Sep 4, 2013 5:24 PM
Matamec Explorations (TSXV: MAT) took a hit after the
Montreal-based explorer published a feasibility study for its
Kipawa joint-venture heavy rare earth elements project near
Rouyn-Noranda, Que. Its shares dropped 33%, or 8.5¢, to close at
17¢, despite the study showing the project is technically and
Kipawa is envisioned as a 3,653 tonne per year open pit operation
producing 1,516 tonnes of heavy rare earth concentrate, plus 2,137
tonnes of light rare earth concentrate each year. The deposit,
located on the Zeus property, has reserves of 19.77 million tonnes
with a diluted total rare earth oxide grade of 0.41% and an
estimated mine life of 15.2 years. The initial cost to construct
Kipawa is $374 million, including a 15% contingency. Matamec owns
51% of the project and its partner Toyota Tsusho Corp. (TTC) holds
While the start-up costs are 18% higher than the $315.8 million
estimated in a preliminary economic assessment (PEA) published in
March 2012, the total operating expenditures dropped 13% to $21.53
per kilogram of mixed rare earths thanks to the optimization work
the junior conducted over the year.
But what may have disappointed investors is the difference in the
project’s economics compared to that of the PEA. The latest study
demonstrates Kipawa has a net present value (NPV) of $260 million
and an internal rate of return (IRR) of 21.6% using a 10% discount
rate, on a pre-tax basis. The PEA estimated a pre-tax NPV of $500
million and a pre-tax IRR of 36.9%, using the same discount
“The IRR and NPV are lower than previously but the prices they used
for the lights [light rare earth elements] particularly are below
current estimated spot price,” Luisa Moreno, an analyst at Euro
Pacific Canada, writes in an email.
“The economics are not the best ever seen for a mining project, but
the fact that they were able to produce a positive feasibility
using modest LREE prices is pretty good,” she adds.
Edward Miller, the company’s director of investor relations, notes
the IRR has dropped from when the company did the PEA a year ago
mainly due to the sluggish prices for rare earths. “The rare earth
pricing this year has fallen from the 2011 highs and hit a low. It
has started to rebound over the last couple of months…but that
really lowered the IRR.”
That said Miller points out there are several opportunities that
could bolster Kipawa’s economics, including building a second pilot
plant, where further testwork could help improve recovery rates. He
says there is also potential room for improvement in the open-pit
“It is a very high quality deposit and there is significant upside
to bring the IRR well above 25% pretax,” he reckons.
On an after-tax basis, the feasibility indicates Kipawa has a 16.8%
IRR and a $128 million NPV using a 10% discount, whereas the PEA
didn’t disclose Kipawa’s after-tax numbers.
Asked what challenges lie ahead at Kipawa, Miller says: “The rare
earth pricing just has to continue going up, which we are seeing,
and if that continues that would be very positive.
“So certainly the rare earth demand, pricing and to have the
opportunity to complete the second pilot plant and get that to be
able to communicate the recovery process and higher recovery
rates,” he adds. Kipawa has a total recovery rate of 70%.
Looking at its to-do list, Matamec intends to finish the second
pilot plant shortly, followed by the release of an environmental
and social impact study early next year. In 2014, the junior also
plans to explore financing options for the project, noting TTC
would be responsible for footing nearly half the bill. Matamec
intends to start building the mine in early 2015, with start-up
anticipated in late 2016.
The company currently has about $4.5 million in its till, which it
says should be enough to finish the second pilot plant and