TORONTO, ONTARIO--(Marketwired - April 17, 2013) - Avalon Rare Metals Inc . ( TSX :AVL)(NYSE Amex:AVL)( NYSE MKT :AVL) ("Avalon" or the "Company") is pleased to announce the completion of a positive Feasibility Study ("FS") for its Nechalacho Rare Earth Elements Project (the "Project"). The FS was prepared by SNC-Lavalin Inc. ("SLI") and is the first feasibility level study to be completed on a major heavy rare earth project outside of China. The FS results confirm that the Project is technically feasible and economically robust.
Feasibility Study Highlights
- The discounted cash flow ("DCF") analysis yields a 22.5% internal rate of return ("IRR") on a pre-tax basis and a 19.6% IRR on an after-tax basis, assuming 100% equity financing. The Project's net present value ("NPV") at a 10% discount rate is $1.351 billion (1) pre-tax and $900 million after-tax.
- Total Project construction capital costs are $1.575 billion, which is inclusive of a 13% contingency and $122 million in sustaining capital. Of the total capital costs, approximately $1.152 billion is expected to be incurred in the Northwest Territories and $423 million is expected to be incurred in Louisiana.
- Operating costs average $264.5 million per year
- Revenues average $645.8 million per year ($456.5 million from separated rare earth oxides ("REO") and $189.3 million from the sale of an enriched zirconium concentrate ("EZC")).
- Revenues from HREE (2) are in excess of 50% of total Project revenue.
- Sales of the five critical REO (neodymium, europium, terbium, dysprosium and yttrium) account for over 82% of the separated REO revenues.
- Lanthanum and cerium sales represent less than 4.5% of total revenues.
- Total Measured and Indicated Mineral Resources would conceivably be sufficient to support continued mining operations at Nechalacho for over 90 years, if the mining rate is unchanged and Mineral Resources are converted to Mineral Reserves at the same conversion rate experienced in the FS.
Don Bubar, President and CEO stated, "We are very pleased to have delivered a positive Feasibility Study for the Nechalacho Project within the budget and the schedule we set for ourselves in May, 2012. The robust economics, despite a substantial CAPEX burden, testify to the exceptional quality of the Nechalacho deposit and its large size offers the potential for creating a scalable, multi-generational business. The successful completion of this study confirms Nechalacho's status as the most advanced major heavy rare earth element project in the world outside China. With the FS in hand, we can now accelerate the process of securing commitments on future product sales and attracting financial partners to participate in the further development of the Project."
Feasibility Study - Key Metrics
The Project financial model assumes 100% equity financing although the Company anticipates that the Project will be financed through a combination of debt and equity. The release of this FS is a critical step toward securing the project financing needed to support the construction of the Project through to steady state operation.
| Metric | Quantity | Units | |
| Economics (Pre-Tax) | |||
| IRR | 22.5 | % | |
| NPV @ 8% | 1,833 | $million | |
| NPV @ 10% | 1,351 | $million | |
| NPV @ 12% | 981 | $million | |
| Economics (After-Tax (3) ) | |||
| IRR | 19.6 | % | |
| NPV @ 8% | 1,262 | $million | |
| NPV @ 10% | 900 | $million | |
| NPV @ 12% | 620 | $million | |
| Payback Period | 4.3 | years | |
| Mining | |||
| Mineral reserves | 14,600,000 | tonnes | |
| Production rate | 730,000 | tonnes per year | |
| Initial Mine Life | 20 | years | |
| Total Revenue | 645.8 | $million per year | |
| Rare earth oxides | 456.5 | $million per year | |
| EZC | 189.3 | $million per year | |
| Unit basis | 884.65 | $ per tonne mined | |
| Total Operating Costs | 264.5 | $million per year | |
| Reagents | 97.2 | $million per year | |
| Fuel and Power | 50.7 | $million per year | |
| Labour | 36.7 | $million per year | |
| Freight | 29.4 | $million per year | |
| General and Administration | 26.8 | $million per year | |
| Other | 23.7 | $million per year | |
| Unit basis | 362.28 | $ per tonne mined | |
Sensitivity analyses on the Project financial model demonstrate that pre-tax Project NPV at a 10% discount rate is most sensitive to metallurgical recoveries, TREO pricing, Canada/US exchange rate, and production tonnage.
The expected annual average production of separated REE (4) in oxides and REE carbonate products (quoted as oxide equivalents) over the 20 year initial mine life are set out in the table below.
| Annual Production Averages (in tonnes per year), over 20 year mine life | |||
| Oxide (5) | Contained in EZC | Separated Rare Earth Oxides | Total |
| La 2 O 3 | 193.2 | 1,187.6 | 1,380.8 |
| Ce 2 O 3 | 502.6 | 2,521.6 | 3,024.2 |
| Pr 2 O 3 | 58.8 | 322.3 | 381.1 |
| Nd 2 O 3 | 349.0 | 1,179.9 | 1,528.9 |
| Sm 2 O 3 | 122.2 | 220.9 | 343.1 |
| Eu 2 O 3 | 16.1 | 31.5 | 47.6 |
| Gd 2 O 3 | 121.2 | 231.5 | 352.7 |
| Tb 4 O 7 | 21.0 | 37.6 | 58.6 |
| Dy 2 O 3 | 128.6 | 195.8 | 324.4 |
| Ho 2 O 3 | 27.9 | 32.5 | 60.4 |
| Er 2 O 3 | 89.2 | 71.6 | 160.8 |
| Tm 2 O 3 | 13.8 | 8.0 | 21.8 |
| Yb 2 O 3 | 89.9 | 40.0 | 129.9 |
| Lu 2 O 3 | 13.5 | 4.6 | 18.1 |
| Y 2 O 3 | 728.8 | 724.9 | 1,453.7 |
| 2,475.8 | 6,810.3 | 9,286.1 | |
| ZrO 2 | 19,763.3 | - | 19,763.3 |
| Nb 2 O 5 | 2,230.5 | - | 2,230.5 |
| Ta 2 O 5 | 243.0 | - | 243.0 |
| Total | 24,712.6 | 6,810.3 | 31,522.9 |
The table below sets out the anticipated capital expenditures for the Project, broken down by the jurisdiction to which each class of expenditure relates.
| Cost Category | NWT | LA | Total |
| Mine Development | 81.58 | - | 81.58 |
| Main Process Facilities | 351.24 | 192.51 | 543.75 |
| Infrastructure | 150.68 | 78.82 | 229.50 |
| EPCM | 119.27 | 38.57 | 157.84 |
| Indirect Construction Costs | 175.56 | 27.25 | 202.81 |
| Owner's Costs | 36.76 | 18.95 | 55.71 |
| Contingency | 120.91 | 44.90 | 165.81 |
| Closing Costs / Bond | 13.00 | 3.16 | 16.16 |
| Upfront Capex | 1,049.00 | 404.16 | 1,453.16 |
| Sustaining Capital | 102.72 | 19.12 | 121.84 |
| Total Capex | 1,151.72 | 423.28 | 1,575.00 |
The CDN:USD exchange rate assumption used in the FS for the economic evaluation was based on a major bank's forecast prepared during January, 2013 as follows:
| Year | CDN:USD |
| To end of 2015 | Cdn$1.00 = US$0.97 |
| 2016 | Cdn$1.00 = US$0.96 |
| 2017 and thereafter | Cdn$1.00 = US$0.95 |
For reference, the foreign exchange rate assumption used in the Company's prefeasibility study ("PFS"), the results of which were disclosed in the Company's news release dated July 7, 2011 , was Cdn$1.00 = US$0.95.
The FS is the culmination of extensive resource definition, engineering, environmental and metallurgical studies carried out over the past two years at a total cost of approximately $60 million, as outlined in the table below:
| Category | ($ Million) |
| Resource Definition | 23.0 |
| Metallurgy | 17.0 |
| Feasibility Studies | 15.0 |
| Environmental and Permitting | 3.0 |
| Community Engagement | 2.0 |
| Total | 60.0 |
The FS covers all aspects of project development, including mining, mineral concentration, hydrometallurgical processing, refining and separation of individual rare earth oxides as well as all related infrastructure. SLI developed its capital and operating cost estimates from first principle capital quotations, estimates from suppliers, manufacturers, contractors and experience based on comparable operations in Canada and abroad. The capital and operating cost estimates were completed to a level consistent with an AACEI Class 3 estimate, with an intended level of accuracy of ±15%, based on Q2 2012 prices, excluding escalation.
Optimization Opportunities and Next Steps
While the economics contained in the FS are robust, ongoing metallurgical process development work and engagement with consumers in the marketplace has allowed the Company to identify several major and numerous minor Project optimization opportunities. These could significantly improve the Project economics with lower Capex and Opex, reduced technical risk, enhanced metallurgical recoveries, and other operational efficiency improvements.
These optimization opportunities include (but are not limited to):
- optimization of the crushing and grinding circuit, plant layouts and materials of construction;
- metallurgical testwork to further improve reagent selection and flotation recoveries;
- improvements to the Hydrometallurgical Plant processes;
- alternative impurity removal scenarios;
- potential to separate lanthanum and cerium at the Hydrometallurgical Plant and stockpile for future sales;
- potential to reintroduce cracking of zircon at a later date to increase direct production of HREE and separate the by-products from the EZC;
- potential sales of a magnetite by-product;
- potential to defer the construction of the Refinery and toll process Avalon's mixed rare earth concentrate through a refinery (or refineries) built and operated by others; and
- potential to use excess capacity in the Refinery to toll process third party production and reduce operating costs.
The Company is already investigating most of these opportunities and will continue to refine the Project development model as potential benefits are tested and confirmed.
In the meantime, critical path work including preliminary engineering for the Nechalacho Mine and Concentrator infrastructure is underway, as are preparations to engage a contract miner for the underground development work. The precise timing for the initiation of underground development work planned for 2013 has yet to be finalized. However, this work is unlikely to begin this summer as originally contemplated due mainly to uncertainty on the timing for receipt of requisite land use permits.
Further, the current state of equity markets for the resource industry in general, as well as the rare earth industry, may limit the Company's short term financing opportunities. However, this will permit the Company to focus on Project optimization over the next four to six months, which will limit the erosion of its treasury from large Project development expenditures. The Company believes that this should not impact the Project completion schedule and the Company still anticipates being able to bring product to market in 2017.
The key factors going forward influencing the timely execution of the Project are: securing a strategic or financial partner, timely receipt of all requisite operating permits and approvals, securing sufficient binding agreements for offtake to support project financing, and the availability of equity and debt financing at a reasonable cost.
Review of the FS Project Development Model
The Project will consist of facilities located at three separate sites: an underground mine and concentrator to be located at Thor Lake, 100 kilometres southeast of Yellowknife, Northwest Territories ("NWT") (the "Nechalacho Mine and Concentrator"), a hydrometallurgical plant to be located at Pine Point, 85 kilometres east of Hay River, NWT (the "Hydrometallurgical Plant"), and a rare earth refinery to be located in Geismar, Louisiana ("LA") (the "Refinery"), which will produce high purity separated REE oxides and carbonates.
The development model in the FS incorporates two fundamental changes to the original model used for the PFS: the inclusion of the Refinery (whereas the PFS contemplated selling a mixed REE concentrate at a discount to market prices for separated REE oxides) and the exclusion of the zircon "cracking" process.
The decision to include the Refinery in the FS development model was made after several potential consumers expressed a desire to see a refining solution outside of China. At the present time, there are no rare earth refineries outside of China with the capability of processing HREE in the quantities that the Project is expected to produce, and there is no guarantee that such a refinery will be built by others. In addition, many consumers are insisting that suppliers provide assurances that their rare earth products have been produced in a socially and environmentally responsible way. Building the Refinery into the FS development model better positions Avalon to provide such assurances and meet its corporate commitment to sustainability.
Secondly, the PFS contemplated "cracking" the zircon contained in the leached solids from the Hydrometallurgical Plant to recover zirconium, niobium, tantalum and further LREE (6) , and HREE, while the FS provides for the direct sale of the material to processors in Asia as EZC. In so doing, potential technical risks associated with the cracking process were eliminated and a reduction in the related capital costs was achieved, while retaining the optionality of building zircon cracking into the business at some future date.
The development model in the FS provides for construction of the Nechalacho Mine and Concentrator site to begin first (basic engineering work on the flotation section has already commenced). This will be followed by the Hydrometallurgical Plant and the Refinery. Construction work at each site is scheduled such that each facility is available to receive feed as soon as production becomes available from the supplying facility. In addition, provision is made to start commissioning the Hydrometallurgical Plant using high grade ore shipped directly from the mine ahead of concentrate being produced by the Nechalacho Concentrator. This will shorten the overall ramp-up period and reduce the schedule risk from any delay in commissioning of the concentrator.
Nechalacho Mine and Concentrator
The heavy rare earth rich Basal Zone ore body is a sub-horizontal, gently undulating layer, situated at an average depth of approximately 200m, that varies from 5m to over 30m in thickness (averaging 20m across the whole deposit). The FS provides for the construction of a 2,000 tonne per day ("tpd") underground mine and concentrator. This facility is expected to ramp up to its design capacity of 730,000 tonnes a year within six months after commencement of mining. The mine will be developed as a cut and fill operation with lower-cost long hole stoping methods used in the thicker parts of the ore body. Mine access will be by ramp, with primary crushing underground. Crushed material will be delivered to surface by conveyor. Mining will be conducted with a first pass of primary stopes, followed by secondary stope extraction after the primary stopes have been cement paste-backfilled.
Mined ore will undergo a crushing operation to reduce rock size to 80% passing 13.5mm. The crushing facility has been designed to treat over 4,000 tpd to accommodate the potential doubling of the initial planned mining rate at a future date. Crushed ore from underground will be brought to surface by conveyor, fed into a rod/ball mill circuit and de-slimed ahead of flotation. A magnetite product can also be produced from this milling operation, and Avalon is assessing sales opportunities for this product.
The flotation section of the Concentrator is comprised of rougher and multiple cleaner circuits to produce a flotation concentrate which is further up-graded by gravity concentration to produce a final concentrate typically consisting of over 7.37%TREO, 15.53% ZrO 2 , 1.71% Nb 2 O 5 , and 0.19% Ta 2 O 5 . This final concentrate is filtered and stored in a covered bulk facility on site from which it will be loaded into concentrate shipping containers, hauled to the seasonal dock facility on the north shore of Great Slave Lake and barged during the summer to the Hydrometallurgical Plant.
The Nechalacho Mine and Concentrator infrastructure will include an environmentally responsible tailings management facility located in a local catchment area to the northeast of Thor Lake, a 120 person camp, 1,000 metre airstrip, diesel power generation for a peak demand of 13.6 megawatts ("MW") at 2,000 tpd, administration, maintenance and warehouse facilities and a seasonal dock facility for concentrate loading.
Hydrometallurgical Plant
