Interview with Tim Harrison, Managing Director of Ionic Rare Earths. Ionic Rare Earths is focused on developing its flagship Makuutu Rare Earths project in Uganda into a significant, low-cost, supplier of high-value critical and heavy rare earth.
Makuutu is an advanced-stage, clay-hosted project highlighted by near-surface mineralization, significant exploration upside, excellent metallurgical characteristics, and access to tier-one infrastructure.
Matthew Gordon: Tim, how are you doing, sir?
Tim Harrison: Good, Matt, how are you?
Matthew Gordon: Not too bad. We needed to call you. We saw the press release so we’re going to talk numbers. When did we see you? The beginning of March? You’ve been busy.
Tim Harrison: Time flies. We’ve been very busy finalising the Scoping Study and we’ve been able to get the Scoping Study out to the market today.
Matthew Gordon: Good lad. Hey, do us a favour. Give us that 1-minute summary of the business for people new to the story coming into it and what we’ll also do is put a link to the previous interview where you went through the business plan, strategy, team, markets, and all that good stuff. That’s something that they should look at if they’re interested after this conversation. Give us the 1-minute overview.
Tim Harrison: Great. As Ionic Rare Earths, we are developing a Rare Earth project, an Ionic Absorption Clay project, in Uganda. Makuutu Rare Earths Project. It’s a 315Mt Ionic Absorption Clay resource, 120km east of Kampala. It’s a really well-developed infrastructure area, shallow deposit. We are working through an aggressive development schedule. We’ve just announced the Scoping Study. We’re now in a Bankable Feasibility Study and looking at completing that program to support a mining licence application in 18-months.
Matthew Gordon: Fantastic. 19% came off the share price today. The market didn’t like what you told them. What happened?
Tim Harrison: Good question. I think we’ll see over the course of the next few days; the market will have a bit more time to read that announcement and digest it. I’m expecting that as that information filters through, it’s actually a really good announcement. I think it’s a really good result for the project and the company.
Matthew Gordon: Okay. Let’s talk about that. What do you think they were expecting, and what did you deliver?
Tim Harrison: I think they were expecting a Scoping Study that had a production target that included the full resource.
Matthew Gordon: Meaning what?
Tim Harrison: The 315Mt of mineral resource estimate at Makuutu. What we’ve delivered is a Scoping Study that’s underpinned by the indicated resources, which is meeting the guidelines of the ASX. In order for us to get to this point and release that Scoping Study, we’ve had to deliver a production target that’s based predominantly on indicated resources. We’ve delivered that. I think we’ve delivered a very robust foundation for the project that will see us with 11-years’ worth of production. We start off with 1 module; we ramp that up to 5 modules. We’re producing up to 4,000t per annum of Rare Earth Oxide. It’s not just any Rare Earth Oxide, it’s a critical and heavy Rare Earth product that the market won’t be able to find elsewhere. We’re making a unique project, unique product, we’ve ramped up over 11-years, and I think we’re laying the foundations to potentially extend the life of the project by bringing in that inferred resource and that has the potential to, on the current resource, push out the life of the project to about 27-years.
Matthew Gordon: Okay. What the market was expecting was the full resource. You’ve only been able to put the indicated number in there, not the inferred. The inferred hasn’t gone anywhere. You’ll bring that through. How quickly will you be able to bring that through?
Tim Harrison: To bring that through, we’re going to have to increase the classification on that resource from inferred to indicated. That means infill drilling. We’ll be coming to the market and advising them of the program that we’re going to kick off on an infill drill program, which will look at increasing that indicated resource over the course of the rest of 2021. A significant amount of drilling to underpin that material then being able to be used within the Bankable Feasibility Study. The amount of resource that we’re going to classify and increase from inferred to indicated is still to be determined by the company, given that we’ve got something that’s potentially 27-years. We don’t need to bring all of that to indicated to know that it’s there. We just need to bring enough to an indicated status to provide a good base for us to develop the Bankable Feasibility Study.
Matthew Gordon: Have you got the money to do that?
Tim Harrison: Yeah, we’re well funded because we raised that money earlier this year. We raised $12M earlier this year so we’ve got funds to be able to execute the program we’ve intended to deliver.
Matthew Gordon: Okay, let’s go through some of the numbers. I want to understand if it’s a good enough project in its own right with just the indicated. I remember it’s a low Capex project. Remind us of some of the headline numbers.
Tim Harrison: The development of the first module, USD$89M in pre-production capital. That will develop our mine and our processing plant, which will process 2.5Mt per annum of Ionic Absorption Clay material. That will produce about 800t a year of Rare Earth Oxide equivalent product. The plan then is to use the free cash flow generated by the project to fund the additional modules. We ramp up effectively every 2-years, we’re adding a new module and ramping up the throughput from 2.5Mt to 5Mt, 7.5Mt, 10Mt up to 12.5Mt. The initial capital pre-production is USD$89M and we ramp that up to a 12.5Mt per annum throughput by year 10.
Matthew Gordon: Okay, great. I think some of the important numbers I need to understand are - I get that you don’t need to bring all of the inferred through, just enough to make the BFS interesting, but talk to me about IRRs or cash flows or free cash flow from that stage, or phase 1, project.
Tim Harrison: It’s what we’re calling the base case because it’s basically going to lay the foundations for us to build a launchpad and away we go. That base case has an IRR of 38% and an NPV of USD$321M and generates free cash flow post-tax of USD$766M over the 11-years. It’s a very robust business case and that’s taking into account that we’ve ramped up and built not 1 module but we’re up to 5 modules. We’re putting through 12.5Mt per annum of throughput. Potentially, it’s a very attractive project and certainly very financeable.
Matthew Gordon: Yeah, you’re in no rush to spend what cash you have on bringing through the inferred because you don’t need to, you believe. Can we just talk about 1 more thing because I think it’s really important for me to understand how the cash flow ramps up, as well as your ability to actually get into the market because one of the other press releases I saw was an MOU, signed with CHINALCO, or certainly one of their subsidiaries anyway, so what’s the story there?
Tim Harrison: Just to address the MOU with China Rare Earths Jiangsu, we’ve signed a non-binding MOU with the China Rare Earths Jiangsu, which is a subsidiary of CHINALCO. They have immense capability to not only help us to develop and accelerate the program at Makuutu but potentially take our product as an off-take and downstream processor. They’re one of the few companies in the world that has the capacity to do that. They’re an extremely well-integrated organisation and I think that they can offer Ionic Rare Earths, certainly as a potential development partner, a mode in which we can de-risk the first module. To me, I see it as being tremendously valuable for the development of Makuutu.
Matthew Gordon: Yeah, I guess because it gives you a route to market, maybe access to capital. It’s non-binding, that’s interesting. What’s the expectation of this relationship during the term of this MOU? Where is it leading?
Tim Harrison: We are working through a collaborative effort at the moment to work out how we can accelerate the development at Makuutu. There are multi-facets with regards to the non-binding MOU, developing the asset, working to de-risk the asset, potentially off-take, potentially investment within Ionic Rare Earths, or potentially investment directly within the project. There are a number of attributes to the MOU, and we’ll work through that over the course of the next 12-months. We’re working with them now to try and put a program in place to help us move through the Bankable Feasibility Study, test work, Chinese engineering, to try and de-risk the application of the technology and bring in their 40-years of knowhow in heap leaching Ionic Absorption Clays.
Matthew Gordon: Right. What do they want out of that? Not just in terms of the project but the product. We’ve talked about a bucket of Rare Earths rather than focusing on NdPr or anything specific. Is that what they want out of this deal too?
Tim Harrison: Well, being an Ionic Absorption Clay, it’s going to produce a suite of heavy and critical Rare Earths, similar to the products that have been generated by the diminishing Ionic Absorption Clays in Southern China. It is no secret that the Chinese have been reducing the quotas on their processing of the Ionic Absorption Clays. There is spare capacity for processing the mixed Rare Earths Carbonates that are generated by those assets. A product and a project like Makuutu, I would imagine to them, is extremely attractive by producing a product that can go directly into their existing production and supply chains. They’ve got the infrastructure that’s already built to take a product like ours.
Matthew Gordon: Okay. There’s been a little bit of talk about share price manipulation this week. Any thoughts? And why?
Tim Harrison: Not sure about that one. I’ve had a few calls with the ASX and ASIC, ASX specifically, more in relation to other matters such as the Scoping Study. I’ll leave that one to others to investigate.
Matthew Gordon: But you’ve heard the rumour?
Tim Harrison: Look, I’ve seen some things but that’s not really a focus of what I am doing day to day. I’ve been focused on this Scoping Study and the next phase of work that’s going to add value to the project.
Matthew Gordon: Who are people accusing of manipulating the share price? Do you know?
Tim Harrison: No. I haven’t spent any time investigating that one, Matt.
Matthew Gordon: Maybe you should. Maybe there’s something in it. Who knows?
Tim Harrison: Maybe. I’ll add it to the list of things to do.
Matthew Gordon: Fair enough. I know it’s late there. Maybe you can do it tomorrow. Okay, it’s a good press release. Your expectation over the next few weeks is that people will understand why you’ve presented the information as you have in the Scoping Study but as far as you’re concerned, you’ve got the capital to go and do what you need to do and it’s full steam ahead with regards to the BFS. That’s your focus. Is that the top of your list?
Tim Harrison: That’s right. That announcement today was quite an in-depth announcement. There’s a lot there for the investment community and the shareholders to get their heads around. It might take a couple of read-throughs to sink in. We’ll try and put a bit more information out in the market over the course of the next week to bring a little bit more context to the rationale and why we’ve done what we’ve done but we feel very confident that we are on exactly the right path to developing Makuutu into an operating asset, working to a timeline and bringing this into production by 2024. That’s our focus and that continues to be the focus. We could have sat back and held back the Scoping Study, and said, ‘Oh, no, we’re going to go and do more indicated drilling,’ but that wouldn’t have helped us deliver on our ultimate target which is to apply and receive a mining licence application in the fourth quarter of next year. 18-months now to work through a Bankable Feasibility Study. We’ve got a very robust basis for the Scoping Study and now it’s onto the next facet of developing Makuutu.
Matthew Gordon: What are shareholders looking out for next? 18-months is a long way away, especially in this market. What are we going to be hearing about from you?
Tim Harrison: We’ve recently completed drilling on the exploration licence out to the east of the project. That’s the first look that we’re going to get, that’s the potential for additional tonnes that may come out of that large, exploration licence EL00147. We had 25 RAB holes, 1km spaced apart. That reconnaissance program will give us an idea of whether or not we’ve got similar Ionic Absorption Clay material out to the east. We’ve also done another 42 holes across the deposit into the northern tenement, which will give us an idea of the potential for extension. We’re about to kick off an infill diamond program, which will essentially convert that inferred or help us convert the inferred resources to indicated. We’ve got metallurgical work that’s underway at the moment, additional project activities, so I think there is going to be a steady flow of news over the course of the next 6 to 9-months that ultimately is going to help us deliver value to the project and I think to help the market increase its understanding of the valuation of Makuutu.
Matthew Gordon: Brilliant. There are a few things to look out for. Just in terms of this MOU, give me some of the timelines or deliverables associated with that because the non-binding bit is the bit I want to see. Does it convert into binding? Does it convert into another MOU or another agreement, or some kind of commitment financial or otherwise from this group, CHINALCO, or the subsidiary?
Tim Harrison: To put into context, the plan is effectively to work with CHINALCO and China Rare Earths Jiangsu over the course of the next 12-months to move to the point where we can go to a binding agreement. We’re going to be drilling some samples and sending those to China for some test work. This is all about helping us with the increased confidence about the metallurgy and the process, and the technology application. Potentially looking at China as engineering to feed into the way in which we de-risk the development at Makuutu. There is certainly a program that we’re working through and we’ll notify the market when we’re in a position to do so about that program.
Matthew Gordon: But anything in the interim between now and 12-months’ time?
Tim Harrison: Potentially. It’s just a matter of how quickly things move. The reality is that an asset like Makuutu is rare so there are essentially ourselves and 1 other that’s of the same size and potential to supply that type of basket for an extended period of time. We know that we have something very rare and if there’s a desire to move and accelerate the program then so be it. I can understand that given what we’re sitting on at Makuutu.
Matthew Gordon: Brilliant. Tim, thanks for the update. Stay in touch. I’m fascinated by the Rare Earths space and how it’s moving. The Chinese involvement is obviously exciting to you guys, so I look forward to speaking to you soon, okay?
Tim Harrison: Great, thanks, Matt. All the best.
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