Every Good Geologist Knows That Grade Is King

by Admin on September 7, 2011 · 8 comments

in News Analysis, Rare Earths

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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.

Advanced Rare-Earth Projects – Source: MercenaryGeologist.com
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
  HREE Deposits        
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
  Vein Deposit        
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.

Having determined some of the advanced projects contending for success, take a look at some of the glaring pretenders that have been presented to me over the past year by clicking here.

Ciao for now,

Mickey Fulp

MercenaryGeologist.com

Contact: Contact@MercenaryGeologist.com

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.

Copyright © 2011 Mercenary Geologist.com LLC. All Rights Reserved.

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1 Poncho462 September 7, 2011 at 7:06 pm

Poncho462 September 7, 2011 at 7:00 pm
Hi Mickey…I don’t understand your grade numbers. They do not seem to match accepted published figures for the projects noted. For example, Mt Weld is shown at 10.7%, which is 2.6 percent higher grade than published elsewhere(here on TMR in this case), whereas Steenkampskraal is shown at 11.8%, which is 5% lower that GWG’s published historical figures, which are already diluted 20% from the raw data for mining dilution, and basically the only figures available from any source. The other figures are mostly off too. At first I thought you were using some common correction factor, but that can’t be the case if some are up and some are down.

Could you please address these discrepancies from published grades?

2 Paul San Antonio September 9, 2011 at 2:27 pm

Poncho462,
I think part of the confusion is which deposit at Mt. Weld is being considered in the numbers. Mt. Weld has the CLD (Central Lanthanide Deposit), the Duncan Deposit, and the Crown, Coors and Swan Deposits. The CLD and Duncan Deposits are very drilled and the CLD is the ore being concentrated at Mt. Weld right now.

Also, Lynas continues to drill and expand the deposit sizes. So mostly the Lynas numbers vary depending on how you breakdown Mt. Weld and at what time and cut off you use to evaluate the resource. This is true of most established resources, but since Mt. Weld has had a lot of drilling and Lynas has the information on their website it is easy to make the point with them.

Much of the same reasoning applies to GWMG’ s Steen deposit. I think the 17% grade you are looking at is a “highlight” or top result drill. Here Mr. Fulp (which is a rare time someone has not called him Mickey) is using TMR’s number. But the size and cutoff at Steen is still very much to be determined.

Current drilling most likely will increase the resource size and any reduction in grade would be based on determining that additional lower grade areas at Steen are worth extracting. So in Steen’s case the grade could drop a bit in order to expand the resource size and this would clearly be a positive result. The last I heard the Steen 43-101 is due in November so that may change the grade and tonnage at that time.

3 Poncho462 September 12, 2011 at 9:13 pm

Hi Paul… Yes, Mr. Fulp’s figures for MT Weld could indeed be skewed due to the reasons you propose. On the other hand, I don’t think that every mine he discusses has those issues, yet, his numbers vary from other published reports consistently. I am respectfully asking for some clarification from Mr. Fulp RE: the sources of his figures, particularly since they favor companies in which he says he holds positions, and under-report some of those he does not.

And Yes, the Steenkampskraal NI 43-101 is due sometime in November, and it is expected to change the grade and tonnage figures. It is generally expected to improve both depending on cutoff levels etc based on the fact that the current historical records are mostly based on the search for Thorium ore, not REE deposits. RARECO attempted to re-open the mine over ten years ago with the intention of seeking REE’s, and though that did not happen due to China’s monopoly position at that time of cheap supplier of REE’s to the world, I am sure they at that time and more recently during the sale of the company and site to GWMG, informal exploration and analysis was performed, with no attempt to gain NI 43-101 compliance and certification at that time. Now that GWMG has obtained 100% ownership of RARECO, such certification is very desireable and was contracted for as soon as legally possible and practical.

The point of this of course is that GWMG already knows within reasonable parameters what the results will be, believes they will be positive for the company, and will provide acceptable 3rd party expert figures for Mr. Fulp and others such as larger institutional investors to consider.

4 prescient11 September 19, 2011 at 10:38 pm

Gareth, do we ever get to hear about your trip to Strange Lake? Seems like at least some write up would be appropriate. Thanks

5 Kyle September 20, 2011 at 9:00 pm

Anyone know why rare earth stocks in Canada and Australia are broadly selling off today?? LYC down 15%, AVL down 8% RES down 11%

6 Gareth Hatch September 26, 2011 at 6:09 pm

@prescient11: I’ll be posting something soon. August and September got very busy :-)

7 Vladimir Seredin September 27, 2011 at 4:01 am

Undoubtedly, Mickey is really skilled economic geologist who have been done very much importance work to open eyes of nonprofessional people to REE (and not only) deposits. However his last post “Every good geologist knows that grade is king” has surprised me.
It should be well-known to any economic geologist that efficiency of deposit development is defined not by one and many factors. For REE deposits these are following:
(1) REE content;
(2) REE resource;
(3) Individual REE composition (share HREE in REE sum);
(4) Shape and position of ore body, defining simplicity and cheapness of ore mining;
(5) Simplicity (cheapness) of ore enrichment;
(6) Simplicity (cheapness) of REE extraction from concentrate;
(7) Infrastructure of ore field;
(8) Political situation in country;
(9) Presence of harmful impurity (U and Th, first of all).
(10) Possibility of REE extraction as by product during development of other deposits.

Therefore to make the impartial comparative analysis of different deposits it is necessary to compare them among themselves on all these parameters, and not just on some of them, as it does Mickey. Besides that the factors that he uses in the estimations of the deposits are varied in each concrete case.

For example, he negatively estimates some deposits based on not only REE content and sometime REE reserves, and on infrastructural criterion. However positively estimating of Nechalacho deposit, he forgets about this criterion. Meanwhile it is difficult to find other REE deposit in the world which would occur in the area so uninhabited and removed from communications, besides lying under the lake bottom. Not casually the expenses for the deposit development are assumed as enormous.

Technological properties of REE ores (factors 4–6) are not discussed in the post absolutely. Meanwhile these criteria play key role in estimation of any REE deposit, smoothing even an enormous difference in REE grade and resource between various deposits. It is clear visible by the example of China, where both huge and rich LREE carbonatite (Bayan Obo: grade – 6-8 %, recourse – tens Mt) and small and poor LREE ionic clay (Heling: grade – 0.2–0.3 %, recourse – tens Kt) deposits are successfully mining now. REE content and reserves may be as low as 0.03–0.05% and 3000–5000 t, respectively for industrial HREE ion-absorbed supergenic and hydrothermal deposits. The reasons of successful mining so poor and small deposits (by the way source about 35 % worlds REE) are minimum expenses for their development. It is reached thanking near surface position of the ore, absence of expenses for the ore crushing and beneficiation, and simplicity and cheapness of REE extraction by weak acid and even by salt solutions.

That is way I think that both grades and recourse cannot be kings in case of REE deposits.

The aforesaid does not mean that I don’t agree with positive or negative Mickey’ estimations of the majority REE deposits listed in his post. Moreover REE grade is really king but only in that rare case when we compare REE deposits that are absolutely identical in relation to all other abovementioned nine parameters.

8 prescient11 September 29, 2011 at 9:42 pm

Thanks Gareth! I echo your thoughts on being busy.

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