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Hudson Resources unveils "robust" PEA for Greenland's Sarfartoq rare earth project

Hudson Resources (CVE:HUD)(OTCQX:HUDRF) Wednesday announced the results of a preliminary economic assessment (PEA)  on its 100-percent owned Sarfartoq rare earth project in Greenland.

The company's shares rose 12 percent on the news to $0.62 Wednesday morning.

The PEA gave the project a 21-year mine life with a net present value of $616 million for the project at a 10 percent pre-tax discount rate, an internal rate of return of 31.2 percent and a 2.7 year payback period.

Capital costs were pegged at $343 million, which includes a contingency of $60 million for a 2,000 tonne per day open-pit mine and processing facility, running at an operating cost of $105 per tonne to produce a rare earth oxide carbonate concentrate.

Annual rare earth carbonate concentrate production of 6,500 tonnes is expected at rare earth oxide prices of $32 per kilo, based on the three-year trailing China average price as of October 2011. The price represents a 74 percent discount to October 2011 spot prices, the company noted.

Hudson Resources' president, James Tuer, said: "We are very pleased with the results of the PEA which demonstrate the robust economics of the project. Having the project located adjacent to tidewater provides significant economic benefits in both capital and operating costs.

"Looking ahead, we expect to have an updated resource estimate completed in early 2012, which will incorporate all of the 2011 drill results which includes dozens of high-grade sections from 2.0 percent to 6.5 percent TREO [total rare earth oxides].

"We plan to update the PEA with the results of the updated resource estimate in early 2012. As the project economics are quite sensitive to grade, we are optimistic that higher project valuations will be reported in the updated PEA."

The latest study was completed by Wardrop, a Tetra Tech Company, and was based on the NI 43-101 mineral resource estimate released in January, which defined an inferred resource of 14.1 million tonnes averaging 1.51 percent TREO for the ST1 Zone. The January estimate does not incorporate 2011 drill results.

The proposed metallurgical flowsheet includes bastnaesite and monazite flotation, leaching, acid bake solvent extraction and precipitation to produce a 42 to 45 percent rare earth oxide (REO) carbonate product. An overall recovery rate of 64 percent was used for the study.

Looking ahead, Hudson Resources said that its plans for 2012 include the start of a pre-feasibility study and an extensive drill program, which will further delineate the high grade zones encountered in 2011, as well as other prospective targets at the Sarfartoq Carbonatite Complex.

Speaking to Proactive Investors, Hudson Resources' president James Tuer said that the next step was to update the resource estimate for Sarfartoq.

"Exploration this year was intended to move from Inferred to Indicated, with Indicated we can work on a prefeasability report with this year's drill holes and drill grades."

During this year's program, Hudson Resources encountered "many high grade drill intercepts".

"We think that the resource will have a higher grade as we move forward," Tuer said.

Tuer is aiming for an update resource estimate in the New Year. Following that, he is looking to re-publish the PEA with the updated resource and then begin work on a prefeasability study.

In terms of demand, Tuer feels that: "...as long as you can produce and supply neodymium there will be a ready market for it."

"We are fortunate that the project is well endowed in neodymium which is a key ingredient in permanent magnets. Permanent magnets drive the rare earth space."

He sees no curtailment of demand for rare earth metals.

The rare earth metals market has seen a recent fall in prices but Tuer sees near-term demand and pricing as "stable", adding: "We have seen the worst of rare earth pricing sell-off."

Tuer feels that the market views operating in Greenland as difficult. However, Tuer highlighted that the company had easy access to infrastructure in Greenland, which has a more hospitable climate than Baffin Island, for example.

He said that the company did not lose a single day of drilling to the weather and that Greenland's international airport was closed due to the weather for only one day this year.

With current working capital of $12.5 million, the company anticipates accomplishing its entire 2012 program with its current treasury.

The Sarfartoq rare earth element project in Greenland is exposed over a large area, with approximate dimensions of 11 kilometres by nine kilometres. It is located near tidewater and adjacent to potential hydroelectric sites.

Hudson has identified three high grade prospects so far, known as ST40, ST1 and ST19, all lying within the outer ring structure of the Sarfartoq Carbonatite Complex. The outer ring structure is approximately 35 kilometres in circumference and remains largely unexplored, the company said.

The ST1 Zone represents one of the industry’s highest ratios of neodymium and praseodymium to TREO, totaling 25 percent, based on the latest inferred resource.

The zone also contains over 40 million kilograms of neodymium oxide, which is a key component in permanent magnets and the fastest growth sector of the rare earths industry.

Permanent magnets are typically used in electric motors, such as those found in wind turbines and electric cars.

Sarfartoq is located within 20 kilometres of tidewater and only 60 kilometres from Greenland’s international airport.

In early November, Hudson completed a phase two drill program at Sarfartoq, intersecting up to 6.5 percent TREO.

The program consisted of a total of 16,514 metres throughout 71 infill and step-out drill holes on the Greenland property.