Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
Today I’m speaking with Jamie Tuer, President of Hudson Resources TSX.V – HUD.
Hudson Resources is focused on the Sarfartoq Carbonatite Project. The Sarfartoq Carbonatite Complex, in west Greenland, is one of the world’s largest carbonatite complexes having approximate dimensions of 13km X 8 km.
The distribution of individual rare earth oxides, as a percentage of the total rare earth oxides, demonstrate a high proportion of neodymium oxide to total rare earth oxides.
The U.S. Department of Energy, in its Dec. 2011 report Critical Materials Strategy examined the role that rare earth metals and other key materials play in clean energy technologies such as wind turbines, electric vehicles, solar cells and energy-efficient lighting. Five rare earth metals – dysprosium, neodymium, terbium, europium and yttrium are considered to be the most critical of the elements considered in the report.
Neodymium is the key to making the highest coercivity rare earth permanent magnets – the superior high strength permanent magnets used for many energy related applications, such as wind turbines (the most efficient turbines require approximately 1,000 kg of neodymium for each megawatt of electricity to be produced) and hybrid automobiles.
Rick: Hudson was a successful diamond exploration company yet you made the transition to rare earths.
Jamie: We’d just come out of 2008 where everything was a disaster. We were successful as diamond explorers but the diamond market had just fallen badly. No one was prepared to invest in a diamond exploration company even though we had found multiple high quality two carat stones on our Garnet Lake property in Greenland.
On the same license as the diamonds we had a very large carbonatite that we knew hosted high grade niobium and some rare earth occurrences so we started looking at rare earths.
Rick: What’s your take on the current rare earth market?
Jamie: My take is that it’s still robust. We’ve gone through a cycle. We’re bottoming on pricing, but we’re bottoming at prices that are still much higher than they started at a couple of years ago.
Rick: Neodymium is a major component of the high-powered magnets that are needed today.
Jamie: That’s what Hudson has an abundance of and it’s the main driver of the rare earth’s space.
Neodymium represents about 30% of a permanent magnet and those go from the scale of an iPhone, right up to the large three megawatt wind turbines.
Rick: A growing market awareness of the importance of rare earths and the realization that China controls 97% of the market was a huge factor in the escalation of rare earth prices.
Jamie: When we first started looking at rare earths in Greenland, neodymium was trading at $18-$20 per kg. We actually thought that was pretty good because we had seen samples on the surface at our Sarfartoq project from between five to ten percent total rare earths, which at those neodymium prices would give us $250 - $500 a tonne rock.
Since then we’ve seen neodymium go from $18 to $500 a kilo before dropping back down to about $130 per kg, free on board (FOB) China.
Rick: We have two different types of market, both concern China because we have almost no refining capability here in the West to make the high purity oxides or the powders used in making the magnets.
Jamie: That’s correct, we do have two markets. We have the FOB export market, and we have the internal Chinese market, the difference is a function of export taxes and VATs.
There’s very, very few refining facilities outside of China. Molycorp had one, but it’s not operating right now, they’re rebuilding a facility. Lynas is building a separation facility in Malaysia. Molycorp bought the Estonian operation of Silmet, but that’s only about 3000 tonnes per year of production.
Some new entrants are trying to establish separation facilities, but up to this point China is the only one that is separating rare earths into high purity powders used in the making of the neodymium iron boron magnet in any kind of volume.
Rick: China currently has control of the REE space?
Jamie: The Chinese are saying if you set up your production plants in China, we’ll guarantee a steady supply of the rare earths that you might need for your businesses. The businesses that are still operating outside of China are looking for security of supply.
And it’s that security of supply that is critical to the Europeans, the Japanese, the Koreans, and the Americans. We’re seeing a lot of political wrangling over rare earths with the World Trade Organization (WTO) even getting the mix.
Rick: The Japanese company Sumitomo, and others, Hecla comes to mind, scoured the globe for rare earths in the 1970s. Most of today’s deposits were looked at, drilled and dropped years ago because of complex mineralogy, metallurgy that just didn’t work and or infrastructure limitations.
Tell us about Hudson Resources Sarfartoq Project in Greenland.
Jamie: Sarfartoq was never explored for rare earths. Nobody had drilled the carbonotite for rare earths before we did.
Rick: It’s unique among REE deposits for another reason isn’t it? It stands out on a list of rare earth deposits for an extremely significant reason.
Jamie: We have an inferred resource of 14 million tonnes of 1.5 percent total rare earths. About twenty percent of that is neodymium, which is high. When you look at Mountain Pass, for example, only about twelve percent of the mix is neodymium, but of course, they have a higher grade which accounts for their three billion dollar market cap. The tonnage that we’ve found so far is enough for a 20 year mine life, which we think is important.
Rick: You recently released the results of your Preliminary Economic Assessment or PEA.
Jamie: The study showed a net present value of $616M and an internal rate of return of 31.2 % with a 2.7 year pay-back period. The PEA was based on our current 43-101 compliant inferred resource of 14.1Mt at 1.5% TREO at the ST1 Zone.
In January, we received assays from a five tonne bulk metallurgical sample we collected from surface at the ST1 Zone. It graded 2.5% total rare earth oxides, and Neodymium oxide averaged about 20% of the total.
Rick: I know of five REE host minerals that the mineralogy, the metallurgy, the processability of is well known; monazite, bastnasite, zenotime, loparite and the ion absorption clays.
Jamie: Sarfartoq is a light rare earth deposit, meaning that it’s a carbonatite based system. The rare earths are hosted in bastnasite and monazite minerals and they are two of the known rare earth minerals that have been commercially exploited.
What we know about these types of mineralization is that with acids they can be cracked, and then the rare earths can be liberated.
Rick: To some, Greenland might seem to be an isolated and difficult place to work.
Jamie: The irony is that Greenland sounds like it’s inhospitable when it comes to mining, but we’re actually only 20 km away from an inland fjord, so we have access to open water shipping.
Rick: That’s year round?
Jamie: From where the port is being proposed, there will be some ice for a few months of the year. This can be easily broken up using conventional methods – so yes – there is virtually year-round shipping.
To access the project we need just a 20 km road from the port. The international airport, which is closed for bad weather on average one day a year, is only 60 km away. That’s a short 15-20 minute helicopter ride.
Because of the international airport there’s abundant fuel nearby. There’s all sorts of reasons why the infrastructure works.
For example, we only lost one day to weather in two six week drill campaigns last year and drilled over 16,000 meters. In the Arctic, depending on where you are, you have completely different infrastructure challenges and weather challenges. Across the Davis Inlet in Nunavut and Labrador they can get some very challenging winter conditions.
Rick: Interesting, why is that?
Jamie: Because of our proximity to the ice cap, which is only 100 km away, we typically get high pressure systems bringing good stable weather. Even though we are on the Arctic Circle we get more moderate temperatures due to the ocean influence. Operating a mine year round in this environment is not a problem. Some very large and robust diamond mines lie right on the Arctic Circle including Diavik, Ekati and Udachnaya in Siberia
One of the best ways to get a feel for the Hudson Project and the area of Greenland we’re in is to go to our website (hudsonresources.ca) and watch the video posted there on the front page. You’ll get a really good feel for the project and the environment we operate in.
Rick: Greenland’s very receptive to mining.
Jamie: They’re certainly looking towards mining and the oil and gas business becoming the key driver for their economy. Shrimping and fishing are their major industries right now and they see mining as a very important contribution to their economic viability going forward.
Rick, you wrote quite a comprehensive and well laid out article on Greenland and readers should access it to see all the advantages we have in operating there.
Greenlanders are very supportive of mining. They do want to be aggressive at developing their natural resources. But they feel a great responsibility for the environment and have developed high quality world standard environmental guidelines. They are well thought out and are implemented by a single regulatory body which makes the process very manageable.
Rick: You’ve got an excellent country to conduct your business in. You’ve got an area with all the necessary infrastructure and good weather to work on the project. You also have rare earths that are in demand now and will be in demand for the forseeable future.
Jamie: Every rare earth deposit is comprised of each of the rare earth elements – lanthanum through lutetium. So, whether they are classified as a heavy (HREE) or as a light (LREE) rare earth deposit, you are going to have a large amount of the two major lights, cerium and lanthanum, and you’re going to have some percentage of praseodymium and neodymium as well, and as you know praseodymium and neodymium together make up 25 percent of Hudson’s rare earth deposits.
We have a fair bit of Europium which adds some good credits, as well as samarium and gadolinium to create a very saleable rare earth carbonate concentrate.
Rick: Can Hudson take it a step further and perhaps sell the high purity oxides?
Jamie: We’re looking at including a separation facility in the next stage of engineering because there is a lot more added value if you look at the individual oxides, as opposed to selling a rare earth carbonate. We’re exploring the cost benefit of going that extra step.
When you’re looking at costs, if you were to separate them, you could envision cerium and lanthanum paying for your mining and processing costs if they were trading in the $10-$15 per kg range.
There will be a lot of cerium and lanthanum if Molycorp and Lynas get into production, but they are very, very useful for a number of businesses and they do trade in volume. For example, cerium is an additive for petroleum cracking, where a drum of heavy oil can be turned into three drums of light. So there is a price where it will sell in great volume, and I think that’s in the $10-$15 per kg range. At that price point, it will pay for our mining and processing, leaving all the free profit for the neodymium, praseodymium and europium.
Rick: How’s the treasury?
Jamie: We’ve got $12 million in the bank. Our program last year was $6 million, our average drill cost was $350 a meter all in - helicopter, transportation, geologist, assays, reserve calculations, PEAs. Etc.
Rick: That’s a really good number.
Jamie: We’re very efficient with our cash, and we have over eight years experience operating in Greenland. Our burn rate is probably the lowest of our REE peers.
Rick: And what are we going to be doing this year?
Jamie: We should have our new ST1 resource calculation out soon, which will move resources from the inferred category to the indicated category. We’re planning about 10,000 m of drilling and a lot of it will be focused on expanding the current ST1 resource to extend the high grade intercepts from our 2011 program as the deposit is still open at depth and to the north and south. At the far north end we hit some of our best grade at over 6% TREO and we want to define more of this material.
Of course we are also exploring for new deposits on the project. We’ve got tremendous prospecting results with samples in the 10% - 12% total rare earth (TREE) range and multiple locations around an effective strike length of up to 30 km. So, there’s huge upside potential to increase the resource over multiple bodies.
Rick: You envision an open pit mining scenario?
Jamie: Because some of our higher-grade material looks consistent from surface to considerable depth, we’re now examining the benefits of a combination of a starter pit and an underground mining operation. Since the ST1 deposit has allot of high grade ore at depth, it makes sense to look at it that way. An underground operation would minimize our environmental footprint and allow us to chase the high grade zones we are seeing at depth, like the 6% TREO intercept we hit drilling at the far north end.
We’ve also looked at the costs and see no appreciable difference in mining costs between an open pit and underground mining project of this scope and it has the potential to enhance the projects net present value. We think we can increase the grade substantially this way, as well. The lower grade tonnes will of course go down, but the minable grade goes up, so that’s an important metric.
Rick: There are significant niobium and tantalum values found on the Sarfartoq Project.
Jamie: Yes, the carbonatite was historically looked at for niobium and tantalum. We’ve never worked on it so these are all non-43-101 compliant resources, but the Australians were in there and they were talking up to a few 100,000 tonnes of pyrochlore, which contained 5% to 8% niobium with 1% uranium and it remains very underexplored.
Rick: That’s the highest niobium grade I’ve heard of.
Jamie: Niobec is IAMGOLD’s niobium mine, it’s very profitable at 0.6 percent. So, those are very high grades. The issue that we have is that there’s a one percent uranium credit to it, which usually wouldn’t sound like a problem, but it is.
Rick: Most junior uranium companies would kill for that grade.
Jamie: It’s pretty good and so are the associated tantalum grades. The pyrochlore is extremely rich, by itself in isolation it’s something like twenty percent niobium, which turns out to be around thirty percent Nb205. It’s super, super high-grade material.
But there’s a uranium mining debate going on in Greenland, and it’s off the table for us until a decision is made on whether to allow uranium exports. For us, it’s an asset that is completely unrecognized but has tremendous upside potential.
Rick: How does the current debate effect us?
Jamie: Our rare earth project has less than 10 parts per million uranium and about 500 parts per million thorium which is not very high, but however small these amounts may be they still have to be dealt with.
We’re working with experts in the field of managing radioactive products. We have to make the case that the thorium can be controlled in an environmentally safe manner and that it doesn’t pose a health and safety risk to the workforce.
Under the current regulations we have no rights to the thorium or the uranium.
Rick: Who would actually want a neodymium magnet mine?
Jamie: The European Union (EU) is a natural. In fact a delegation from the EU is coming to our project in June as part of a look at Greenland’s rare earth and mining potential. They’re desperate for security of supply.
Apart from the EU itself, German companies are forming an industrial alliance to secure rare earth production. They’re looking at security of supply outside of China. BASF, for example, uses a lot of cerium for petroleum cracking products, as well magnet materials, Siemens would need REE’s, in particular neodymium, as a wind turbine manufacturer. Potentially GE would need it, not only for their wind turbine businesses, but for many, many other consumer products applications that use generators, motors, speakers etc.
Rick: One of the big problems right now is that everyone’s buying in the spot market and there’s no real predictable price.
Jamie: Everybody needs a secure supply of neodymium outside of China, if the taps get turned off they’ll still have a business. If they’re not just buying spot from China, if they have their own supply, then they have more predictable pricing. Then their predictable pricing can go to the Japanese, who are their major buyer, and the Japanese can then make their hard drives and everything else. Their pricing can be more predictable as well.
We need this security of supply to be from outside of China to give some predictability to pricing, once you do that, the entire space will grow dramatically.
Rick: Any last comment?
Jamie: I’m not worried about too many companies entering this market. I’m worried about too few companies because we’ve seen talk of substitution. As long as we have reasonable prices because of security of supply, substitution won’t be a reality. Neodymium consumption is expected to grow by over 17% per annum and we haven’t even begun to see the myriad of fantastic applications that neodymium magnets will bring to our world.
Rick: Thank you Jamie, it’s been a pleasure.
Richard (Rick) Mills
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