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Frontier Rare Earths- An Emerging Force in the Global Rare Earth Market

Frontier Rare Earths

Overview

Frontier Rare Earths Limited (TSX:FRO) is a mineral exploration and development company that is exclusively focused on rare earth elements in Southern Africa. Rare earth elements such as neodymium, dysprosium and terbium are critical for many high tech applications such as high strength permanent magnets used in electric motors, electric generators, wind turbines, hybrid cars, iphones and other consumer and industrial electronics. Other rare earth elements such as europium, ytterbium and gadolinium are critical elements in energy efficient lighting, plasma screens and LCD televisions. Lathanum is critical for batteries in hybrid and electric cars and cerium is also used as a cracking catalyst in petroleum refining.

Frontier’s flagship asset is the Zandkopsdrift rare earth project which is one of the largest undeveloped rare earth deposits worldwide containing 950,000 tonnes TREO1. The Zandkopsdrift Zone has the highest TREO grade and the highest grade of high value HREOs2 of significant advanced deposits3 outside of China.

The Company’s directors, senior management and consultants have extensive experience in mining and exploration in South Africa, particularly in the Namaqualand region, which is one of the longest established mining regions in South Africa. Frontier has no debt, a strong working capital position and is fully funded to complete the work programme identified in the NI 43-101 compliant independent technical report issued in October 2010

Zandkopsdrift’s favourable location and geological setting are expected to provide significant advantages in relation to capital costs, operating costs and development time compared to other rare earth projects currently being evaluated, and makes Frontier well positioned to become one of the significant new producers of separated rare earths globally, commencing in 2015.

Notes:
(1) TREO = total rare earth oxides and includes the elements lanthanum to lutetium expressed as trivalent oxides
(2) HREO = heavy rare earth oxides; high value HREOs are Europium, Terbium and Dysprosium
(3) Significant advanced deposits are those with a resource >200,000 tonnes TREO classified under SAMREC, JORC, CIM or equivalent international codes

 

Investment Highlights

  • Positive Preliminary Economic Assessment released in Q1 2012
  • Fully funded company
  • Zandkopsdrift is one of the largest, highest grade rare earth deposits in the world
  • 947,000 tons of total rare earth oxides identified at Zandkopsdrift (NI43-101, 2010)
  • Strategic partnership with Korea Resources Consortium

Chief Project

Zandkopsdrift Project – Northern Cape Province, South Africa

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Frontier’s flagship asset, the Zandkopsdrift rare earth carbonatite, is located 420 km north of Cape Town in the Northern Cape Province of South Africa and is recognised as one of the largest undeveloped rare earth deposits worldwide. The deposit’s favourable location and geological setting are expected to provide significant advantages in relation to capital and operating costs and development time compared to other rare earth projects currently being evaluated, and make Frontier very well positioned to become one of the first significant new producers of separated rare earths outside China after Molycorp and Lynas. Frontier plans to produce 20,000 tonnes per annum of separated rare earths from Zandkopsdrift, with production scheduled to commence in H2 2015.

 

Strategic Partnership with Korea Resources Consortium ( KORES)

In December 2011, Frontier signed a definitive joint venture agreement with with Korea Resources Corporation (KORES), which is controlled by the Korean Government, in relation to the development of Zandkopsdrift. KORES has a policy mandate to source strategically important raw materials for Korean industry and has a stated objective of becoming a global top 20 miner by 2020. This joint venture positions Frontier as the only advanced Western rare earth developer with a major strategic partner. KORES is forming a consortium of leading Korean industry groups including Samsung,GS Group, Daewoo Shipbuilding & Marine Engineering (DSME) and Aju Global to participate in the Frontier/ KORES Joint Venture.

Partnership Highlights:

  • KORES Consortium to acquire an initial 10% interest in Zandkopsdrift on completion of the Preliminary Economic Assessment
  • KORES Consortium may acquire an additional 10% interest in Zandkopsdrift and up to a 10% ownership interest in Frontier upon completion of a Definitive Feasibility Study, which is currently scheduled for completion in Q1 2013.
  • KORES Consortium to enter into an off-take agreement for up to 31% of production from Zandkopsdrift under a long term off-take agreement at then prevailing international market prices.
  • KORES Consortium to provide Frontier with financial, technical and operational assistance in relation to the development of the Zandkopsdrift project.
  • Frontier and the KORES Consortium to investigate the development of downstream rare earth related businesses including the production of rare earth metals, alloys and magnets.

Frontier’s Growth Strategy & Upcoming Milestones

Frontier’s mid-term strategy is focused on accelerating the development of its Zandkopsdrift Project. Key upcoming milestones include:

  • Completion of preliminary economic assessment in Q1 2012
    • Filed with SEDAR on 13th March 2012
  • Complete a pre-feasibility study in Q3 2012
  • Complete a definitive feasibility study in Q2 2013
  • Advance the existing Zandkopsdrift Rare Earth resource into the Indicated & Measured classification ( Q1 & Q3 2012)
  • Undertake regional scale exploration elsewhere in the Namaqualand area, where Frontier controls prospecting rights, totalling 135,000 hectares
  • Working closely with its strategic partner, Korea Resources Corporation and other leading Korean industry groups to advance the development of Zandkopsdrift and the establishment of downstream opportunities in the areas of rare earth metals, alloys and magnets

Preliminary Economic Assessment Highlights:

  • Net Present Value (“NPV”) of $3.65 billion, after tax and royalties, at an 11% discount rate
  • Internal rate of return (“IRR”) of 52.5% , after tax and royalties, and 2 year payback from start of production
  • Average production of 20,000 tonnes of separated rare earth oxides (“REO”) per annum, generating average annual revenues of $1.1 billion and an estimated operating margin of 78%
  • Twenty year mine life, supported by the mining and processing of 19.5 million tonnes of material with an average in-situ grade of 3.12% total REO (“TREO”) at an average metallurgical recovery of 67%
  • Capital costs of $910 million for a 1 million tonne per annum open-pit mining operation and concentration and rare earth separation plant facilities
  • Rare earth oxide ‘basket price’ of $58.23/kg used for Zandkopsdrift production, based on an average of three-year China Free on Board average REO prices and Roskill’s mid-point 2015 REO forecasts applied to Zandkopsdrift’s in situ REO relative distribution.
  • Estimated average operating costs of $13.09/kg of separated REOs
  • Conventional metallurgical process, comprising comminution, flotation, sulphuric acid cracking and solvent extraction
  • Potential for life of mine to be extended beyond initial 20 years, as the PEA mine plan only exploits circa 60% of the current estimated TREO resource at Zandkopsdrift
  • Pre-feasibility study (“PFS”) under way, with completion scheduled for Q4 2012

Management

James Kenny, B. Comm., M.B.S. – Director and Chief Executive Officer

James Kenny has a Bachelor of Commerce (Honours) and a Master’s degree in finance (MBS) from University College, Dublin. He has over 20 years of experience in the natural resources sector as an executive, adviser and broker of various listed and private companies. Mr Kenny is Chief Executive Officer of Frontier Rare Earths and has played a key role in the development of the Company to date. Mr Kenny’s investment banking experience included senior roles with ABN AMRO, Rothschild, NatWest and Evolution Securities. Mr Kenny was previously Chief Executive Officer of Frontier Advisers Limited, a private Company which has provided management, financing and other services to the Frontier Rare Earths since it commenced its operational activities.

Paul McGuinness, B.Comm. Mac., ACA -Director and Chief Financial Officer

Paul McGuinness holds a Bachelor of Commerce and a Masters’ degree in accounting from University College, Dublin. Mr. McGuinness is a chartered accountant and qualified with Arthur Andersen in 1999 where he gained experience predominantly in the financial services, oil and gas and logistics sectors. Mr. McGuinness also has extensive experience in finance and investment banking, having worked with a number of international firms including Schroders, Collins Stewart and Salomon Smith Barney, where he worked as a corporate adviser to various financial institutions in the United Kingdom, and in Australia to various energy, mining and infrastructure companies. Since 2006 Mr. McGuinness has been Chief Executive of MG Capital Limited, a private consulting firm which provides advisory and financial control services to a number of clients, including Frontier. Mr.McGuinness was appointed Chief Financial Officer in November 2010.

Dr. Stuart Smith B.Sc., PhD. – Vice-President, Exploration

Dr. Smith has a Bachelor of Science (Geochemistry, First Class Honours) and a Ph.D in geology from the University of Cape Town and has over 30 years of experience in the minerals exploration with particular experience in rare earths, base metals, uranium, and diamonds. Dr. Smith held a number of senior positions in the Geochemistry Research Unit of the University of Cape Town over a 13-year period and then worked for ten years as an exploration manager and operations director extensively across Southern Africa.

Prior to joining Frontier, Dr. Smith worked as an independent consulting geologist since 2000, principally contracted to Fugro Survey, the international consulting group. Since joining the Company in 2007, Dr. Smith has managed the Company’s exploration activities at Zandkopsdrift and elsewhere.

Derick de Wit (B. Tech. Chem. Eng.)- Vice-President, Project Development

Mr DeWit is a chemical engineer with considerable experience in the minerals industry, gained with GRD Minproc, Bateman Projects, De Beers Consolidated Mines and Venmyn Rand, and has been responsible for managing due diligence, scoping, prefeasibility and feasibility studies, mineral asset valuations and independent technical reports for listed and private companies in accordance with NI 43‐101, SAMREC and JORC reporting codes.

Over the past 15 years Mr de Wit has been involved in the preparation and/or management of more than 30 independent review, scoping, prefeasibility and feasibility studies for minerals projects, both in Africa and Canada.

 

Philip Kenny, B.E., M.B.A. –  Chairman

Philip Kenny is a graduate in mechanical engineering from University College, Dublin and holds postgraduate qualifications in engineering from Trinity College, Dublin and a Master of Business Administration in finance from Boston College, Massachusetts. He has over 25 years of experience in the mining and oil and gas sectors in Southern Africa, Europe and the United States. Mr. Kenny was a co-founder of Firestone Diamonds plc, an emerging junior diamond mining and exploration company focused on Lesotho and Botswana and listed on the AIM market of the London Stock Exchange. He was Chief Executive Officer of Firestone Diamonds from 1998 to 2011 and was Chairman from 2011 to 2012.

Anu Dhir B.A., J.D. -Non-executive Director (Chairman of the Audit Committee)

Anu Dhir holds a Bachelor of Arts degree from the University of Toronto and a law degree (Juris Doctor) from Quinnipiac University, Connecticut, United States. Ms. Dhir has extensive experience in international business, operations and legal affairs in private equity and publicly held companies in the mining, oil and gas and technology sectors. From January 2006 to October 2009, Ms. Dhir served as Vice President, Corporate Development and Company Secretary at Katanga Mining Limited, a TSX-listed company and is currently Managing Director of Miniqs Limited, a private group primarily interested in resource projects that have the capability to grow into major producing operations.

Ms. Dhir is a non-executive director of Anooraq Resources Corporation, a South African platinum group metals producer listed on the TSX, NYSE Amex Equities, and the Johannesburg Stock Exchange and serves as a non-executive director of Compass Asset Management headquartered in Almaty, Kazakhstan.

Eamonn “Edward” Grennan B.Sc., M.Sc. -Non-executive Director

Eamonn Grennan has over 40 years of experience as an exploration manager, geologist, consultant, and senior lecturer. Mr. Grennan has worked on and managed exploration programs on four continents for a range of international clients and his experience covers industrial minerals, aggregates, precious metals and base metals.

His academic experience includes lecturing in a number of leading Irish third level institutions in applied geochemistry, mining engineering, economic geology, and environmental science, including at the Institute of Technology, Sligo, from 1995 to 2010. Mr. Grennan is a former president of the Irish Association for Economic Geology and a former member of the Consultative Committee of Irish Geological Survey and is currently an independent consultant geologist.

Crispin Sonn B.A., B.Comm. – Non-executive Director

Crispin Sonn has a Bachelor of Arts from the University of Cape Town and an Honors degree in Business and Administration from the University of Stellenbosch. Since 2003, Mr. Sonn has held various positions at Old Mutual South Africa, a subsidiary of Old Mutual plc, the London listed and largest integrated financial services company in South Africa. Currently, Mr. Sonn is an executive director of Old Mutual South Africa with responsibility for corporate affairs, marketing, and communications and is Chairman of the Old Mutual Foundation, the philanthropic arm of the Old Mutual group.

Mr. Sonn was the founding Chairman of FoodBank South Africa, a founding member of the FoodBank Foundation and currently acts as a non-executive Director of CapeSpan (Pty) Ltd, the largest fresh produce sourcing and distribution company in South Africa, and Old Mutual Kodak-Mahindra, a joint venture in India. Mr. Sonn is a member of the Board of Advisers for the Graduate School of Business at the University of Cape Town and served on the Council of the University of Cape Town for eight years.