for comparison purposes
avlon Rare Metals Inc. (TSX: T.AVL, Stock Forum) and its chief executive Don Bubar are venturing into uncharted waters as they move to develop a rare earths mine on a remote Northwest Territories site about 100 kilometres southeast of Yellowknife.
Mining metallic elements known as rare earths with tongue-twisting names like Neodymium, Terbium and Dysprosium is a bit of a departure for Bubar. A 55-year-old geologist, he cut his teeth in the Quebec asbestos and base metal mining sectors.
In an interview with Stockhouse, he said producing rare earths is like running a chemical processing business that delivers specialty metals for use in the production of things like automotive catalytic converters, hybrid vehicles, and fluorescent light bulbs. “There will be some mining at the front end,’’ he said.
But with the imminent closing of a $30 million equity offering, he is optimistic that the Avalon’s Nechalacho project could be up and running as early as 2015.
“I’m really convinced that this project is a winner,’’ said Bubar, who is best known for spotting the drill holes that led to the discovery of Aur Resources Ltd.’s (TSX: T.AUR, Stock Forum) Louvicourt mine at Val d’Or, Que. in 1989.
Avalon is now among a handful of North American companies who are aiming to take advantage of renewed interest in rare earths, which is being driven by news of export restrictions in China, the source of 95% of the world’s production.
The recent Molycorp Inc. (NYSE: MCP, Stock Forum), IPO has also shone a spotlight on the rare earths sector.
Colorado-based Molycorp is planning to reopen a mine in California that was shut down eight years ago, while Ucore Rare Metals Inc. (TSX: V.UCU, Stock Forum) and Great West Minerals Group Ltd. (TSX: V.GWG, Stock Forum) are exploring early stage projects in Alaska and New Brunswick, respectively.
Viable rare earth mines are a rarity in North America. But Bubar’s optimism is based on the fact that Nechalacho contains an unusually high proportion of heavy rare earth elements. “This makes for more valuable ore,’’ he said.
When the $30 million equity offering about to close, Avalon is positioned to embark on a $43 million study that will look at the feasibility of developing a 2,000 tonne-per-day mine.
“The mining part of this is the easy part,’’ Avalon ceo said.
According to recently revised estimates, the Nechalacho property is thought to host 14.5 million tonnes of indicated mineral resources, plus another 175.5 million tonnes of inferred material.
That material is hosted in a flat-lying body located about 200 metres below surface. “It means it can be developed with ramp access and you can apply bulk-type underground mining methods that are relatively low cost,’’ said Bubar. “The ground is very stable.’’
Using traditional underground mining and milling techniques, Avalon will simply extract the rare earths from the Nechalacho site, put the concentrates on a barge and ship them across Great Slave Lake to a rail head at Hay River.
It is at that point that the process gets complicated.
That’s because Rare Earths are a moderately abundant group of 15 metallic elements that need to be separated for their individual or combined commercial use.
Bubar said Avalon will need to build a hydrometallurgical plant capable of producing a chemical concentrate called a mixed oxide.
Further refining will then be required to isolate each of the individual rare earths, and allow the company to deliver the saleable separated oxides to its customers.
To achieve that goal, Avalon must build a separation plant, something that has never been done by rare earth producers outside of China.
Babar said he has seen separation plants in China and some of them are a big as a football field.
“This is a capital intensive business, there is no doubt about it,’’ said Bubar.
In the gold and base metals mining industries, it would be highly unusual for a company like Avalon, with only 12 employees, to go it alone in trying to build a mine and related processing facilities.
Avalon must deal with the fact that there is no ready market for rare earths in the way that there is for gold metals such as copper and zinc. Prices tend to vary and depend on the level of purity.
As a result, Avalon will look to potential customers for project financing rather than take the traditional route of finding a joint venture partner in the mining sector.
The company has already begun the process of talking to potential customers about offtake agreements.
“Potentially, we could end up partnering in the development with a consumer of the product who doesn’t want to be in the mining business, and just wants the product,” Bubar said.
“There are some very big international brands that rely on rare earths and that don’t view $1 billion as a big deal if they really need the material.
At the same time, Avalon has started to consider what the processing side of the operation might look like
“We have engaged SNC Lavalin Group Inc. (TSX: T.SNC, Stock Forum) to do a scoping study for us on what would be involved in terms of cost to build a separation plant that is suited to our material and where it might be sited in North American, ideally.’’
It is expected to take about two years to complete feasibility and environmental impact studies at Nechalacho. While those studies are in progress, Bubar says he will be keeping a close eye on Lynas Corp. Ltd., a company that is developing the Mount Weld rare earths mine in Western Australia.
Based in Sydney, Lynas is building a separation plant in Malaysia, which is expected to be in operation by the end of 2011.
Bubar said old Pine Point mine property east of Hay River is a potential site for the hydrometallurgical plant. But Avalon is still a long way off from choosing a site for its own rare earths separation plant.
However, the junior is moving ahead with the feasibility study in the belief that only a handful of producers are needed to service the market segment that is available to companies that operate outside of China. “The size of the market is not unlimited. So there is a big first mover advantage in this business,’’ Bubar said.
Since Avalon has been working on the Nechalacho project since 2005, it is already five years down the road to getting it into production.
“That is, I think, one of our main advantages,” Bubar said
