A Visit To Arafura Resources’ Nolans Rare-Earth Project

Last month during our visit to Australia, Jack and I had the opportunity to visit Nolans Bore, the rare-earths deposit owned by Arafura Resources Limited (ASX:ARU, PK:ARAFF).

The Nolans Bore deposit is located about 80 miles north of Alice Springs, in the Northern Territory. A two-hour drive from the airport in Alice Springs, Nolans Bore is very much in the central part of Australia. It is roughly halfway between Darwin (850 miles to the north), also in the Northern Territory, and Whyalla (890 miles to the south) in South Australia. Access is via the Stuart Highway, which runs about 7 miles from the entrance to the project.

According to Richard Brescianini, Arafura’s General Manager for Exploration & Development, the rare-earth deposit at Nolans Bore was discovered by PNC Exploration in 1995, and was effectively “re-discovered” in 1999, by Arafura. The deposit contains an estimated 30.3 Mt of rare-earth mineral resources, at an average grade of 2.81%, resulting in an estimated 850 kt of rare-earth oxides present. In addition to the production of rare earths, the project is of interest for co-products of uranium oxide and phosphate, and a gypsum by-product. As we’ll see later in this article, determining the right “mix” of priorities for the production of these various materials, has been a key aspect of recent business development for Arafura.

You can see photographs taken during our visit, in the four galleries below (click on each image to enlarge it).

The plan for the Nolans Project is to mine and to then process the ore into a mineral concentrate at Nolans Bore, which would be transported to Whyalla via a rail line located approximately 40 miles from Nolans Bore, and which goes all the way to Whyalla and beyond. Arafura is planning to build a processing and separation complex in Whyalla, to produce 20 ktpa of separated rare-earth oxides. Arafura originally planned to transport 700 ktpa of mineral concentrate to Whyalla, but that plan may change, depending on the outcome of additional technical studies that Arafura is presently undertaking.

On a side note, one interesting aspect of the development work at Nolans Bore, is that the site is situated just a few miles from the Aileron Roadhouse. This is a longstanding pit stop for tourists and travelers along the Stuart Highway. Arafura has an unusual arrangement with the Roadhouse in that all of their site workers are housed here when working. They also have a portable office on-site and it’s clear that this symbiosis between Arafura and Aileron works well. It was interesting to hear the owners of the Roadhouse asking the managers after the day’s work, how things were going, gently ribbing them about the share price, and so on.

At the time we visited, Arafura was in the middle of a 52,000 m in-fill drilling program. In 2011, Arafura plans to complete more drilling in one year, than has been completed in all previous years combined, as part of the process of increasing the Indicated and Inferred portions of their mineral-resource estimate. You can see the details of the mineral-resource estimate on the TMR Advanced Rare-Earth Projects Index page. The planned drilling includes approximately 30,000 m of reverse-circulation (RC) drilling, and 22,000 m of diamond drilling.

Drilling is typically initiated in 80 m x 80 m grid patterns, with these spacings allowing for the results to be compiled into an Inferred resource estimate. Mr. Brescianini indicated that 40 x 40 m spacings lead to Indicated resource estimates, with 20 m x 20 m spaces leading to Measured estimates.

Mr. Brescianini estimated the drilling costs to be approximately AU$80 / m for RC drilling and AU$260 / m for diamond drilling. I asked Kelvin Hussey, Arafura’s Principal Geologist, why they would use one type of drilling over another, costs aside. He explained that RC drilling, though cheaper, is limited in the depths to which it can be used. This is because the process uses compressed air to help extract rock chips during the drilling process, and after 150 m of drill depth, the required pressure can no longer be maintained.

The current drilling program calls for holes down to 250 m, with a handful of holes drilled to 450-500 m, to determine mineralization at depth. In addition to holes that have been drilled in their entirety with the diamond drills, some of the cores are collected via diamond drilling that uses a pre-existing RC drill hole to start off well below the surface – these are known as “diamond tails”. Up to the day we visited, the diamond drilling had been conducted by two rigs; as we were leaving the site, a large truck carrying the third diamond-drilling rig arrived on site, to shorten the time required to complete the program.

The on-site work at the Nolans Project is set up to run 24 hours a day, done by 30-40 people over two shifts, with a “two weeks on – one week off” shift rotation pattern. Our visit to the Nolans Project site started off early in the morning, after arriving in the night before following our drive from Alice Springs. At 6AM we joined the workers coming onto the day shift as they gathered outside the offices on the Aileron site. The night-shift workers handed off to the new shift during the pre-start “toolbox” meeting, noting any issues and summarizing progress made. Everyone on the new shift was required to take a breathalyzer test before commencing for the day. This is apparently common in these types of operations. Even Jack and I were required to puff into a tube before coming onto site; I’m glad to report that we both passed the test…

We then underwent a thorough environmental, health & safety induction session, before we headed out to the Nolans Bore deposit itself.

Mr. Hussey explained that much of the early work at Nolans Bore was done in the form of costeaning. This is a method of cutting deep trenches into the surface of the ground, and then taking channel samples from the walls of the trenches at regular intervals. The rare earths at Nolans Bore are contained in several minerals, primarily apatite and monazite (both phosphate minerals) and allanite (a rare-earth silicate).

The known mineralization at Nolans Bore is distributed over 370 acres (150 hectares) of the property, with significant portions of it exposed at surface. Almost all of the holes have been drilled at a 60-degree angle to the south-east, reflecting the predominant dip and trend of the mineralization.

Mr. Brescianini said that while there was some variation on the distribution of rare earths at the small scale, the variations were not as marked at the larger scale. Thorium and uranium levels have consistent values. Over the years, many tens of thousands of samples have been taken from the Nolans Bore deposit for assaying. More recently, Arafura contracted with Intertek Minerals Services to provide on-site sample preparation facilities. Literally a “lab-in-a-container”, replete with dust extraction, air conditioning and on-site lab technicians, this capability has allowed Arafura to significantly reduce the mass of material required to be shipped to the Intertek lab in Darwin for geochemical assaying. 50 g samples are prepared from 30-60 kg drill cores, equivalent to approximately 1-2 m of depth downhole.

While at the core shack, Jack and I noticed that we couldn’t see any handheld Niton XRF analyzers to hand. Mr. Hussey commented that while such equipment may be of use with drill cores at other deposits, with different mineralization, they were not used at Nolans Bore because they felt that there were issues relating to XRF calibration and the reliability of the subsequent readings. He said that they focused more on using geological logging and radiometrics to do gross core sample selection for analysis.

Additional bulk samples have been taken for processing and beneficiation trials at AMMTEC in Perth and the ANSTO Minerals facility in Lucas Heights, New South Wales, not far from Sydney. Mr. Brescianini said that during August-October 2010, the company undertook a wide-diameter (780 mm / 31 in) drilling program to acquire representative bulk-tonnage samples of the current Measured and Indicated resource. A total of 48 holes were drilled to depths of 7.2 m to 64.5 m. Approximately 1,400 t of mineralization was collected in 1,368 bulk samples. These samples form the basis of the feedstock for the beneficiation and (subsequently) pre-leach and sulphation demonstration trials, which form part of the Nolans Bankable Feasibility Study (BFS).

Mr. Brescianini indicated that the minerals could be cracked using sulphuric acid at relatively low temperatures. Arafura will be working with ANSTO to scale up the separation processes, and to help prepare products to demonstrate the quality and consistency of processing. The company has also worked with Lycopodium and AMEC Minproc as they work towards completing the BFS.

An interesting aspect of the combination of working in both the Northern Territory (Nolans Bore) and South Australia (Whyalla) is that neither jurisdiction has the same prohibitions on uranium production that Western Australia, New South Wales or Queensland have in place. In theory this should make it easier to handle the disposition of thorium as a byproduct of rare-earths processing; it also means that the uranium present could be processed and made available for sale. Mr. Brescianini indicated that Arafura had not yet decided if they would export uranium oxides; one option would be to sell such materials to current domestic producers, with existing permits to export these materials.

I asked Mr. Brescianini about the royalties on mineral projects, and how the so-called Minerals Resource Rent Tax (MRRT) would affect things if ever it came to fruition and was applied to rare-earth projects (it currently only applies to iron-ore and coal projects). He said that in Australia, it is the states and territories that own the mineral rights. In the Northern Territory, the base royalty is 18% on the net value of mineral production, though the effective rate is in the single digits because of a variety of deductions that can be made. Mr. Hussey added that the MRRT is so controversial because it would be imposed by the national government, not the states and territories. He said that Arafura’s rare-earths development will not be captured  under the current design of the MRRT.

On the day that Jack and I arrived at the Aileron Roadhouse, prior to visiting Nolans Bore the next day, Arafura made an announcement that it was going to expand the scope of its BFS. Not unexpectedly, the market did not like this news and the share price for Arafura has been down ever since. We had the opportunity to discuss the announcement with Mr. Brescianini, and asked why Arafura was taking this step, and what it might mean for the project.

Mr. Brescianini said that in a nutshell, the decision to make this change was rooted in the desire to reduce the complexity of the flow sheet required to process materials from Nolans Bore, so that more emphasis could be placed on the production of rare earths, and much less on that of phosphate and other products of lesser value. He said that in doing so, the capital costs required to get the Whyalla Complex up and running, and ongoing operating costs, would be reduced. The recent escalation in rare-earth prices was obviously also a factor in this decision, as was the company’s view that demand for rare earths would continue to outstrip supply for many years to come.

Arafura’s announcement included mention of an estimated 9-12 month delay in the completion of the BFS, which naturally puts back the estimated start date of production to perhaps 2014. Mr. Brescianini acknowledged that the change could result in the delay of revenues from the Nolans Project. Beyond the dynamics of Arafura Resources and this project, how this delay will affect the rare-earths sector in strategic terms remains to be seen. While it is likely that Arafura will still be one of the first few producers to come on-stream in the short-to-medium term future, what the industry needs are some success stories in the next few years, to get investors past the jitters caused by playing in the junior mining and development sector.

In the longer term, if things go according to the revised plan, then it would appear that Arafura has a significant opportunity to generate higher revenues with lower costs, thus achieving higher margins and ultimately making their shareholders happy. The company took a calculated risk in changing their game plan. Let’s just hope that it pays off, not only for Arafura and its shareholders, but for the industry as a whole, and those end users who need a steady source of supply, in particular.

Overall, both Jack and I were impressed with the ongoing work at Nolans Bore, and the way that the project is being managed. The project definitely has an operational, not just exploratory, feel to it. Jack recently said elsewhere, that “Arafura Resources has a first class operational management” as well as “a skilled and dedicated workforce, and a first class operation” at Nolans Bore. I am inclined to agree with him.

Our thanks go to Arafura Resources Limited for facilitating the visit to the Nolans Bore site of its Nolans Rare-Earth Project.

Disclosure: at the time of writing, neither Gareth Hatch nor Jack Lifton is either a shareholder of, nor a consultant to, Arafura Resources Limited (Arafura) or any of its subsidiaries. They did not receive compensation from Arafura or from anyone else, in return for the writing of this article.