Ground Breakers: Rare earths players are enlisting China’s help to try get off the ground

Hastings shares run higher as it announces toll treatment deal with Chinese rare earths producer
Deterra still looking at battery metal royalty opportunities as iron ore delivers strong profit

Rare earths hopeful Hastings Technology Metals (ASX:HAS) is the latest to break bread with China in the hopes of smoothing a pathway to production.

Heavily sold in recent years, Hastings shares were up more than 11% this morning after the rare earths junior suggested a toll treatment arrangement with private Chinese rare earths player Baotou Sky Rock Rare Earth New Material Co. could unlock the latent economic potential of its Yangibana deposit in WA’s Gascoyne region.

Yangibana is one of the largest possible sources of magnet rare earths outside of China, the dominant producer and processor of the metals used in technologies like EV motors and wind turbines.

Just two major rare earths producers are operating outside the Middle Kingdom — Australia’s Lynas Rare Earths (ASX:LYC) and California’s MP Materials, which have reportedly discussed a potential merger in recent times. However, MP Materials is closely linked with China’s Shenghe Resources, the main offtaker for its Mountain Pass mine.

Fellow rare earths small cap Peak Rare Earths (ASX:PEK) has also looked to Shenghe, one of the top State-owned producers in China, to get off the ground at its Ngualla project in Tanzania via a binding offtake deal.

Hastings said this morning it had signed a binding term sheet for an integrated toll treatment and offtake arrangement with Baotou, which would see concentrate from its Yangibana project tolled in China to produce separated rare earth oxides.

Hastings would receive payment for the rare earths products, mining a capped tolling fee, with the company to supply a minimum of 10,000tpa of rare earth concentrate over seven years from execution with an option for another five years at HAS’ election.

It’s an extension of the company’s previous relationship with Baotou. HAS had signed an offtake deal with Baotou previously in November 2018 which lapsed late last year, and still has an offtake deal for up to two thirds of its output in place with Europe’s Thyssenkrupp.

It says the new tolling arrangement would significantly improve earnings and project economics, lifting its post tax NPV from $538m to $865m and IRR from 27.54% to 31.28%, with the capital payback period falling from 4.4 years to 3.4 years despite a lift in capex from $470m to $503m.

With $142m of work already completed to date, Hastings says $361m is still to be spent to build the project, which would see an improved level of life of mine free cash flow and annual earnings under the new model, from $1.835b and $174m respectively to $3.345b and $258m.

However, a stage 2 hydrometallurgical plant has been excluded from the analysis. The project is expected to produce 37,000t of mixed rare earth concentrate a year over a 17-year mine life.

Today’s bump was a welcome change for HAS, down over 75% in the past year.

It made headlines in 2022 when Andrew Forrest’s Wyloo Metals made a $150m investment in Hastings through a note issue to fund Hastings’ acquisition of more than 20% of TSX-listed magnet producer Neo Performance Materials.

Hastings Technology Metals (ASX:HAS) share price today

Deterra runs the ruler over battery metals royalties

Deterra Royalties (ASX:DRR) remains on the look out for opportunities to fund struggling battery metals hopefuls in opposition with majors and family offices, with MD Julian Andrews saying the Aussie royalty company will keep its eyes open if it likes the long term outlook for the commodity and project.

“I think the key point for us when we look at any commodity is we need to line it up with our investment priorities,” he said on a conference call today.

“Typically when we look at opportunities they are associated with the life of mine. We need to take a view on how we think the industry will be and how pricing will perform over the life of mine.

“Clearly there’s been some short term pressure and for people who perhaps have a longer term investment horizon, that can often represent an opportunity to see value in investing.

“We bring a long term perspective to those opportunities and I think we’re more focused on where pricing is going to be in the medium term and the long term than the short term.”

The potential to develop and fund new lithium and nickel mines has cratered as prices have entered a wintry period in both commodities on oversupply in recent months.

Liontown Resources (ASX:LTR) notably saw a $760 million funding package fall over to bankroll the expansion of its new Kathleen Valley lithium mine from a mining rate of 3Mtpa to 4Mtpa.

Nickel miners are in even more trouble, with BHP (ASX:BHP) flagging the potential closure of its entire Nickel West business in WA after revealing it lost around US$200m in the first half of the financial year.

A flood of new supply from Indonesia, where technological advancements from Chinese backers have enabled its lower quality nickel to be upgraded into product suitable for the battery market, has seen prices halve in a little over a year.

$2.7b capped Deterra is swimming in cash thanks to its royalty over BHP’s (ASX:BHP) Mining Area C area at its WA Iron Ore operations, which includes the 80Mtpa South Flank mine.

It pulled in $119m in revenue and $113.4m in EBITDA in the December half, up 23.4% and 23.6% respectively, backing NPAT of $78.7m (+24.2%) and a 14.89c per share dividend (+24.1%).

An Iluka Resources (ASX:ILU) spinout, DRR also pulled in around $500,000 from royalties on mineral sands assets.

Sales volumes from BHP’s Mining Area C fell 4% to 56.4Mt, but that was more than made up for by higher iron ore prices, which came in at $170/t, up 28% YoY.

MAC is expected to hit a full capacity run rate of 145Mtpa from mid-2024 once South Flank, BHP’s newest iron ore mine and one which generates premiums over benchmark prices thanks to its lump content, is ramped up.