ECO RIDGE ECONOMIC REVIEW

In September 2013, Pele announced the results of an updated Economic Review of Eco Ridge, prepared by Roscoe Postle Associates Inc. (“RPA”).

The Economic Review, which is a sensitivity analysis on Pele’s 2012 Preliminary Economic Assessment (“PEA”), evaluates the impact of the recent increase in the NI 43-101 Mineral Resource Estimate for Eco Ridge along with reduced rare earth price assumptions, while maintaining all unit operating costs and process recoveries unchanged from the PEA.

The Economic Review concludes that the recent increase in mineral resources extends mine life and improves project economics. While this improvement is offset by a reduction in rare earth price forecasts, the net result demonstrates that Eco Ridge economics remain positive. (Please see Pele’s September 12, 2013 press release)


WHEN COMPARED TO THE PEA THE ECONOMIC REVIEW DEMONSTRATES THE FOLLOWING:

  • Pre-tax NPV(10%) remains at $1.02-Billion
  • Pre-tax IRR reduced to 43-percent from 50-percent
  • 46-percent increase in life-of-mine REO production to 141.6-million pounds
  • 52-percent of Project revenue from rare earth oxides (“REO”); nearly 80-percent of REO revenue from Critical REO (neodymium, dysprosium, yttrium, terbium, and europium oxides) plus scandium oxide
  • 55-percent increase in life-of-mine uranium oxide (“U3O8”) production to 42.7-million lbs;
  • U3O8 revenue forecast to exceed operating costs for first five years of production and thereafter to offset the majority of operating costs, reducing financial risks associated with REO production.
  • Sustaining capital increases by $33-million due to longer projected mine life
  • Economic sensitivity that reflects 30-percent decrease in REO prices
  • An increase in mine life and an expanded block of higher-grade material for mining early in the production schedule.

OPERATIONAL HIGHLIGHTS OF THE ECONOMIC REVIEW INCLUDE:

  • 9,000-tonne per day operation with life-of-mine production of 141.6-million lbs of total REO (in the form of a mixed rare earth carbonate concentrate) and 42.7-million lbs of U3O8 over a 14-year mine life;
  • Production of a strategically significant combination of critical rare earth oxides forecast by the U.S. Department of Energy to be subject to a high risk of supply disruption, with almost 90-percent of Project revenue from Heavy REO, neodymium oxide (Nd2O3) and U3O8.
  • Life-of-mine production includes 20.7-million lbs of Nd2O3, 1.3-million lbs of dysprosium oxide, 6.0-million lbs of yttrium oxide, and significant quantities of terbium, europium, and scandium oxides, providing a vital source of Critical REO outside China.

FINANCIAL HIGHLIGHTS OF THE UPDATED ECONOMIC REVIEW INCLUDE (ALL TERMS IN US$):

  • Cumulative total gross revenue of $7.12-billion; Cumulative operating cash flow of $3.27-billion; Cumulative pre-tax cash flow of $2.58-billion
  • Life of mine average operating unit cost of $72.12 per tonne; Net revenue of $143 per tonne
  • Start up capital expenditures of $563-million (includes contingency of $108-million)
  • REO basket price of $57 per kg net of separation costs is more conservative than the $78 per kg used in the PEA. U3O8 price of $70 per lb is the same as in the 2012 PEA;

U3O8 is the largest individual contributor to gross revenue in the economic review at nearly 42-percent, followed by Nd2O3 at 20-percent. Heavy REO, which are expected to remain in supply deficit for many years to come, provide approximately half of REO revenue. Cerium and lanthanum oxides, which are expected to be available in abundant supply, account for less than 7-percent of Project revenue. The forecast U3O8 price used in both the economic review and the PEA is $70 per lb and is based on an assessment of long-term expectations by a group of independent analysts.

The REO revenue forecast in the economic review is based on the production of individual separated REO. A $449-million charge has been included in the economic review compared to a $535-million charge that was included in the PEA to account for the cost of REO separation into saleable, high-purity oxides. This charge is based on costs of $5 per kg for Light REO in the economic review compared to $10 per kg for Light REO in the PEA and $30 per kg for separation of Heavy REO, which are believed to represent reasonable estimates of separation costs within the scope and accuracy of the economic review. Pele is exploring several possible options for REO separation including toll separation and strategic alliances that could establish separation facilities close to the mine site.