Avalon talks to buyers on offtake for rare-earths mine

Toronto, ON — August 31, 2010 (Source: – Avalon Rare Metals, which hopes to start up its Nechalacho project, in Canada’s Northwest Territories, in late 2015, has had expressions of interest from parties in Japan, Korea, the US and Europe on potential offtake agreements, CEO Don Bubar indicated on Monday.

“The market is starting to get pretty anxious about supply, so they are motivated to start to look at these opportunities,” he said in an interview at the company’s Toronto offices.

Avalon completed a prefeasibility study for Nechalacho in June this year, which has allowed it to start holding discussions with end-users.

“Now that we can show we’ve got a viable project, we can have a more serious discussion, so that’s starting to happen now,” Bubar said.

“We’ve had some expressions of interest from different parts of the world and now we are starting to move that forward,” he said.

“Obviously we’d like to enter into those offtakes as soon as we can, or at least have some sort of relationship in place to see that happen.”

The company has hired a vice-president for sales and marketing to spearhead the discussions with potential customers, which could also touch on potential financing options for the project.

Avalon is looking at building an underground mine and flotation plant at the remote Nechalacho project site, and a hydrometallurgical plant at a second location, closer to power and transport infrastructure.

As currently planned, the mine will start up at 1 000 t/d, ramping up to 2 000 t/d in the fourth year of operations.

But one of the changes being considered for the bankable feasibility study (BFS), though, is the potential to either accelerate the ramp up or go straight to the full capacity at start up, Bubar said.

“We started on this a couple of years ago, so the dynamics of the market have changed since then,” and demand is now expected to be stronger than the firm initially assumed, he said.

The company plans to have a BFS completed by mid-year 2012, to be ready to start construction and development in the first half of 2013.

Rare-earth metals are used in a growing number of high-tech applications, including in hybrid cars, wind turbines and electric bicycles.

China is the biggest producer, at more than 90% of global supply, but has been putting curbs on export volumes, to feed domestic demand.

The Nechalacho operation will produce mixed rare-earth element carbonates, which will be shipped to a third party for separation, although the firm is also looking into what might be required to build its own separation plant.

The final saleable products will be a total rare-earth oxide, a zirconium oxide, a niobium oxide and a tantalum oxide.

Currently, there is no separation plant able to process material from Nechalacho outside of China, and potential customers have indicated to the company that they would like to see a solution on the table for producing separated material, and preferably not via China.

Avalon has hired SNC-Lavalin to produce a scoping study on a potential plant, but the concept is still in its early stages, Bubar commented.

“We just thought that, if we are going to be having those conversations, then we want to know what would be involved so that we can have intelligent discussions,” he said.

Excluding the potential separation plant, the prefeasibility study estimated total capital costs for the Nechalacho project are just shy of C$900-million, including contingency, sustaining capital and reclamation.

Bubar said he expects a supply deficit for rare-earth metals will develop in the coming years, as growing demand, exacerbated by tightening export quotas in China, runs ahead of new supply.

“We see the rare-earth market growing in leaps and bounds, demand exceeding supply,” he said.

He also noted that most projects being studied or developed around the world contain a higher percentage of the group of ‘light’ rare-earths.

‘Heavy’ rare-earth elements are rarer and therefore more valuable, and the Nechalacho deposit has an unusually high proportion of heavy rare-earth elements, Bubar said.

Shares in Avalon rose 12,5% on Monday, to C$3,14 apiece by 16:33 in Toronto.

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