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THOR LAKE
Avalon Rare Metals president and CEO Don Bubar says conditional approval for the Nechalacho Project by the Mackenzie Valley Environmental Impact Review Board (MVEIRB) represents "a major milestone" for the company. Meanwhile, the company is looking for project financing while trying to trim capital costs in anticipation of company's projected 2016-17 construction and commercial production date.

Bill Mercer, vice-president of exploration with Avalon Rare Metals, displays a core sample taken above the mineral deposit at the Nechalacho Rare Earth Element Project camp site on Thor Lake. Mercer says the company will seek potential partners to help advance the project in the next six to nine months. - Daron Letts/NNSL photo

The review board's 220-page environmental assessment report states the project's current model "is likely to cause significant adverse environmental impacts, but these impacts will be minimized by the measures set out in the review board’s report so that they are no longer significant."

Avalon's proposed development includes a mine and barge facility at Thor Lake, a hydrometallurgy plant across Great Slave Lake at Pine Point, and a refinery in Geismar, Louisiana. The hydrometallurgical plant would process the mineral concentrate produced at the Nechalacho site to produce an enriched zirconium concentrate containing byproduct tantalum and niobium that will be sold to a company in Asia. Other rare earths would be shipped to the Louisiana refinery to be separated.

The board recommended to the minister of Aboriginal Affairs and Northern Development Canada that the project proceed to the regulatory phase without a full environmental impact review, as long as the company heeds five recommendations.

The board calls on Avalon to improve water quality at the Thor Lake site and the Pine Point site, prepare and implement a wildlife and wildlife habitat protection plan and a wildlife effects monitoring program, and sign a socio-economic agreement with the GNWT to maximize benefits to NWT residents.

The minister has the option to adopt the board's recommendations, send the report back to the board for further review, suggest amendments, or order a full environmental impact review.

"The measures that were recommended we didn't feel were particularly onerous, so they're all very doable and, essentially, they're consistent with the principles that we subscribe to in the development of such a project, anyway – trying to minimize environmental impacts to the best extent we can," Bubar said. "These measures ask us to do more monitoring – make sure there aren't any unwanted impacts – and we're happy to do that."

Negotiations for a socioeconomic agreement are underway, Bubar said.

"I guess the message from the review board was, 'Hurry up and get that finished because it's important, too,'" Bunar said, adding negotiations with aboriginal groups are continuing, as well.

According to Avalon, the Nechalacho site represents the largest deposit of heavy rare earths metals outside of China, which is the source of more than 95 per cent of the global supply. Deposits in Australia and other locations are skewed toward light rare earths, with a very small percentage of valuable heavy rare earths.

Revenue for the Nechalacho project is estimated at $645.8 million per year, from the sale of mostly separated heavy rare earth elements, which are used in electronic devices such as computer tablets and smartphone screens, and enriched zirconium concentrate, which can be used for applications such as surgical instruments and moulds for molten metal.

Bill Mercer, vice-president of exploration with Avalon Rare Metals, said much work still lies ahead for the company following the release of the environmental assessment.

"It's a step. It's an important step, but it's not the last step" Mercer said, adding the project now has to apply for land-use and water permits.

Avalon's other task this fall will be to secure enough funding to proceed with the proposed development of a mine. According to a feasibility study completed for Avalon in April by SNC-Lavalin Inc., establishing the Nechalacho mine is expected to cost $1.575 billion.

"It is a big capital cost and a significant capital cost," Mercer said, adding the company will seek project financing in the next six to nine months. "The mining industry is affected by the slow-up, you know, the difficulties in Europe, the slow-up in China and so on. That's affecting commodities and so on. So, that affects the whole capital market. It's not an easy time to be talking about large sums of capital, but we'll keep working at it."

Because rare earth metals are not exchange-traded similar to commodities such as gold, sliver and copper, they are marketed much like manufactured products that require buyers before their value can be leveraged for investment.

"In order to justify the capital investment to financial institutions and banks, one needs to be able to demonstrate that you do indeed have commitments on sales going forward. In other words, there is a real market to sell your products into," Bubar said, adding Avalon has signed eight memoranda of understanding with potential customers and strategic partners or investors. "Everyone is a bit concerned of the size required here – the amount of capital required to build this. A lot of our current work is on trying to find ways to economize and reduce the capital costs, reduce the operating costs to improve profitability."

The project remains on schedule to begin construction and commercial production in 2016-17, Bubar said.

"There's never been a heavy rare earth development project in a geology like this anywhere in the world, so, you know, we've been feeling our way along on the best way to do it and the more work we do, the more opportunities we find to do it more efficiently," Bubar said. "We're sort of continuing to try to innovate in terms of how we can improve on the recoveries and reduce costs, reduce energy consumption etc., and make it a more attractive investment."

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