One of the great misnomers in the mining exploration business is that companies build mines when commodity prices peak.
The reality is, however, that it can take between five and seven years (and often longer) to get a project into production. That means companies and their backers have to take a medium-term view of what the relevant commodity price is likely to be at some point in the future.
Pilbara Minerals, for example, spectacularly backed its medium-term view of what might happen to the price of lithium at some point in the future. Despite being blown around by the winds of pricing along the way, Pilbara stayed the course and built a mine that made an eye-watering $2.4 billion in net profit after tax last year – at the top of the pricing cycle.
That single mine made more money than Qantas ($1.74 billion) during its best-ever year and even surpassed blue-chip companies such as Bunnings.
Pilbara is perhaps the best example of why you need to start the early capex works when it comes to mine building at the low end of the commodity pricing cycle, build the substantial plant on the shoulder of the graph and then take advantage of the price peaks when the mine is operating. But you need to be brave, have investors that share the vision and you need an unflappable commitment to the thesis that you are working on.
No doubt, the institutional bond-holders who ploughed $100 million into Pilbara way back in 2017 on a five-year term did very well for themselves.
One company that is attempting to replicate the Pilbara playbook is Hastings Technology Metals (ASX: HAS), the 100 per cent owner of the 650-square-kilometre Yangibana rare earths project on Gifford Creek Station, 250km north-east of Carnarvon in Western Australia.
Despite rare earths prices retreating since about 2022, Hastings still has its foot on the gas, backing its vision that the tide has simply gone out for now and high-tide will inevitably arrive again – and preferably around the same time that the last bolt on its proposed 1.1m-tonne a year plant is fastened.
Hastings says it will cost $474 million to build a mine at Yangibana, which includes a $27 million contingency. Remarkably, as at May this year, the company had already spent $153 million of that capex and it does not look like sitting on its hands anytime soon.
The resource at Yangibana now stands at 29.93 million tonnes at an average grade of 0.93 per cent total rare earth oxides (TREO) and it has a proved and probable mineral reserve of 20.93 million tonnes at an average grade of 0.9 per cent TREO – which Hastings says will support an expected mine life of at least 17 years.
While the grade is modest, the real kicker is the percentage of the key magnet rare earths neodymium and praseodymium (NdPr) that will be mined from the orebody during the life of mine.
NdPr rare earths are used in electric vehicle (EV) engine industrial magnets and sell for handsome prices. Hastings says during the life of its mine, the NdPr content will be a stellar 37 per cent and in some places, more than 50 per cent.
To put that in some perspective, well-known rare earths deposits such as Lynas Rare Earths’ Mt Weld project in WA sit at about 23 per cent NdPr content and even the revered Mountain Pass rare earths mine near Las Vegas in the United States only clocks in at 16 per cent.
In fact, any kind of analysis of a basket of a dozen or so rare earths shows convincingly that if you don’t have solid shows of NdPr in your orebody, or the even more lucrative “heavy” EV magnet rare earths known as terbium and dysprosium then, with only a couple of rare exceptions, you are bottom-dwelling in terms of prices per kilogram.
Financially, Hastings expects NdPr to account for about 86 per cent of the revenue from the basket of rare earths that can be sold from its mine.
According to Benchmark Minerals, the price of dysprosium, praseodymium and neodymium spiked briefly in April, marking the first time this year that key rare earths prices have actually moved north since their steady decline from 2022.
Interestingly, it wasn’t all that long ago that punters were lamenting the fact they had missed the boat with rare earths and lithium after plenty of market caps in the sector got all stratospheric.
Fast forward to today and many of those boats have returned to harbour and the question now is which boat looks best equipped to handle the next high tide when it comes in, as many believe it will for both lithium and rare earths. Perhaps more importantly, the real question is – which company can move quickly to actually build a mine when the rare earths prices start to move north again?
Hastings describes Yangibana as a “shovel-ready” tier-one rare earths asset and the $153 million already spent on capex will no doubt place it in the vanguard of the next wave of players that will look to take quick advantage of any stirring of the rare earths price.
That capex figure includes $135 million for completion of early works, an accommodation village, 2km airstrip, water bore-field and site access roads, along with the purchase of long lead-time plant and associated engineering.
Hastings has also commissioned more than 100 bench-scale tests done at commercial met labs employing over 80 sample variables to test its standard flow sheet and run two pilot-scale tests to validate the flow sheet in progressive throughput scale-ups.
Of equal importance is the fact that almost inexplicably, the company has already secured the crazy-long list of approvals it needs to go mining.
The project shows a strip ratio of about 9:1. However, and importantly, that number comes down to just 5:1 in the crucial first five years when the pressure is on to repay the capex.
Hastings assessed the possibility of increasing the pay-off from the Yangibana concentrate by outsourcing the multi-stage processing through mixed rare earth carbonates to rare earth oxides – that is, the separation of the basket of rare earths into individual saleable oxides.
To that end, it has secured a seven-year offtake agreement for its concentrate with privately-owned Chinese company Baotou Skyrock for 10,000 tonnes of concentrate, with an option to extend the agreement for a further five years.
Management says the company is looking to establish other offtake agreements with up to three other companies to process some or all of the remaining annual 27,000 tonnes of production.
Despite the estimated 17-year mine life, Hastings still has a big chunk of geophysics from its 2018 surveys that reveal plenty of other high-priority drill targets with additional resource potential at Yangibana.
Importantly, about 91 per cent of the drilling to date has been less than 100m deep and the small remainder of drilling to greater depths shows the ferro-carbonatite bodies continue emphatically to greater depth. Additionally, in places where the ridges appear to be discontinuous at surface, they can be confirmed by drilling or geophysics to be laterally continuous under cover.
The important factors of dominantly shallow drilling and the acknowledged lateral and vertical extension potential have enormous implications to increase the resources at the project.
Based on existing known reserves, Hastings proposes development in two stages, with an initial focus on the construction of the mine site-located processing plant to produce about 37,000 tonnes a year of mixed rare earths concentrate and the possibility of later downstream processing being contemplated, which would require the addition of a hydrometallurgical plant that is likely to be offsite.
The company envisages the possibility of becoming a “mine-to-magnet” producer in time, capturing the full-value chain within the magnet rare earths sector. Its strategic 21.15 per cent shareholding in TSX-listed Neo Performance Materials is perhaps a serious indicator of that.
Neo is a leading global rare earths processing and advanced permanent magnets producer, providing some potential blue-sky upside to the project.
Yangibana has other upside opportunities, too. For instance, while neodymium and praseodymium are the highest-priced “light” magnet rare earths, dysprosium and particularly terbium, both of which are considered “heavy” rare earths, are even more lucrative.
In fact, terbium can sell for up to 15 times more than neodymium and praseodymium and can fetch as much as $800 to $900 a kilogram.
The project has only a faint splattering of dysprosium and terbium in the key resource, but just recently the company stumbled across high-grade dysprosium (2.08kg per tonne) and terbium (0.26kg per tonne) rock chips about 30km from the main resource. It also found yttrium going 13.55kg a tonne and uranium with ore grades up to 946 parts per million.
While it is too early to tell, the emergence of serious-grade heavy rare earths at Yangibana could potentially stick a red-hot poker into the project and with the world clamouring for uranium right now, this may even be an entirely new horizon for Hastings.
Yangibana even shows traces of niobium, albeit a lot more work is required to sniff out that source. Niobium made a spectacular entrance into the ASX recently when its discovery by WA1 Resources among its rare earths caused that company’s share price to spike from 14c to believe it or not … more than $18.
Hastings clearly has a lot on its plate at Yangibana, however its first task is to heighten its state of readiness to pounce when the rare earths market swings – and few would accuse it of dragging its feet in that regard. It has a reserve and mine plan in place, offtake agreements, long lead time items ordered and $153 million already pumped into capex at the project.
Like Pilbara, Hastings has a thesis and it is putting its money where its mouth is outside of the upper end of the commodity pricing cycle. Part of that thesis says the compounded annual growth rate (CAGR) for rare earths magnets will be at least 7.8 per cent a year for the foreseeable future as EVs and renewable energy sources start to hit their straps.
Hastings says that kind of growth rate would require another 13 Yangibana-sized rare earths projects to come on stream by 2032 to meet demand – a nice problem to have!
The big gamble, of course, is the rare earths pricing.
Current NdPr prices have dropped considerably below the company’s 2017 DFS prices it relied on. However, every upward increment from here will have punters wondering if now is the time to jump on this ship as it seems well-placed to sail out on the next rare earths high tide.
Is your ASX-listed company doing something interesting? Contact: office@bullsnbears.com.au