| |
Spec Value Hunter Comment - May 27, 2010: Rare Element boosts Bear Lodge oxide resource
 Rare Element Resources Ltd published an updated 43-101 resource estimate on May 26, 2010 for the 100% owned Bear Lodge rare earth project in Wyoming which boosts the overall resource and its in situ value but at the expense of a 16% lower grade at the 1.5% TREO cutoff grade for the near surface FMR oxide zone. Although the grade is down 16% the rock value I had calculated for the old resource declined only 7% due to more detailed grade information for the heavy rare earth elements. Don Ranta attributes the lower grade to the inclusion of lower grade material from older holes and believes that the grade could improve after Rare Element completes the next round of infill drilling which will include redrilling of some of the older holes. Overall Rare Element has boosted the inferred resource from 9,820,000 tons to 17,500,000 tons for the three oxide, mixed and sulphide zones. At present only the FMR oxide zone is of economic interest and the focus of metallurgical studies. It grew from 4,520,000 tons at 4.29% TREO to 8,000,000 tons at 3.62% TREO. Using the 4 year average prices for rare earth oxides as of February 2009 the rock value declined from US $372/t to $347/t, though using April 2010 rare earth prices the new rock value is $551 per tonne. The table below shows the new tonnages and rock values for the three zones after converting short tons to metric tonnes to allow comparsion to other rare earth project results which have been published according to international standards. (The United States is the only industrialized nation which still uses the clumsy imperial system for measurement, a legacy of the colonial days which helps ensure that many of America's children are left behind their peers in the metric world and whose elimination would be a productive goal for the Tea Party.)
| Project Resource Estimate - Bear Lodge - FMR Oxide |
| May 26, 2010 | NI 43-101 | Alan C. Noble, Ore Reserves Engineering, Lakewood, USA | Cutoff: 1.5% TREO |
| Note: Converted from short tons to metric tonnes. Rock value is based on 4 year average individual REO prices as of Feb 2009 for $4.35/lb. Apr 2010 prices are $6.92/lb. |
| Resource Category | Tonnage | Total
Rock Value | Metal | Grade | Recovery | Contained Metal | % of GMV |
| Inferred Mineral Resources | 7,257,440 | $347/t | Rare Earth Metals | 3.620% | 100.0% | 579,187,231 lb | 100% |
| Spot Gross Metal Value | Market Cap as % of Net GMV | Spot Prices Used |
| $2,519,464,455 | 4.0% | Rare Earth Metals $4.35/lb |
| Project Resource Estimate - Bear Lodge - Mixed |
| Inferred Mineral Resources | 2,358,668 | $286/t | Rare Earth Metals | 3.390% | 100.0% | 176,276,114 lb | 100% |
| Spot Gross Metal Value | Market Cap as % of Net GMV | Spot Prices Used |
| $675,137,516 | 14.8% | Rare Earth Metals $3.83/lb |
| Project Resource Estimate - Bear Lodge - Sulphide |
| Inferred Mineral Resources | 6,259,542 | $255/t | Rare Earth Metals | 3.290% | 100.0% | 454,009,991 lb | 100% |
| Spot Gross Metal Value | Market Cap as % of Net GMV | Spot Prices Used |
| $1,598,115,167 | 6.2% | Rare Earth Metals $3.52/lb |
Rare Element also provided estimates at different cutoff grades ranging from 1.0% to 5.0% with 1.5% chosen as the base case. At a 4.0% TREO cutoff the FMR oxide zone has an inferred resource of 2,300,000 tons of 6.9% TREO (2.1 million tonnes) which has a rock value of $661 per tonne at the 4 year average price and $1,052 per tonne at April 2010 prices for in situ values of $1.4 billion and $2.2 billion at the different REO price sets. These calculations assume that the rare earth distribution for the higher grade material is identical to that of the FMR oxide zone at a 1.5% cutoff whose rare earth content is due to a mixture of the rare earth minerals bastnaesite, parisite and synchysite. However, Don Ranta indicates that the higher grade material is dominated by bastnaesite similar to Mountain Pass which leads me to believe that the higher grade material will have a lower percentage of the heavy rare earths than the 3.5% averaged by the FMR oxide zone at the lower cutoff. Rare Element plans to publish on its web site within a couple weeks a 3D model of the Bear Lodge zones at the various cutoff grades which would include a table of the individual REO grades as was presented for the base case 1.5% cutoff in Table 3 of the May 26 news release. We should be prepared for a 10% or so decline in the rock value of the higher grade zone if the heavies end up representing a smaller portion of the distribution pie which more closely represents that of Mountain Pass (8.24% TREO) and Bayan Obo (4-6%). The value pie charts below for Bear Lodge (4% cutoff) and Mountain Pass (5% cutoff) reveal that the FMR zone gets a third of its value from the heavies, mainly europium, dysprosium and terbium, while the heavies contribute only a eighth of the Mountain Pass value. I am thus looking forward to seeing the REO grade distribution for the 4.0% cutoff FMR material, because if we do not lose the heavies, mining the FMR oxide zone at Bear Lodge will do much more for solving America's dependency on Chinese rare earth imports than will Mountain Pass, particularly with regard to the more exotic needs of the Department of Defense.
 |
 |
Confirming that we do not lose the heavies in the higher grade material is important because the higher value makes it an obvious candidate for initial mining. The 3D model will be important because the higher grade resource cannot be mined as a starter pit if is distributed as small fragments within the larger resource. Don Ranta indicates that the higher grade material is confined to 3 distinct near surface shoots which could be selectively mined via open pits. Seeing, of course, is believing. Ranta also believes there is potential to boost the higher grade resource up to 4-5 million tonnes because much of the higher grade mineralization intersected last year was at the northwest and southeast limits of the Bull Hill Southwest zone for which the inferred resource has been estimated. Achieving this goal would be a stunner because it would be equivalent to the first ten years of renewed production from Mountain Pass (Molycorp plans to mine similar grade Mountain Pass ore at 1,200 tpd, with limited ability to scale up the production rate because of permit limitations and the fact that part of the deposit sits underneath mine infrastructure). Rare Element plans to start a 30,000 ft drilling program in early June 2010 at Bear Lodge which will upgrade the current oxide resource from inferred to indicated, test extensions to the northwest and southeast, test the Whitetail Ridge area where Molycorp and Hecla had previously encountered rare earth mineralization, and possibly drill a couple deep holes on the southwest side of the Bull Hill fault in search of a carbonatite plug. An updated 43-101 resource estimate for the FMR oxide zone will be due in the early part of Q2 of 2011. With regard to drilling news flow, we will be watching for drill results showing that Rare Element is hitting high grade material as it steps out to the northwest and southeast of the Bull Hill Southwest resource area.
The next important milestone for Rare Element is the completion of a bench scale metallurgical study underway by Roshan Bhappu of Mountain States R&D which is expected by late June 2010. Initial work has indicated that the FMR oxides can furnish a concentrate with 13%-20% TREO which recovers 90% of assayed TREO. Mountain States is working to establish a flowsheet that boosts the concentrate into the 30-40% range, but may settle for the lower concentrate if it can confirm an offset in the form of lower reagent consumption due to the fact that the secondary alteration that blasted the FMR zone eliminated most of the acid consuming carbonates in the FMR oxides except for those that host the rare earths. Ranta suggests that separation processing of the concentrates would yield a further 90% recovery for an effective 81% recovery of assayed TREO content. Once Rare Element has the results of the metallurgical study it will be able to proceed with a preliminary economic assessment (PEA) that will establish the cost structure associated with the Bear Lodge FMR zone and the optimal process technology. Ranta believes that Rare Element will be able to deliver a PEA in early August 2010. This will allow us to attempt discounted cash flow (DCF) model based calculations about the economic value potential of Bear Lodge under various mining rate and rare earth oxide price scenarios. It will also allow us to model scenarios where Rare Element mines the higher grade material first. Rare Element plans to apply for a small miner's exclusion permit to allow it to extract a small bulk sample from the FMR zone as a prelude to conducting pilot plant scale metallurgical studies in 2011.
Rare Element will also initiate a 20,000 ft infill drill program on the Sundance gold zone which Newmont recently relinquished because it could not meet its spending deadline. This infill drilling should lead to an initial 43-101 resource estimate for a low grade, open-pittable gold system by the end of Q1 2011. Rare Element will conduct additional metallurgical tests on the gold zone to confirm that the ore is amenable to heap leaching. On May 12 I issued a Spec Value Hunter Comment in which I recommended Rare Element as a Good Relative Spec Value Buy at $2.98 with a $3.50 buy limit based on Rare Element's double barreled rare earth and gold stories. Rare Element consists of two powerful stories rolled into one package which have separate market drivers. Unfortunately nothing except cash hedges against the risk of a total market meltdown, and last week amid the euro's escalating troubles it looked like world markets were gearing up for a repeat of the 2008 Crash. However, gold has reversed its retreat, and fears of a general market meltdown have eased. With $12 million working capital Rare Element is well financed to carry out the maximum work programs required by the Bear Lodge rare earth and Sundance gold stories at this stage. The updated Bear Lodge resource estimate confirms my belief that Rare Element is a serious contender in the race to bring a non-Chinese rare earth mine on stream, and I reiterate my recommendation that bottom-fishers hold their Rare Element positions 100% and that Spec Value Hunters secure a position with a short term target of $6, and much higher medium to long term prices, particularly if a macro scenario unfolds which supports higher gold prices and underlines the importance of rare earth deposits outside of China being developed.
|
