and next year when we next speak?
DC: We’re going to get our revised resource estimate that gives us the measured and indicated grade that we need for pre-feasibility. We’re pretty confident because of the nature of the PEA that we will make that decision to go into pre-feasibility. We’ll be continuing our exploration and definition program. There are indications of further resources on the property that we have yet to drill define. My hope is that we can deliver out a pre-feasibility before the end of the calendar year.
Disclosure: No Positions