President and CEO Peter Cashin, who is steering Quest Rare Minerals toward a 2016 start-up production date, operates with a few basic tenets firmly in mind:
- Non-binding agreements aren’t deals at all; they just confirm that a company doesn’t want to be tied to a deal and will jump when the next best thing comes along;
- Given the nature of Quest’s Strange Lake assets, he knows with a certainty that his company is undervalued: “I can scream about it or keep delivering on what we say we’re going to do – lose the battle, win the war;”
- Strange Lake could be, should be Quebec’s lynchpin in building out a competitive REE supply-chain network, especially for HREEs;
- Investors are no longer content with new exploration results, they want to see development drilling in the run-up to next year’s delivery of a bankable feasibility study.
Quest Rare Minerals is currently all about its Strange Lake property, which is on the Quebec-Labrador border and 125 kilometres west of Vale’s infrastructure-laden Voisey’s Bay operation.
More specifically, it’s about the 2009 discovery of the B-zone deposit, a resource open in all directions, with near-surface mineralization and the potential to deliver recoverable Yttrium, Neodymium, Dysprosium, Terbium and Europium for a minimum of 25 years.
There will also be extractable quantities of Erbium, Ytterbium, Thulium, Gadolinium, Lutetium as well as significant by-products – niobium, zirconium and hafnium.
Bottom-line: 85% of the in situ value comes from critical or near-critical HREEs, with drilling results showing a high proportion of HREEs to LREEs – between 31% and 77%.
Basically, Quest is in the final stages of a pre-feasibility study that’s working from a NI 43-101 resource at 0.95% TREO cut-off ; 230m tonnes at 1% TREO (51m tonnes at 1.16% indicated – open).
With a bankable feasibility study delivery date slated for the end of 2012, Cashin said the B-deposit metallurgical flow chart should be completed by the end of November; a pre-feasibility study will be delivered in the first quarter of 2012; and the pilot plant is slated for a second quarter 2012 start-up.
“We’ve been doing a lot of the work for a bankable under the guise of the pre-feasibility study, especially all the fieldwork for the environmental baseline and engineering study,” he said. “The exploration season up there is pretty short; we’re pretty confident about the nature of the deposit so we pushed a bunch of the fieldwork forward and did it this past summer. That’s really shortened up the timeline for the bankable.”
And in the interim? Converting the indicated and inferred to a proven and probable resource, a task initiated this past summer by tightening up the drilling pattern over the footprint delineated for the pre-feasibility study.
“We haven’t really rolled out much in the way of exploration results, because it’s not exploration drilling anymore – it’s development drilling,” Cashin said. “The market isn’t looking for us to add more tonnes to Strange Lake, although we probably will anyway, because we’re filling in extra tonnes on the margins of the deposit that’s been identified for the pre-feasibility.”
Some additional drilling will likely be done in the winter after the holiday, the focus being four or five identified targets from the B-zone that have shown anomolous occurrences at surface showing some good numbers.
“We’re looking to high-grade deposits and satellite material from the B-zone to supplement the high-grade zone we’ve already identified,” Cashin said. “If we can prolong the production of high-grade material it will accelerate the projected capex payback of building the mine out.”
Quest looks solid from a financial standpoint. There’s $55 million in the bank, thanks in large part to 59 million warrants exercised during the first three quarters of 2011. There’s also another $3.25 million in 2010 provincial rebates coming in; that will go into the working capital position.
Another $7.5 million and $10-$15 million in rebates should come in for work done in 2011 and 2012.
“And there’s still about 15 million unexercised $5 warrants on account,” Cashin said. “We have financing through to the bankable study…even after that, what with warrants and rebates, we should have a working capital position of $15 million at the end of 2012.”
The chief executive said all of these coming “deliverables” are the stepping-stones to what he sees as an attainable 2016 start-up date, if all goes well.
The intention now is to establish strategic relationships with end-users, trading companies and processing groups.
“We want to try and develop business arrangements in advance of the delivery of the pre-feasibility study,” he said.
However, he’s adamant that these kind of value-added deals, when announced, won’t be of the non-binding variety.
“Does (a company) want the product or not? Why aren’t they making a binding deal based on the results of due diligence – what’s wrong with that?” he asked. “In my view, a non-binding deal isn’t a deal at all.”
When Cashin steps back and looks at the bigger picture, he sees a growing global demand for critical HREEs and a mining-friendly province that is enthusiastic about how the Strange Lake mine will fit comfortably within its multi-billion dollar Northern Plan, which is all about economic development in the northern part of Quebec.
“They are enthusiastic about the project by virtue of the fact that it’s big at the mine and concentrate level, so it will generate good revenues for the province,” Cashin said. “I’ve pitched Strange Lake as being an excellent catalyst for the province…that with its support, a complete in-province REE supply chain can be established, especially for heavies.”
And don’t forget that Quest is also sitting on its nearby Misery Lake project, which is showing significant potential as an additional REE resource – grab samples having returned 8.56% TREO and the geology is similar to major REE resources in China and Russia.
Ultimately, Cashin believes the knock-on effect of Strange Lake and other REE mining projects in the area will bring jobs, revenue and an entire new industrial and value-added manufacturing sector to the province.
It’s early days yet, but Cashin will no doubt continue to operate with that kind of end-game in mind.