Report projects 2016 startup for Bokan rare earths mine

With the publication of a highly optimistic financial assessment, the developers of the rare earth elements mine at Bokan Mountain on Prince of Wales Island have outlined a permitting and construction schedule leading to production start-up and 170 year-round jobs by 2016.

Support jobs could triple that total, according to Ken Collison, a long-time mine builder and chief operating officer of Ucore Rare Metals Inc.

“We’re in the birthing stages of a new American industry and we think that Alaska can be the headquarters,” said Ucore President and CEO Jim McKenzie.

Based in Halifax, Nova Scotia, Ucore issued the Preliminary Economic Assessment, or PEA, for the Bokan Mountain project, located 37 miles southwest of Ketchikan, on Jan. 15.

The PEA indicated an 11-year mine life based on proven resources with a net present value of $586.4 million at a 10 percent discount rate, pre-tax; an internal rate of return of 43 percent; a payback period of 2.3 years and a capital cost of $224.6 million, including a complete on-site rare earth oxide separation plant, and a contingency provision of $25.4 million.

McKenzie acknowledged that the internal rate of return is “exceptionally high,” but said it was a mark of confidence in the PEA and the project mineral content.

“I think it’s indicative of the fact that the project is very robust,” McKenzie said.

Collison said on Dec. 12 that proven reserves are, “less than one-tenth of what we’re capable of.”

Much as China captured the rare earth elements, or REE, industry by offering the raw material and manufacturing, McKenzie suggested Alaska could recover a U.S. share.

“There’s no reason to think that as the industry developed in Alaska they couldn’t, potentially, attract manufacturing that requires rare earth elements in the chain. There’s a chance here for the state of Alaska to capture an entire industry,” McKenzie said.

Ucore is raising project financing through what amounts to futures sales, but is also working with the Alaska Industrial Development and Export Authority on a request for state support through infrastructure construction and possibly other avenues.

The McDowell Group is preparing a project profile and economic impact assessment for Ucore.

“I can tell you that we are working directly with AIDEA,” McKenzie said Dec. 11.

He also cautioned, “none of this is guaranteed and all of this is prospective.”

Ted Leonard, AIDEA executive director did not respond to a request for comment during the past week.

With the entire property located on U.S. Forest Service land, project plans call for the start of federal permitting in 2013 and an optimistically projected permit completion in 2014, followed by 18 months for construction and commencement of mineral production in the first half of 2016.

“We think that’s a good goal,” McKenzie said.

Formally known as a National Instrument 43-101, a preliminary economic assessment is a detailed technical analysis of a mineral project’s economics required under Canadian law.

All 15 rare earth elements are present at Bokan and total annual production is projected to be 2,250 tons, but dysprosium, terbium and yttrium, “are our headline products,” McKenzie said.

In the oxide form the mine will produce, the three are currently selling, respectively for $700, $1,230 and $38 per kilogram, according to Ucore’s online REE posting.

Projected annual production includes 95 tons of dysprosium oxide, 14 tons of terbium oxide and 515 tons of yttrium oxide. All are critical to electronics manufacturing in defense, automotive, aerospace and other high-tech applications.

Cutting-edge refining technology including magnetic separators and solid phase extraction, or SPE, that is undergoing final testing this year will send 75 percent of the 1,500 tons per day of raw ore production back underground. So-called nuisance materials, including thorium, uranium and iron, will be converted to a concrete paste to backfill empty mine shafts.

Ucore plans to use a nitric acid leach in the SPE process because 75 percent of the acid can be recycled, unlike more commonly used sulfuric acid, McKenzie said.

As extraction operations open subsurface space, surface tailings will steadily disappear. The mine could be the first in the world to leave no surface tailings facility after closure, McKenzie suggested.

To finance the project, Ucore’s “aspiration, and we think it’s a realistic one,” McKenzie said, is to avoid the need for equity financing by completing agreements with “off-take partners.”

“The potential formula is whatever percentage of critical REEs the partner signs for, they will be asked to participate at a commensurate level in terms of financing the mine,” McKenzie explained.

Last fall, Ucore signed an information sharing agreement with the U.S. Defense Logistical Agency in the Department of Defense, which is expected to become an off-take partner. The information agreement means DOD “will be getting access to information before it becomes public,” McKenzie said.

Dysprosium is a critical material for production of unmanned drones and other remote-control weapons systems.

Hybrid and electrically powered cars have 40 points under the hood requiring REEs, and McKenzie said major U.S. automakers are likely to become off-take partners.

“We’re talking to the big three automakers. We can’t be specific on where we are with any of them,” he said.

Ucore is also talking to businesses in the aerospace industry, but has not met with representatives of the Alaska Aerospace Corp.

Bob Tkacz is the Southeast correspondent for the Journal. He can be reached at [email protected].

01/25/2013 - 5:29am