NioCorp’s latest PEA demonstrates the economic viability of Elk Creek
Friday, August 14, 2015 by Alastair Ford
NioCorp (TSX:NB) moved significantly closer to the construction of Nebraska’s second ever mine this week, with the announcement of an updated preliminary economic assessment (PEA) for its Elk Creek niobium project.
The study supersedes a previous PEA put out by NioCorp earlier this year and incorporates several improvements to the company’s plans for processing the niobium, scandium and titanium that will be produced at Elk Creek.
“It’s an important moment for the company,” explains NioCorp’s Mark Smith.
“The company’s very excited about it. The improvements result primarily from a change in the metallurgical flow sheet. We’ve eliminated the flotation step and will move the material directly through a hydrometallurgical process.”
The effects of the change are marked; the company won’t have to process as much of the resource to produce the same amount of metal.
What’s more, whereas in the first PEA around 86% of the scandium produced went into tailings, in the second PEA around 90% of it gets recovered.
In terms of the financial modelling, these changes make a huge difference.
The previous model set out the stall for an operation that would have delivered an after-tax internal rate of return (IRR) of 13.9% and which carried an NPV (net present value) of US$562mln.
The new model has the after-tax internal rate of return much improved at 27.6% and the NPV rocketing up to US$2.3bn.
The question now is: can NioCorp really justify the assumption it’s making in terms of the scandium?
Mark Smith is confident on this score, to the point where he plans to make it a central element in the investor conference call he will be hosting next week.
“The bottom line is that the demand has clearly been limited by the unreliable supply and quality situation,” he says.
“We strongly believe there are big market opportunities here: one is in fuel cell technology; the other is in the aerospace industry. And as to price, our answer is quite simple. We’ve used a third party marketing report created by an expert in the scandium space. All we’re doing is using his numbers.”
That report was prepared by OnG Commodities and in part examines the likely rates at which the aerospace industry is likely to increase scandium use.
Even if the uptake is slower than seems likely, the modelling shows that the IRR for Elk Creek would only drop to a still attractive 25.3%, with the NPV down to just under US$2 bln.
“Either case is very robust,” says Mark Smith.
With the report now in his back pocket he’s keen to crack on with the next steps.
The first public engagement will be the investor conference call on 17th August, but behind the scenes the company is already working towards a bankable feasibility study that’s due for completion by the end of the year.
If that seems fast, that’s because it is.
But much of the groundwork for the bankable study was covered in the second PEA - Mark highlights in particular that the resource model used in the most recent study didn’t incorporate any inferred numbers, in line with normal practice for a bankable study.
What’s more, there’s no local opposition to the project and permitting has not been official.
On the contrary, the locals and the relevant authorities in Nebraska are keen to diversify the economy and bring new income streams into the state.
That NioCorp is striving to be a good corporate citizen doesn’t hurt either.
“We’ve secured almost all the leases we need,” says Smith.
“We have all the mineral leases, and we’re proud of how we got that done. We did not pressure anyone. We made very reasonable offers and both parties were happy. We believe in treating people honestly and fairly and that’s how we’re going to proceed.”
But if the citizens of Nebraska are in favor of development, what about the denizens of the financial markets?
Smith is confident that the money will come in, especially after further work on paring back capital costs is done in the bankable study.
As it stands, the estimated capital cost rings in at US$979mln, but at the moment that incorporates a lot of engineering estimates that could come down after further detailed work.
“A robust economic project that people believe in will find the financing it needs,” says Smith. Within six months or so we’ll know whether or not he’s right.
http://www.proactiveinvestors.com.au/companies/...lk-creek-63995.htmlMfg No
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