Australia doesn’t yet have much of a heavy rare earths industry, but federal government-run AusIndustry nearly crippled it before it’s even got off the ground.

The country has just two producers: the nearly $2 billion Lynas (ASX:LYC), which is more light rare earths focused, and smaller ($155m) newcomer Northern Minerals (ASX:NTU), which is solely focused on producing heavy rare earths.

Rare earths are a group of 17 metal oxides that are actually more common than gold or silver. Heavy rare earths have a higher atomic weight than light rare earths.

Northern Minerals’ 60,000-tonne-per-annum Browns Range project in the East Kimberley region of Western Australia produces primarily dysprosium and terbium. Both are considered critical metals because of supply constraints and their importance in the development of clean energy technologies.

But a decision by R&D overseer AusIndustry to earlier this year reject Northern Minerals’ refundable tax claim nearly saw the end of the Browns Range project.

“We nearly lost this whole thing at the start of the year because of R&D,” managing director George Bauk told journalists on a site tour this week.

“I can’t tell you how close we were.”

Following a review of Northern Minerals’ R&D claims, AusIndustry notified the company that its claims for FY17 and FY18 had been rejected, claiming the company’s activities were “ineligible R&D activities”.

Just for FY2018 alone, Northern Minerals submitted claims totalling about $21.6m and AusIndustry even advanced the company half of that while it was still reviewing the claims.

According to Bauk, AusIndustry is arguing that it can’t be R&D because Northern Minerals has all its approvals in place and has even secured off-take partners.

But although Northern Minerals already has pilot plant approval, there are still other areas it needs to secure approvals for, such as an extension to its water licence and to implement ore sorting.

Northern Minerals’ goal is to eventually undertake rare earths separation to recover other valuable rare earths that right now are just sold collectively as rare earth carbonate.

Northern Minerals managing director George Bauk. Picture: Angela East

 

Never done before

Browns Range is the only rare earths project in Australia that contains xenotime ore – the host ore for the various rare earth elements.

“This is the first of its type in the world,” Bauk said.

“We have not proven it. If this was proven technology, I’d be sitting here now telling you what our cost per kilo was, what our production is, what our run rates are, what our profitability is likely to be and all that sort of stuff.

“I’m not hiding it because we are an R&D site. We are still testing and proving bits.”

Bauk said there were in excess of 45 different tests being undertaken that needed to be proven.

“It is an R&D site, we don’t have a reference site,” he said.

“If you go back to the original conclusions from the test pilot plant that we ran at a laboratory scale at ANSTO, the documented is littered with ‘you need to do further testwork’.

“Why have a CPC in Kwinana working on xenotime mineralisation when Northern is the only company with xenotime ore?

“Why not reward the company that’s making an investment and having a go? This is R&D in its purest form.”

 

Hefty price tag

Northern Minerals has spent $210m on the Browns Range project since 2010.

And Bauk said without R&D support, everything just took longer to advance.

“At the moment our budget R&D has gone,” he said.

“What that means is that just slows down separation advancement, it slows down exploration, it slows down so many other things.”

Northern Minerals wants to reach nameplate production by the end of this year and have ore sorting implemented by March next year.

But Bauk said no R&D support might mean that ore sorting could be pushed back 12 months.

“There’s $4.5m of goods and services being procured and people coming up to fit that in and that actually stimulates the economy if you like, but again that slows us down because we don’t have that money.

“If AusIndustry turns around and says ‘shit we’re wrong’, that puts cash in our bank, we’ll have drill rigs, we’ll have the ore sorter approved tomorrow and we’ll have the purchase order signed in the US and we’ll ship some product over to the US to start separation.

“That would happen tomorrow guaranteed, hand on heart.”

Northern Minerals previously negotiated a deal under which the US government had agreed to pay half the cost of shipping and testing product in the US for separation.

 

Repairing the balance sheet

Despite not having an R&D cash injection right now, Northern Minerals has topped up its coffers thanks to supportive investors.

The company has just banked $41m, an investment that was secured before the rare earths market really popped thanks to Wesfarmers’ interest in Lynas and China threatening to stop exports of rare earths to the US.

“That was someone that believed in the space and the sector and also was supportive because we actually had a plant, we weren’t in feasibility mode,” Bauk explained.

The new cash has allowed Northern Minerals to fully repay a loan from a US fund that was borrowed against its R&D, as well as repay a convertible note it issued to Lind.

‘Why not reward the company that’s making an investment and having a go? This is R&D in its purest form.’

The company is now also undertaking a rights issue to raise $6.9m, and has so far raised $2.6m from the accelerated component. It also expects to receive $15m in three equal tranches in the next few months.

“There’s no question we’ve had some significant setbacks this year – R&D was one of them and just trying to clean up our balance sheet,” Bauk said.

“But we’re seeing our way through it, we’ve survived, we’ve got cash in the bank now, the project is ongoing and we’re looking now to hopefully approve the ore sorter in the near future.”

 

Fighting back

Northern Minerals has now lodged an appeal against AusIndustry’s decision.

The company has four to six weeks to submit additional information to support its appeal.

If the appeal is rejected then Northern Minerals will have to turn to the Administrative Appeals Tribunal and that is likely to be a nine to 12-month process, according to Bauk.

Stockhead travelled to the Browns Range heavy rare earths project as a guest of Northern Minerals.