Peak Resources' (ASX: PEK, OTCQX: PKRLY) has delivered a very impressive Scoping Study for the Ngualla Rare Earth Project in Tanzania, confirming that the project is a stand-out in the rare earth industry.
Highlights include a base case pre-tax net present value of US$1.571 billion and an internal rate of return of 53%, with a low capital cost requirement of US$400 million (excluding contingency) with a payback period within the first 3 years of production.
Peak is rightly 'extremely encouraged' by the confirmation of high returns, low cash costs, and the low capital cost required to bring the project into production.
Richard Beazley, managing director, commented: "The outcome of the scoping study confirms that Ngualla is indeed a leading and stand out project in the rare earth industry with excellent efficiencies in capex and opex driven by the deposit's dominant natural advantages.
"This study clearly delineates the strong value proposition of Ngualla and catapults its development ahead of other projects."
Ngualla hosts a resource of 170 million tonnes at 2.24% REO - ranking it as the fifth largest rare earth deposit in the world outside of China.
The total resource includes a higher grade, near surface zone of 40 million tonnes at 4.07% REO for 1.6 million tonnes of contained REO.
Scoping Study highlights
The full breakdown of the scoping study highlights include:
- Strong economics with a base case pre-tax net present value of US$1.571 billion and an internal rate of return of 53%;
- Low capital cost requirement of US$400 million (excluding contingency) with a payback period within the first 3 years of production;
- Low operating cash costs of US$10.09 per kg Free on Board "FOB" for the first 5 years of production with an average cost of $US11.05 per kg over 25 years;
- Annual average revenues of US$361 million at 10,000 tonne equivalent rare earth oxide production;
- Scoping study mine plans based solely on the Indicated and Measured portions of the Mineral Resource;
- Significant opportunity and available resource to upscale production to 40,000 tonnes per annum and extend the mine life, as the base case scoping study mine plan exploits less than 10% of the total Mineral Resource;
- The highest grade large scale rare earth deposit in Africa and the fifth largest deposit outside of China;
- Mineralisation is not radioactive and has the lowest levels of uranium (18ppm) and thorium (43ppm) of any major rare earth deposit;
- Beneficiation and metallurgical process proven in laboratory test work with pilot plant work underway;
- Relatively simple metallurgical process utilising sulphuric acid leaching with no inherently troublesome acid cracking or baking requirements; and
- On target to begin production in Q1 2016.
Physical and Financial Summary
The key physical and financial parameters that define the Ngualla Rare Earth Project value proposition, and support the project as a low cost, long term producer of rare earth
products for the world market, are:
- Average Annual Mine Production (after ramp up) 325,000 tonnes
- Life of Mine (LoM) 25 years
- Average Grade (LoM) 4.35% REO
- Average Grade for first 5 years 4.64% REO
- Average Stripping Ratio (LoM) 3.34
- Average Stripping Ratio for first 5 Years 0.73
- Total REO Recovery 71%
- Average Annual Equivalent REO Product (after Ramp-up): Separated REO = 6,347 tonnes
CeO2 Concentrate = 3,633 tonnes, Total REO Production = 9,980 tonnes
- Capital Costs (Excluding Contingency) US$ 400M
- Average (LoM) Cash Cost (FOB), Excluding Amortisation, Depreciation, and Royalties. (C1 Cost) US$ 11.05 / kg
- Average (C1 Cost) for first 5 years of full production US$ 10.09 / kg
- Revenue (FOB) Separated Products "Basket Price" (US$ 52.34 / kg) CeO2 (concentrate) (US$ 8 / kg)
- Discount Rate Applied 10%
- IRR (Pre-tax and Royalties) 53 %
- NPV (Pre-tax and Royalties) US$ 1.571 billion
- Payback from production start-up In 3rd Year
In August 2012 Proactive Investors highlighted the price dis-connect with Peak, and said: "The pullback in the share price to $0.16 therefore provides investors with a potential low re-entry price before the news flow ramps up for the company in the second half of 2012."
Now with Peak continuing to deliver some impressive news from Ngualla, the company's share price is currently trading 19% higher than when Proactive Investors made this statement.
Even with the share price rise, the market cap. of $50 million is still very light, considering an IRR (Pre-tax and Royalties) of 53% and an NPV (Pre-tax and Royalties) US$1.571 billion.
Further highlighting the meagre valuation, Ngualla ranks as the fifth largest rare earth deposit in the world outside of China.
With $8.3 million in cash at the end of September 2012, the Peak enterprise value is a mere $42 million.
Due to the very impressive Scoping Study metrics, Proactive Investors considers that the positive re-rating in the Peak share price has only just begun.