Rare Earth Race for Production Outside of China Heats Up with Frontier Rare Earths PEA Results

The international race for rare earth production outside of China is heating up again this time with Frontier Rare Earths (TSX: FRO) announcing their  Preliminary Economic Assessment (PEA) results and how they will have the ability to produce rare earths by 2015. This means that Frontier would become one of the largest rare earth producers outside of China after Molycorp and Lynas as well as the second largest producer of heavy rare earth oxides outside of China. The race to end China’s dominance of rare earth production is a victory many are vying to claim.

This morning Frontier announced positive PEA results for its flagship Zandkopsdrift Rare Earth Project in South Africa, one of the largest undeveloped rare earth deposits in the world estimated to contain 950,000 tonnes of total rare earth oxide (TREO). The PEA results indicate that the proposed project is technically feasible, economically robust and carries a low risk profile. Frontier is targeting annual production of ~20,000 tonnes of separated rare earths starting in the latter part of 2015.

Frontier’s President and CEO James Kenny comments, “This is the first NI-43-101 compliant independent economic study on a rare earth project published by any company encompassing mining through to separation of individual rare earth oxides…With a positive PEA in place, a strong working capital position…Frontier is very well positioned to meet its objective of becoming a major global supplier of rare earths, starting in 2015.”

The Korean Government-owned mining and natural resources investment company, Korea Resources Corporation (KORES), intends to invest in the project and will provide technical and financial assistance. KORES will also secure off-take of up to 31% of the Zandkopsdrift project’s production. This makes Frontier the only rare earth junior company with a strategic partnership agreement in place that is advancing a major rare earth resource outside of China. Further, KORES is in the process of forming a consortium to participate in this joint venture. It is anticipated that Samsung Group, GS Caltex, Daewoo Shipbuilding & Marine Engineering Group and AJU Group will participate. Frontier and the KORES Consortium will investigate and pursue downstream opportunities in the areas of rare earth alloys, rare earth metals and rare earth magnets.

From my perspective, Frontier is certainly moving in the right direction. The pre-feasibility study, which is already underway, will be completed in the fourth-quarter of 2012. Preliminary environmental assessments have also been completed addressing botany, archaeology, air quality, water quality, human health risks and radiology impact. The company also reports that uranium and thorium levels are low and will be removed by precipitation. Total construction of the Zandkopsdrift project is estimated at CDN$910 million including approximately CDN$100 million for sulphuric acid and desalination plants.

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