REE venture offers benefits near and far

Avalon Rare Metals Inc. is working to capitalize on the jump it believes it has on competitors. The would-be producer of rare earth elements told investors recently that none of the other companies currently pursuing development of REE mining projects will have all of the highly desirable heavy rare earths ready to market by 2015-2016.

Currently, China produces some 95 percent of the world's REEs, and the county will soon consume 60-70 percent of the world supply. Yet in the next five to 10 years, the Asian country could begin importing HREEs.

Recognizing these market conditions and its own potential advantages, Avalon is avidly working to bring into production the Nechalacho Project in Northwest Territories within the next four years. One of a few significant known deposits of rare earth elements in North America, Nechalacho is rich in heavy rare earths (20-28 percent), as well as enough zirconium, niobium and tantalum to generate by-product revenues.

Avalon proposes to build an underground mine at the project site beside Thor Lake, which is located 100 kilometers (62 miles) southeast of Yellowknife just north of Great Slave Lake. It also aims to construct a hydrometallurgical facility at the old Pine Point mine site in the South Slave Region to further concentrate the minerals produced at Nechalacho before they are shipped to a separation plant for processing into marketable form.

Avalon plans initial production at Nechalacho of 10,000 metric tons per year of separated rare earth oxides at a rate of 2,000 tpd. After using flotation processing to produce mineral concentrates, the company envisions barging the concentrates across the Great Slave Lake to the Pine Point plant where it will use sulfuric acid bake and caustic crack processes to further treat the concentrates before shipping them on by rail from Hay River to its separation plant at a location yet to be determined.

Avalon hired mining consultant SNC Lavalin to conduct a C$46 million bankable feasibility study of the company's proposal to develop the deposit as an underground mine with C$1.0 billion-C$1.2 billion in estimated total capital costs and a 20-year mine life on 14.5 million metric tons of probable mineral reserves defined from January 2011 updated resources, including high-grade subzones.

Operating costs would average C$269 per mined metric ton of ore inclusive of mine, mill and hydromet, or $8.09/kilogram REO after separation. The BFS is fully funded and scheduled for completion by year's end 2012.

Nechalacho also hosts 57.49 million metric tons of indicated resources and 226.88 million metric tons of inferred resources that Avalon has indicated could extend the mine life.

Window of opportunity

Given China's dominance in the REE mining sector, it is expected by 2015 that the world supply and demand for rare earth elements will balance at about 210,000 metric tons, according to the Government of Northwest Territories' Department of Industry, Tourism and Investment.

"Canadian mines are critical to the global market," the ITI said in a project briefing that cited three REE mines, Nechalacho, Hoidas Lake Rare Earth Project in Saskatchewan (Great Western Minerals Group Ltd.) and Strange Lake Rare Earth Project in Quebec and Labrador (Quest Rare Minerals Ltd.), currently being developed in Canada.

Experts believe that two or three HREE projects outside China will come into the market in the next five to six years and will grow with the market, Avalon said in a recent corporate update.

The "first to market will capture available market share" and there is "only room for a handful of new producers, 'first come, first served'. No other advanced projects have all the heavies to offer by 2015-2016," the company explained.

The GNWT's ITI said, "Avalon is attracting considerable foreign investment interest due to the tight control of rare earth elements exported from China. There is high demand for the less available heavy rare earth elements, which are expected to continue to command higher market prices."

Potential economic boon

The Nechalacho mine will include a 150-person camp, flotation plant, airstrip, concentrate storage site, tailings management facility, seasonal dock facility and fuel storage.

Along with raising more than $47 million in equity financing, Avalon made considerable progress at Nechalacho in 2011, including completing 137 holes covering 26,203 meters in definition drilling and mini-pilot plant trials of the flotation process and advanced hydromet studies. The junior also initiated a prefeasibility study of a separation plant with SNC Lavalin, including a review of site locations, and cleared another hurdle in the territory's challenging environment review process when it filed a developer's assessment report that NWT regulators deemed "in conformity."

The mine and hydromet plant are currently undergoing an environmental assessment. If regulatory approvals are provided in 2013, construction can begin in the second quarter of 2013 and mine operations in the fourth quarter of 2014. The hydromet plant would be operational by the third quarter of 2015 and the mine's rare earth products would enter the markets by early 2016.

Construction of the mine and flotation plant will require 80 full-time positions, and once the mine is operational, it will need an estimated 225 full-time employees.

Construction of the hydromet plant will require 87 full-time positions, and once operational, it will employ about 69 full-time workers. The separation plant, which will likely be built in southern Canada, also is expected to hire 175 full-time employees.

The South Slave Region of Northwest Territories could see annual benefits from the hydromet facility totaling between C$37.7 million and C$53.8 million, of which an estimated C$8 million would be wages. Services to the hydromet in the South Slave Region could conceivably represent an additional C$10.6 million in economic impact, according to government figures.

Some 27,000 metric tons per year of limestone will be required by the hydromet, at an estimated cost of C$10 million to C$12 million annually if it is sourced in the region. Gasoline, diesel and other petroleum gases expenditures for the hydromet will be about C$6.9 million per year. The amount to be paid as taxes over the life of the mine will total C$502 million, ITI said.

"The NWT could substantially benefit from development of the mine and hydromet. These developments also could help realize broader objectives such as: ensure new investment in the NWT, diversification of the NWT's economy, establishment of a non-precious metals secondary processing industry in the territory, facilitation of economic growth in the South Slave Region, and maximization of territorial economic opportunities," the department observed in a fact sheet posted on its website.

The ITI cited other key components of the project:

The hydromet facility requires 3-3.5 megawatts of hydroelectric power. Current hydro availability from the Taltson Dam is estimated at 5 MW.

The Kátlodééche First Nation, supported by the department, is conducting a market feasibility assessment to determine market demand for limestone to support developing a quarry business.

Based on the tonnage that Avalon is predicting, the territorial government has no concerns with the volume or frequency of the loads on NWT highways. Nearly C$9 million has been allocated to reconstruct and surface sections of certain highways to better handle Avalon's transportation needs.

Avalon has signed separate agreements with the Lutsel K'e Dene First Nation, Yellowknives Dene First Nation and Deninu Ku'e First Nation, providing the basis for negotiations towards accommodation agreements, otherwise known as impact and benefit agreements.

Avalon has initiated discussions with the Tlicho Government and other Aboriginal organizations toward their participation in the project.

Avalon is working with the federal and territorial governments to map Aboriginal business opportunities in the project.

More progress in 2012

In late January, Avalon resumed drilling at Nechalacho. As a result of the unusually mild winter, it took longer for the ice at Thor Lake to support a drill rig, said Avalon President Don Bubar in a video update in early March. By late February, the company had drilled 20 holes covering 4,200 meters and had received most of the results from its 2011 summer drilling.

"We hope to complete a resource update in March, but it will not change the size or overall grade of the resource (at Nechalacho)," Bubar said.

The update, however, will give the company increased confidence in the deposit's resource, he said.

Bubar said about three-quarters of Avalon's ongoing metallurgical tests have been completed, and they are in line with expectations outlined in the company's PFS.

On the marketing front, Avalon signed a memorandum of understanding in 2011 with an Asian company, the fourth MOU that it has inked with potential strategic partners.

The company "is developing off-take arrangements and remains optimistic about identifying consumers for (Nechalacho's) products who are interested in working with the junior to bring the resource to market by (2015-16)," Bubar added.