There must be coming something about our own standing concerning the metallurgy. Maybe the management will tell us soon?
For this purpose and to compare, I have posted her for you the statement of Byron concerning metallurgy for Avalon:
The Update: The August 7 update advised that a new Senior VP, Metallurgy had been hired, that the flotation plant costs had likely been reduced and its operation improved, but that metallurgy remains problematic.
The metallurgy issue appears serious to us. By using a sulfuric acid bake on physically beneficiated ore, the ore is broken down into a concentrate and a refractory residue. The concentrate contains essentially all the LREO and more than 50% of the HREO. One presumes this is slightly more than 50%, or else the August 7 update would have been informed us that this concentrate contained “more than 60%” or “more than 70%” of the HREO.
The residue contains the balance of the HREOs. However, it is a refractory material and requires more aggressive processing, potentially including alkali or caustic cracking, or perhaps an HCl leach. It is possible that this material will be sold as a zirconium-rich feed to another interested party. However, it is a refractory material and may be difficult and/or expensive to process for any contained metal, and it is possible that there will be no interested buyers for the material, as well. The update noted that there have been expressions of interest in the purchase of the material, but we conjecture that there have not yet been sufficient quantities of the residue made to set final selling prices and determine the actual interest level.
If we assume that the cost of the metallurgical plant being built at Pine Point could be cut in half by requiring less equipment, this may save $150 million in capital expenditures. However, we assume that this saving will come at the expense of selling half the level of HREOs compared to the previous levels contemplated by the PFS and our own financial models.
Conclusion: While we do believe that the ex-China market for rare earths will require four to five producers of HREO, we also feel that there is no shortage of HREO projects requiring much lower capital expenditures than required by Nechalacho. Return on capital does matter.
We also note that should the metallurgy of the Nechalacho deposit economically necessitate recovery of only half the HREO content of the ore, then there may be very little separating Nechalacho from the bulk of LREO deposits that we anticipate coming to production. The Western world does need its own HREO deposits, but it appears increasingly unlikely to us that Avalon will play a role in satisfying that need. We maintain our SELL rating.