A preliminary economic assessment (PEA) of LSE-listed Rainbow Rare Earth's Phalaborwa project, in South Africa, demonstrates a long-life and financially robust opportunity for Phalaborwa to become a significant supplier of high-purity rare earth oxides to the rapidly expanding permanent magnet market, the company says.
The PEA, which was conducted by minerals processing engineering company METC Engineering, sets out a capital expenditure requirement of $295.5-million.
The assessment also determined a payback period of only two years, which Rainbow says is significantly below that of a traditional hard rock rare earth mining project.
Phalaborwa is expected to produce 26 208 t of separated magnet rare earth oxides, with a weighted average sales value of $137.92/kg, generating $3.6-billion of revenue over a 14.2-year mine life.
Under the base case scenario, the 2.2-million-tonne-a-year processing operation is expected to generate average earnings before interest, taxes, depreciation and amortisation (Ebitda) of $192.2-million a year.
The PEA has also determined a post-tax net present value (NPV) of $627-million and a post-tax internal rate of return (IRR) of 40%.
Rainbow says the positive results of the PEA support the continued development of Phalaborwa.
The next steps for the project include the publication of a resource update and the definition of a work programme for a feasibility study.
"The successful completion of this PEA represents not only a breakthrough step in the development of Phalaborwa, demonstrating the viability of this opportunity, but also underscores the broader potential to use our unique intellectual property and technology to extract separated rare earth oxides from other phosphogypsum sources on a global scale.
"Leveraging the expertise we have built up at Phalaborwa, we aim to accelerate the shift in our business model to processing rare earths from secondary sources. At a time when governments around the world are designating rare earths as critical minerals, with the European Union stating an anticipated five-fold increase in demand by 2030, our strategy aims to facilitate near-term access to these elements which are so fundamental to global decarbonisation. Our focus on phosphogypsum as a source of magnet rare earths importantly differentiates Rainbow from a risk perspective when compared with traditional hard rock rare earth mining companies," comments Rainbow CEO George Bennett.
“Establishing a base case NPV of $627-million, an IRR of 40%, an average Ebitda operating margin of 75% and a payback period of only two years, this PEA corroborates our long-held view of Phalaborwa’s enormous potential as a low-capital-intensity, high-margin, near-term rare earth development project. The base case financial model presents a robust project with low sensitivity to costs, which is particularly relevant in the current inflationary environment, and which can generate strong returns in any foreseeable rare earth oxide pricing environment.
"At 2022 year-to-date average prices (which are about 28% higher than the base case), the economics are exceptionally strong with an NPV of $934-million and a payback of 1.7 years," he points out.