Interview with Don Ranta, President & CEO Rare Element Resources
Don Ranta is the President and CEO of one of the most important rare earth companies out there today, Rare Element Resources (TSXV:RES). What makes Rare Element Resources so important is that it’s got one of just a couple NI 43-101 compliant resources in the US, and it’s the second highest grade resource in North America, it’s in Wyoming–very mine friendly–and it’s rare earths, which is an entire interview in itself.
RI: Don, thanks for taking the time to talk to us. Is one of the main reasons that you are trading at such a premium to your peers the fact that you are so advanced in the game, or the really high grades you are getting?
DR: I think it’s all of the above. Certainly the grades have a big effect on it. The fact that we have two 43-101 resources and we will have a new one coming out some time next spring is really favourable; and our results from our current drilling that we are announcing have been outstanding. Again, with some very high grades, anywhere from 4% up to 17%. We had one interval that was 21% rare earth oxide. Amazingly nice grades. Plus our infrastructure and permitting like you mentioned. Wyoming is a very mining friendly state. We anticipate that permitting will take time but it should go through very smoothly.
RI: Other things have really pushed you up as well. You’re trading at over $10 per share. China obviously is the controller of the rare earths market in the world; they had a sabre-rattling event recently with Japan and that I think helped to wake not just the United States up but the rest of the world as to the importance of rare earths and that something that has to be done.
DR: That is exactly right. I think another thing that had an effect on our particular share price as compared to some of our peer group is that we did list on the AMEX exchange with the NYSE and we have a huge amount of additional liquidity through that exchange. It is trading somewhere between 5 and 10 times the volume of what we trade on the TSX.
RI: The demand for rare earths is very high right now and growing rapidly. The rare earth sector is moving so quickly that some have said the first solid projects out of the gate will lead the way to production, and you’re definitely out of the gate. When do you expect to be in production?
DR: We expect that we will be in production with a fast track and an aggressive schedule, by 2015. We think that is doable. It really depends on the permitting. The permitting is the key and critical path to our production. We know that Molycorp and Linus Corporation are saying that they are going to be in production in 2012 and they will help supply some of the market but they will not fulfill the entire need of the market. With the growth rate the way it is there will be a need for a deposit in production in 2015 and probably 1 or 2 other deposits too.
RI: Neodymium and praseodymium are two of the metals that you have in high supply. How important is that to your project and your value?
DR: It’s about 33% of the total value of the project. Then we have another almost 30% that is with the heavies. With the europium, terbium and dysprosium. Terbium and dysprosium are also used in magnets. So about 44% of the material that we produce would go directly into magnets theoretically. Then europium goes into compact fluorescent lights and so on and that’s where I get up to over 60% of our total value is going to be in some of the highest demand rare earth markets and that is one of the key things for Bear Lodge. I think people are recognizing that and I think that is one reason why our share price has held up so well.
RI: It’s a perfect storm for you in many ways: As we go down the list of positive attributes of Rare Element Resources you seem to have something in every category.
DR: We do and this is a project that rarely comes along. I have only been on one other one in that all of the surprises we’ve have in the last few years have all been favourable surprises. Basically, this project is the best project I’ve ever worked on in 40 years in the mining industry.
RI: Where is Bear Lodge exactly and who else is operating in your neck of the woods?
DR: We are up in northeastern Wyoming. Very close to Interstate 90 and lots of other really favourable infrastructure there. There are two other gold companies that are operating in the general vicinity. Golden Predator has a property a little to the east of us and Evolving Gold has another gold property to the west of us. There is a huge amount of coal mining. The world’s largest coal mining region is the Powder River Basin and that is just 60 miles to the west of us. That is one of the reasons why we have such low power costs. Our power costs are going to be $0.03/kWh. I don’t know that there are lower power costs anywhere in North America or perhaps the world.
RI: That keeps your costs down and the infrastructure that exists nearby would keep your costs down as well. Its not just roads. Go ahead and explain some of that.
DR: It’s roads, it’s towns, and we have a power line that comes within about a mile of our project. That power line would probably have to be upgraded but I think that’s one of the reasons our capital costs and our capital estimates are relatively low for our PEA.
RI: Lets talk about that Preliminary Economic Assessment. You’ve got two cases, Case 1 and Case 2. Essentially they are very similar in many respects except you are talking about different prices.
DR: What we used was basically a three-year trailing average for the prices. We were planning to produce concentrate so therefore we used concentrate prices. We did try and use individual rare earth oxide prices for our economics. The number that we came up with that we used in the scoping study was $5.51 per kg for rare earth concentrate. Then our Case 2 was basically just a 25% increase assuming that price goes up 25%. We see a huge difference in the Internal Rate of Return (NYSE:IRR). It goes from 40% at $5.51 to 60% at $6.89 per kg and that was the 25% increase. But if we double the $5.50 lets say up to $11 per kg then the Net Present Value (NYSE:NPV) goes up from $213MM at $5.50 to something over $800 million for an NPV at a 10% discount rate. So the project is robust.
RI: The latter prices are more realistic with what is happening and what its at today.
DR: The current price is $38 per kg. So even at $11 per kilo if we double it, it’s a 100% increase we can use in our scoping study. The IRR is probably going to be over 100 % at that rate.
RI: You are just using a third of your resources in your scoping study. If you expand that and do some more infill drilling and suddenly you could triple that amount and do some further drilling to the limits of the property because your are open in multiple directions. What would happen there? Would you say suddenly you have a 100-year mine life at 1,000 tonnes per day (TPD) or would you increase the mine size?
DR: It would be very logical to increase the production rate. Maybe from 1,000 TPD a day to 1,500 or 2,000. We want to do that in the context of the market too. Right now we have strong indication from one of our principal consultants, a gentleman named Dudley Kingsnorth of IMCOA in Australia, and he indicates that at 10,000 tonnes per year there is going to be plenty of room in the market to handle that level of production and 2015 is a good time to have that in production.
RI: You want to be in production by 2015. Take us through the steps that it will take to get you there including permitting.
DR: One of the key steps is that we collected a bulk sample this fall. We have almost 9 tonnes of material that will go into a pilot plan test and from that pilot test we will be creating a concentrate that we will use as a salable product and use it for marketing. We are going to do a resource estimate on rare earths this spring, probably the first quarter. We are going to be working on a preliminary feasibility study next year. We will have another drilling program that will probably duplicate the program we had this year because we still don’t know where the limits of the system are. The other key thing is that for every tonne of high grade that we mine, we are going to be mining at least 12 or up to 20 tonnes of low grade material, we are going to look at that low grade and see if there is some way that we can process that and get some value from it. So, preliminary feasibility study by the end of 2011, then feasibility study for 2012 and at the same time mine permitting would be advancing. If all goes well by 2013/14 we will get our permits to mine.Disclosure: No Positions