Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Kimberley Rare Earths: trading at cash backing, developing an advanced rare earths project

Kimberley Rare Earths (ASX: KRE) listed on the ASX in mid 2011, and is a spin off from Navigator Resources (ASX: NAV) of its highly prospective Cummins Range Rare Earths Deposit.

Kimberley listed on the Australian Securities Exchange on 18 May 2011, having raised $18.2m under an oversubscribed Initial Public Offering.

Navigator Resources now holds a 25% interest in the Cummins Range Project.

The Cummins Range project comprises 1 granted exploration license (80/2232) in the East Kimberley with an area of 48.5km2 and within which is contained an independently estimated Inferred JORC compliant resource.

The resource contains 4.17 Mt at an average grade of 1.72% TREO (total rare earth oxide) for 71,700 tonnes TREO, 11.0% P2O5 and 187 ppm U3O8 (using a 1% TREO cut off).

At a cut off grade of 0.5%, increases the resource to 11 million tonnes at 1.1% of total rare earth oxides, for a total of 120,000 tonnes of rare earth oxides.

The Cummins Range project is one of only a few Australian rare earths projects with a Resource reported under the JORC Code.  KRE’s Cummins Range is one of only five JORC defined rare earth resources in Australia.

Cummins is only 1 of 20 formally defined rare mineral resources in the world today, There are currently 155 rare earth projects in the world today that are outside of China, and only 12 of these hold Proven and Probable, Measured and Indicated or Inferred Resources, with Kimberley numbered amongst those holding Inferred Resources.

Cummins is located 130 kilometres south west of Halls Creek, in the East Kimberley region of northern Western Australia, and is nearby existing gold, nickel-copper, and diamond producers.

There are no tourism or community overlaps and several operating mines operate in the area where Cummins is located.  Northern Australia is the nearest future REO region to Japan (5,500km) and China (4,500km).

The resource at Cummins is currently contained within a small portion of a large carbonatite intrusion situated amongst a larger number of targets that is now on a fast track for drilling, resource upgrade, and development of a bankable feasibility study.

Kimberley holds $16.912 million in cash, and is committed to a $10 million development effort to secure an 80% ownership interest, and quickly bring Cummins to the stage where a decision to mine can be reached.

Kimberly's interest in Cummins will increase by 30% to a total of 55%, upon completion of $10 million of exploration expenditures within the next 4 years.

A further 25% interest will be obtained on completion of a Bankable Feasibility Study, which will result in a final joint venture split of 80% to Kimberley, and 20% to Navigator Resources.

Navigator had previously completed drilling over a mineralized area that measured 400 by 500 metres and covered less than one quarter of a clearly defined carbonatite infusion at Cummins.

Navigator also confirmed that mineralization remained open in all directions, and that a number of additional highly prospective targets were identified for further exploration.  

Studies confirmed that Cummins is a laterite on a carbonatite diatreme that is intruded into pyroxenite, and hosts similar geology to the Mount Weld rare earth deposit, which is located near Laverton, Western Australia. Mount Weld is one of the richest rare earth deposits in the world and is owned by Lynas Corporation (ASX: LYC).

High REO Grades near Surface

The resource at Cummins is located within 75 metres of the surface, hosting drilling highlights at NRC 038 of 17 metres at 5.27% REO, at a depth of 42 metres, and NRC 058 of 29 metres at 4.57% REO, at a depth of 27 metres, confirming that the deposit will be amenable to low cost extraction from a shallow open pit.  

NCR 070 recorded 20 metres of 5.36% REO, with several 1 metre intersections grading 28.7%, and 21.43% REO.  NCR 068 intersected 40 metres at 3.74% REO, with 3 intersections of 1 metre at 12.63%, 13.56% and 14.84% REO, attesting to the high grade nature of the mineralization.   

Conceptual mine studies indicate a production rate of 2,000 to 4,000 tonnes of REO per year is possible, over a mine life of 10 years, with future increases in resource size adding to this rate.

Bulk mining from an open pit could send feedstock to an on site concentrator employing floatation, heavy media separation and magnetic methods, with potential by products including uranium and phosphate. Early studies assume a recovery rate of 60% of the rare earth oxides.

Preliminary metallurgical studies at Cummins show the presence of monazite and apatite along with minor amounts of bastnaesite. Both monazite and apatite have long established histories as sources of rare earths in mining operations worldwide.

Arafura Resources (ASX: ARU) has recently advanced the Nolan’s rare earth resource to the bankable feasibility stage, and has successfully extracted rare earths from apatite, and is planning an annualized production rate of 20,000 tonnes.

Cummins contains an array of rare earths, but is predominant in Lanthanum with 27.3%, Cerium at 47.7% and Neodymium at 15.2% as a proportion of the rare earth content.

The REO mix is mainly light rare earths where demand for rare earth elements such as cerium and lanthanum are strongest long term.  These elements are prized in steel alloys batteries.

The value of rare earths within the current resource mix has been estimated at US$110.16 per kilo of total oxides produced, based on recent market pricing,

and places Cummins on near pricing parity with Mount Weld, and slightly below Nolan’s and the Dubbo Rare Earth Project under development by Alkane Resources (AX: ALK).

Potential for Resource Expansion

The Company has secured a drilling contractor and has launched its first drilling campaign.  

The Current Inferred Resource is open to the north and west.  New geophysics has revealed multiple new targets.  RC Drilling commenced 9th September  This will consist of 7,500 metres of Rotary Core drilling, which will infill the current resource so that it can be upgraded from and Inferred to Indicated JORC compliant status.

The remainder of the drilling will step out to the northwest, which appears to carry the highest grades defined in the resource area so far.

A close spaced, low altitude, high resolution aeromagnetic and radiometric survey was recently completed over the entire Cummins Range diatreme, and surrounding country rock.

A close spaced ground gravity survey was also launched, and is expected to define areas of deepest weathering and appears to be coincident with the highest grades of rare earth oxides that have been previously defined.

High resolution satellite imagery of the project area was obtained, and will serve as a baseline for all logistical, environmental and development activities, and an auger contractor was retained to collect 1,354 samples across the entire tenement area, in an effort to define additional areas of rare earth mineralization.  

A metallurgical consultant has also been retained to review extraction and concentration technologies, downstream processing, and separation of various rare earths. Beneficiation studies will commence as soon as samples become available.

The Scale to be a Producer

Production rate deposits of similar size and grade indicate 2,000-4,000 tonnes per annum of rare earth oxides  may be possible.  Mine life assuming a 60% recovery indicates a possible mine life of +10 years.  The most likely operating scenario is for an open pit mine and on-site process plant to produce REO intermediate product and an off-site downstream processing to produce marketable products.

The company has appointed Tim Dobson as CEO, who has had long term experience focused on process and technical issues at large scale mining operations conducted worldwide. Geoff Collis was appointed as General Manager of Exploration, and has served in a senior role as exploration manager in many Western Australian and African exploration programs.

Mozambique rare earths acquisition


KRE has entered an agreement to earn up to a 90% interest in a pegmatite‐hosted rare earth project in Mozambique, with significant exploration potential, including for xenotime‐hosted yttrium, dysprosium and erbium.

A Heads of Agreement was signed with terms including total cash consideration of $300,000 payable up front to earn 40% JV interest in non gemstone rights, then cumulative $4 million over 5 years to earn up to 80%, with a right to increase to 90% by sole funding to production.

Historical data is promising and includes rock chip samples assaying over 20% TREO, and concentrates from 38 separate pits located throughout the pegmatite field sampled by current owner averaged over 1000ppm TREO with 55% being LREO, 25% HREO and 20% yttrium oxide.

Demand/Supply of rare earths

Rare earth prices did retreat in August and September. This is only to be expected as some RE prices such as Lanthanum Oxide peaked at 2,042% higher than the 30 June 2010 price.

There is a medium to long term RE supply bottleneck.  China is methodically restricting exports.  Demand is increasing through consumer growth and green technologies.  

Substitution options are either not possible, novel (years off) or more expensive.  It is now critical that RE mines are developed outside China to maintain supply.

Cash at Bank


Currently, this stands at $16.1 million.

Catalysts


- Undertake metallurgical test work studies at Cummins.  These will target a test-scale production of rare earth metal concentrates for the purpose of achieving near term commercial development
- Update in Cummins Resource Estimate in November

Analysis


That Cummins is in the same state as Lynas’ Mount Weld which provides Kimberley with a road-map of sorts for approvals.

Most rare earths oriented stocks have been marked down by the market in the last few months.

Kimberley Rare Earths has been no exception down from $0.17 in July to current share price of $0.12 in October for a market value of $15.1 million.   Cash backing per share is currently $0.13.  Hence current market capitalisation ascribes nil value to Cummins.

Consequently, on an EV/Resource Tonne valuation, Kimberley is currently negative and one of few so rated.  Clearly, with any market pick up, this situation will be unlikely to last, providing an opportunity for investors at current prices.

On an in-situ valuation, Cummins' resource would be valued at around $4billion, depending on recoveries in mining and processing.

While it might have only listed in 2011, Kimberley is amongst the front line of rare earth producers.  Kimberley is an advanced Australian rare earth resource play, one of few outside China.  Tim Dobson is progressing Cummins through exploration and development into production.

The new project offers potential for yttrium, dysprosium and terbium, all rare earth metals in critically short global supply, and complements the light rare earth project being developed at Cummins Range.

In the sell-off of rare earth stocks a number of stocks seem to have totally discounted and disregarded the potential of this world class project, having reduced the market capitalization of Kimberley to near cash levels, and providing investors with an opportunity to get onboard at the commencement of a well funded multi-year exploration and development program.  

Kimberley Rare Earths appears ready to follow in the footsteps of other notable Australian rare earth developers such as Lynas Corporation, Arafura Resources and Alkane Resources.