Montero Mining and Exploration (CVE:MON) said Tuesday it has inked a non-binding agreement with Star Earth Minerals for the supply of light rare earths from its Wigu Hill rare earth element project in Tanzania - a move that significantly de-risks the property.
The news sent Montero's stock up more than 21 percent Tuesday morning, to trade at 17 cents as of 10:47am ET.
Star Earth Minerals is a manufacturer of light rare earth compounds based in Mumbai, India, and is seeking a consistent supply of light rare earths for its customers in the glass, ceramic and catalyst industries, located mainly in South East Asia and Japan.
Rare earths elements refer to a group of 17 specific elements used for everything from smartphones to guided missiles.
While some rare earths are relatively common, they are dispersed in a way that makes it difficult to find deposits with high enough ore grades to economically exploit. Demand for the metals is expected to continue to grow steadily as China, which produces 97 percent of the world's rare earths, has cut exports by more than half of 2004 levels to 30,000 tons in 2010.
The memorandum of understanding agreement signed between Montero and Star Earth outlines the basis of cooperation between the two parties, with the objective of signing an off-take agreement for Star to purchase mixed rare earth and cerium carbonate from Montero.
The non-binding deal also contemplates the sharing of technical information related to rare earth process technology for the development of a refinery to further beneficiate material from Wigu Hill.
Through hydro-metallurgical testwork with consultancy Mintek, Montero has produced samples of saleable rare earth products, which were instrumental in concluding discussions with Star, Montero said.
"The signing of an MoU off-take agreement between Montero and Star is the first step in de-risking the Wigu Hill Project while securing end user distribution channels ultimately designed to generate REE sales revenue for Montero," said president and CEO, Dr. Tony Harwood.
"Star is a producer of rare earth chemicals to the Asian market with considerable expertise in rare earth refining which also compliments Montero's fast-track to market strategy."
The Wigu Hill property was first identified in the 1950s as a high grade deposit, with a large carbonatite complex measuring 6.4 by 3.2 kilometres. The asset has bastnaesite mineralization and is considered a "look-a-like" to Molycorp's (NYSE:MCP) Mountain Pass project. The rare earth elements at the deposit are hosted in the mineral bastnaesite found in carbonatite dikes, making it similar to Molycorp's Mountain Pass deposit in the USA.
Rare earth elements are critical in the development of emerging green technologies and high-tech applications, from electric and hybrid vehicles and wind and hydro power turbines, to LCD screens, MRI, X-ray machines, mobile devices and other computing equipment.
Montero is working to update the initial NI 43-101 compliant resource estimate for its Wigu Hill project this quarter, and is targeting cash flow from a small mining operation at the Twiga Zone.
Last September, the company released a 3.3 million tonne inferred resource on only a fraction of the Wigu Hill complex. Only the Tembo and Twiga deposits on the eastern side were estimated to contain an inferred resource of 3.3 million tonnes at a grade of 2.6% light rare earth oxide (LREO5).
Results from the in-fill drilling completed at the Twiga Zone will be used to update the existing NI 43-101 resource estimate, which is expected during the second quarter.
Under the terms of the memorandum of understanding, within three months of entering into the agreement, Star and Montero will sign an off-take agreement for 1,000 to 3,000 tonnes per year of mixed rare earth and cerium, subject to price and product specifications.
In addition, should Star and Montero confirm their interest in the development of a rare earth refinery project, the two parties will discuss future funding options, they said.
Montero said the non-binding deal will remain in effect for 12 months, and either party can terminate the agreement at any time.
The rare earth explorer also said it believes that the mineralized material at Wigu Hill is sufficient to support the proposed off-take deal with Star.
A scoping study is underway at Wigu Hill, which will lead into a preliminary economic assessment for the project - anticipated for completion in the second quarter.
Last month, the company said that rare earth dike mineralization from its flagship property was proven to be amenable to upgrading by X-Ray sorting, with over 80 percent recovery.
Hydrometallurgical testwork also continues to advance with Mintek, including further optimization tests and development work to enhance the work to date and generate high purity rare earth products for sale.