Southern Africa-focused Frontier Rare Earths’s stock rose by 29.17 percent in early morning trade on the TSX on Wednesday following confirmation that a Korean company would close a $23.8 million deal to acquire a 10 percent interest in the project.
In terms of a financing deal to accelerate the development of Frontier’s flagship Zandkopsdrift project in South Africa, Korean government-owned Korea Resources (Kores) had taken up its responsibility to contribute its share of the project’s development budget from July 3.
Under the agreement, Kores would pay $23.8 million to acquire an initial 10 percent stake in the Northern Cape project, including offtake rights for 10 percent of the rare earths production, by September 30.
Frontier CEO James Kenny told Mining Weekly Online that as a junior in the tough rare earths market, the company was “extremely” pleased at having a partner contributing to developing the project in the form of both technical expertise and finance as well as having an interest in taking much of the end product.
This followed Frontier completing a Canadian National Instrument 43-101-compliant preliminary economic assessment (PEA) on Zandkopsdrift on March 30, which pointed to the project being both technically feasible, economically robust and having a low-risk profile.
The agreement also provided that Kores may acquire a further 10 percent interest in Zandkopsdrift and up to 10 percent of Frontier’s shares following completion of a definitive feasibility study on Zandkopsdrift, which together, if acquired, would give Kores offtake rights for an additional 21 percent of rare-earth production.
Further, Kores might form a consortium of Korean companies to jointly participate with it and Frontier in the development of the project. Kores said it had been engaged in detailed discussions with several Korean corporate groups and it had been agreed that Kores would have until September 30 to finalise arrangements with the consortium.
Kores had also assured Frontier that in the event that Kores did not form the consortium within the prescribed period, Kores should remain liable, under the agreement, as principal.
“The matters confirmed today provide an indication of the positive and collaborative working relationship already established between our companies and we look forward to Kores’ continued involvement with Frontier and participation in the development of Zandkopsdrift,” Kenny said.
Frontier has a direct 74 percent interest and a 95 percent economic interest in Zandkopsdrift prior to the acquisition by Kores.
The PEA confirmed a mineral resource estimate for Zandkopsdrift of 42.5 million tonnes of ore at an average grading of 2.23 percent, containing about 940 000 t of total rare-earth oxides at a 1 percent cutoff and with 78 percent of the mineral resource in the indicated category.
Frontier planned to start production of separated rare earths from Zandkopsdrift in 2015, at a rate of 20 000 t/y.
By noon the company’s shares traded at 62 Canadian cents apiece on the TSX. Kenny said the company’s share price and market capitalisation was “disappointing”, but accepted that junior miners had fallen out of favour with investors.
He affirmed that the company had enough cash, irrespective of the Korean funding, to take the project through to the construction phase.