Study supports further investment in tin
Avalon Rare Metals Inc's (TO:AVL) Conceptual Redevelopment Study (CRS) on its East Kemptville asset provides sufficient confidence to advance its understanding of this promising tin project, one of only a few available for development outside Asia. Capex has been initially set at c US$157m (excluding sustaining capex) and includes a small tin refinery to produce ingots, rather than lower-value concentrates. We see East Kemptville as the leading asset in Avalon’s five-strong project portfolio. However, we also note the potential for lithium chemicals to be generated from its Separation Rapid project to feed into the growing lithium battery story surrounding electrical vehicle manufacture. Subject to financing and further technical work, management expects both projects to provide Avalon’s first cash flows as early as 2018.
Although value-add, refinery not essential at start-up
Avalon tasked consultants Hains Engineering with creating a mine development model including identifying value-add opportunities. As a result, a small tin refinery able to produce tin ingots (as opposed to concentrates) has been included at a cost of C$18.4m. However, we note from conversations with management that this could be excluded at the mine’s start-up, thereby reducing capital requirements.
Nechalacho remains a core focus for development
East Kemptville (capex of C$157m) and Separation Rapids (capex not yet determined) will require markedly less capital to develop than Avalon’s heavy rare earth element (HREE) enriched project, Nechalacho (>C$1bn). This project, which largely guides Avalon’s share price currently, remains a core focus with development dependent on finalising an optimised Feasibility Study (FS) at a cost of around C$4m for crucial pilot-scale testing of Nechalacho material. Nechalacho’s development will require consumer support for REE supply chain development outside China, which currently does not exist. Recent increases in the prices of certain HREE metals geared to their use in magnets compares with certain LREE metal prices such as cerium decreasing, marking the first clear divergence among REE metal prices.
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