Great Western Minerals Group (GWG) released its long-awaited Preliminary Economic Assessment (PEA) Monday morning. The 43-101 compliant document includes highlights of a $555 million after-tax NPV, using a TREO price deck at the mid-point of Roskill 2015 estimates, a 10% discount rate and a 28% South African business tax. The project, due to the relatively low capital expenditures required, has a 66% IRR on the above basis.
Capital costs required a total of roughly $176 million, including $45 million for the refurbishment of the mine and the construction of a physical beneficiation facility, $41 million for the construction of a hydrometallurgical plant and $62 million to construct a solvent extraction plant for REO separation and purification. The PEA incorporated a contingency of $18 million.
Operating costs as outlined in the PEA total $12.79/kg of TREO, including $1.68 for mining, $5.98 for cracking and $5.13 for separation. Our model presently includes costs, to the same stage of production, that are higher. Given the disparity between our NPV and the present trading range, there is no reason to reduce the costs contained in our model, but this is an interesting point.
Analysts continue to believe, based on data provided from the Molycorp Canada, a subsidiary of Molycorp (MCP – NYSE), that alloy making can be a very profitable endeavour. Molycorp recently released Q4 financial results, showing that bonded magnet alloy, a lower-priced product than the sintered magnet alloy that LCM will sell, continues to sell for roughly $47/kg. Based on a manufacture cost of $13/kg, the required neodymium/praseodymium oxide to go into a kg of magnet alloy would cost GWG less than $5/kg.
Metallizing the rare earth oxides adds perhaps a dollar. Adding in about $3 worth of iron and boron brings the raw material costs to $9/kg. For an additional $5/kg – $8/kg, the metals are then melted in a furnace, spin-cast and packed for shipment. Thus, magnet alloy can cost as little as $14/kg, but sell for more than $47/kg. Or, to put this another way, a kg of neodymium that sells for $75 with an average cost of $13 can be used to make 2.7 kg of alloy that will sell for at least $130 and cost as little as $37 to make. This results in significant augmentation of revenue and earnings numbers.
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