Hastings Rare Metals (ASX: HAS) has received a Scoping Study undertaken by Jacobs Engineering Group which outlined a strong business case and compelling metrics for the wholly owned Hastings heavy rare earth project in Western Australia.
A base case from the study delivered a net present value of A$1.9 billion, an IRR of 26% and payback of 3.6 years, along with earnings of $223 million per annum representing a gross operating profit margin of 46%.
Revenue is predominantly from heavy rare earths, differentiating the Hastings project from other rare earth projects.
The study also incorporates the results of extensive testwork completed by the Australian Nuclear Science and Technology Organisation.
Astute investors will also be aware that the Hastings heavy rare earth project is the largest in Australia, and the fourth largest in the world.
The company is also now in a position to advance negotiations to secure a project partner to fund the next major stages of development.
Alastair Metcalf, chief executive officer, summed up the positive news: "We are delighted with the successful completion of the Scoping Study.
"The project is forecast to produce substantial quantities of heavy rare earths, including Dysprosium and Yttrium that are forecast to be in strong demand and short supply. The business case is compelling and we will be progressing to the next stage of development."
The next steps towards production are the completion of a pilot plant, which will start in the March quarter of 2013, and a full Feasibility Study which is forecast to commence in the June quarter of 2013.
Importantly - product and process optimisation work will continue in parallel, with positive results improving the economics further.
Steve Mackowski, technical director, added: "With Jacobs Engineering and ANSTO, we have just completed six months of design, engineering and assessment work on the Hastings heavy rare earths Project.
"One of the advantages the project has is the extensive chemical work and pilot plant completed in the 1990s and recently verified by ANSTO. This chemical development enabled the Scoping Study to be delivered in under 6 months.
"This time advantage allows us to advance the project rapidly to a pilot plant early next year."
Scoping Study and detailed work outcome
Following receipt of the Scoping Study results and with additional detailed work completed by Hastings Rare Metals over the last six months, the company has now confirmed:
- The resource at the Hastings Project can be mined by conventional open-cut methods;
- The mine life would be 25 years based on the existing Resources of 36.2 million tonnes. With further drilling, the Resource could be increased;
- Ore will be processed through a plant built on-site in Western Australia, without the need to transport intermediate products interstate or overseas;
- The flow sheet has been confirmed, with metallurgical recoveries of 75% for rare earths and 70% to 75% for rare metals;
- The project is to produce over 10,000 tonnes of rare earths oxides and rare metal oxides annually for 25 years. The saleable products will be high purity oxides that are significantly more valuable than rare earth carbonates or concentrates;
- The strong demand and supply shortage projected for heavy rare earths is highly opportune for the Project. Heavy rare earths, such as Dysprosium and Yttrium that are both on the US Department of Energy's 'critical' list, represent the majority of the projected revenue;
- The project has a base case net present value ('NPV') of A$1.9 billion, with substantial upside. For example, using price forecasts from BCC Research, including Dysprosium at US$2,170/kg (currently US$950/kg), would more than triple the NPV of the project; and
- The Scoping Study has successfully reduced the risks and identified options to further optimise the project.
Analysis / peer comparison
Hastings Rare Metals is now in a position to advance negotiations to secure a project partner to fund the next major stages of development.
The company current has models into markets including Europe, China, North America, Korea and Japan - which will take around three to six months to asses.
In regards to the project - it must be remembered that Hastings is the largest heave rare earths project in Australia, and the fourth largest in the world.
Also - it has the highest HREO:TREO per cent (see picture).
Yet the valuation of Hastings Rare Metals is only around $16 million, and when compared to peers such as Matamec (around $30 million), Ucroe (close to $50 million), Stans Energy and Tasman (both nearing $100 million) and Quest (over $150) -Hastings Rare Metals seems slight.