This year looks likely to be a pivotal one for
British resources specialist, Rare Earth Minerals Plc.
The high performing AIM-listed company describes
itself as an investment business with its sights set on "a
diverse portfolio of direct and indirect interests in
exploration and producing rare earth minerals and/or other
metals projects and assets" – a modus operandi that
gives it plenty of scope to flirt with the hottest minerals on
"We try to take assets at both project level
– something that maybe the public can’t
get hold of – and at public level and, if we can, we
try to assist those companies using the expertise that we have
to progress them," REM’s CEO, Kiran Morzaria,
So far, the company has stakes in four projects,
two developing lithium and two exploring for rare earths.
Despite its name, recently REM’s focus
hasn’t been on rare earths, but rather on
promoting one asset in particular – the Sonora lithium
project in Mexico, operated by TSX-V and AIM-quoted Bacanora
"We’ve been shouting from the top of
the wall about the Sonora lithium project," Morzaria told
IM. "But we do have a couple of rare earths
These plays are the Yangibana rare earths deposit
in Western Australia, in which REM holds a 30% "free carry"
interest to bankable feasibility stage (BFS), meaning that all
of the work at the deposit is currently being funded by its
partner, ASX-listed Hastings Rare Metals Ltd, and Narsaq, which
Morzaria describes as a "very speculative, early stage" rare
earths project in southern Greenland.
REM’s fourth interest is a 3% stake
in TSX-V-listed Western Lithium Corp., which is developing the
King’s Valley hectorite lithium project in
northern Nevada, US. This holding is a pure "strategic
investment", according to Morzaria.
"Our involvement [in Western] is partly because
of the development of the whole of the North American electric
vehicle market and the Tesla Gigafactory being constructed in
Nevada – when you question, where that lithium [is]
going to be sourced from, we feel that locality and geography
may be part of the decision-making process," he said.
Morzaria added that Western’s
locational advantages notwithstanding, the
project’s cost structure sits slightly higher than
Bacanora’s – "hence, we are more heavily
invested in Sonora".
REM’s involvement in Sonora is
designed to help Bacanora bring the Mexican lithium project up
the development curve. Its investment amounts to a 40% total
economic interest, with its actual ownership consisting of a
30% stake in the El Fleur/Sauz concessions; a 15% holding in
the La Ventana concession; and a 30% stake in the Buenavista,
Megalit and San Gabriel portions of the project.
"I like to call it just the Sonora lithium
project," Morzaria said. "Its joint venture structure can
sometimes take away from the value of the whole project
– it confuses the story because it’s all
about different divisions by artificial boundaries, when in
fact geology doesn’t pay any attention to
Bacanora first came into REM’s fold
in early 2013. As investor positivity towards lithium on the
Toronto market began to wane in the wake of the commodity boom
collapse in 2012, REM responded by assisting Bacanora to get a
second listing in London. The company was admitted to trading
on AIM on 25 July 2014 at a price of £0.86/share
($1.27/share*), up nearly 43% on the Canadian dollar (C$)
0.69/share ($0.54/share) value it had been trading at on the
TSX-V a month earlier.
Part of the reason for this impressive
performance by Bacanora’s stock is due to
REM’s buy-in, Morzaria concedes, but he also feels
that the AIM market is more receptive to the lithium story than
the now rather jaded TSX-V.
"I think AIM is a deeper market in terms of
liquidity if you’ve got the right story and the
right project. Capital raisings [for Bacanora] on AIM never
been much of an issue for us," he said.
In February 2015, the company’s
valuation of C$102.2m, or around £54.4m in London, ranked
it in the 10 largest mining firms by market cap on the TSX-V,
earning it a place in the 'TSX-Venture 50’. On
AIM, the company was ranked 16th out of the listed
mining companies at the end of February, right behind
REM’s own spot at number 15 based on its market
cap of £59.9m in London.
One of the ways REM has looked to promote Sonora
has been through increasing its public exposure through
frequent project updates on AIM and via the bellicose Twitter
feed of REM’s chairman, Australian-born
entrepreneur David Lenigas.
Lenigas’ use of social media to push
REM’s projects has earned him something of a
reputation among fund managers and brokers, but the onshore oil
and gas executive turned mining investor has met his critics
head on with an unapologetic reinforcement of his approach.
"Life is too short and great opportunities
don’t hang around for procrastinators. We know
what we want," Lenigas replied recently to a Twitter follower
who accused him of being opportunistic and aggressive.
He has also sought to dispel the idea that REM is
only focused on lithium. "Every[one] keeps forgetting about our
30% currently free carried interest in Yangibana REE play in
Oz. I haven’t," he tweeted at the beginning of
Around the same time, Lenigas publicly disavowed
his interest in becoming the CEO of Bacanora, but shortly
afterwards accepted a position on the company’s
According to Morzaria, having direct management
control of its investments is not part of REM’s
strategy. "The most appropriate move for [Bacanora] was to
bring in somebody with experience in the lithium industry.
Commissioning a plant and successfully steering a project
through its PFS [pre-feasibility study] and BFS are some of the
more challenging hurdles a junior lithium company has to
negotiate – we’ve seen that with other
companies that have had trouble along the way," he said.
Formed from an old player lake, the Sonora
lithium project is formed from fluvial-lacustrine sediments
that contain lithium-bearing clays, deposited in a sedimentary
Spread across three main licence areas –
El Fleur/Sauz, La Ventana and Megalit – the project
has an indicated resource of 121m tonnes at 3,120 parts per
million (ppm) lithium (Li) at El Fleur/Sauz, for 1.2m tonnes
lithium carbonate equivalent (LCE) and 75m tonnes at 3,174 ppm
Li at La Ventana, for 12.01m tonnes LCE, according to
REM’s February 2015 investor presentation.
Resource definition is underway at Megalit.
According to the preliminary economic assessments
of the sites, El Fleur/Sauz is capable of producing up to
69,800 tpa battery grade LCE and La Ventana up to 35,000 tpa
LCE. "Whether the market is capable of absorbing that is
another matter, but [this is] just showing a maximum of what
can be done on El Fleur/Sauz," said Morzaria.
Part of the reason both Bacanora and
Western’s projects caught REM’s
interest is that they are open-pittable and therefore cheaper
to mine overall, according to Morzaria, who compared Sonora to
"more costly" underground project’s such as Rio
Tinto’s Jadar project in Serbia, which is also a
lacustrine sedimentary basin deposit.
Based on its latest scoping study, El Fleur/Sauz
has an estimated operating cost of $2,525/tonne LCE, while La
Ventana comes in at $1,958/tonne LCE.
This compares with costs of around $2,000/tonne
LCE at the Chilean salar operations run by Sociedad Quimica y
Minera (SQM), the world’s largest and lowest-cost
producer of lithium. Mining costs for hard-rock,
spodumene-based lithium producers, such as
Australia’s Galaxy Resources Ltd, sit above the
$4,000/tonne LCE mark, although these producers have the option
of leveraging higher grades (around 3% Li2O) than
This emphasis on obtaining the highest net
present value (NPV) for El Fleur/Sauz (which comes in at
$2.02bn, at an 8% discount rate) had the effect of increasing
the mining cost estimates, Morzaria explained, because
achieving the highest possible revenue stream meant factoring
in a larger strip ratio, which presently stands at
"That doesn’t necessarily give you
the lowest cost per tonne and hence we ended up with [an
estimate of] around $2,500/tonne for El Fleur/Sauz, as opposed
to La Ventana, which came out at around $1,900/tonne but with
lower production," he said. La Ventana has an NPV of $848m, at
an 8% discount rate.
Morzaria noted that Bacanora has plenty of scope
to customise Sonora’s production to market demand
– whatever that market may be by the time the project
As for processing Sonora’s ore, the
company is already running a pilot batch treatment processing
plant at the site, which is based on a roast with gypsum and
salt after which the ore goes into solution prior to
evaporation using heat, rather than ponds. The most expensive
part of this process will be the energy costs of the roast,
which involve heating the lithium ore at 850-1,000°C for
anywhere between 30 minutes to an hour, according to
The lithium market
It goes without saying that REM’s
stance on the lithium sector is a bullish one.
"It’s a very interesting market and
ripe for a new entrant at a low cost – which is what
the Sonora lithium project is," Morzaria told
He notes that cathode producers who egg lithium
juniors on with projections of supply gaps in the battery
lithium market have the motive of encouraging more supply in
order to lower their own sourcing costs.
Nevertheless, he pointed to estimates that the
lithium market will require a 10% increase in supply if
electric vehicles take off before the end of the decade and
that, even without this inflexion, there could be room for as
much as 5-6% additional lithium supply.
"You’ve got to ask where this is
going to come from. FMC doesn’t look like
it’s going to increase its production and SQM
faces problems in increasing production, because any of the
salars do," Morzaria said.
He added that Bacanora, with REM’s
help, is now looking at bringing in partners and talking to
possible offtakers for its projects. "Specifically on the
lithium, because you need to bring them in earlier," Morzaria
explained. "It’s about developing those
relationships and seeing where we go from there."
*Conversions made March 2015