George Bauk: Browns Range Project aims to become the first significant world producer of dysprosium outside of China

Asian Metal: Thank you for taking the time to speak with us today, George. Please give us a brief introduction to your project and how things are going.

George: Our company’s flagship project is the Browns Range Project. Browns Range is a dysprosium² focussed, HRE project and is well positioned to become the first significant world producer of dysprosium outside of China.

Open cut and underground mining methods will be used to extract the ore, which will be processed on site through a beneficiation and a hydrometallurgical plant, to produce a high purity, dysprosium rich, mixed rare earth (RE) oxide product for export. The Company has undertaken extensive metallurgical testing to develop a relatively straightforward processing flowsheet, which will produce 279,000kg of dysprosium, contained within 3,200,000kg per annum of high purity mixed rare earth (RE) oxide. A mine planning schedule based on data from the Mineral Resource Estimate and the maiden Ore Reserve has been developed to provide a 10 year life of mine (LOM).

The financial evaluation of the Project, based on data from the PFS, shows the value and economic robustness of the Project with an after tax Net Present Value (NPV) estimated at $446M¹, an Internal Rate of Return (IRR) of 33% and a 3.3 year payback from commencement of production. The Project has a pre-production capital cost of $314M (including contingency of $43M), and a production cost of $123/kg of dysprosium net of by-product revenue ($40/kg TREO).

A large landholding in Western Australia and the Northern Territory provides outstanding future exploration potential. The Company recently upgraded the Project’s global Mineral Resource Estimate, which is now estimated at 52,372,000kg of contained TREO.

In 2014,NTU finalised the Project’s Co-existence Agreement (native title) with the Traditional Owners, the Jaru People which has enabled the granting of the Project’s mining lease and received the Project’s primary environmental approval from the Western Austrian State Government. Following the positive results from the PFS, the Company is now progressing the Project through its Feasibility Study which is due for completion at the end of February 2015, with a final investment decision on the Project to be made in Q1 2015.

Asian Metal: Congratulations on reaching this stage. How would you summarise Northern Minerals’ key strengths at present, and what makes it a world-class project?

George: Northern Minerals’ key strengths lie in the Project’s xenotime mineralisation, and the ability to significantly upgrade the ore through a relatively conventional process flowsheet, a competitive pre-production capital cost and the outstanding exploration potential and stable geopolitical environment.

The xenotime mineralisation is rich in dysprosium and other high value heavy rare earth oxides (HREO). The dominance of xenotime, coupled with the mainly silica host rock allows the ore to be significantly concentrated, up to 30 times, through the beneficiation stage with excellent recovery of xenotime. This significant concentration results in a number of flow-on benefits, in particular a more cost efficient hydrometallurgical processing plant which has facilitated a competitive pre-production capital cost estimate of $314M.

Being located in Australia and in particular Western Australia also provides NTU with a key advantage. Australia is politically stable and has a regulatory framework that provides investors with confidence and security. In particular, Western Australia was ranked as the world’s most attractive investment destination by the Fraser Institute of Mining Companies in 2013.

The Company has a significant landholding in Western Australia and the Northern Territory that is highly prospective for xenotime mineralisation, with further early exploration results providing confidence for additional discoveries. The Browns Range Project (WA and NT) covers 1500km² and to date the Company has only explored 12% of the land area. From within this 12%, the Company has been able to achieve a 10 year mine life, and with 88% still to be fully explored, its potential is outstanding. Specifically, within WA NTU has identified 10 high priority targets for follow-up drilling, and a further 170 conceptual exploration targets across the Browns Range Dome area.

Asian Metal: I’m glad to hear that. I think the general consensus has been for a while now that yours is a great, high-quality project with some very interesting rare earth content. I am wondering why you decided to enter the rare earth industry and mining the Browns Range project?

George: In 2010, preliminary exploration work by NTU identified high grade rare earth mineralisation at the Wolverine and Gambit prospects. Since these initial discoveries, the Company has undertaken an extensive exploration program from which six deposits have been identified, thus far, all with determined Mineral Resources and economic quantities of HREs. Early exploration work in the area surrounding these deposits has also identified several additional prospects with the potential to host economic quantities of HREs.

One of the major challenges for a rare earth project is being able to successfully separate and process the ore. Prior to significant investment in the Project, NTU undertook initial processing testwork to ensure processing was achievable. The xenotime mineralisation facilitated excellent results, resulting in the Company investing over $74M to progress the Project from a greenfields discovery to PFS.

The Mineral Resource discovery rate has been exceptional, demonstrating the area is highly prospective for HREs. NTU’s first drillholes in the area were in 2011, and since 2012, the Company has achieved a 399% growth in Mineral Resource, with the Project's Mineral Resource Estimate now at 52,372,000kg (52,372 tonnes) of contained TREO.

The project results to date have been outstanding and as the Company continues to advance the Project many more significant milestones are being achieved. These results coupled with NTU’s ability to bring a high purity, dysprosium rich product to market, through a relatively simple process flowsheet, continue to demonstrate the Project’s value and economic robustness. The Project is well positioned to become a significant new source of high value dysprosium which is a key component in the growing high end and clean energy technology sector.

Asian Metal: I believe you have found rare earth to be an industry with huge potential over the coming years. Can you give us your opinion on why the rare earth market is such a promising industry?

George: Innovation in high-end and clean energy technology will continue to be the key driver of the global rare earth market. If you reflect back to four years ago when the iPad was first launched into the market no one would have thought there would be this many in circulation worldwide. As the world continues to demand technology that is faster, smaller and cleaner, we will be surrounded by innovation and who knows what the next big technology will be.

The world’s focus on emission reduction, climate change, and the introduction of global policy initiatives such as the Kyoto Protocol will see the demand for clean energy and energy efficient technology continue to rise. As an essential ingredient in the development of these technologies the outlook for the rare earth industry is positive.

Once in production, Browns Range will deliver to market a new stable supply of dysprosium, combined with a suite of complementary HREOs. By doing this, the Company aims to reinstate global supply confidence, to encourage further innovation, and ultimately increase dysprosium demand.

Asian Metal: I agree with you. I am of the opinion that clean energy and energy efficient technology will develop rapidly in the coming years. What preparation you have done before entering the rare earth market?

George: Prior to entering the rare earths market NTU conducted comprehensive research and analysis of the industry, and global trends and forecasts of rare earths and its applications.

This research and analysis included rare earths specific reports from reputable global sources, and content from companies such as Asian Metal news service. In addition,the Company leveraged the knowledge and expertise of industry experts through cooperative formal and informal arrangements.The Company continues ongoing industry analysis as it evolves both inside and outside of China.

To enable NTU to learn more about end-user rare earth product requirements and expectations, in terms of product supply and specifications, the Company engaged and continues to engage with major end-users in China, Japan, Korea, the USA and Europe.

Through ongoing engagement and collaboration with industry participants NTU has established a good profile within the global rare earth community.This profile has facilitated open and honest dialogue amongst peers, which provided insight to the challenges and opportunities of the industry.

NTU has assembled a strong team, with a wealth of experience and knowledge in the rare earth industry; this team has been integral to understanding and evaluating the industry. NTU is confident that the long-term market fundamentals and the Company’s value proposition will remain strong, despite the challenges currently faced by industry participants.

Asian Metal: In your opinion, what are the major near-term development goals and what is your assessment of progress to date? How do you predict the global rare earth market will be when your project begins to provide products?

George: In order to construct a robust business and forecast production plan for Browns Range, NTU conducted a significant amount of research and analysis into the rare earth market and entire rare earth supply chain, particularly with respect to future demand and supply.

The high concentration of dysprosium in the xenotime ore and the ability to produce a high purity, dysprosium rich product is where the Company’s distinctive capabilities lie. To provide an understanding of NTU’s market position, future dysprosium supply and demand has been closely analysed, followed by the by-product REOs such as yttrium and terbium.

This analysis identified that the growing demand for NdFeB (neodymium-iron-boron) permanent magnets will be the key rare earth market driver for the foreseeable future. These magnets are used in applications such hybrid electric vehicles, wind turbines and high tech applications such as mobile phones. Dysprosium is an essential component in the production of these magnets, as it improves the magnet's high temperature performance and resistance to demagnetisation. The permanent magnet sector’s forecast growth from 2014 to 2020 is expected to be 8 to 12% per annum, which could increase markedly if more reliable long term dysprosium supplies are made available at competitive prices.

The intended Browns Range production of 3,000 tonnes of TREO per annum will include approximately 300 tonnes of dysprosium. Market research indicates that annual demand for dysprosium will continue to grow and be at critical under-supply by 2016/17. Forecasts predict that at least 1500 tonnes will be required when Browns Range begins production in 2016, therefore the Project’s production comfortably meets market requirements without the risk of over-supply.

Asian Metal: And what about now? We have seen continuous price declines so far this year due to soft demand and abundant supply. Do you think that prices have hit the bottom already?

George: This question depends on the specific rare earth oxides. Yes, for light rare earths not essential in the magnetic materials supply chain prices have dropped dramatically. Conversely neodymium and praseodymium (NdPr), used in magnetic materials, are light rare earths that have seen stable prices for some time.

The performance of HREs in general has improved and recently there has been a slight increase in prices. The recent increases are attributable to the directive of the Chinese Central Government’s State Reserve Bureau of China to recommence stockpiling of specific rare earth oxides, such as praseodymium, neodymium, dysprosium, erbium, europium, terbium oxide and yttrium. This demonstrates that the Chinese Government also recognises the critical supply nature of these specific rare earth oxides.

With the exception of NdPr Browns Range is abundant in all these rare earth oxides.The stockpiling of praseodymium, neodymium, dysprosium and terbium, all used in magnetic materials, adds further confidence to NTU’s assumption that the current and future demand for rare earths will be driven by magnetic materials.

Asian Metal: What are your thoughts on the demand for rare earth in the market outside China in the coming year? And would you like to give us your views on the development potential of rare earth projects outside of China?

George:The rest of the world faces the same challenges as China in terms of finding reliable rare earth sources to support energy efficient and clean energy technology manufacturing industries.

The next 12 months will not see a lot of change from the current scenario. However, NTU is optimistic that the year will see Mountain Pass and Mt Weld rectify production challenges and deliver a sustainable supply of light rare earths to market.

While Mountain Pass and Mt Weld will fill the demand outside of China for light rare earths, there is currently no HRE supply outside of China. With future demand for HREs expected to exceed supply, a new source of HREs is necessary. In 2016, the production from Browns Range will see NTU become a stable supplier of HREs to meet market demand.

It is anticipated that production from Mt Weld, Mountain Pass and Browns Range will give downstream producers outside of China confidence to roll out manufacturing of products requiring rare earths. NTU believes that as confidence is restored, global demand will increase, and supply will be filled by sources from both inside and outside of China.

Asian Metal: Thanks for your time again, George. Looking forward to hearing more exciting news about Browns Range Project!

Footnotes

¹ 10% discount rate.

² In this document dysprosium is to be read as dysprosium oxide (Dy2O3) unless otherwise stated. Other elements are referred to similarly.