Ground Breakers: Chinese-backed rare earths hopeful Peak brings costs … down?
Who ever heard of costs going down with a study update?
Magnet metals hopeful Peak Rare Earths (ASX:PEK) appears to have done just that, though as with all of these things the proof of the pudding will be in the eating if it finally gets to develop its Ngualla project in Tanzania.
It now says its capital cost has come down from US$320.7m to US$286.9m, with operating costs to fall 17.8% from US$93.3m to US$76.7m.
The new numbers are contained in a FEED study to follow up the Ngualla BFS, updated last in October last year. Typically costs rise in this stage, as miners fiddle with the scope and convert the theoretical into something more real, with contractors and suppliers putting the hard numbers on their services and materials.
Among the factors lowering operating costs for the project, one of the highest grade undeveloped rare earths developments globally, include a longer term power deal and lower forecast Tanzanian diesel prices.
Those are important given Peak — which plans to sell its concentrate to Chinese major and 19.8% shareholder Shenghe Resources — needs to demonstrate the mine can work at times of lower neodymium-praseodymium prices. Currently you’ll pay around US$68/kg for NdPr oxide in China.
Early last year, when the BFS update was in full swing, those prices soared past US$130/kg and ran as high at one point as US$175/kg.
At US$60/kg, Peak assumes it will make US$5.53 on each keg shipped as a margin, rising to US$37.96 should prices double to US$120/kg.
Much of that depends on China, which dominates the rare earths supply chain. Well over 80% of the market for the rare metals, used for permanent magnets with applications in EV motors and wind turbines, is headquartered in China.
Its dominant players operate on a quote mining system, and in recent years Chinese authorities have sharply lifted those to meet a 45% increase in NdPr demand since 2019.
It means market pricing is beholden to the whims of these large forces, potentially giving the Chinese incumbents the power to keep marginal supply from overseas at bay and maintain their dominant market share.
There are only a couple of operators of substance outside China. The most independent of these is $6 billion Australian giant Lynas Rare Earths (ASX:LYC).
It owns the Mt Weld mine in WA, and is building a $730 million cracking and leaching plant in Kalgoorlie — though its exact opening date remains up in the air — as well as a refinery in Malaysia.
It is also going to build two plants in Texas to be funded by the US Department of Defense to produce separated light and heavy rare earths.
Lynas is planning to hit a NdPr capacity of 10,500tpa from mid-next year, and will be able to produce concentrate feedstock from an expanded Mt Weld of up to 12,000tpa equivalent from 2025.
Lynas projects NdFeB magnet demand will lift from 130,000tpa last year to 265,000tpa by 2030, largely driven by EVs and renewables. A little under 30% of a standard NdFeB magnet is NdPr.
China produces around 50,000tpa of NdPr currently — and Goldman Sachs thinks it will cost US$25 billion for the West to replicate it, with only 2-3 of the 20 odd projects proposed outside China likely to get up this decade according to a July note from the investment bank.
Iluka Resources (ASX:ILU) is building a more than $1 billion refinery at its Eneabba project near Geraldton in WA’s Mid West to process both third party material and monazite waste stockpiles left over from years of mining and processing mineral sands containing zircon and rutile.
It could be used to process similar deposits in Victoria’s Murray Basin, as well as xenotime-hosted rare earths from Northern Minerals’ (ASX:NTU) Browns Range mine on the WA side of its border with the NT.
But China has made efforts to put its foot on supply outside its homeland as well.
$3.8 billion capped Chinese producer Shenghe owns almost 8% of MP Materials, operator of America’s only rare earths mine at Mountain Pass in California. It’s the project’s only offtaker.
Along with its 20% stake in Peak, Shenghe will purchase 100% of Ngualla’s rare earth concentrate and 50% of its intermediate and final rare earth products for an initial term of seven years subject to Peak shareholder approval, according to an agreement announced in August.
A final investment decision is due by the end of May, with development targeted by early 2026.
But Shenghe is aiming to take its involvement in the project — also 16% owned by the Tanzanian Government under its mining laws — further.
Peak has engaged Macquarie as an adviser to assess funding options, with Shenghe also potentially looking to take a non-controlling stake in Peak’s interest in Ngualla, something that would help the ~$100m junior fulfil its capital requirements.
Peak has the right to terminate the offtake deal if financial close is not reached within six months of today’s FEED release, something which coincides with its AGM in Sydney.
Ngualla boasts a similar type of mineralisation to MP Materials, called bastnaesite.
Peak anticipates it will produce 16,200tpa of rare earths concentrate over a 24-year mine life, upgrading a 4.8% TREO feed grade to a 45% con, 22.3% of which will be NdPr.
The materials sector hit a rough patch this morning, down 0.17% with gold, uranium and battery metals stocks in the red.
Iron ore miners were mixed with prices largely unmoved despite suggestions Beijing could make a (probably unsuccessful) attempt to kill speculative trading it thinks are keeping prices high.
Sandfire Resources (ASX:SFR) was down over 2% after revealing it had apologised to Traditional Owners after an internal review found it had disturbed cultural artefacts at the satellite Monty mine, part of its DeGrussa copper-gold operations near Meekatharra in 2017 and 2018.
The company says it has now reported the disturbance to WA’s Department of Planning, Lands and Heritage.
“Sandfire prides itself on being a values based organisation and we are extremely sorry to have disturbed artefact scatter within the Monty mining lease during construction and mining activities. Our local communities are of critical importance to us and we will work hard to rebuild our relationship with the Traditional Owners,” Sandfire CEO Brendan Harris said.
The copper miner, which has since placed DeGrussa on care and maintenance as it focuses on its MATSA mine in Spain and Motheo in Botswana, separately copped a first strike yesterday as over 35% of votes were cast against the adoption of its remuneration report.