Quest Rare Minerals hunting for partners

April 13, 2012 (Source: Marketwatch) — Quest Rare Minerals Ltd. QRM +1.44% Chief Executive Peter Cashin said his Montreal-based rare-earths mining company is just a month away from completing a metallurgical study that could pave the way for the company to find a development partner in Europe or Asia.

The metallurgical study for Quest’s Strange Lake project in northern Quebec should be complete by May and a pre-feasibility study finished by late summer, Cashin said. Then, the company will look to partner with a foreign chemical or technology company that can help it build a plant in Quebec to process the rare earths into products useable by the high-tech or defense industries.

Rare earths are in short supply as China has said it will limit exports to conserve supplies for its own growing high-tech industry. China currently produces about 95% of the world’s rare earths, but new Western projects are attempting to pick up the slack. Quest’s Strange Lake project is one of a handful of projects in the world that may contain abundant heavy rare earths, which are in especially short supply and crucial to military and civilian high-tech products.

Quest has been in discussions with several potential partners in Europe and Asia, who are waiting for the company’s pre-feasability study, Cashin said.

“They want to look at the cash-flow model, the capital costs and the product deliverabilities,” Cashin said. He declined to name the potential partners, citing confidentiality agreements.

It’s crucial for Quest to sign an agreement with an organization that has the rare-earth processing technology, said Dundee Securities analyst Carolyn Dennis. Potential partners could include European chemical companies like Belgium’s Solvay S.A. (SVYZY) or Germany’s BASF SE (BASFY), or an Asian resource consortium like Japan Oil, Gas and Metals National Corp. or Korea Resources Corp., she said.

A partner could provide financing for the project, and any loans Quest would need would get lower financing costs with a partner. Cashin estimates it will cost between C$750 million and C$900 million to build the Strange Lake mine, mill and separation plant.

Quest would also need to sign agreements with end-users, which could be automotive, high-tech or defense companies, or could be through government agencies like the U.S. Department of Defense. Heavy rare earths are used to create motor magnets used in hybrid cars and wind turbines, as well as batteries and steel alloys used by the defense industry in things like jet engines, drones and nightvision goggles.

The need for rare earth companies to tailor their production to the needs of specific customers makes it a more risky investment than a precious- or base-metals company, which can just sell its products into the open market.

“That’s why it’s a race at the end of the day to [sign agreements] with these companies,” Dennis said.

In an example of the kind of agreement Quest needs, the smaller Canadian rare earths company Matamec Explorations Inc. (MAT.V) signed a partnership agreement with Toyota Tsusho Corp. (8015.TO), a supplier to Japan’s automotive industry.

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