REG - Ecora Resources PLC - Acquisition of royalty over Phalaborwa project

Ecora ResourcesAnnouncement

01/07/2024 07:00

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RNS Number : 4760U  Ecora Resources PLC  01 July 2024

 

 

 

 

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 life(1) - 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
value(4) and underpinned by strong long-term demand growth fundamentals

o  Life of mine average annual production(1): 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 Project(1)

 

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 MRE(2) 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
(https://www.rainbowrareearths.com/presentation/phalaborwa-preliminary-economic-assessment/)
("PEA"), published in October 2022, establishes a post-tax base case NPV(10%)
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-years(3) 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 dynamics(4)

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.

( 1)Source: www.rainbowrareearths.com (http://www.rainbowrareearths.com)

(2)JORC Compliant MRE published by Rainbow Rare Earths Limited on 20 March
2023 in a regulatory news release

(3)As per regulatory news release issued by Rainbow Rare Earths Limited on 26
February 2024

(4)Source: Project Blue Report, May 2024

 

For further information

 

 Ecora Resources PLC                         +44 (0) 20 3435 7400
 Geoff Callow - Head of Investor Relations

 Website:                                    www.e (http://www.ecora-resources.com) cora-resources.
                                             (http://www.ecora-resources.com) com (http://www.ecora-resources.com)

 FTI Consulting                              +44(0) 20 3727 1000

 Sara Powell / Ben Brewerton / Nick Hennis   ecoraresources@fticonsulting.com (mailto:ecoraresources@fticonsulting.com)

 

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 NPV(10) 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.

 

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