Avalon Rare Metals Inc. (Avalon, TSX: AVL | NYSE MKT: AVL) is developing one of the few rare metals projects, reaching an advanced stage in North America. The Nechalacho REE Deposit in Thor Lake, Northwest Territories (NWT), Canada. Among the various REE projects that have been launched around the world, Avalon is one of the few that actually have reserves and that are at an advanced stage of development.
Apart from the ongoing technical and metallurgical advancements, Avalon has taken significant steps toward sustainability, reaching an agreement with the people of Fort Resolution NWT including the Deninu K’ue First Nation (DKFN) members, who have now been given an option to buy3% of Avalon’s future mine in Thor Lake. Effectively, Avalon has made the community of Fort Resolution as a partner and a stakeholder in the project, which should go into production stage by 2016, such that the local community has a stake in the project and an interest in its success. This interest came into question last month as some First Nations representatives offered some objections to the Avalon’s mine in the scheduled community hearings. Nevertheless, in the final hearings held last week, Avalon was backed by the Aboriginal government, signing an accommodation agreement.
Chief Louis Balsillie of the DKFN welcomed Avalon and praised the fact that the Company would be adding at least 300 new jobs to the community (between two sites). The praise suggests that any objections to Avalon’s project have much more to do with possible divisions within the First Nations groups than they do with Avalon itself. The Chief stressed the value of the project to his people; he was also adamant that Avalon has been very fair in all phases of the project, visiting and talking to all communities in the area. This is testament to Avalon having adopted a good sustainability strategy, which in itself reflects good management. Had the Company failed to consult all groups, it would now face severe obstacles. Instead, Avalon is still in a position to negotiate. The Yellowknives Dene First Nation (YKDFN) and Lutsel K’e Dene First Nation (LKDFN) were the two groups that voiced complaints about Avalon’s project during the February 18-21 hearings, citing the Company’s failure to adopt “traditional knowledge” in their project planning. Nevertheless, the YKDFN and Avalon are still negotiating. Progress in those talks would serve to further isolate the LKDFN, while other Métis Nations groups have stated that rather than objecting Avalon’s mine, they want further guarantees that their communities will be able to continue pursuing their traditions.
The ultimate message from the hearings is that the community welcomes and needs the work. The project is also being supported by the Mayor of Hay River, Andrew Cassidy as well as the town’s economic coordinator Jordan Stackhouse. Not surprisingly, given that 300 jobs in the NWT is a substantial number, NWT’s Premier Bob McLeod is another supporter of the project and mining in general in his territory. McLeod addressed PDAC last week and was clear that mining “is the future” in the North, citing the potential of zinc, cobalt, lead and silver mining; he also cited the value of Avalon Rare Metals.
There has been a growing variety among North American rare earth explorers in the stock market; however, it is inevitable that only few of those will reach production or even a full feasibility study stages very large. Indeed, some of those players have just recently ‘discovered’ the value potential of rare earths; many have rushed to achieve a project and will be engaged in exploration for years. Avalon’s CEO, Don Bubar, has to be recognized as one of the first to understand the value of rare earths and to leap into the field. Indeed, Avalon became involved in the rare earths sector in its early stages, when few had even bothered to notice that China was starting to dominate the industry and that such excessive outsourcing would help give China a strategic advantage in the short term. From exploration to production, a rare earth miner – even one with a feasible processing method and structure in place – can expect to take ten years. Therefore, while the West scrambles for rare earth resources and processing outside of China, having a valuable deposit is merely the first of many more complex stages. Avalon meets both criteria.
Avalon is one of the few rare earths plays to meet these criteria. The company is on track to achieve a production in 2016-2017 and it has a valuable and desirable resource, rich in the sought after deposits of heavy rare earths estimated at some 22%. Such values, which account for the presence of dysprosium, terbium and europium and Yttrium, extend far beyond those of more notorious projects like Molycorp’s Mountain Pass in California, which is said to have a capacity of 0.5% HREE. The Nechalacho property holds some of the largest rare earths deposits beyond China; it also holds critical metals such as tantalum and niobium. The FS due in 2013 bodes well considering that its pre-feasibility study is already 43-101 compliant. Avalon has already started to prepare for the production phase, identifying a processing plant location in Geismar, Louisiana, where the USD$ 300 million separation facility will be built. The project is close to good infrastructure and the REE concentrate will be shipped by rail from the NWT deposit to the facility.