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Frontier Rare Earths Says Zandkopsdrift Preliminary Feasibility Study Targeted For Q1 2013

Frontier Rare Earths (TSE: FRO) gave a host of updates Wednesday on its Zandkopsdrift rare earth element project in South Africa, as well as on other exploration and corporate activities.

The company said that work on its preliminary feasibility study is ongoing, with the requisite studies either completed or at an advanced stage. The report is now targeted for the first quarter of 2013 - a result of delays in the start of the final phase of metallurgical test work, which is now underway.

The rare earths miner plans to start work on the definitive feasibility study immediately after it wraps up the preliminary study, with the final study schedule estimated to be anywhere from 9 to 12 months.

Frontier's preliminary economic assessment (PEA) report on the project, released in February, reported that Zandkopsdrift is estimated to contain roughly 950,000 tonnes of total rare earth oxide (TREO), applying a one per cent TREO cut-off, and gave a whopping net present value of $3.65 billion, after tax and royalties, at an 11 per cent discount rate.

Internal rate of return for the project was seen at 52.5 per cent, after tax and royalties, with a two year payback from start of production. Average production was pegged at 20,000 tonnes of separated rare earth oxides per year over a 20-year mine life, with production due to start in the second half of 2015.

Zandkopsdrift's "key to success" is mineralogy - as the property contains conventional rare earth minerals, with 97 per cent being monazite, for which commercial extraction processes already exist.

Frontier said that the results of the PEA confirmed the proposed development to be both "technically feasible and economically robust with a low risk profile."

This report was based on an open-cast mining operation using conventional truck and shovel equipment, with minimal drilling and blasting.

For the preliminary feasibility study, the company said a revised mineral resource estimate is being prepared, which will be based on the results of drilling that was completed after the PEA cut-off date.

The company drilled 5,563 metres of diamond core drilling, and 8,632 metres of reverse circulation drilling. Assay results confirmed high grade rare earth mineralization and the continuity of mineralization from surface to an average depth of about 80 metres, Frontier said, "with very high grades in excess of 10% and as high as 19.5% TREO identified in many holes."

Metallurgical test work is also being carried out by Mintek in South Africa and SGS Minerals Services in Canada, with the aim of optimizing the flow sheet that was used in the preliminary economic assessment. The company said a number of improvements to the flow sheet have already been found, including lower capital and operating costs.

With regards to the environmental impact assessment, Frontier has completed a full legal review of the proposed activities at the project, with the application submitted to the government in June.

The company is also investigating an alternative access route than the one used in the PEA, which appears to have "good potential" to reduce capital and operating costs.

Frontier said that design work for its Saldanha Bay rare earth separation plant has recently been completed. Mixed rare earth carbonate will be transported from Zandkopsdrift to the plant, where it will be dissolved in hydrochloric acid into an aqueous solution, which will then undergo a solvent extraction process to produce 10 separated saleable rare earth oxides.

An alternative site for the plant has been found than the one previously proposed, which the company said is better situated with respect to its proximity and access to power, water, road and rail.

Meanwhile, work on the mining right application for the project is at an advanced stage, with the application scheduled to be completed in the first quarter of next year.

Just last month, shares in Toronto-based Frontier Rare Earths moved higher after the company announced an expanded strategic deal with state-owned mining and natural resource investor Korea Resources Corp (Kores) to develop its Zankopsdrift project.

Under the new deal, Kores has the option to increase its interest in the project to up to 50 per cent, becoming an equal partner with Frontier, with an off-take right and obligation for up to 50 per cent production from Zandkopsdrift.

The option to increase Kores' interest will be given when Frontier files its definitive feasibility study for the project - currently slated for the fourth quarter of next year. The Korean company is also to arrange project financing for the entire project development on "best available market terms".

In December 2011, Frontier and Kores signed a definitive strategic partnership agreement that gave Kores an initial 10 per cent stake in the asset, along with off-take rights for 10 per cent of the rare earth production.

The two parties, however, were in negotiations to expand this original agreement since the summer, with the deal concluded in late October. The payment of C$23.8 million due for the initial 10 per cent stake as agreed last year is still due November 30, Frontier said.

Frontier remains well funded, with approximately $29 million in cash, excluding the $23.8 million payment from Kores due this month.

"The company's strong working capital position is expected to be sufficient to finance the company's proposed exploration and development work programs and corporate overhead through the completion of a Preliminary Feasibility Study and a Definitive Feasibility Study for Zandkopsdrift," it said in a statement Wednesday.

Aside from Zandkopsdrift, the company was also working on a regional exploration program within the area, which is on hold until the preliminary feasibility study is wrapped up.

In addition, Frontier's South African subsidiary has a prospecting right over an area of roughly 75,000 hectares in the Bushmanland region of the Northern Cape - around 80km northeast of Zandkopsdrift.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.