What is being called the most advanced rare earth metals development project located outside of China is taking the way of the tortoise, inching towards being fully operational rather than running to the finish line at full speed.
Following a downturn in the market, Avalon Rare Earth Metals CEO Don Bubar said there is no rush to approve permits and begin operations at the Nechalacho project, located about 100 km southeast of Yellowknife at Thor Lake. Instead, the company is taking its time, waiting until the economy is once again operating in its favour.
“The rare earth market over the last couple years has softened a little bit,” Bubar said. “You had circumstances in China (the dominant producer of rare earths) where there was a reduction in exports of rare earth. That created some real concerns amongst users to rely on that supply from China, notably in Japan, to go into the market and buy up supplies to stockpile.”
This led to an upward pressure on the commodity prices; it was only a matter of time until the rare earth metals speculative bubble burst in 2011-2012.
“We were actually quite fortunate,” Bubar said. “We were already doing our pre-feasibility study when the interest started to surface in rare earths and took advantage of all that to raise all the capital we needed, which was about $100 million, to take that project through feasibility. That’s positioned us well to catch the next uptrend.”
Financing for the project will be established once this uptrend occurs, Bubar said.
Using time to save money
“Last year we kind of wrapped up some of the site work that we needed to do to prepare for further process test work on how we’re going to extract the rare earths,” Bubar said. “That’s basically all we can do until we’re in a position to move forward with construction work at the site. For that, obviously we need project financing in place and for that, we need commitments from users of the products that any banker or financialist would want to rely on to provide project financing.”
In the meantime, Avalon is looking for efficiencies in the operation’s economics. Namely, the company is taking the opportunity to shop around potential locations for its hydrometallurgical plant, where metals will be extricated from rough concentrates using liquid chemicals.
Originally, Avalon was looking to host this facility at the old Pine Point mine site near Hay River, but high costs and a lack of infrastructure led the company to look south. Now, the company is looking to house the operation in Canada before shipping to a final refinery in France, owned by international chemical company Solvay.
“We haven’t zeroed in on one yet, but it looks most logical that we identify a site elsewhere in Western Canada – Saskatchewan or Alberta – that’s not that far to transport the sort of semi-processed material we would produce at the site,” Bubar said.
The Nechalacho project already has a Class A land use permit and a Class B water licence from the Mackenzie Valley Land and Water Board, and is now continuing with formal applications for further permits.
According to Bubar, Avalon can wrap up its final construction and operations permits whenever it is ready.
“We are through the key hurdles in terms of approval of the environmental assessment, but because we’re not likely to start construction any time soon, we’re just not inclined to rush the process right now,” Bubar said.
Some of those key hurdles include establishing accommodation agreements with indigenous groups around Great Slave Lake.
“We signed an accommodation agreement with the Deninu Kue and we have various other levels of agreements with the other Akaitcho partners, the NWT Métis Nation, the Tlicho and the North Slave Métis Alliance,” Bubar said. “We sort of agreed to agree but just haven’t concluded those conversations.”
While in this somewhat stagnant period, Bubar said Avalon is still working to protect its stakeholders. On Apr. 29, the company announced new equity financing, a public offering of up to $5 million.
“It’s just to top up our treasury so that we are adequately funded for the work programs we have ahead of us for the next 12 months,” Bubar said. “While our valuation was kind of languished compared to what it was a few years ago, we’re kind of mindful of not overly diluting at these share prices. It shows our shareholders, many in the NWT too, that we do have good access to capital, we top up when we need to.”
Operations at Nechalacho are expected to start in 2018.