Northern Minerals Offers Rare Earth Potential

This story features NORTHERN MINERALS LIMITED. For more info SHARE ANALYSIS: NTU

– Rare earth elements attracting increased interest
– Northern Minerals has two potential projects of interest
– DJ Carmichael initiates with Spec Buy rating

By Chris Shaw

Rare earth elements are increasingly on the radar of commodity markets thanks to growing demand and tight markets. Given China is forecast to produce almost all the world's heavy rare earth (HREE) minerals this year and around 96% of the total in 2015 new sources of supply are required, especially as China has indicated it may need to import some elements in response to growing domestic demand.

Different rare earth elements have different uses, DJ Carmichael noting the fastest growing industries driving demand at present are permanent magnets, rechargeable batteries and phosphors. Yttrium, dysprosium and terbium are among the HREEs critical to these industries.

An emerging explorer in the sector is Northern Minerals ((NTU)), with DJ Carmichael initiating coverage on the stock with a Speculative Buy rating. Northern Minerals has large, prospective land holdings in both Western Australia and the Northern Territory.

The HREE exposure comes via the Browns Range and John Galt projects. While both projects are at the early stages of development, exploration is continuing. DJ Carmichael notes Northern Minerals is fully funded for exploration through 2011, holding around $7.7 million in cash at present. 

Additional capital for further development work may be raised late this year, DJ Carmichael expecting such a raising would likely be done via a placement to a strategic investor.

At Browns Range, Northern Minerals has completed geochemical soil sampling programs, geological mapping and some rock chip sampling. Early metallurgical test work has been encouraging according to DJ Carmichael, as extensive soil anomalies have been identified. These will be tested by a drilling program beginning later this month, with four main targets identified.

The key to results to date in the view of DJ Carmichael is the HREE distribution occurs in xenotime mineralisation and has low levels of impurities. This implies high recovery rates, so improving the economics of the project.

Identified HREE at Browns Range include yttrium, gadolinium, erbium, dysprosium and terbium. Market expectations are for these elements to remain in deficit in coming years, so increasing their commercial value. The presence of these elements suggests the Browns Range project has unparalleled prospects relative to industry peers according to DJ Carmichael.

Sampling and trenching at John Galt has identified mineralisation at three different zones, DJ Carmichal noting previously recorded assay data showed the presence of high value HREEs.

There remain risks associated with Northern Minerals, as DJ Carmichael points out no maiden drilling campaign has been completed at either project at this point. This means no certainty of a commercial deposit, especially as rare earth projects are complicated by a number of factors including the need to separate the different elements.

What sets apart the Browns Range project in the view of DJ Carmichael is the favourable mineralogy and metallurgy recorded, as this implies a relatively simple production process. This would reduce project lead times and so improve the economics of the project.

While HREEs make up the majority of the Northern Minerals portfolio, the company also has a 60% stake in the Gardner Range joint venture. The Gardner-Tanami project is focussed on uranium and gold, DJ Carmichael noting the next step in exploration work is due to commence in the third quarter of 2011.

Given the early stage of development for all of Northern Minerals' project, DJ Carmichael does not offer a valuation on the stock. Northern Minerals is not covered by any brokers in the FNArena database.

Over the past year the shares have traded in a range of $0.063 to $1.075.

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