On Wednesday, Tasman Metals (TSXV:TSM) reached a milestone with the release of a prefeasibility study (PFS) for its Norra Karr project.
Located in Sweden, the heavy rare earth element (REE) deposit is set to produce over 200 tonnes of dysprosium oxide per year over the next 20 years, according to the PFS, with roughly 74 percent of revenues coming from magnet rare earths. The project will garner an initial capital cost of US$378 million, an after-tax NPV of US$313 million at a 10-percent discount and a 20-percent after-tax internal rate of return.
“Norra Karr now stands out as one of the major potential producers of dysprosium in the Western World,” said Tasman’s president and CEO, Mark Saxon, in a statement. “There are very few projects known that can deliver more than 200 tonnes of dysprosium oxide per year for more than 20 years to the high strength permanent magnet market, and perhaps none other that can do so with less than US$400 million capital investment.”
Also worth noting is the fact that although the mine is set for a 20-year lifetime, it has an unconstrained mine life in excess of 60 years. “It’s going to be a big project,” said Jim Powell, VP corporate development for Tasman.
Although Tasman doesn’t have any analysts listed as formally covering the company on its website, Jon Hykawy, president and director of Stormcrow Capital, was able to share some insight on today’s release.
Certainly, the project checks a few boxes for the analyst — it’s a long-lived project that’s set to produce “lots of desirable rare earths” in a geopolitically stable jurisdiction.
That said, he is hesitant about the project for a few other reasons. In particular, he sees the company’s long-term assumptions on rare earth oxide (REO) pricing as a bit optimistic.
For Hykawy, an important consideration when looking at a rare earths project is whether it will be “financially viable at the worst-case prices,” and after running some numbers using his own, more pessimistic price deck, the analyst came up with different results than those found in Tasman’s PFS.
“Their basket price with this deck in 2019 is $32.85, and their operating cost is $39.69 by their [PFS],” he said. He stated that his pessimistic case deck “is also close to the worst prices seen in the actual market in the last 10 years,” but added that “even [his] base case price deck is not as optimistic as their [PFS] deck regarding the price of the heavy rare earths.”
“To me, this suggests a much lower return for the project,” he said, adding that he would be looking for a much better return rate if he was a financial investor. In its Wednesday release, Tasman commented that its long-term price forecasts are lower than the trailing three-year average for all elements, but higher than current prices for some based in part on projected increases in demand for permanent magnets. The company also stated that the basket price of Norra Karr is “one of the highest in the REE sector” in part because of the large percentage of those high-demand magnet materials at the project. Prices were determined by a third party for the report.
Hykawy mentioned other issues as well. He did suggest that other analysts might look at the project differently, but overall, he wasn’t overly optimistic about the project himself.
In terms of what’s next for the company, Powell said that Tasman is looking to optimize operating expenditures for Norra Karr and to conduct additional metallurgical work.
Interestingly, Ryan Castilloux of Adamas Intelligence suggested last year that some projects would be better off removing cerium from their saleable basket and treating it as waste, since the material is so oversupplied that it’s too costly to separate. When asked if Tasman is considering an approach like that, Powell replied that it is “part of the plan for sure,” stating that further testwork will look at possibly removing the material.
He also pointed out that other by-products that are not included in the PFS, such as zirconium, are being considered.
Certainly, those interested in Tasman (and any rare earths project for that matter) will be hoping to see REE prices rise in 2015.
At close of day on Wednesday, shares of Tasman were trading at $0.47.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.