David Vinokurov: Putting Kutessay II back into heavy rare earth production

Asian Metal: David, thank you very much for participating in this interview with Asian Metal. We have a great interest in the Kutessay II project and feel that the public will be hearing a lot more about the rare earth deposit and processing developments in the near future. Firstly, can you briefly explain the history of Kutessay II and the importance of its past toward current and future development?

David: There is a strong tradition of mining in the Aktyuz area, where Kutessay II is located, going all the way back to the 1100’s for lead, zinc and silver. In fact, a significant amount of the lead for the bullets used by the Soviets in WWII came from the site. Only after the majority of the lead was used were rare earth elements discovered. This brings us to the early 1950’s, when our metallurgical/technological contractors at the Russian Leading Institute of Chemical Technology, (VNIIHT), was founded to exploit the rare earth elements in the Soviet Union, and those that were discovered in the Aktyuz Orefield. The technologies and applications they developed were used as part of the Soviet military industrial complex and were highly prized.

It took the scientists and engineers at VNIIHT eleven years to gain a full understanding of Kutessay II. The mineralogy alone took seven years to determine, with another four years required to unravel the metallurgy. The applications for rare earth elements at that time were strictly military and the Soviet Union committed the best and the brightest in their engineering and chemistry systems to the site. By deploying unlimited budgets and manpower, they were able to crack the metallurgical code at Kutessay II.

We acquired a 20 year mining license in 2009. The mine was originally shut down when the Soviet Union fell apart. Our processing facility, Kashka Rare Earth Processing Plant (KRP), was a top-secret facility up until that point. When the mine was shut down, there was still concentrate remaining at the processing facility that continued to be processed and marketed until Chinese producers began monopolizing the market in the very early 1990’s. We have brought back some of the people previously associated with the project who worked at Kutessay and KRP. These are specialists that were treated very well in the communist system due to the specialty products they produced at site, which supplied 80% of Soviet rare earth needs at the time.

The advantage we have today is that the Soviets have done all of the tough work for us. The difficulties that exist in the separation of heavy rare earths from hard rock deposits are well known and documented. We are fortune that Dr. Kosynkin, one our lead technical advisors, has overseen the commissioning of REE production and extraction facilities in Russia, Ukraine, Estonia and Kazakhstan. We are in the process of re-assembling and adding to a team that can deploy our recently developed new radiation extraction technologies and utilize new solvents to increase the efficiency at KRP. Stans Energy has a complete grasp on the metallurgy and mineralogy, which had been previously proven on an industrial scale, and that alone gives us a significant advantage.

Asian Metal: What makes this project so unique, and how would you define Stans Energy’s relationship with stakeholders inside and outside of Kyrgyzstan?

David: One thing that is unique is that we have 30 years of historical data on the processes involved to make sellable products. We have that information, and we are working with one of the world’s leading institutions, VNIIHT, in Moscow. They invented these processes and passed them on to the Chinese, who then took rare earth processing to a different scale.

Our relationship inside and outside of Kyrgyzstan, and locally in Aktyuz where Kutessay is located, is excellent. There is tremendous support from the local community. The school in the village of Aktyuz, which we sponsor, is among one of the best in the country. Phone lines, heating systems and other improvements and supplies have been provided to the school. There are less than 500 people in Aktyuz now, but its population was once much more having dropped 90% to where it is today. In Kyrgyzstan, a large portion of the GDP is in the form of remittances. People leave to work outside of the country in Russia or Kazakhstan. The locals are happy that we are working to create jobs that their families can come home to.

Some of the recent challenges we faced were unsuccessful and ultimately illegal attempts to undermine our License Agreement and our legal standing. Stans Energy has recently concluded court proceedings against a parliamentary committee that reaffirmed our rights to exploit Kutessay II and continue advancing it to production. Being a western company, we adhere to the highest standards and are meticulous in our compliance with all local and international requirements. We are extremely pleased with the court verdicts in our favour, and we are preparing for the 2013 field season.

Our company has been in Kyrgyzstan through two revolutions and two changes in coalition governments. Over this time our team has grown to 129 people, the vast majority of which are from Kyrgyzstan.

Asian Metal: What are the key highlights of the deposit, and what makes it a world class project?

David: One key highlight is the proportion of heavy to light rare earths, which is approximately 48% heavy rare earth to total rare earth elements. Based on today’s pricing, about 85% of potential revenues would be from critical rare earths, of which nearly 40% is from dysprosium alone. A lot of the infrastructure is there, but obviously it needs to be updated. This saves us time and money by not starting from scratch. You can drive from the capital, Bishkek, to the mine on a new fully-paved highway. There is a good foundation of existing infrastructure.

What makes Kutessay II and KRP unique is the ability to bring physical samples of oxides and metals that have been produced at our processing facility to meetings with potential off-take partners. There is a lot of scepticism in the sector regarding unknown metallurgy and this ability we have goes a long way in overcoming some of these objections that we hear about in the sector.

Asian Metal: Mineralogy is very important to a rare earth project, but what can you tell us about the metallurgy to-date? How is testing progressing, and what have been your top achievements?

David: We have conducted operational testing in Q3 of 2012 and demonstrated the ability to produce oxides and metals. Our metallurgical contractors at VNIIHT have developed a new cracking technology used for the removal of radioactive by-products from the concentrate. It is a much more environmentally friendly process than what was used historically. Our team there has also developed a new separation technology where they can selectively separate certain elements and leave the rest in concentrate. Those details will be released to us soon, and we will be issuing updates once the reports are available. Stans Energy will then begin pilot scale testing of those technologies. At present, we are planning to do it at Kashka Rare Earth Processing Plant (KRP). The results of this project will be incorporated into our upcoming feasibility studies.

Asian Metal: In December, the company delineated the Kutessay II deposit. What does this mean for the project, and what should the public be looking forward to in coming months?

David: The central deposit in Kutessay II was open to depth. In 2011, we wanted to determine the extent of REE mineralization. We subsequently discovered blind mineralized zones that were not attached to the existing deposit. The aim of our 2012 program was to get a better understanding of the relationship between them.

According to our 2010 JORC resource estimate, Stans Energy has 45,650 tonnes of pit contained resources. Our intention has been to move the project forward quickly by exploiting what we knew to be in the ground and not to spend lots of capital on an aggressive exploration program. Having made the decision to use potential future operating cash flows instead of deploying funds from our past financing has proven to be a wise decision given the situation we see in junior markets today. Improving metallurgical processes and focusing on the engineering required to build out production has proven to be the right strategy.

Asian Metal: In your opinion, what are the major near-term development goals and what is your assessment of progress to-date? Can you give a brief explanation of your current anticipated timeline?

David: We need to start the pilot scale testing on new milling, cracking and separation technologies. We are going to commence an environmental baseline study to insulate ourselves from any past liabilities. Due to the minor radiation associated with all rare earth deposits, the company needs to ensure compliance with both local and international standards.

Number one however, is securing an off-take or joint-venture agreement. We have been in discussions with major organizations for some time now and hope to have a binding agreement sometime this year.

Asian Metal: With many projects, the development and management team is sometimes almost as important, if not more so, than the deposit and project itself. What is unique to your team, and how do you envision the company moving forward?

David: Our management team can leverage their combined decades of experience in mine engineering, capital markets, diplomacy and metallurgy to make Stans Energy the preeminent Heavy Rare Earth Producer in the world. By capitalizing on our strong working relationships in areas of the former Soviet Union, we believe that this an achievable goal and we are working towards making this a reality for our company and our shareholders.

Asian Metal: Thank you very much for your time, and I look forward to working more closely with you in the future.