Peak Resource: NdPr owns a bullish market outlook for the next decade

Asian Metal: Thanks for accepting the interview of Asian Metal, Michael. Would you like to introduce your company firstly?

Michael: Peak Resources (PEK) is an Australian listed company focused on developing one of the world’s largest, highest grade and lowest cost Neodymium (Nd) and Praseodymium (Pr) (NdPr) rare earth projects, the Ngualla Project in Tanzania. Peak offers excellent leverage to the favorable NdPr price outlook with 90% of revenue to be generated from NdPr which is the key enabling raw material, the heart, of the electric mobility rEVolution.

Asian Metal: Would you like to share whether there are any updates of your Ngualla project? How about the application of Special Mining License (SML)?

Michael: Indeed, as you might be aware in July 2017 the Tanzanian Government has changed the legislation related to the mining industry, and since then we have had to wait until for the new regulations and new processes including the nominations of the new governmental body and its representatives to be established.

Since the beginning of 2018, we have seen great progress in this area. In January the Tanzanian government published the new mining regulations and in April appointed the new governmental body the “Mining Commission” including its members and chairman, which is responsible for processing all mining applications.

All these recent key developments have re-established a functional framework. The government is now actively processing mining-applications, including our Special Mining Licence application (submitted in August 2017), which is 100% complete and compliant with the new mining legislation requirements.

We can say that we have had a lot of good meetings since the beginning of the year with different stakeholders which are involved in the approval process. Across all of them, we received good feedback and support for our project and the assurance that we are one of the first mining licences which will be processed. Therefore, we are positive that during 2018 we will finalize some key milestones to advance our project and enable us to enter a new chapter for the Company.

Asian Metal: What's Ngualla's next step? What do you see as the main challenges for the project?

Michael: We recently received the planning permission for our UK refinery and we expect to receive the environmental permit from the environment agency within the next few months. Therefore, we see as the next important catalyst for our company that we receive the environmental permit in the UK and the mining licence in Tanzania. In completing these two important project milestones we believe it will deliver additional company and shareholder value ahead of obtaining project development finance.

In combination with what I just highlighted we have also recently welcomed on our Board new chairman Peter Meurer. Peter has a distinguished career of over 40 years in the corporate finance sector, we believe we are now well positioned to pursue our corporate development strategy.

It is very pleasing that just last month we were able to raise 7m AUD in new equity investment which was substantially oversubscribed. Encouraged by this result we are aiming to further grow our investor base among institutional investors and together with our new supporter base shape to build a consortium of strategic partners to bring this project into production.

In addition to aforesaid activities, we have also entered a new phase of our sales and marketing strategy. Since the beginning of this year, we are actively presenting at investment and rare earth conferences globally, for example at your conference in Sanya/China 2018. Furthermore, we have also significantly intensified our business development activities and off-take discussion with key stakeholders in the industry. So overall, we are quite confident that all required elements for success are coming together.

Asian Metal: As far as I know, you are doing a research to compare rare earth projects. As research continues, did you find some more advantages of Ngualla project?

Michael: You are right we are running continuously a comprehensive benchmark analysis to understand where we are standing in comparison to our peers and operational industry players, as we compete for the same capital on the financial market (For more information please see below mentioned white paper).

It’s fundamentally important to understand your weakness, strengths and executional risks so you can derive from that a risk mitigation plan and ultimately develop an actionable corporate development plan. We believe that this will allow us to demonstrate the outstanding attributes and opportunity of the Ngualla Project and will enable us to attract the support from strategic investors and the financial industry.

In a nutshell, without getting into too much detail here, we believe our project represents the best development project in the market and when operational will more than compete with the current producers. We have an exceptional ore body of high quality which is low in phosphates and carbonates which enables us to have a relatively low reagent consumption. Furthermore our orebody allows us to follow a well known, non-complex and low risk refining process with conventional industry materials such as plastic piping and tanks, resulting in our projections for one of the lowest CapEx and OpEx operations per produced kilogram NdPr compared to both developing and operating mines. Most importantly we will be fully integrated. We plan to produce oxides in house and later possibly even metals. Our management team has real life rare earth experience in construction and operation of a rare earth refinery, and industry marketing and sales expertise. We believe these factors are a big differentiator for us in the market (For more information please see below mentioned white paper).

Asian Metal: As we all know, NdFeB magnet industry is the most import downstream market. EV (Electric Vehicle) and HEV (Hybrid Electric Vehicle) are the most import promising application of NdFeB magnet. May I know your opinion about the demand trend for magnet from EV and HEV industries in the coming years?

Michael: Indeed we are bullish on the market outlook for NdPr for the next decade. We believe NdPr is the biggest blind spot in the global commodity market and that the next decade will provide all the evidence to support this assumption.

Obviously EVs are the fundamental disrupter driving this scenario, but actually in the long run there are several applications yet to be launched to the market that may well have as greater impact as the automotive industry as for example the robotics solutions. Today the world is concerned about access to supplies of battery metals like lithium, graphite and cobalt but it is important to note that attached to each battery is a motor or a generator and the majority of these application will be equipped with NdPr permanent magnets. Soon enough the wider audience must realize the importance of securing a supply of NdPr.

Therefore I have decided to summarize and to share our industry insights and understanding of the supportive macroeconomic elements in a 115-page white paper on this subject. Which is available as a free download here at http://www.peakresources.com.au/whitepaper/

Asian Metal: Affected by the environmental protection inspection, some Chinese separation plants halted production. Chinese suppliers continue to raise PrNd oxide, gadolinium oxide, and terbium oxide 99.99%min prices in the first three weeks of June. Consumers still adopt hand-to-mouth purchasing strategies. It is said the environmental protection inspection might come to an end in early July, so the Chinese PrNd oxide, gadolinium oxide and terbium oxide markets witnessed slide price and slow buying activities over the past week. Would you like to introduce your opinion about rare earth prices, especially PrNd oxide prices trend in the near term?

Michael: From our understanding the communicated change of the Chinese policies will impact the future of the rare earth supply chain. China currently accounts for approx. 80-90% of the global NdPr supply and is undergoing structural changes due to environmental and supply side reforms which will reduce the overall availability of material in the market (e.g. Made In China 2025) and raise their costs of production (Beautiful China Policy e.g. Environmental Protection Tax law ). The trend is also supported by the published goals of the 5 Year Rare Earth Industry Development Plan by China’s Ministry of Industry and Information Technology in October 2016. This offers the opportunity for new supply sources to be developed supported by an increasing NdPr price over the coming years.

We believe that for the short term we will continue to see a lot of price volatility due to speculation and profit maximization of established industry players and the fact that the price is mostly driven by short term market events like governmental and industry news, and established cyclic sourcing patterns.

Overall, due to the above highlighted developments we expect to see small but steady price increases as a continuous trend with the usual cyclic volatility.

From a long to mid-term perspective, the above-mentioned market changes in combination with growing demand from global customers, supportive macroeconomic developments and the upgrading of industry equipment to comply with higher standards, we see an interesting confluence of factors which definitely supports the belief that prices will rise considerably.

So overall the operational market players should enjoy today's attractive pricing landscape whilst they can. The coming demand disruption and the established way of doing business today is likely to further amplify the expected pricing increases.

Asian Metal: Over the past seven years, many rare earth projects have been close down as rare earth prices keep declining and miners are pessimistic about rare earth future market. What's your opinion about rare earth industry prospect?

Michael: Indeed the last 7 years were difficult for the rare earth sector because of the declining price situation but we believe the electrification of our society will represent a shockwave for the global commodity market and we will shuffle the deck and produce a few champions in regards of commodities and enterprises.

I believe, and history has taught us, that the biggest entrepreneurial success has been accomplished when entrepreneurs challenged the mainstream.

Rare earth is right now at the stage. If we use the analogy of selling air condition systems in the winter. It's difficult to win new business in winter and customers ask for huge discounts as they do not value your proposition due to the existing climate situation. However as soon as the summer comes and the temperature is rising and we have the first heat wave, the very same customers will offer to pay you double compared to what has been discussed in winter just as long as you solve their problem. I think this is a great picture which explains well where we are in the rare earth market today and what opportunities there are to come. Therefore, we are 150% optimistic.

Asian Metal: Thanks for your time, Michael! Wish you every success in your business.