RareX’s phosphate first move will make Cummins Range shine

RareX’s recasting of its flagship Cummins Range project from a rare earths (REE) play into a hybrid phosphate-REE development with the fertiliser being first off the rank has two advisory firms applauding the decision.

While recasting of roles in the entertainment world is often due to less than pleasant reasons, the company’s decision to fast track the project first as a direct shipping ore phosphate producer before getting to the REE mineralisation is predicated on achieving more favourable economic results.

RareX’s (ASX:REE) decision to use phosphate cut-off rather than a REE cut-off for Cummins Range led to a big resource upgrade to an Indicated and Inferred Resource of 519 million tonnes grading 0.32% total rare earth oxides (TREO) and 4.6% phosphate for contained resources of 1.6Mt TREO and 24Mt of phosphate.

While this is larger than Arafura Resources’ Nolans Bore project, it also has a lower grade though it is still comparable in contained TREOs to Yangibana.

However, Cummins Range does include a high grade zone of about 50Mt at more than 1% TREO, which compares very favourably in terms of scale and grade to other hard rock REE projects.

Development will be carried out in three stages, with initial DSO phosphate fertiliser phase involving the bulk mining of apatite mineral rock phosphate contained within the overburden, with trucking to Wyndham Port for transhipment to ocean going vessels.

Metallurgical testing of the likely DSO rock phosphate showed much higher bioavailability levels than the industry high-standard (9%) for use as direct application fertiliser which means they are likely to be able to lower their ore head grade and thus increase available volumes.

Stage 2 is the proposed installation of simple flotation beneficiation infrastructure in order to concentrate the lower grade phosphate minerals from the regolith materials in the deposit.

Metallurgical testwork has successfully upgraded circa 13% feed grade mineral phosphate to over 39% phosphate using typical flotation methods.

The upgraded phosphate material has shown good results on both bioavailability tests as well as lower deleterious element grades than industry standards for fertilisers.

RareX believes that high phosphorous extraction can be achieved with minimal rare earths loss during the phosphoric acid production process.

REEs will enter stage left in the third phase, which will see the expansion of the beneficiation plant in Stage 2 with the requisite capital upgrades to manage the high-grade rare-earth regolith and subsequently fresh rock material.

The resulting rare earth and phosphate concentrate is anticipated to be well suited for the phosphoric acid producers from Stage 2 as well as deriving rare earth credits from the product mix.

What the brokers say

RareX’s decision has drawn attention and has received the support of a couple of analysts who offered the following information in recent notes.

Corporate advisory firm Bridge Street Capital noted that the company’s decision transformed Cummins Range into what looked like a low capital intensity project with the early production of phosphate rock potentially with highly attractive returns.

“Project economics should be further enhanced as a pathway to commercialising the rare earths component held within the very large Cummins Range carbonatite-hosted orebody”, Bridge Street analyst Dr Chris Baker added.

“An updated scoping study due out mid-year should allow us to provide some valuation estimates for the project.

“With a market cap of around A$30m, REE is the least expensive of its peer group.”

Canaccord Genuity Australia equity research analyst Tom Prendiville, who recently attended the site and port, agreed, noting that the initial DSO phosphate operation had the potential to be a simple, low capex, high margin project to produce cashflow from early 2025.

He added that this cashflow could partially fund the next two stages, which could include the construction of a beneficiation plant that could host a flotation circuit capable of separating phosphate and REEs to produce two saleable concentrate streams.

Growth potential

While both analysts were clear that the release of the company’s updated Scoping Study would be instrumental in providing a more in depth analysis of just what kind of returns the reimagined Cummins Range could produce, they did provide “what if” scenarios to illustrate its potential.

Prendiville estimated that Stage 1 DSO rock phosphate production of about 1Mtpa for an initial two to three years for export could deliver EBITDA of more than $200m per annum using a price of about $300 per tonne for a DSO product with a phosphate grade of about 15% and bioavailability of 2-5x industry standard.

He added that should the DSO product be sold locally, which could be true for anywhere between 10% to 20% of the total volume, this would enjoy lower operating expenditure of about $75/t – as opposed to $100/t for export volumes – due to the avoidance of port and transhipping costs.

RareX already has a memorandum of understanding in place with OrdCo to potentially supply rock phosphate to OrdCo’s fertiliser distribution/blending facility in Kununurra.

Local farmers and governments are reported to be keen to have a locally produced, reliable and cheaper source of phosphate as most of the fertiliser used by the local market is sourced from synthetic imports – as compared to the company’s DSO organic product – that cost more than $1,000/t.

“Stage 1 DSO upfront capex is expected to be reasonably low likely around ~A$50m with the major capex item a new ~50km paved road from site to Tanami Road ($25m) plus mining/processing capex of ~A$20m, plus ~A$5m port upgrade,” Prendiville added.

He noted that the next two stages would likely include the construction of a 3Mtpa to 5Mtpa beneficiation plant for development capex of around $200m to $300m, which while increasing phosphate opex from $5/t to $20/t would also open up the potential for REE production.

Meanwhile, Dr Baker noted that should the project be able to deliver a phosphate DSO to Northern Australia’s agricultural industry and for seaborne export to neighbouring countries it would be a welcome early cashflow, low cost, start up paving the way for Phase 2 which could see mine cashflows of circa $200m per year from phosphate mineral concentrate with the plant costing between $200m to $300m.

“Rare earths could then deliver significant additional revenue as soon as a pathway to market is developed,” he added.

“We like the idea of early cashflows from a low capex project, which allows boot-strapping of higher capex phos-rock then TREO/phos-rock/phosphoric acid production further down the track.”

He was also quick to point out that none of Australia’s rare earth projects have been overnight successes highlighting Hastings Technology Metals’ Yangibana project which is only now moving towards construction some 7.5 years since its first Scoping Study was delivered in November 2015 as an example.

This article was developed in collaboration with RareX, a Stockhead advertiser at the time of publishing.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.