1 July 2024
Ecora Resources
PLC
("Ecora"
or the "Group")
Acquisition of royalty over
the Phalaborwa rare earths project
Ecora (LSE/TSX: ECOR) announces that
it has entered into an agreement to acquire a 0.85% Gross Revenue
Royalty ("GRR") over the Phalaborwa Rare Earths Project
("Phalaborwa" or the "Project") located in South Africa for a total
cash consideration of US$8.5 million.
In connection with the royalty
acquisition and in addition to the cash consideration, Ecora has
subscribed for 10,442,427 new ordinary shares in Rainbow Rare
Earths Ltd ("Rainbow"), the majority owner of the Phalaborwa
project, for US$1.5 million in cash. Rainbow is listed on the
London Stock Exchange (LSE: RBW).
The investment represents Ecora's
first rare earth exposure, and is in-line with the Group's stated
strategy of further diversifying and growing its portfolio of
future facing commodity royalties over high quality operations and
projects.
Marc Bishop Lafleche, Chief Executive Officer of Ecora,
commented:
"We are delighted to announce our partnership
with the Rainbow Rare Earths team on the Phalaborwa project. This
project stands out as one of the lowest-cost prospective producers
of rare earths outside of China. Notably, production will be
principally weighted to rare earth elements essential in the
production of permanent magnets, key components in renewable wind
power turbines and electric vehicle motors.
"The transaction provides Rainbow with a non-dilutive means of
securing the funding to move the project forward towards the
completion of a DFS and subsequently a final investment decision.
It also provides Ecora with a counter-cyclical entry point to
further diversify our commodity exposure to include rare earth
elements whose end markets are forecast to see sustained demand
growth over the coming decades."
Highlights
· Amongst
the highest quality rare earth projects globally with a 16-year
estimated mine life1 - expected to generate strong
cashflows throughout the commodity price cycle
·
Located on brownfield site
treating phosphogypsum stacks generated as a by-product of
historical fertilizer production
o No
primary mining, crushing or grinding costs
o Operation to fully rehabilitate site
·
Phalaborwa project product mix
heavily weighted to permanent magnet end-markets which account for
over 90% of global rare earth consumption by value4 and
underpinned by strong long-term demand growth
fundamentals
o Life
of mine average annual production1: 1,750t of
neodymium/praseodymium (NdPr) oxide, 60t of dysprosium (Dy) oxide
and 20t of terbium (Tb) oxide
· Attractive cyclical entry point for rare earths with spot
prices for Phalaborwa's commodity basket trading near three-year
market lows of $64/kg versus a three-year high of $221/kg (and a
three-year average of $121/kg)
·
Proceeds to primarily fund the
completion of a Definitive Feasibility Study ("DFS") targeted for
release in 2025
o Pilot plant operations underway to test the flowsheet at DFS
level and produce product samples
·
Rainbow targeting first
Phalaborwa production in 2027, with protections for Ecora in the
event of delays
o Ecora royalty entitlement of 0.85% at transaction
close
o Royalty rate increases to 0.95% if commercial production does
not occur prior to 1 October 2027
o Royalty rate increases to 1.1% if commercial production does
not occur prior to 1 July 2028
· High
quality management team with rare earths experience, combined with
prior project development and operation experience at large mining
companies
·
High quality shareholder base
including backing from the U. S. International Development Finance
Corporation (DFC) which has the option to invest US$50 million into
the Project via TechMet
·
Transaction to be funded
through a combination of cash on hand and the Group's revolving
credit facility
The
Phalaborwa Project1
Phalaborwa is located in the Limpopo
region of South Africa and is 85% owned by Rainbow, who have the
right to acquire 100% ownership of the Project. It has a total JORC
compliant MRE2 of 30.4Mt at 0.44% TREO contained within
phosphogypsum in two unconsolidated stacks derived from historic
phosphate hard rock mining. High value neodymium and praseodymium
(NdPr) oxide, critical elements used in permanent magnets,
represent c. 75% of the magnet rare earth basket by value, with
economic dysprosium (Dy) and terbium (Tb) oxide credits enhancing
the overall value of the rare earth basket.
Phalaborwa's Preliminary
Economic Assessment ("PEA"),
published in October 2022, establishes a post-tax base case
NPV10% of US$627 million, an IRR of 40%, an average
EBITDA operating margin of 75% and a payback period of only two
years. Capital costs of the project were estimated at c. US$296
million. The PEA was based on processing 2.2 million tonnes per
annum of phosphogypsum over a 14-year project life (subsequently
extended to 16-years3 to deliver 26,208 tonnes of
separated magnet rare earth oxides at an average cost of
US$33.86/kg.
A process flowsheet to extract rare
earth elements efficiently from the phosphogypsum stacks has been
developed in collaboration with K-Technologies, Inc., USA
("K-Tech"), following extensive test work carried out at ANSTO
Minerals, Australia, and at K-Tech's facilities in Florida,
U.S.A.
Rare earths overview and
market dynamics4
Rare earth elements (REEs) are a
group of 17 elements which mostly occur naturally but rarely in
concentrated forms that are commercial to extract. Due to their
similar chemical properties, they can be challenging to split into
individual elements with current producers often using harsh
solvents to aid separation. China produced over 90% of refined rare
earth products in 2023, with 66% of feedstock sourced from domestic
production.
Rare earth magnets, or permanent
magnets is the largest demand sector accounting for 90% of total
market value in 2023. Neodymium (Nd) and praseodynium (Pr), the
main rare earth elements at Phalaborwa, are a core component in
NdFeB magnets, whilst small additions of dysprosium (Dy) and
terbium (Tb) can further enhance magnet performance by improving
temperature resistance.
Permanent magnets are used in wind
turbines, electric vehicle motors and many consumer electronics. A
key growth area is their use in electric vehicles where they can
significantly improve performance with minimal additional cost. The
added efficiency of using permanent magnets allows EV manufacturers
to reduce the size and cost of their battery packs whilst
maintaining performance.
The REE market is positioned to
experience significant growth over the coming decade, with the
industry valued at US$7.4 billion in 2023 forecast to grow to c.
$10 billion by 2030.
Transaction structure and financing
Ecora will fund the US$8.5 million
royalty consideration and US$1.5 million equity investment through
a combination of cash on hand and the Group's revolving credit
facility.
As of transaction close, Ecora will
be entitled to a 0.85% GRR over the Phalaborwa project. The royalty
rate steps up by 0.1% to 0.95% if commercial production does not
occur prior to 1 October 2027. If commercial production does not
occur prior to 1 July 2028, then the royalty rate steps up by a
further 0.15% to 1.10%.
Transaction Completion
Payment of the US$8.5 million
royalty consideration is conditional upon:
· receipt of exchange control authorisation from the South
African Reserve Bank Financial Surveillance Department (customary
for transactions of this nature), expected within 6 to 8 weeks of
submitting the application; and
· execution and delivery of certain security documents to
Ecora.
Ecora subscribed for 10,442,427
ordinary shares at a price of 11.3652 pence per share (calculated
at the 20-day volume weighted average price) for consideration of
US$1.5 million. The subscription is conditional upon the new
ordinary shares being admitted to the standard listing segment of
the Official List of the Financial Conduct Authority and being
admitted to trading on the main market for listed securities of the
London Stock Exchange plc on or around 5 July 2024.
1Source:
www.rainbowrareearths.com
2JORC Compliant MRE published
by Rainbow Rare Earths Limited on 20 March 2023 in a regulatory
news release
3As per regulatory news
release issued by Rainbow Rare Earths Limited on 26 February
2024
4Source: Project Blue Report,
May 2024
For further information
About Ecora Resources
Ecora Resources is a leading royalty
company focused on supporting the supply of commodities essential
to creating a sustainable future.
Our vision is to be globally
recognised as the royalty company of choice synonymous with
commodities that support a sustainable future by continuing to grow
and diversify our royalty portfolio in line with our
strategy. We will achieve this through building a
diversified portfolio of scale over high quality assets that drives
low volatility earnings growth and shareholder
returns.
The mining sector has an essential
role to play in the energy transition, with commodities such as
copper, nickel and cobalt - key materials for manufacturing
batteries and electric vehicles. Copper also plays a critical role
in our electricity grids. All these commodities are mined and there
are not enough mines in operation today to supply the volume
required to achieve the energy transition.
Our strategy is to acquire royalties
and streams over low-cost operations and projects with strong
management teams, in well-established mining jurisdictions. Our
portfolio has been reweighted to provide material exposure to this
commodity basket and we have successfully transitioned from a coal
orientated royalty business in 2014 to one that by 2026 will be
materially coal free and comprised of over 90% exposure to
commodities that support a sustainable future. The fundamental
demand outlook for these commodities over the next decade is very
strong, which should significantly increase the value of our
royalty portfolio.
Ecora's shares are listed on the
London and Toronto Stock Exchanges (ECOR) and trade on the OTCQX
Best Market (OTCQX: ECRAF).
About Rainbow:
Rainbow Rare Earths aims to be a
forerunner in the establishment of an independent and ethical
supply chain of the rare earth elements that are driving the green
energy transition. It is doing this successfully via the
identification and development of secondary rare earth deposits
that can be brought into production quicker and at a lower cost
than traditional hard rock mining projects, with a focus on the
permanent magnet rare earth elements neodymium and praseodymium,
dysprosium and terbium.
The company is focused on the
development of the Phalaborwa Rare Earths Project in South Africa
and the earlier stage Uberaba Project in Brazil. Both projects
entail the recovery of rare earths from phosphogypsum stacks that
occur as the by-product of phosphoric acid production, with the
original source rock for both deposits being a hardrock
carbonatite. Rainbow intends to use a continuous ion exchange /
continuous ion chromatography separation technique, which
simplifies the process of producing separated rare earth oxides
(versus traditional solvent extraction), leading to cost and
environmental benefits.
The Phalaborwa Preliminary Economic
Assessment has confirmed strong base line economics for the
project, which has a base case NPV10 of US$627 million,
an average EBITDA operating margin of 75% and a payback period of
less than two years.
Cautionary statement on
forward-looking statements and related information
Certain statements in this
announcement, other than statements of historical fact, are
forward-looking statements based on certain assumptions and reflect
the Group's expectations and views of future events.
Forward-looking statements (which include the phrase
'forward-looking information' within the meaning of Canadian
securities legislation) are provided for the purposes of assisting
readers in understanding the Group's financial position and results
of operations as at and for the periods ended on certain dates, and
of presenting information about management's current expectations
and plans relating to the future. Readers are cautioned that such
forward-looking statements may not be appropriate other than for
purposes outlined in this announcement. These statements may
include, without limitation, statements regarding the operations,
business, financial condition, expected financial results, cash
flow, requirement for and terms of additional financing,
performance, prospects, opportunities, priorities, targets, goals,
objectives, strategies, growth and outlook of the Group including
the outlook for the markets and economies in which the Group
operates, costs and timing of acquiring new royalties and making
new investments, mineral reserve and resources estimates, estimates
of future production, production costs and revenue, future demand
for and prices of precious and base metals and other commodities,
for the current fiscal year and subsequent periods.
Forward-looking statements include
statements that are predictive in nature, depend upon or refer to
future events or conditions, or include words such as 'expects',
'anticipates', 'plans', 'believes', 'estimates', 'seeks',
'intends', 'targets', 'projects', 'forecasts', or negative versions
thereof and other similar expressions, or future or conditional
verbs such as 'may', 'will', 'should', 'would' and 'could'.
Forward-looking statements are based upon certain material factors
that were applied in drawing a conclusion or making a forecast or
projection, including assumptions and analyses made by the Group in
light of its experience and perception of historical trends,
current conditions and expected future developments, as well as
other factors that are believed to be appropriate in the
circumstances. The material factors and assumptions upon which such
forward-looking statements are based include: the stability of the
global economy; the stability of local governments and legislative
background; the relative stability of interest rates; the equity
and debt markets continuing to provide access to capital; the
continuing of ongoing operations of the properties underlying the
Group's portfolio of royalties, streams and investments by the
owners or operators of such properties in a manner consistent with
past practice; no material adverse impact on the underlying
operations of the Group's portfolio of royalties, streams and
investments from a global pandemic; the accuracy of public
statements and disclosures (including feasibility studies,
estimates of reserve, resource, production, grades, mine life and
cash cost) made by the owners or operators of such underlying
properties; the accuracy of the information provided to the Group
by the owners and operators of such underlying properties; no
material adverse change in the price of the commodities produced
from the properties underlying the Group's portfolio of royalties,
streams and investments; no material adverse change in foreign
exchange exposure; no adverse development in respect of any
significant property in which the Group holds a royalty or other
interest, including but not limited to unusual or unexpected
geological formations and natural disasters; successful completion
of new development projects; planned expansions or additional
projects being within the timelines anticipated and at anticipated
production levels; and maintenance of mining title.
Forward-looking statements are not
guarantees of future performance and involve risks, uncertainties
and assumptions, which could cause actual results to differ
materially from those anticipated, estimated or intended in the
forward-looking statements. Past performance is no guide to future
performance and persons needing advice should consult an
independent financial adviser. No statement in this communication
is intended to be, nor should it be construed as, a profit forecast
or a profit estimate.
By its nature, this information is
subject to inherent risks and uncertainties that may be general or
specific and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate; that assumptions may not be correct and that
objectives, strategic goals and priorities will not be
achieved.
A variety of material factors, many
of which are beyond the Group's control, affect the operations,
performance and results of the Group, its businesses and
investments, and could cause actual results to differ materially
from those suggested by any forward-looking information. Such risks
and uncertainties include, but are not limited to current global
financial conditions, royalty, stream and investment portfolio and
associated risk, adverse development risk, financial viability and
operational effectiveness of owners and operators of the relevant
properties underlying the Group's portfolio of royalties, streams
and investments; royalties, streams and investments subject to
other rights, and contractual terms not being honoured, together
with those risks identified in the 'Principal Risks and
Uncertainties' section of our most recent Annual Report, which is
available on our website. If any such risks actually occur, they
could materially adversely affect the Group's business, financial
condition or results of operations. Readers are cautioned that the
list of factors noted in the section herein entitled 'Risk' is not
exhaustive of the factors that may affect the Group's
forward-looking statements. Readers are also cautioned to consider
these and other factors, uncertainties and potential events
carefully and not to put undue reliance on forward-looking
statements.
The Group's management relies upon
this forward-looking information in its estimates, projections,
plans and analysis. Although the forward-looking statements
contained in this announcement are based upon what the Group
believes are reasonable assumptions, there can be no assurance that
actual results will be consistent with these forward-looking
statements. The forward-looking statements made in this
announcement relate only to events or information as of the date on
which the statements are made and, except as specifically required
by applicable laws, listing rules and other regulations, the Group
undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements
are made or to reflect the occurrence of unanticipated
events.
This announcement also contains
forward-looking information contained and derived from publicly
available information regarding properties and mining operations
owned by third parties.