Lofdal Rare Earths Project

 

The Lofdal Rare Earths Project represents a high quality, exploration stage, rare earths project with particular potential for the discovery of a heavy rare earths-enriched deposit. Although an economic body has not yet been identified, the prolific number of rare earths occurrences in the carbonatites at the Lofdal Rare Earths Project speaks to the potential for one or more discoveries. There exists a very high quality and extensive exploration database over the Lofdal Rare Earths Project comprising geological, geochemical, geophysical and remote sensing data all of which confirms the exploration potential of the property for the discovery of a rare earths deposit.

Overview of the Project

The Lofdal Rare Earths Project has been developed over a very short period of time since the recognition of the mineral district in 2008, to the discovery of the heavy rare earth enriched zones in 2010. The delineation of a first mineral resource in 2012 was followed by a preliminary economic assessment on Area 4 of Lofdal in October 2014.

In October 2014, the Company completed a National Instrument 43-101 ("NI 43-101”) technical report titled "Preliminary Economic Assessment on the Lofdal Rare Earths Project Namibia” (the "PEA”). The effective date of the PEA is October 1, 2014. The MDM Group is the principal author of the PEA under the supervision of David S. Dodd, B. Sc (Hon) FSAIMM. Other contributing authors were Peter Roy Siegfried, MAusIMM (CP Geology) and Michael R. Hall, B.Sc (Hons), MBA, MAusIMM, Pr.Sci.Nat, MGSSA both of the MSA Group and Patrick Hannon, M.A.SC., P. Eng. and William Douglas Roy, M.A.Sc., P.Eng. both of MineTech International Limited. The PEA has been filed on SEDAR (www.sedar.com).

The PEA concludes that the Project currently has the potential to produce an average of 1,500 tonnes per annum of separated rare earth oxides ("REO”) which would generate after tax cumulative cash flow of US$259M with a net present value10% ("NPV”) of US$148M and an internal rate of return ("IRR”) of 42%. The PEA indicates that there is considerable potential to expand the current mineral resource and recommends that additional drilling be carried out to provide for an extended mine life in conjunction with a six month Prefeasibility Study ("PFS”) program. Financial sensitivities of the Project are summarized in Table 1, financial highlights in Table 2, mineral resource estimates in Table 3, capital costs in Table 4, operating costs in Table 5 and REO pricing in Table 6.


Table 1 - Financial Sensitivities Summary

Discount Rate

Pre-Tax NPV

After Tax NPV

(%)

(US$)

(US$)

8

266,192,000

166,143,000

10

240,034,000

148,338,000

12

216,429,000

132,197,000




Pre-Tax

After Tax

IRR (%)

53

42

Cumulative Cash

 

 

Flow (US$)

404,714,000

259,321,000



Table 2 - Financial Highlights

 

Initial Direct Capital Costs (US$)

93,177,000

Total Capital Costs (US$)

162,935,000

Total Operating Costs per Tonne Mined(US$)

91.99

Total Operating Costs per kg TREO Produce (US$)

50.45

Basket Price per kg TREO Produced (US$/kg)

105.77

Life of Mine (years)

7.25




The PEA should not be considered to be a pre-feasibility or feasibility study, as the economics and technical viability of the Project has not been demonstrated at this time. The PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Furthermore, there is no certainty that the PEA will be realized.


Regional Assessment of Rare Earths Potential

The first systematic exploration for rare earths over Lofdal was initiated in 2008 and since that time exploration results have demonstrated the occurrence of rare earth mineralization on a district scale. In the fall of 2010, the Company completed the first comprehensive trenching and diamond drilling program on the property over a selected carbonatite dyke known as the 2B Zone to produce a NI 43-101 compliant technical report for which consultants Swinden Geoscience Consultants Ltd. and GeoAfrica Prospecting Services cc were retained. The technical report, entitled Amended 43-101 Technical Report on the Rare Earths Element Occurrences in the Lofdal Carbonatite Complex, Kunene Region, Khorixas District, Namibia dated February 18, 2011, amended April 4, 2011 ("Technical Report”), is available on SEDAR at www.sedar.com.

From the initial public offering in April 2011 to date, over 14,400 meters of exploration drilling has been completed on a number of planned targets within a 50 square kilometer portion of the Lofdal carbonatite complex. The drill program was augmented with detailed ground geophysical surveys with the objective of determining if a potential heavy rare earth enriched resource target could be identified. The most prospective target from this program was Area 4 which was selected for more detailed drilling to develop the initial NI 43-101 compliant resource which comprised an additional 10,025 meters of drilling.

Rare earth mineralization at Lofdal is hosted in carbonatite dykes, structural zones and plugs exhibiting grades between 0.2-3% total rare earths ("TREO” which includes yttrium) and often exhibiting exceptional heavy rare earth enrichment ("HREE”) greater than 50%. Rare earth deposits containing greater than 10% heavy rare earths ("HREO”) can be considered to be enriched in heavy rare earths. Mineralized zones in dykes or structures are variable in thickness from less than one meter to 15 meters at surface and can be traced in some cases up to three kilometers in strike length. The more significant mineralized structures have associated alteration haloes which can carry anomalous concentrations of rare earth elements. As per industry norms, heavy rare earths comprise europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb), lutetium (Lu) and yttrium (Y). Light rare earths comprise lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd) and samarium (Sm). "Heavy rare earth enrichment” is the ratio of HREO:TREO, expressed as a percentage.

In addition to the confirmation of heavy rare earth enrichment, drilling has provided a number of significant geological insights into the nature of the rare earth enrichment ("REE”) mineralization at Lofdal, all of which impact positively upon the potential for multiple discoveries. Project geologists are now of an opinion that mineralization is more broadly associated with large scale hydrothermal systems rather than being restricted to discrete dykes. These hydrothermal systems can be characterized by either heavy or light rare earth enrichment, and zones can be traced laterally on surface in some instances for several kilometers. Many of the larger, lower grade "dykes” previously mapped on surface are in fact alteration zones associated with these systems which in some areas significantly increases the strike and width potential of the heavy rare earth exploration target. There are two intrusive carbonatite bodies on the property. The Main Intrusion is an early stage calcitic ("sovite”) body some 2 kilometers in strike length which does not carry significant amounts of rare earths but has potential for niobium and uranium mineralization. The smaller Emanya plug is some 350 meters in diameter in outcrop and carries anomalous concentrations of rare earths typically in the range of 0.2-1% TREO but is not enriched in heavy rare earths.

The results from exploration drilling in Area 4 indicated the highest potential for the rapid development of mineral resources. Detailed studies of Area 4 drill core confirmed that the principal heavy rare earth mineral at Lofdal is xenotime. The potential ore mineral assemblage is dominated by xenotime and subordinate zircon ± generally minor amounts of aeschynite, bastnasite group minerals (including synchysite-Y), thorite, and unidentified phases (Ca-Y silicate and Th-Zr silicate). In samples with high thorium (2,000-4,000 ppm) the potential ore mineral assemblage is dominated by xenotime and thorite. It should be noted that the average thorium content of the high grade metallurgical composite is 326 ppm and for the low grade metallurgical composite it is 674 ppm indicating that high thorium samples are likely localized. Grain size and habit are variable with ore minerals being generally fine- to very fine-grained with much of the potential ore minerals averaging 15-20 microns but locally reaching up to 150 microns.

Lofdal Area 4 Mineral Resource Estimate

In September 2012, the Company released a National Instrument 43-101 compliant initial mineral resource estimate for Area 4 of the Lofdal Rare Earths Project as set out in the technical report "NI 43-101 Technical Report and Mineral Resource Estimate for Area 4 of the Lofdal Rare Earth Element (REE) Project, Khorixas District, Republic of Namibia” dated October 29, 2012 (the "Lofdal Initial Resource Report”) independently prepared for the Company by The MSA Group (Pty) Ltd. of South Africa ("MSA”), a full copy of which is available on SEDAR at www.sedar.com. The mineral resource statement was updated in the PEA. The mineral resource exhibits exceptional levels of HREE of between 75% and 93% HREE depending on cut-off grade with corresponding TREO ranging from 0.27-1.26% TREO. The resource drilling program has provided a mineral resource estimate extending from surface to a vertical depth of approximately 150 meters. Ongoing exploration drilling, however, has intersected the deposit to 200 meters further down-dip of the initial 43-101 resource. The geological database supporting the initial mineral resource estimate is detailed and is of a high quality, comprising over 10,025 meters of diamond drilling in 93 holes and 987 meters of trenching.

MSA identified 0.1% TREO as the appropriate cut-off grade for the mineral resource which provides 2.88 Mt of Indicated mineral resources yielding 9,230 t of REO, of which 7,050 t are estimated to be Heavy Rare Earth oxides ("HREO”) and 3.28 Mt of Inferred mineral resources yielding 8,970 t of REO, of which 6,700 t are estimated to be HREO (Table 3). A summary of mineral resources at varying cut-off grades is presented in Table 3.

Table 3 – Mineral Resources at Varying Cut-off Grades Lofdal Area 4

Although mineral resource grades (% TREO) are relatively low, the high levels of heavy rare earth enrichment can provide significant tonnages of contained heavy REOs. The main elements of interest from the Area 4 mineral resource are europium, terbium, dysprosium and yttrium (with yttrium and dysprosium being the most abundant). Based on the REO distributions, these four elements are the most valuable in the deposit.

Carbonatite deposits are known to be naturally anomalous in thorium. Thorium concentrations at the reported cut-off grades range from 297 ppm to 531 ppm, which would not be considered abnormally high; however, the removal of thorium must be addressed in metallurgical studies.

Lofdal Area 4 Mining and Processing

Mining will be by conventional open pit methods utilizing an owner operated mine fleet at a mining rate of 2,500 tpd (840,000 tpa) with the ultimate pit reaching a vertical depth of 200 meters. A total of 6.04 MT of mineralized material at a diluted grade of 0.28% TREO will be provided to the primary crusher over the 7¼ year life of mine ("LOM”).

Following secondary and tertiary crushing the feed is delivered to x-ray technology ("XRT”) and x-ray fluorescent ("XRF”) sorters to eliminate internal waste thereby reducing volume to the ball mill for fine grinding. Ball mill product slurry is fed to the rougher magnetic separator with tails going through three scavenger magnetic stages. The magnetic concentrate product is subjected to a cleaner flotation circuit and then passes through a concentrate thickener prior to the acid leach circuit.

The leach circuit utilizes a four stage hydrochloric acid ("HCl”) leach to dissolve the carbonate minerals. A gangue leach centrifuge circuit provides for a primary acid water wash to remove the entrained dissolved calcium chloride solution and a secondary potable water wash with a second centrifuge for solid-liquid separation. The resultant solids are filtered in a filter press for final concentrate bagging and shipping to a hydrometallurgical facility which is proposed to be located at the deep water port of Walvis Bay.

Concentrate batches of 29 tonnes each will be shipped in containers over a distance of 375 kilometers to the hydrometallurgical facility for caustic cracking and washing. The caustic cracking plant is designed for the purpose of breaking or "cracking” the phosphate component of the rare earth mineral xenotime in order to access the contained thorium for removal by subsequent HCl leaching. Following the caustic cracking stage the washed residue is transferred to the HCl digestion tank to leach the thorium. Subsequent precipitation steps will produce a thorium hydroxide product for storage and a rare earth hydroxide product to be combined with the HCl digestion residue as a final product for drying and drumming.

The Project is not of sufficient scale to support capitalization for a separation plant and it is envisioned that the final product will be delivered to a third party facility and subject to an offshore treatment charge.


Lofdal Area 4 Capital Costs

The total capital costs for the Project are estimated at US$162,935,000 and include direct capital costs for mining, mill site processing facilities, cracking plant processing facilities, tailings storage facility and camp allowance; sustaining capital; closure costs; indirect costs and contingency (Table 4). Indirect costs, including EPCM, owner’s costs, first fills and spares have been estimated at 30% of direct costs. The contingency has been estimated at 20% of the total of direct costs plus indirect costs.


Table 4 - Total Capital Costs Summary (US$)

 

Lofdal Area 4 Operating Costs

Operating costs include the costs of the owner operated mine fleet, processing at the mill site and cracking plant facility, transportation costs for concentrates from the mine site to Walvis Bay and from port to an offshore treatment facility for separation. Technology Metals Research of the United States has indicated that a tolling charge of US$15-20/kg of finished REOs would be a reasonable estimate for the processing (outside of China) of an intermediate concentrate with a rare earth element distribution similar to the one associated with the Lofdal project to commonly required purity levels and finished forms. A separate cost has therefore been estimated for the offshore treatment cost and is considered as part of the total operating costs which are summarized in Table 5.

Table 5 – Total Operating Costs Summary



Rare Earth Pricing

A price deck has been developed for 2017 by Technology Metals Research and Core Consultants, based on REO supply/demand projections and pricing models for that year, which would be a reasonable approximation of when Lofdal might be expected to enter production. The nature of the REE market is such that it does not lend itself to traditional models for commodity forecasting. In analysing potential future prices, consideration is given to the likely relative surplus or deficit of REEs available to the market, in order to gain a sense of price direction. Two key assumptions made in the price projections are that China maintains its production targets of 100,000 – 105,000 tonnes in the near to medium term, and that there are no sudden or unexpected policy changes in China that would shock the export market as occurred in 2010/2011. The resulting 2017 FOB China export price projections for REOs are shown in Table 6.

The projected REO distribution for Lofdal concentrates is also presented in Table 6. The projected basket price of US$105.77 is calculated from the REO distribution and the projected 2017 FOB China prices.


Table 6 – Projected 2017 FOB China Export Prices for REOs and Projected REO Distribution for Lofdal Concentrate (average 17.3% TREO from Mintek studies)

 




Lofdal Area 4 Economic Analysis Assumptions

The economic analysis assumes that the Project will be 100% equity financed and uses parameters relevant as of September 2014, under conditions likely to be applicable to project development and operation and analyzes the sensitivity of the Project to changes in the key Project parameters. All costs have been presented in United States Dollars (US$) and wherever applicable conversion from South African Rand (ZAR) has utilized an exchange ratio (ZAR/US$) of 10.70 based on July 2014 exchange rates.

Mining and treatment data, capital cost estimates and operating cost estimates have been put into a base case financial model to calculate the IRR and NPV based on calculated Project after tax cash flows. The scope of the financial model has been restricted to the Project level and as such, the effects of interest charges and financing have been excluded.

For the purposes of the PEA, the evaluation is based on 100% of the Project cash flows before distribution of profits to the equity owners. Both pre-tax and after tax cash flows have taken 5% royalty payments into account.




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Phone: +01.902.835.8760
Fax: +01.902.835-8761

Email: info@NamibiaREE.com
Webpage: www.NamibiaRareEarths.com

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