Northern Minerals Ltd (ASX:NTU) has signed a rare earths concentrate supply agreement with Iluka Resources Ltd (ASX:ILU) which covers the initial 8+ year mine life (30,500 tonnes of contained TREO) from its Browns Range Project in northern Western Australia.
The project tenements are rich in the heavy rare earth elements dysprosium and terbium.
This interest in NTU’s concentrate stems from Iluka’s desire to complement its own suite of rare earths products.
The agreement coincides with a funding package for Browns Range of up to $78 million, including Iluka’s funding package of up to $73 million and a non-underwritten share purchase plan of $5 million.
“These funding initiatives and our strategic partnership with Iluka are a major step towards achieving our goal of developing Browns Range into a significant alternative producer of dysprosium and terbium, which are critical metals in a low carbon future increasingly reliant on rare earth permanent magnetic electric motors,” Northern Minerals executive chairman Nick Curtis said.
NTU to supply Iluka
The agreement between NTU and ILU will see the former provide ILU with an initial 30,500 tonnes supply of total rare earth oxide (TREO) in concentrate from its Browns Range Project.
This is a long-term supply agreement between the two, requiring NTU to supply and sell, and ILU to purchase and take, an agreed minimum quantity of product up to 100% of the forecasted production annually.
Once executed, NTU will be able to complete the definitive feasibility study (DFS) as a precursor to taking a final investment decision (FID) for a mine and commercial-scale beneficiation plant at Browns Range.
About Browns Range
The 100% owned Browns Range Project has a JORC (2012) reported mineral resource of 10.81 million tonnes averaging 0.76% total rare earth oxides (TREO), of which 88% are heavy rare earth oxides (HREO).
Up until now, exploration has only examined around 15% of the Browns Range Dome, a large oval-shaped structure of about 60 kilometres by 30 kilometres, on the Western Australian/Northern Territory border.
Both Curtis and Iluka‘s managing director Tom O’Leary believe the agreement is a further step towards delivering on the significant, industry-building opportunities presented by the development of Australia’s first fully integrated rare earths refinery at Eneabba.
“We can now confidently proceed with plans to establish a commercial-scale beneficiation plant at Browns Range,” O’Leary said.
“Previously, intermediate rare earth products such as Northern Minerals’ concentrate would require export overseas prior to refining to produce separated REOs. This is no longer the case.
"Iluka’s agreement with Northern Minerals demonstrates the Eneabba refinery’s strategic importance in fostering new supply chains for critical minerals that are essential to global electrification and the transition to a low carbon economy.
“There is mutual commercial benefit for both parties, as well as downstream consumers of rare earths, and the value addition will occur in Australia for the first time. We are delighted to have reached agreement with Northern Minerals to support this important development.”
Rare earth outlook and Browns range role
The Browns Range Project is rich in high-value dysprosium and terbium and other heavy rare earths essential in the production of neodymium iron-boron (NdFeB) magnets used in clean energy, military and high-technology solutions.
Neodymium and praseodymium are the major rare earth components of NdFeB magnets, but magnets used in higher temperature operating conditions, such as electric vehicle (EV) motors and energy-saving heating, ventilation and air conditioning (HVAC) systems, also need dysprosium and terbium to better resist demagnetisation.
“The outlook for rare earths and especially for magnet metals is very positive. Growing adoption of EVs, wind turbines and energy-efficient HVAC systems is driving increased demand for NdFeB permanent magnets,” Curtis said.
“At the same time, governments are adopting policies to reduce carbon intensity, and this is stimulating product innovation to improve energy efficiency.
"A leading driver for growth in demand will be the rapid uptake of large-scale onshore and offshore wind turbines powered by large-scale permanent magnets. Another key driver will be the growth in demand in the EV industry.
"Other examples include energy-saving elevators in energy-efficient buildings and growing use of robots in smart manufacturing designs. This demand from industry is occurring in parallel with increased efforts by various governments to boost strategic capabilities.
“Consequently, governments and original equipment manufacturers around the world are seeking more secure, diverse supply chains for critical minerals such as rare earths.”
Independent strategic metals and minerals research and advisory firm Adamas Intelligence forecasts global demand for NdFeB magnets will increase at a compound annual growth rate (CAGR) of 8.6% between 2022 and 2035, driven by double-digit growth from EV and wind power sectors.
Over the same period, Adamas Intelligence forecasts global production of neodymium, praseodymium, dysprosium and terbium will collectively increase at a slower CAGR of just 5.4% as the supply side of the market increasingly struggles to keep up with this rapidly growing demand.
“Over the next 15 years,” Adamas Intelligence predicts, “NdFeB magnet consumption will increase from 172,848 tonnes in 2022 to 508,181 tonnes in 2035. Dysprosium and terbium are critical in these magnets.”
Agreement details and fund raising
NTU will issue to ILU 125 million NTU ordinary shares at an issue price of $0.04 per share to raise $5 million, to be completed on or about October 28, 2022.
Subject to satisfaction or waiver of certain conditions including NTU making a positive FID on the Browns Range Project, completion of due diligence by ILU, funding having been secured for the Browns Range Project and approval by NTU shareholders (in relation to the issue of the Iluka Tranche 2B Call Option only), ILU will be issued up to an additional 883.3 million NTU ordinary shares.
These shares will be issued at:
- Iluka Tranche 2A Placement (230 million shares) – the lower of the subscription price of any equity raising to raise additional equity funding required for the total pre-production costs of the Browns Range Project, such funding being additional to the moneys raised pursuant to the SPP and various ILU subscriptions set out above (Additional Browns Range Equity Fundraising); and $0.052 per share (being a 30% premium to the Iluka Tranche 1 Placement price of $0.04 per share), or, if NTU shareholders vote in favour of the issue of the Iluka Tranche 2B Call Option (see below), then $0.06 per share (being a 50% premium to that price).
- Iluka Tranche 2B Call Option/Put Option arrangements (up to 653.3 million shares) - the lower of the subscription price for the Additional Browns Range Equity Fundraising and $0.06 per share (being a 50% premium to the Iluka Tranche 1 Placement price of $0.04 per share).
The company will also launch a SPP. Up to 125 million shares in NTU will be issued under the SPP to raise up to $5 million, which may be increased or subject to scale back.
The SPP price of $0.04 per share represents:
- a 2.4% discount to the closing price of $0.041 per share on October 25, 2022.
- a 2.4% discount to the 5-day volume weighted average price (VWAP) of $0.041 per share up to and including October 25, 2022.