Last week, Mickey Fulp, the “Mercenary Geologist”, published a piece on the topic of material grade for exploration projects. He has given us permission to reproduce an extract from that article. The second part can be read directly on Mickey’s Web site, via the link below. Your comments are welcome and can be posted below.
by Mickey Fulp – Published: August 29, 2011
Economic geologists are a rare breed and quickly are becoming an endangered species.
Every year it seems there are fewer of us in the field, pounding on rocks, mapping their distributions and contact relationships, developing promising drill targets, and evaluating projects for economic merit. The exploration science of boot leather and drilling may soon be a lost art. I wrote about this subject previously (The Trouble with Geologists; The Importance of Mentors).
The scarcity of qualified economic geologists is nowhere more apparent than in rare earth element space. According to Intierra Mapping, there were more than 200 public companies worldwide with rare earth element projects and many analysts are on written record that there may be sufficient demand for only four or five new rare earth producers outside of China within the next five years. An optimistic supply/demand scenario would allow 10 success stories in the longer time frame of 10 years. If true, that means 95-98% of current junior REE companies will fail.
For the diligent speculator, it makes sense to eliminate the many pretenders from the few contenders as quickly and efficiently as possible. We can accomplish this task by employing simple economic parameters.
There is a popular saying amongst economic geologists: Every good geologist knows that grade is king.
By applying grade comparisons, we can select the few companies that have potentially economic REE deposits from the multitude that are merely promotional and exist to “mine the stock market”.
Firstly, let’s separate REE deposits into three basic types so we aren’t comparing a bushel of apples to a bag of oranges to una mano de platanos (a bunch of bananas):
- Light rare earth-dominated deposits (carbonatite-hosted);
- Heavy rare earth-dominated deposits (alkalic intrusion-hosted);
- Small vein-hosted deposits.
LREE-rich carbonatite deposits have a much lower unit value per tonne than HREE-rich alkalic intrusion deposits. Therefore, a LREE deposit will require a much higher grade to be profitable than a HREE deposit. Because vein deposits are narrow, steeply dipping, and of small tonnage, they must be mined underground and at high cost. Therefore, vein deposits will require a much higher grade to be profitable than a large LREE or HREE deposit that is mineable by cheap open-pit or bulk underground methods.
Secondly, let’s compile the published resource grades of six projects that appear likely to achieve commercial production within the next five years. In this analysis please note that I am listing only those projects presently in development or in advanced exploration with at least a pre-feasibility study in progress. There may be other worthy candidates in the REE sector that are not as far advanced and do not qualify for the list below. For example, I am a committed shareholder of Tasman Metals Ltd, which has an interesting HREE project with excellent infrastructure in southwest Sweden, but is likely a year away from completing a pre-feasibility study.
|Company||LREE Deposits||Grade TREO||Tonnage (kt)||COG||Resource / Reserve|
|Molycorp Inc. (NYSE:MCP)||Mountain Pass||7.0%||48,400||5.0% TREO||Prov / Prov Reserve|
|Lynas Corporation (ASX:LYC)||Mount Weld||10.7%||10,700||2.5% TREO||JORC Meas/Ind/Inf Resource|
|Rare Element Resources (AMEX:REE)||Bear Lodge||3.2%||22,700||1.5% TREO||NI-43-101 Ind/Inf Resource|
|Avalon Rare Metals (AMEX:AVL)||Nechalacho||1.5%||14,500||$260 / t||NI-43-101 Prob Reserve|
|Quest Rare Minerals (AMEX:QRM)||Strange Lake||1.6%||10,700||0.6% TREO||NI-43-101 Ind/Inf Resource|
|Great Western Minerals Group (TSX.V:GWG)||Steenkampskraal||11.8%||250||N/A||Historic Resource|
Note: COG = Cut-Off Grade and is the economic break-even grade in a producing mine.
I submit that this treatment, although admittedly simple, can be utilized as a top cup to separate various deposits that stand a chance of sending rock to the ore bin from those hopelessly destined for the waste dump. Only the best projects will deliver product to the marketplace in 2012-2017 while the remainder will be shut out.
Low-grade LREE deposits cannot compete with Molycorp at 7%, Lynas at over 10% and Rare Element Resources at over 3%. MCP and LYN will be in production in 2012; REE has a growing deposit with excellent infrastructure, significant HREE values, new discoveries, and good location in the very mining friendly jurisdiction of Wyoming.
HREE properties with grades a fraction of the TREOs of Avalon Rare Metals at 1.5% and Quest Rare Minerals at 1.6% are also problematic.
Finally, when we look at small vein-hosted deposits, we should compare them to Great Western Minerals Group Ltd’s small historic resource at Steenkampskraal in South Africa. It grades 11.7% TREOs, mainly as LREOs but with 0.89% HREOs.
Ciao for now,
The Mercenary Geologist Michael S. “Mickey” Fulp is a certified professional geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia. Mickey has worked for junior explorers, major mining companies, private companies and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping, property evaluation, and business development. In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia. Mickey is well-known throughout the mining and exploration community due to his ongoing work as an analyst, newsletter writer, and speaker.
Disclaimer: I am a shareholder of Avalon Rare Metals Inc, Quest Rare Minerals Ltd, Rare Element Resources Ltd, and Tasman Metals Ltd. Quest and Tasman are sponsors of my website. I do not hold long or short positions in any of the other companies mentioned in this report. I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, this website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, this website, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, this website, interview, and other content reflect my personal opinionsand views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.com LLC.
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