Avalon preps for Thor Lake
Waiting for markets to turn, company permit-ready to begin construction
Walter Strong
Northern News Services
Published Monday, October 13, 2014
THOR LAKE
Last week, Avalon Rare Metals Inc. (TSX:AVL) provided an update on progress at Thor Lake on the company's 100 per cent owned Nechalacho rare earth elements project.
After raising more than $6 million earlier this year, the company completed a season of large diameter diamond core drilling on site to produce 1,773 metres of large diameter core.
The three tonnes of material was extracted and transported to facilities in Yellowknife and Ontario where it was assayed. Results will be included in an updated mineral resource statement, but the ore was not extracted to beef up resources.
Instead, the material is needed for metallurgical test work in a hydro-metallurgical pilot plant project, to be developed at a cost of about $4 million.
The pilot plant is a final stage in developing the complete engineering and design of a production-scale hydro-metallurgical plant that will eventually be part of the final mine plan.
Originally conceived as being built at Pine Point, supply chain difficulties made that impossible. A Louisiana site was being considered once Pine Point became untenable, but now Avalon reports it is doing due diligence on three locations in Saskatchewan for the plant.
The capital cost for that plant will be in excess of $400 million, although the precise number won't be known until the core samples collected this summer are processed through the pilot plant.
The mine would need a further $1.2 billion to build, something which Don Bubar, Avalon president and CEO, acknowledges is a difficult ask in the current market environment.
"The demand side on rare earths is not were it was a few years ago when we were going full speed on this project," Bubar told News/North.
"The capital market environment for resources generally, and rare earths in particular, are bear markets now."
"The combination of these factors makes it a much more challenging environment to move this project forward, especially with the large capital requirements it has."
Although Bubar said the company will not be doing any work on site this winter, Avalon remains optimistic the market for rare earths will turn in 2015, soon enough to allow construction work to begin next summer.
The project is close to fully permitted, with only the final type-A water licence remaining.
"We're pretty far advanced on that process (for the type-A water licence)," Bubar said.
"For what we need to begin construction, we have everything in place."
Final public hearings on the type-A water licence are expected to be scheduled for early 2015. Technical review sessions for the licence were conducted this past July.
The company is well-financed to complete the permitting process and continues to work on its updated feasibility study. The study will be completed once a location and final cost for the hydro-metallurgical plant is determined.
"The main thing we were trying to get people to appreciate is that to move this project forward, we are dependent on a capital market environment that is not now conducive to raising risk capital for mineral project development," Bubar said.
"Three or four years ago, there was pressure to get this resource online to provide an alternative to China which had been restricting exports of rare earths and other minerals," Bubar added.
"Our marching orders in 2010 were to get this thing moving as fast as we could.
"Unfortunately, we didn't get to that finish line as quickly as we would have liked."
The market price for rare earths, which do not trade as a commodity like gold or silver but depend on purchase contracts, have levelled off to a little higher than they were before the wild price acceleration a few years ago.
Bubar said the price is still low enough that industry feels no urgency to sign the purchase contracts Avalon needs to lock down project financing, but he points out that the conditions which lead to the rapid price increase remain unchanged.
"Policy-makers in the European Union, Japan, Korea, the U.S. and Canada all see the need to develop a supply chain for rare earths that doesn't include China," Bubar said.
"And that hasn't changed at all."
