Ionic scoping study marks Makuutu as a robust rare earths project
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Ionic has released the scoping study that demonstrates the potential of its Makuutu project to be long-life, low capital development with robust financials.
The base case for the project, which is the one of the world’s largest ionic adsorption clay deposits with a 315Mt resource grading 650 parts per million total rare earth oxides, considers open pit mining over an initial 11-year mine life.
This is expected to deliver earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $1.71bn while post-tax cash flow is expected to total $1.02bn from the production of mixed rare earth carbonate via a modular heap leach salt desorption processing plant.
Additionally, Ionic Rare Earths (ASX:IXR) has estimated net present value and internal rate of return – both measures of a project’s profitability – at $428m and 38 per cent respectively.
Makuutu is expected to produce 84.5 million tonnes grading 810 parts per million total rare earth oxides for 68,400t of contained TREO over 11 years, which was based upon the Indicated resources predominantly and represents about one-third of the current resource.
Pre-production capital expenditure has been estimated at $US89m ($114.2m) for Module 1 including the mining fleet while the Module 2 expansion in Year 2 is estimated to cost about $US40m.
The further expansion from two to five production modules is expected to cost $US172m, though this will be funded by project cashflow.
Capital payback is expected five years from the first production of mixed rare earth carbonate while all-in sustaining cash costs through the initial 11-year mine life is estimated at $US36.40 per kg of rare earth oxide equivalent, which improves to $US23.70/kg REO equivalent once the scandium byproduct credit is included.
“The results reinforce not only the significant strategic value of an ionic adsorption clay deposit like Makuutu and the basket it can potentially produce, but the potential long-life free cash flow generating potential achieved with the modular, low capital intensity development plan and simple operation indicated in the study,” managing director Tim Harrison said.
“The completion of this study with its positive project economics represents a critical milestone for the company.
“Combining the long life potential, with the low-cost modular capital development and high margin basket potential at Makuutu, confirms the project as one of the best potential new sources of critical and heavy rare earths in the near term.”
He added that Ionic considered the project to be technically and financially robust and eminently financeable and noted that it had already received strong expressions of interest from strategic parties interested in accessing Makuutu’s unique REO basket composition.
The eminently palatable capital cost for Makuutu is due in part to its unique style of mineralisation, which is rare outside of China.
Ionic adsorption clay deposits are commonly considered to be some of the cheapest and most readily accessible sources of heavy rare earths, as they can be desorbed from the clay using a simple salt desorption process.
Its shallow nature – reflected in the expected strip ratio of just 0.76 – also puts a lid on costs as it means less waste material to move.
There is significant potential for upside as the existing resources at Makuutu already offer the potential for an extension to the project’s LOM.
“We believe that with additional project related work programs that have recently been initiated, and utilising proven know-how on the mining and processing of IAC deposits, Ionic Rare Earths can only improve the overall nature of the project,” Harrison added.
The company is now moving formally towards the bankable feasibility study that is expected to be completed by the third quarter of 2022 before submitting the Mining Licence in October 2022 that will in turn lead to a final investment decision.
Completion of the BFS will take Ionic’s stake in the project up from 51 per cent to 60 per cent. It also has the right to negotiate and purchase the final 40 per cent ownership if mutually agreeable.
Harrison added the potential to develop the asset to encompass ESG initiatives has also been highlighted in the scoping study and the company has started work programs that will help it identify suitable community engagement plans to help leave a positive lasting footprint in the Makuutu area.
The project’s carbon footprint has also been assessed to be low on top of its production of critical rare earths used in the production of offshore wind turbine motors.
This article was developed in collaboration with Ionic Rare Earths, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.