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Avalon Rare Metals delivers progress update for Nechalacho, update resource expected soon

Avalon Rare Metals (TSE:AVL) (AMEX:AVL) gave Wednesday a development update for its Nechalacho heavy rare earths project in Thor Lake, Northwest Territories, saying it is continuing to make steady progress towards defining the metallurgical process flowsheets, but work has come along slower than anticipated.

The company said though the results are positive, the slower than expected progress could result in a minor delay in the completion of the bankable feasibility study, but the overall schedule to production has not been impacted.

Recent metallurgical testwork has been focused on the flotation process for concentrating the rare earth bearing minerals. A 3.7 tonne continuous pilot scale concentrate production run was executed at SGS Minerals, confirming anticipated recoveries from the pre-feasbility study.

The recoveries reported in the study were 89.7% for zirconium oxide, 79.5% for all rare earth oxides,  68.9% for niobium oxide and 63% for tantalum oxide.

A 40 tonne bulk sample has been delivered to SGS for a full scale pilot plant trial scheduled to begin in late November or early December, the company said.

Hydrometallurgical testwork is also progressing with the initiation of pilot scale testing. After the initial tests are completed and one type of reactor chosen, longer duration tests will begin using concentrate from the 40 tonne flotation pilot plant.

Flotation and hydrometallurgical progress has been slower than anticipated mainly due to capacity issues with the company's service providers, it said, who have been experiencing high demand for processing and analytical services.

However, the company also completed the 2011 drilling program for the project in October, with an updated resource estimate for the Nechalacho deposit due out in December.

A major objective of the drill program in the past year has been to generate the 40 tonne bulk sample for metallurgical testing, with a large diameter PQ drill rig being one of the two rigs on the property. A total of 13,979 metres in 72 holes was drilled in the summer program, bringing the total drill production in 2011 to 26,203 metres in 137 holes. In addition to bulk sample collection, the campaign also provided detailed drilling in the areas targeted for initial mine development.

Drilling is scheduled to resume at the site in mid to late January 2012, with the objectives of detailed drilling of the area of the five year mine plan, and acquisition of additional bulk sample material.

With regards to permitting, Avalon completed and filed its Developers Assessment Report on in May, otherwise known as an Environmental Impact Statement. Earlier this month, the company received notification that it has been deemed in conformity with terms of reference by the Mackenzie Valley Environmental Impact Review Board, over five months after its submission - slower than expected.

"This has put the process behind schedule, creating some risk of a delay in receiving final operating permits," Avalon said in a statement.
 
Avalon is continuing discussions with the four Asian companies that have each signed a memorandum of understanding regarding off-take agreements. The four companies are interested in investing in Avalon's Thor Lake project in exchange for becoming partners in the project, and the right to purchase rare earth oxides for a period of time. Due diligence and negotiation meetings have been scheduled over the next few weeks with all four parties.

No binding agreements have yet been signed, the company concluded.

According to the latest economics assessment, the project is now estimated to yield a 34 percent internal rate of return, on an after-tax basis, compared to the prior estimate of 12 percent. The after-tax net present value also rose to C$1.27 billion, at a 10 percent discount rate, versus the earlier C$97 million.

The deposit's 20-year mine life is based on a probable mineral reserve estimate of 14.5 million tonnes of 1.53% total rare earth oxides (TREO), 2.90% zirconium oxide (ZrO2), 0.38% niobium oxide (Nb2O5) and 0.04% tantalum oxide (Ta2O5).