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Rare-Earth Material Grades & Value Metrics – A Rule Of Thumb

When reviewing reported data on any given rare-earth project, it’s useful to be able to double-check the consistency of some of the most basic information on the project, or to fill in a blank if a particular value is missing. There’s a handy rule of thumb that you can use when looking at the following parameters:

The rule of thumb is simply this…

In-ground Value × Mineral Resource = 1,000 × Basket Price × TREO

which of course means that

In-ground Value = 1,000 × Basket Price × (TREO ÷ Mineral Resource)

and therefore

In-ground Value = 1,000 × Basket Price × (Material Grade ÷ 100)

thus

In-ground Value = 10 × Basket Price × Material Grade

As an example: as of December 2010, the Mount Weld deposit in Western Australia has the following characteristics:

Therefore

In-ground Value = 10 × 70.57 × 8.1 = US$5,716/t

Simple algebra allows us to determine the value of any one of these parameters, if we know the values of the rest.

(last updated Jan 9, 2011: replaced the term “rock value” with “in-ground value” to reduce ambiguity – a tip of the hat to Mr. Kingsnorth for the suggestion).

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#1 Comment By William On January 8, 2011 @ 11:21 pm

Gareth, I have viewed your metrics in categorizing Rare Earth Companies and I have been for several years using a metric which is much more detailed and identifies the value within each deposit of all the 16 elements. Your metrics identifies TREO whereas my metrics or tables evaluate each REO per ton of ore to be mined. I did this to categorize the companies that in my opinion will be in a position to alleviate the short falls that are projected for neodymium and the three HREEs, dysprosium, terbium and europium. Those metrics can be viewed at [1] of the 13 companies I am evaluating. Also if you want a copy in formulated XL Format I can provide that for you by emailing me.

#2 Comment By Gareth Hatch On January 9, 2011 @ 12:34 am

@William: thanks for your comments and your link. I commend you for taking a detailed approach in reviewing the info associated with company projects, in which you’re interested. All part of an appropriate due diligence process, for sure!

As it happens, and as mentioned in my last posting of a day or two ago, we’re going to be sharing quite a bit more detail on the specific projects that were following, as part of the TMR Index, in the near future. I’ll be sure to let you know when it’s available, and perhaps we can compare notes :-)

#3 Comment By I DiStefano On January 9, 2011 @ 4:15 am

hi,researching rare earth companies.lynas claims to have the richest deposit at mount weld ,compared to molycorp claiming to have the largest deposit at mountain pass.who is correct? and going by the 2 charts i visited at [2] the steenkampskraal mine seems to be the choice.

#4 Comment By orvie zimmerman On January 9, 2011 @ 11:07 am

When mining any hard rock deposit the mining cost have to be considered, such as drilling and blasting, crushing, grinding. Can the deposit be upgraded by concertration, wet gravity, floatation. Most placer deposits can be mined and concentrated with out the added cost of blasting, crushing, grinding, therefore lower grades can be mined at a profit.

#5 Comment By Tek On January 9, 2011 @ 11:37 am

Gareth

Thanks for the simpler metric, which is what I began with when I first started evaluating these deposits. But simple Algebra is about where my technical expertise ends, unlike yours or Wwaters. Perhaps the last item would be to apply some basic extraction/flotation costs, and then refining costs based on engineer estimates and existing operations for similar orebodies: hardrock, placer/alluvial, clays etc.
For now, the KISS rule works for me, for obvious reasons.

#6 Comment By William On January 9, 2011 @ 1:33 pm

I am developing a metric which will include mining costs per ton of ore, extraction and separation costs per kg of REO, and several other factors that affect the bottom line of operation.

#7 Comment By Jack On January 9, 2011 @ 6:11 pm

Thanks for your expertise on this subject.Everyones info has been very important to my situation.I will try to keep this in mind as more assays and studies are completed on our junior mining project. Thanks again JackWayne Rare Earth Exploration LLC (Green Gemstone Mine)

#8 Comment By Ian London On January 9, 2011 @ 7:38 pm

Hi Gareth… I too am a believer in trying to keepm things relatively simple, however as you and I (and many of us know), the rare earth business presents a number of interesting dimensions. Would appreciate your thoughts and comments as to implications on the inclusion of two additional parameters:
* a credit for of some sort for byproducts and their associated values, and
* a deduction for the level of radioactivity associated with the deposit.

I believe that we all know that one of the largest risks to production for Rare Earth deposits is its ability to manage the radioactivity either in the process and exposure to people, handling, disposal and most importantly, permitting.

My sense is that these considerations will give people something to think about with all the current REE plays out there!

Until soon… Ian

#9 Comment By Gareth Hatch On January 9, 2011 @ 8:03 pm

A general comment folks: I’ve had a number of “why didn’t you include X?” type emails on the above posting, which indicates that I was apparently not clear in explaining just what it was I was writing about. The above rule of thumb is just that – a rule of thumb. It allows us to use some simple algebra to a) double-check the most basic parameters associated with a given mineral resource or to b) “fill in the blank” if one piece of data is missing. It is not intended to be anything more than that. It was certainly not an attempt to describe the complexity of any given project….

#10 Comment By Gareth Hatch On January 9, 2011 @ 8:24 pm

@ I DiStefano: you’re comparing two different parameters there. How “rich” a deposit is, relates to its material grade: i.e. for a unit mass of the mineral resource, how much of it is desired material A, desired material B and so on. Some parts of the Mount Weld deposit are indeed very rich, richer in fact than the official JORC-compliant mineral resource statement would suggest, since those numbers are averages. The size of a deposit, relates to the mass of in-situ material in the ground. In terms of its overall mineral resource, Mountain Pass is larger than Mount Weld (when comparing Measured + Indicated + Inferred resource estimates); however, Mountain Pass is more frequently referred to by the size of its mineral *reserve* – i.e. that portion of its mineral resource that is economically viable, which is smaller,and which has the potential to confuse things.

@ orvie zimmerman: certainly such costs have to be accounted for, just as, for example, we have to consider the cost differentials between open pit and underground mining, or mining a mile or two away from a major highway, versus hundreds of miles away. There are many cost factors to consider.

@Tek: per my last comment above – not so much a metric as a simple rule of thumb :-) There is certainly not a lot out there on the cost side of each of these projects, so we’ll look to address that issue in the near future – thanks for the suggestion :-)

@William: cool beans – will look forward to seeing the results.

@Jack: thanks for the comments!

@Ian: Simple can be good, until it’s not good :-) We probably makes things a little too simple in this space, because it’s already complex-enough to be dealing with 15-16 elements!

As you know, there are numerous parameters that affect any project, including those you mentioned. Any good, detailed analysis of the production viability of a project must consider the value of byproduct metals and minerals which can offset the costs associated with the rare-earth production. Also as you know, such byproduct economics, taken to the nth degree is how the mines in China’s Bayun Obo are able to produce at such low costs, since the rare earths are themselves the byproducts of iron ore production.

The presence of radioactive material is also another good parameter to consider, absolutely. Just the delays associated with related permitting alone, make this one to watch carefully.

#11 Comment By Ian London On January 9, 2011 @ 10:06 pm

Hi Gareth… I appreciate the fact that assessments and considerations can be never ending and establishing a reasonably reliable, simplified comparators are important.

Not that I have a solution as yet, but some form of rating (A, B or C) could possibly be applied depending on how the value of REEs rates against total revenue potential from all saleable products.

As for the radioactivity dimension, this is a grwoing risk factor which should probably be factored in. As most recently reported in the China Daily (Jan 7th), the Chinese government is ex[pected to announce toughened regulations and limits of emission quantities of radioactive elements and phosphorous in early February. I’m sure you’re already noodling on some form of discount rating…

Until soon… Ian

#12 Comment By Web On January 10, 2011 @ 2:57 pm

What about a project where the REE’s would be secondary to mining something else?

Is your metric specifically with regards to rare earths, or can it be applied to rare metals as well?

In another post of yours I noticed you had created an index of rare earths companies and listed a requisite being that the company has to have an NI 43-101 compliant resource or reserve to be included in your list.

Have you done any empirical testing to compare the valuations achieved by your equation vs. market cap of the company stock?

A specific example I was hoping you could take a look at. I have been trying to understand why this one appears to be undervalued and under the radar. SRSR.

An NI report authored by Patrick Neville Chance said SRSR has an 18 Million tonnes inferred Nb2O5 resource of .47% grade ore. However, the company CEO Scott Keevil told Jennifer Getsinger in a Resource World article that the SE zone of the company’s Nemegosenda property could contain as much as 170 Million tonnes of Nb2O5 ore. Additionally, a block model analysis by the late Alan Hawke suggested that the D Zone (renamed Hawke in his honor) contains a resource of 60 Million tonnes, for a potential total of as much as 230 Mt grading roughly .4% or better.

Additionally, the property was also surveyed for its REE potential. Some of the drill holes and samples show greater than 1% TREOs, but average is about .4%.

Oh, and the property has historical metallurgical data…

“Development work followed two variants of an extractive chlorination scheme; catalyzed chlorination and phosgenation processes. The phosgenation process was taken through the pilot plant stage, however, the plant configuration is similar for both process. Both processes are demonstrably operable and appear capable of producing high purity niobium metal powder for a total cost of less than $13 / kg at a 1000 tpy (ibid.”

Applying your metric to SRSR’s inferred resource, yields a figure in the billions, yet the market cap is only $20 million or so.

If the company’s calculations and statements are accurate, this could be the world’s second largest deposit of niobium after CBMM.

I was hoping you could take a look at this company and give your analysis.

Thanks.

#13 Comment By fran On January 10, 2011 @ 3:31 pm

what do we know of the metrics used trading cos/users who buy into some miners, but not others? e.g.– SOJITZ. SUMITOMO, HITACHI, GRACE, ETC?

#14 Comment By Pusha On March 19, 2011 @ 4:32 pm

We have a REE deposit and I need to understand the value of this deposit to get an overall idea. Basically one side contains veins and other contains massive hills rich in REE.

Details are as follows

1. Vein swarm

YHREO distribution= 45 % , LREO=55 %

Inferred ore resources= 0.65 Mt @ 3.9 % TREO and 0.2 % Nb + 0.48 % Zr oxides

2. Hills

YHREO distribution=10 %, LREO=90 %

Inferred ore resources= 8 Mt @ 5.75 % TREO and 0.07 % Nb oxides + 0.03 % Zr oxides

I am very much thanfull if you could give me a roughly value of the deposit (Rock value in your word) and extraction cost per kg/ton of REO as well.

#15 Comment By Chandra On July 21, 2011 @ 2:06 pm

Gareth,

Excellent site most useful.
I am testing some exploration kit that gives value in terms of metal content. Seems to be working well. I need samples for calibration purposes. Can I get any? the more the better! Where can i find the technology to extract these? Is there anyone using flotation? Typical grades so far 0.15Pr and 0.22Nd, looking at rest! Surface stuff.

Chandra Durve

#16 Comment By Wilson Hatanaka On September 10, 2011 @ 4:01 pm

Need help
We have rare earth ore concentrate containing (%) oxides of :
Ytr 2,17- Zr 1,74- Niob, 4,55- Tin 7,12-Lant 10,10 – Cer. 18,80-Pras 1,75-Neod 7,52-Sam 1,52-Gadol 0,77-Tb 0,11-Dys 3,28-Hol 0,40-Erb 0,13-Ytb 0,59-Tantal 1,14-Th 03,24-Uran 0,23 and others.
How do I calculate the value of this ore ?
Who can help us ?

Wilson

#17 Comment By Peter Griffin On September 12, 2011 @ 5:14 am

Hey …

If I were you I would use the following method :

1. You compute sales value of standard oxides by multiplying the last published prices on metal pages. You get the sales value of your oxides mix.
2. Then you may go down to the concentrate value : you can find costs of separation (both capex and opex) that were recently published by either Lynas or Molycorp, and remove them from your oxide value. Remove also the amortizations of the plan which is necessary to build your separation plant.

And you will get the “value” in your concentrate … Anyway, this is quite theoretical. Concentrate has almost no market outside China. Only Molycorp / Silmet being able to purchase it for the moment…