St George’s Araxá project shapes up as standout REE supplier

• SGQ’s Araxá project shapes up as a strategic rare earths supplier
• China’s export restrictions have highlighted the importance of new supply chains
• Araxá hosts 40.64Mt REE and 41.2Mt niobium

Special Report: St George Mining’s Araxá project in Brazil is shaping up as a potentially strategic rare earth mining operation as China’s export restrictions on critical metals come into play.

This month, China implemented export restrictions on a range of rare earth elements – as well as permanent REE magnets – creating a supply chain shock around the globe.

China produces around 90% of the world’s processed rare earths and magnets. The United States has only one rare earths mine, Mountain Pass, which relies on China to process most of its product.

Amidst the brewing trade war between the US and China, Nevada-based rare earths miner MP Materials – operator of the Montain Pass mine – saw its share price climb more than 20% overnight on the NYSE.

The jump in valuation comes as Reuters reported last week US President Donald Trump is planning to sign an executive order to shore up the country’s domestic supply of the critical mineral.

The executive order is anticipated to stockpile deep-sea metals in response to China’s tariffs on US imports.

Meanwhile, St George Mining’s (ASX:SGQ) project in Brazil hosts a 40.64Mt at 4.13% TREO resource and is already one of the world’s largest and highest grade hard-rock rare earth deposits.

The project is also home to the high-value magnet rare earths neodymium and praseodymium (NdPr) with 7,800ppm with 320,000 tonnes of contained NdPr highlighting the potential for Araxá to become a significant supplier to permanent magnet manufacturers in Brazil and elsewhere.

“China’s increased restrictions on the export of rare earths and permanent magnets have significantly disrupted the global supply chains for these commodities which are critical to a wide range of sectors including defence, electric vehicles, energy, smartphones, robotics and medical equipment,” SGQ executive chairman John Prineas said.

“This development is evidence that single-source supply chains are a risk, from China or anywhere else.

“The need for a sustainable rare earths industry outside China has never been stronger.”

Development studies underway

The grade and size of the resource compares favourably with world-class rare earths mines such as Mt Weld in Western Australia and Mountain Pass in California.

“One of the largest producing hard-rock rare earths mines outside of China is the Mt Weld mine owned by the $7.3 billion-valued Lynas Rare Earths Lynas (ASX:LYC) with a total resource of 106Mt at 4.1% TREO,” Prineas said.

“St George’s Araxá Project has a total JORC resource of 40.64Mt at 4.13% TREO, illustrating the potential value upside for St George as we progress through development studies and resource expansion drilling to demonstrate the potential for a commercial rare earth mining operation at Araxá.”

More than 95% of the resource is within the area between surface and 100m depth, and significant mineralisation has been intersected below 100m in deeper rock – but that has not been included in the latest estimate.

And with mineralisation open in all directions and less than 10% of the project tenure drilled out, there is even more potential to increase the resource – with further drilling scheduled to commence in the coming weeks.

Watch: St George MRE proves Araxa potential

Niobium upside a bonus

Metallurgical testwork is underway to determine the optimal flowsheet for potential commercial production of niobium and REE products at Araxá.

Niobium is primarily used in the manufacturing of high-strength low-alloy steel and past drilling delineated that high-grade mineralisation commences from surface, with more than 500 intercepts of high-grade niobium (>1% Nb2O5) with grades of up to 8%.

Along with its rare earths resource, Araxá has a niobium resource of 41.2Mt tonnes at 0.68% Nb2O5 and with it being adjacent to CBMM’s niobium mining operations in a region of Brazil with a long history of commercial niobium production, the project has caught the eye of Pitt Street Research analysts Stuart Roberts and Nicholas Sundich.

“With a market cap of around $50m after the Araxá transaction is complete, it’s reasonable to say that St George is undervalued,” the analysts said.

“We used a DCF-based approach based on the 2013 PEA to value Araxá and derived an NPV of A$2.07bn in our base case and $3.2bn in our bull case.

“As a company with its maiden MRE and 2-3 years from production, we think it could re-rate in the medium term to 25% of the NPV which is $517m/$0.14 per share for our base case and $797.8m/$0.21 per share for our bull case – both significant premiums to the current share price.”

Pitt Street says the company could be producing 20,000 tonnes of niobium and rare earths by 2027, pending the delineation of an economic resource and completion of a definitive feasibility study.

Listen: John Prineas joins Barry FitzGerald on the Explorers Podcast

This article was developed in collaboration with St George Mining, 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.