• Argonaut rates Northern Minerals a Speculative Buy with a 6c price target
  •  Falling rare earth prices challenge NTU’s project,
  • However, dysprosium’s scarcity and high demand highlight NTU’s importance  


Broker Argonaut has slapped a Speculative Buy Rating on Northern Minerals (ASX:NTU), with a price target of 6c (versus current price of 3.8c).

NTU is a $200m+ market-capped explorer developing the Browns Range Rare Earths project in the East Kimberley region of WA, approximately 160km southeast of the town of Halls Creek near the Northern Territory border.

The focus for the company is on producing dysprosium and terbium, which are critical to the manufacturing of permanent magnets used in things like electric vehicles and wind turbines.

Argonaut believes Browns Range is a unique source of critical heavy rare earth elements with strategic value.

Recent drilling efforts aimed at enhancing the quality of the Wolverine deposit’s MRE (mineral resource estimate) have produced outstanding assay results.

These include 15.6m of material containing 9.99% total rare earth oxides (TREO) starting from a depth of 428m, and 12 meters with 10.17% TREO from 410m deep.

Highlights from 26 holes:

• 15.6m at 9.99% TREO from 428m
• 12.0m at 10.17% TREO from 410m
• 36.0m at 3.39% TREO from 396m
• 12.3m at 6.36% TREO from 394m 

The findings will be included in an updated MRE planned for release later this year.


Rare Earth prices have been dropping

But here’s one problem: Rare Earth Element prices have been dropping in recent months, and Argonaut says that prices will need to improve to justify further development of the project.

“Few REE projects would succeed under the current price environment. And higher prices are required to incentivise new supply. For our base case valuation, we assume a US$75/kg (real) basket price.”

Based on that basket price, Argonaut projects a net present value (NPV) for Browns Range of $480 million at a 7% discount rate.

“Our model is sensitive to rare earth element pricing. Increasing our basket price to US$85/kg improves our build date NPV to $610m.”


Scarcity provides a tailwind for NTU

Rare earth-based magnets are critical in tons of stuff we use, from electric cars and phones, to wind turbines. They actually make up nearly half of the rare earths market.

Those products use magnets, and dysprosium plays a pivotal role in enhancing the magnets’ magnetic properties.

By increasing the Curie temperature, dysprosium enables magnets to maintain their strength at high temperatures, ensuring long-term reliability, particularly in demanding environments like electric vehicle propulsion systems.

The amount of dysprosium added to rare earth magnets varies depending on the application. But in general, increasing dysprosium content typically enhances a magnet’s ability to withstand an external magnetic field without being demagnetised.

But the problem is, dysprosium are not as easy to find as other rare earth elements (REEs).

In places where you typically find REEs, like monazite and bastnaesite, the Light Rare Earth Elements (LREEs) such as neodymium and praseodymium are way more common compared to the Heavy Rare Earth Elements (HREEs) like dysprosium and terbium.

Because of their scarcity, dysprosium and terbium are significantly more sought after by magnet manufacturers. Data suggests that dysprosium demand is expected to grow by 9% CAGR through to 2035.

There’s also the geopolitical angle.

Right now, China has a tight grip on downstream processing of rare earth minerals and separating them into oxides.

So as political tensions rise, Western countries and companies are understandably getting worried about their critical metal supply chains.

“The only way to mitigate this supply risk is to build out additional upstream sources of mineral supply,” said Argonaut, implying that NTU could play a crucial role here.

“While our base case prices are relatively high compared to the long-term global average, we reason that Western users could pay a premium for secure Australian rare earth supply.”


What’s next for NTU?

Mining has commenced with the drilling at the Wolverine deposit. This first phase is set to last over 8 years or even more.

The company is looking at pulling out around 910,000 tonnes of ore every year using both open-cut and underground mining methods.

The latest assay results from Wolverine (as already described above) are really promising and give NTU a lot more confidence in developing the Wolverine deposit as the first mine in the Browns Range area.

Those results, along with better understanding of the geology from the drill findings and structural models, have confirmed what the company already knew about the area i.e. there could be even more high-grade opportunities beyond Wolverine.

The drilling program should wrap up soon and once that’s done, the plan is to keep mining at other spots in Browns Range, keeping the project going.

And looking further ahead, there will be a re-evaluation of the mine plan, which is due in Q4 of this calendar year, the timing of which aligns well with the company’s planned Final Investment Decision.

“We recommend a Speculative Buy and assign a price target of 6c per share, from our previous target of 6.4 cents a share,” said Argonaut.


Latest Update:

NTU announced a restructure of its Board of Directors yesterday. This incudes the resignation of Nicholas Curtis from his position as Executive Chairman. Curtis will now serve as a Strategic Advisor to the company. In his place, Adam Handley, who has been a Non-Executive Director since December 2021, has been appointed as the new Executive Chairman. Additionally, Shane Hartwig, the current Finance Director, will assume the role of Managing Director and CEO. These appointments have taken effect as of yesterday.