Tumerk Komurcu: Low-cost strategic mineral deposit in Turkey

Asian Metal: Tumerk, thank you for taking the time to talk with Asian Metal today. Could you please introduce yourself and AMR Mineral Metal.

Tumerk: Thank you. I come from a family that’s been active in mining for three generations, who were responsible for initiating the Aksu Project. AMR Mineral Metal is a private Canadian corporation developing a rare earth elements and minor metals project in Turkey.

Asian Metal: What is it about Aksu Diamas that separates it from its competitors out there? How is AMR positioned to ensure that true value can be extracted from this project?

Tumerk: It is the understanding and ability to recover each product individually, scalability of the project with low capital requirement, near-term to production, and project economics not being dependent on cerium and lanthanum prices. Even when a value of $0 is attributed to Ce and La, the project has an after-tax IRR of 75%.

The AMR team is experienced in bringing new mines into production and commercial scale operations. Although the market is there, we believe the best way is always to start with relatively smaller operations making, where necessary, adjustments and maximizing profitability on commercial scale. After this, capacity can be increased to realize the full potential of the project.

Asian Metal: What sort of time and cost factors are involved in getting this project running? What is the logistical and infrastructure situation at the deposit?

Tumerk: Within this year, along with completing the bankable feasibility study for targeted Phase I capacity, a pilot plant will be built where all products are to be recovered in small quantities on a continuous basis. For this stage we are looking to complete a funding round of about $5m.

For Phase I capacity the capital requirement is $65m. Once funding is in place, construction is anticipated to be completed within 12 months and will start generating annual revenue of about $90m with a 45% EBITDA.

To reach targeted full capacity, the capital requirement will be another $125M with which the annual revenue will increase to $350-400m with the same EBITDA margin.

The project area has excellent infrastructure in place with year-round working conditions. This is one of the main reasons, along with the favorable formation of the deposits, why the project can start production with such low capital requirements and a short time frame.

Asian Metal: What about your approach to marketing the minerals produced?

Tumerk: We’ve been in discussions with potential customers in Turkey, Europe, and Asia. For Phase I production quantities, we are now in the process of completing off-take MOUs with reputable companies in their fields. The MOUs constitute working with the related parties during the pilot plant program to meet their required specifications. Once this work is completed we will then get the binding off-take agreements in place.

Asian Metal: Following a brief spike over the summer, rare earth prices have headed downwards and the market has remained stagnant. What are your thoughts on this and how is AMR able to circumvent the problem of low prices? Is there more to the resource than just REEs?

Tumerk: Fundamentally, the demand for technology metals will continue to grow even if recycling and more efficient usage of these metals are realized. I believe the speculative era on prices has ended and we will see healthier price movements supporting both current and potential producers as well as users of these products.

Rare earth oxides constitutes about half of AMR’s revenue stream. The remaining half is from co-products such as TiO2, ZrO2, Magnetite, Fe2O3.

As I have mentioned earlier, the Aksu Project has very positive economics even when 0$ value is attributed to Ce and La.

Asian Metal: How do you see the development of new rare earth deposits around the world contributing to the long-term development of the wider market? At times it seems like a double-edged sword, with low prices enough to tempt more end users into making use of them, but at the same time remaining prohibitively low to developing new deposits.

Tumerk: It is obvious that new production capacity is needed, especially for heavy rare earths. I believe the real dilemma for developing projects is the lack of know-how on extraction/separation technology. When you add lack of infrastructure and very high capital requirements on top of this, I think there will only be a handful of projects coming into production in the next two to five years.

Asian Metal: Turkey has been all over the financial pages in recent days. Do you foresee any difficulties in the wider Turkish economy impacting on your work over the coming years and, if so, how has AMR sought to mitigate these risks?

Tumerk: First of all, Turkey is the sixth largest economy in Europe and 17th in the world. Beginning at the end of March, two elections will be held in 2014 and a general elections in 2015. We believe politics will have an effect on the economy during this period.

Turkey currently has an investment grade from Moody’s and Fitch, both of which said the possible political risks are already incorporated to the current grade. With average population age of 30, strong and resilient macro-economic fundamentals and a 2023 target of being one of top 10 largest economies in the world, the long-term outlook for Turkey remains robust.

We do not anticipate any negative impact on our development program, construction period, or production start up.