Rare Element Resources

Rare Element Resources (REE) is well positioned to benefit from the global move to de-risk access to rare earth oxides (REOs) by diversifying production away from China. REE is in the process of developing the Bear Lodge REO project in Wyoming, US. The project is large, with expected output of 10,400tpa of REOs over a potential 40-year life of mine. The ore body is enriched with REOs considered critical by the US Energy and Defence departments, underpinning the investment case. REE has developed a proprietary extraction technology, which should improve product quality and reduce the concentrate price discount. However, it has yet to sign up an off-take partner. Our DCF-based company valuation, at a 10% discount rate, is US$5.39/share.

Bear Lodge project: Critical rare earth enrichment
REE’s Bear Lodge project is scheduled for start-up in late 2016 (first revenues 2017) and is planned to include a mine, a physical upgrade plant (PUG) and a hydrometallurgical concentrate plant (hydromet plant), which incorporates new proprietary REO concentration technology. The ore body, which contains 944Mlb (428Mkg) TREO, is enriched with critical rare earth element neodymium and heavy rare earth element europium. There is additional mineralisation already identified that could lead to resource expansion over time.

Capable of funding its exploration programme
No production revenues are expected before scheduled start-up in late 2016. However, the group had cash of US$29m (US$0.65/share) at 30 June 2013, suggesting that the 2013/14 exploration and evaluation programme is fully funded. We forecast project capex of US$400m, with the bulk of the spending in 2016. REE has yet to sign an off-take partner, which would support its project funding requirement, but may be able to tap into Wyoming state development bonds.

Valuation: Based on pre-feasibility study
Our PFS-based DCF (at a 10% real discount rate) valuation for the project is US$905m. This translates into US$5.39/share, assuming a 50% split debt/equity financing structure for the project. Our estimated valuation, including the newly developed oxalate precipitation stage of the hydromet process, is US$7.23/share. However, these valuations are likely to change as the feasibility study progresses and the capex requirements of the new technology is quantified over the next 18 months.

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