Quest to sell 100% of Strange Lake’s zirconia to TAM

Quest Rare Minerals (TSX: QRM; AMEX: QRM) received a much-needed boost after reporting that it intends to sell 100% of the anticipated annual zirconia production from its Strange Lake rare earth deposit in northern Quebec to New York-based TAM Ceramics Group, a leading manufacturer of zirconia chemical products.

Before markets opened today, the Toronto-based explorer said it inked a non-binding off-take agreement with TAM, where the U.S.-based firm would buy up to 24,000 tonnes of zirconia each year from Strange Lake. This sent the junior, recently trading near its 52-week low of 40¢ reached in April, up nearly 18% to 54¢ in late afternoon trading in Toronto, before edging down to 52¢.

Much of the enthusiasm may have stemmed from this being the first tentative contract that Quest has announced for its advanced exploration stage project located near the Quebec-Labrador border, some 220 km northeast of Schefferville, Que., and 125 km west of the Voisey Bay mine.  

While the parties still need to hammer out the price and terms of the deal, Quest says a definitive off-take agreement would likely have an initial five-year term, which could possibly be renewed another five times, covering the project’s estimated 30-year life.  

The companies are expected to conclude the definitive agreement by no later than December 31, 2014.

Earlier this year, Quest was testing its solvent-extraction circuit for zirconium at its mini-pilot plant in Mississauga, Ont., using a small amount of mineralized material from the deposit’s high-grade B-zone. It expects to further tweak that process along with the separation circuits for niobium and rare earth concentrate in a larger-scale program this year.

“We view TAM’s involvement with our Strange Lake project as a significant vote of confidence in the considerable progress we have made in precipitating chemical-grade zirconia product at our pilot plant,” said Peter Cashin, the company’s president and CEO.

Quest aims to deliver a much-delayed prefeasibility study by year-end and cautioned in February that the start-up and operating costs for Strange Lake may ring in substantially higher than the $563 million and $102 per tonne figures estimated in a 2010 preliminary economic assessment. That study looked at building a 4,000-tonne-per-day open-pit mine at Strange Lake’s B-zone.

To help fund ongoing work at its properties, Quest announced a potential $2.25 million private placement in early June, which was expected to close around June 13.

At the end of April 2013, the junior had $8.8 million in cash and equivalents. It currently has 62.2 million shares outstanding and a market capitalization of $32.3 million.