Pele shares surge on Eco Ridge’s positive PEA

Pele Mountain Resources‘ (gem-v) shares continued to climb today on the back of a positive preliminary economic assessment (PEA) for the company’s Eco Ridge mine rare earths and uranium project in Elliot Lake, Ont.  

The company released the PEA before markets opened on July 5, and saw its shares almost double since, moving from 19¢ to close at 31.5¢ on July 6.

The study which was prepared by Roscoe Postle Associates envisions the project as a 9,400-tonne-per-day operation, producing 708,000 lbs. of total rare earth oxides (TREO) and 2.07 million lbs. uranium oxide (U3O8) a year. The mine over its 14-year life would produce 10.7 million lbs. TREO and 24.9 million lbs. U3O8.

Most importantly, the study shows the project has a positive net present value of US$662 million, at a 7.5% discount, with a 47% internal rate of return.  

Pele president and CEO Al Shefsky said in a press release that he was “extremely pleased” with the PEA results and believes that Eco Ridge could become a key source of rare earth elements and uranium in the future.

“Our project economics are robust and compelling, and we are already planning next steps to rapidly advance towards development and production,” said Shefsky, adding the project may become a “long-term source of heavy rare earth oxides (REO) outside of China.”

It would cost Pele US$212 million to get the mine up and running, and another US$195 million to sustain operations. Operating cash costs are estimated at US$16 per lb. U3O8, net of REO credits.

Pele plans to develop Eco Ridge as an underground uranium mine with a surface processing plant. It also plans to use a mix of underground bio-leaching and surface heap leaching to recover the materials.

The PEA shows recovery rates of 70% for U3O8, 35% for total heavy REO and 7% for total light REO.

Shefsky said he believes the company can improve recovery for heavy REO based on metallurgical and mineralogical studies, and that a different processing circuit could increase the light REO recovery. In turn, he adds, this would also boost the project’s economics.

According to the study, Pele would generate two-thirds of REO revenue from heavy REO (including yttrium and scandium oxides) which are forecast to be in short supply in the coming years.

The PEA used a uranium price of US$85 per lb., which the company says was derived from a group of independent analysts. However, the current long-term contract price for uranium is at US$65 per lb.

For REO, the study used a 6-month trailing average of daily prices for each element, compiled by Asian Metal, starting from Jan. 1, 2011.

Currently, the company is working on a 7,000-metre dill program, with hopes of converting the indicated resources at Eco Ridge into reserves, and also increasing the tonnage in the inferred category.

The project has an indicated resource of 51.8 million lbs. TREO and 15.2 million lbs. U3O8 (14.3 million tonnes grading 0.16% TREO and 0.048% U3O8). It has an inferred resource of 96.3 million lbs. TREO and 31.4 million lbs. U3O8 (33.1 million tonnes grading 0.13% TREO and 0.043% U3O8).

Since, the study forecasts Eco Ridge’s pretax cash flow to be more that US$7 per fully diluted Pele share, Shefsky remarked: “We do not believe that out stock price currently reflects the value of this important asset.”

The company has 133 million shares outstanding.