American Rare Earths Ltd (ASX:ARR) (FRA:1BHA) is uniquely placed to ride America’s necessary rare earths revival to minimise reliance on China, according to a report by Hallgarten & Company analyst Christopher Ecclestone.
The company’s La Paz project in Arizona hosts a low-grade bulk tonnage rare earth elements (REE) deposit near-surface, has low radioactivity, is in a good mining jurisdiction and easily accessible location and with a dominance of scandium.
A second REE project, in Wyoming, was added to the portfolio in August 2020.
Ecclestone said: “American Rare Earths is one of those sleeper assets from the first REE boom.
“[The company] is uniquely positioned at the table when the next REE recovery gains traction.
“Inevitably promoters will attempt to create new ‘stories’ in the space but the embedded advantage lies with those projects, like La Paz, that have historic exploration work done and resource estimates to hand.
“The task now is to upgrade the resource while working on securing the all-important relationship with a processor.”
These factors, along with the political outlook for rare earths in the US have led to the broker giving ARR a LONG rating with a 12-month target price of 24 cents.
Potential scandium upside
There is more than 1,600 tonnes of high-value scandium contained in the La Paz resource of 28.2 million tonnes containing 95.4 million pounds of REE, which Ecclestone said could make a meaningful contribution to the economics of the project.
Scandium is relatively rare with total annual production of 25 tonnes and it's very highly valued and priced at over US$1,000 per kilogram.
While the broker cautioned that pricing was opaque as the market was virtually non-existent, he noted that up to two-thirds of La Paz’s revenue at current prices was expected to come from scandium.
The main use for scandium is in solid oxide fuel cells but it could also potentially be used as a light-weighting alloy with aluminium, particularly in aerospace but also possibly in EVs.
The broker said: “The problem is currently a supply issue with no primary mines, and that the bulk of production comes as a by-product from titanium streams (or more recently from a nickel-cobalt mine in the Philippines).
“This has produced a chicken-and-egg dilemma for aerospace majors who will not tool up for scandium-aluminium componentry if they cannot be guaranteed a reliable and substantial supply of scandium.
“The most recent development in the space has been RTZ talking of moving to commercial production in Canada from its titanium streams there.
“This potentially will reduce the scandium price, but conversely spur potential demand by creating a further, reliable source of supply (from a major).
“This ultimately will be a positive for ARR in marketing the output of La Paz by turning a nice metal, traded by appointment, into a mainstream metal.”
The lanmodulin-based rare earth biosorption technology extracts the lanthanides, yttrium and scandium.
Unique processing technology
American Rare Earths is working with Lawrence Livermore National Laboratory (LLNL) and Pennsylvania State University (PSU) to enable clean extraction of both scandium and lanthanides from low-grade feedstocks.
The researchers have completed a proof-of-concept demonstration of a novel biosorption technology that uses the biological ligand, lanmodulin, for selective scandium and lanthanide recovery without enriching uranium/thorium.
Ecclestone said: “ARR is aiming to develop the US’s first low-grade rare earth mineral processing facility close to the planned mining sites in La Paz County, AZ and Albany County, WY.
“These deposits are relatively low-grade (300–700 parts per million total REEs), being notable for their sheer volume, uncomplicated mineralogy, and low uranium/thorium and high scandium content.
“ARR’s strategy is to leverage the LLNL/PSU biosorption technology and to evaluate the economics of the LLNL/PSU technology to the complete REE supply chain.
“These activities will hopefully address questions required in order to license and incorporate the technology into its mineral processing platform.”
Exploration work planned
Whilst the initial resource at La Paz provided a solid base case in 2011, the company will target the increasing of grades at depth in ongoing exploration.
A nine-hole coring program has been scheduled and is anticipated to begin in March 2021 with initial metallurgical test-work to begin post the drilling program in the second quarter of 2021 and continue into the third quarter.
Pending the results of this work, more advanced metallurgical studies should be implemented in 2021.
After completion of the confirmation core drilling in March/April 2021 the REE resource will be updated with the new core data.
Additionally, the historic drill data combined with the new core information will be used to calculate a maiden scandium resource.
The exploration activities planned for the near future should provide the preliminary backdrop for the planned preliminary economic assessment in H2 2021.
Rare earth industry risks
The broker noted that some of the risks the rare earths industry might face going forward includes:
- A return to weak rare earth prices;
- The REE market is still controlled largely by China;
- Financing difficulties for mine build;
- Failure of demand to match rising production (ie build it and no one comes); and
- Excessive number of competing projects could crowd the scene and investors’ attention in the event that REE prices turn up.