Northern Miner: Interview with Quest's CEO Peter Cashin
Interview with Quest's CEO Peter Cashin
Quest Rare Minerals (QRM-T, QRM-X) is advancing its Strange Lake rare earth element (REE) deposit in northern Quebec and expects to deliver a prefeasibility study on the project by year end or early January, followed by a feasibility study in the second half of next year. The Northern Miner’s Salma Tarikh caught up with the company’s president and CEO Peter Cashin at the recent Quebec Mining Exploration Convention to learn more about the company’s project.
TNM: Given they are several rare earth projects in Quebec, can you describe what makes Strange Lake unique?
PC: All the rare earths have specific distributions and some have more of an emphasis on the lights. The rare ones tend to be the heavies. The metal distribution for the Strange Lake deposit is it is particularly enriched in those elements that are perceived as the critical rare earths, which are going to drive the rare earths supply/demand in the future. That just happens to be the nature of the deposit.
TNM: It’s mixed with heavies and lights?
PC: It's mixed with heavies and lights, on average it is 40-45% heavies and most of the value is really derived from those critical rare earths. I would say between the six criticals plus byproducts zirconium and niobium, it constitutes about 92% of the intrinsic value of the material. That is what really makes it unusual.
And the industry is really looking for a long-term solution. The deficit in the rare earths spectrum is always coming from the heavies. Although the Chinese do produce amount of heavies it is a fairly finite resource and they’ve projected as their high-tech industry grows, which is really where their emphasis is going to be in the future. That’s really what’s led to their decision to cut back on exports.
When they produce their plans they usually view what the circumstances of different markets are in 10 to 20 years down the road. They see the consumption of rare earths is going up substantially [in that time] and that is why they have determined those export quotas.
TNM: So there’s a predicted increase in demand in the coming years. But in terms of stock prices, a lot of rare earth juniors have recently been declining, would you say investors are becoming more cautious or is it part of a cycle?
PC: I think that is all part of a cycle. I was happy to see a $9 share price in Quest. But that was unrealistic. I even said that before the crash in prices in the early part of 2011. Just take a look of the price increase profiles in all of the rare earths. When you see a stock price that is going up exponentially that to me is not sustainable and sure enough it came down because there was a lot of hoarding and speculation on prices and stuff like that.
I still think that it’s a much more difficult sector for an investor to understand then most common commodities like copper and zinc which are single commodities, they are market traded. They got a trading history whereas rare earths have always been opaque in terms of their trading characteristics. It has always been by contracts and some by off-take agreements and other by secret agreements and it’s not market traded.
I think the investors and even the investment sector and analysts don’t have a good handle on not just pricing, but what pricing can you believe. If you take a look at a whole spectrum of different companies that have advanced studies in their deposits, their assumptions of what long-term pricing is going to be is all over the map. I think it’s because we don’t have a really good fix on price expectations for these projects.
TNM: So what would you suggest investors to look at when they are investing in a rare earth company?
PC: Well, obviously you would look at the [management] team. And it’s all about the property. It’s all about having the disclosure documents that allow them and analysts to make a valued decision on a different investment.
I guess part of my issue is people say, ‘How come your share price is impacted a little bit more when there’s a downturn in the market’ and I’ve said, I’ve always been a realist. I rather under promise and over perform on what I can deliver on a project. I don’t ever want to be caught making unqualified statements about my project.
In other words maybe I’m not as promotional as I can be. But I just let the development of the project and achieving my milestones as an indication of how I want to drive this project forward.
TNM: Okay, so the next major milestone should be the prefeasibility study.
PC: Yes, that should be coming either by the end of the year or early January at the very latest. A preliminary cash flow model should be presented very soon.
TNM: In terms of financing, how does the company plan to fund the project?
PC: Well there’s a multiple means by which to do it. Our capital structure is nice and tight. We only have 67.5 million shares issued and fully diluted. As a straight exploration junior, the 100-million-share level is an important threshold. But I think generally investors give you a little bit more latitude to advance that share level when you are applying it to an advanced development and driving towards production start up. So I got room there to do some equity.
I think an important aspect of the project too and it’s our intention to find a strategic partner. We advanced the metallurgy to a point where we are just about to turn over our pilot plant. That’s very important as we are scaling up our metallurgy process. We have done it through trial and error because it is not exactly off-the-shelve engineering.
So you go through those various processes and start accumulating the necessary capital going forward, trying to mitigate the debt load that you have to assume on the project. So whatever we have to make up will have to be debt. The Quebec government is interested. It’s the type of project they want to invest in.
The way I’m portraying it is it’s not just a mine development, it’s an industrial development. It’s a mine and mill complex. It’s bringing concentrate down to separation facilities somewhere in Southern Quebec, where you have access to hydro, rail lines and road infrastructure. And all a sudden it’s a value-add proposition. Given the recent provincial budget they are significantly encouraging companies to try to keep downstream processing in province. So the province could take advantage of the value add aspects of refining and separation and all that, and I want to do that.
TNM: There are a lot of benefits that the Quebec government provides to mining companies, such as tax breaks and cheap hydro. But what would you say are some of the draw backs here?
PC: I don’t think they are any. The nominal tax rate is a little higher, but that is more than counteracted by some of the fiscal benefits and the support system they provide to the mineral industry. We haven’t seen the evolution of Plan Nord. But Plan Nord is a good example of how they take a much longer term view of providing infrastructure support for the development of northern projects.
TNM: Is there anything else you would like to add about Strange Lake or the company’s goals?
The project is advancing. The resource estimate we tabled at the end of October, we doubled the resource. We significantly enhanced the size of the surface high grade zone, which we call the enriched zone. This is important from our prospective because it’s going to provide us a much stronger cash flow in the early years of production in order to mitigate a lot of the debt overhang we have to assume in the initial start up [targeted for 2017]. I mean it’s a great deposit.
The 2010 preliminary economic assessment envisioned Strange Lake as a 4,000-tonne-per-day open-pit operation, producing 12,000-15,000 tonnes per year of rare earth oxides for a minimum of 25 years.
The deposit currently has 278.1 million tonnes grading 0.93% total rare earth oxides plus yttrium (TREO+Y), 1.92% zirconium oxide (ZrO2), 0.18% niobium pentoxide (Nb2O5) and 0.05% hafnium oxide (HfO2). It has an additional 214.4 million tonnes grading 0.85% TREO+Y, 1.71% ZrO2, 0.14% Nb2O5 and 0.05% HfO2 in inferred.