Ground Breakers: Booming rare earths stock suffers selldown as costs bite

Rare earths hopeful Australian Strategic Materials (ASX:ASM) has suffered a big selldown after revealing its Dubbo project in New South Wales would cost almost $400 million more than initially planned.

ASM, which signed a major funding deal with South Korean investors to supercharge its rare earths business in July, copped a 10% hit this morning after revealing the news.

It released an ‘optimisation study’ building on a scoping study released for its Dubbo project in New South Wales.

According to ASM’s new figures, the project will cost $1.678 billion to build, up from the $1.297bn capex estimate provided in its 2018 release.

The company says the additions include a estimate for the pricing of its dehafinated zirconia solvent extraction plant (an $87m increase), as well as $65m for a chlor-alkali plant, $30m for a brine concentrator upgrade and a $163m ‘owner’s contingency’.

ASM said the changes will bring annual operating costs down from $317m to $287m and improve its ESG performance.

It also increased the gross revenue estimate from $12.75bn to $15.8bn over the 20 year life of the Dubbo mine, with free cash flow rising from $4.7b to $7.4b, its pre-tax IRR increasing from 17.5% to 23.5% (20.1% post-tax) and pre-tax NPV from $1.24b to $2.36b.

Investors still had the jitters.

The company plans to produce a number of heavy rare earths minerals for the international market, including neodymium, praseodymium, zirconium, hafnium, dysprosium, terbium and niobium oxides.

“I am delighted with the outcomes of the optimisation work which demonstrates the financial strength of the Dubbo Project and ASM’s focus on a sustainable future delivering improved performance and ESG outcomes,” ASM managing director David Woodall said.

“The optimisation work supports a strong go forward case and is an exciting development for ASM, our partners and shareholders.”

“The Optimisation Work confirms we have a project that can integrate into our metals business to create an alternate, sustainable, secure and stable long-term supply of critical metals and oxides.”

“This places ASM in an exceptional position in the critical metals value chain, as the vertically integrated owner of a globally significant polymetallic resource in Dubbo, and the capability to produce critical metals from this resource to the highest environmental standards.”

The value of ASM’s shares have risen by 140% over the past 12 months, valuing the development stage company at ~$1.4 billion.

Australian Strategic Materials share price today:

Iron ore futures turn the market

Soaring iron ore futures late this morning gave a boost to diversified miners and iron ore giants weighed down by concerns about property market debts in China.

China consumes around 80% of Australia’s iron ore and is responsible for almost 60% of global steel production, meaning the market is extremely sensitive to sentiment around steel demand.

Singapore and Dalian futures were both up around 6%, with a number of Singapore contracts in and around the US$110/t mark. Spot iron ore prices were stable at around US$102/t for benchmark 62% fines yesterday.

BHP, FMG, Rio and other iron ore miners all started off tepid before recovering and returning close to equilibrium on the day.