Shenghe invests in Canada rare earth mine
North of 60 Mining News - November 3, 2023
Last updated 11/22/2023 at 2:49pm
Vital Metals turns to Chinese firm to fund Nechalacho, home to first REE mine in Canada.
Drifting further away from the original vision of establishing a rare earths supply chain in Canada that would help to break the West's heavy reliance on China for this suite of tech elements, Vital Metals Ltd. has turned to Shenghe Resources Holding Co., Ltd. for funding that will allow the Australia-based REE mining company to move forward with its plans for a larger mine at its Nechalacho project in Northwest Territories.
Vital became a bit of a mining icon in Canada with the 2021 startup of operations at North T, a small but extremely high-grade rare earths deposit on the Nechalacho property. Not only was this the first and only rare earths mine in Canada, but it was expected to be the first link in a critical mineral supply chain that could help wean the world's dependence on China for this suite of elements vital to electric vehicles, wind turbines, and innumerable high-tech devices.
The second link in this supply chain was to be a processing plant in Saskatoon, Saskatchewan, that would upgrade concentrated ore product from Nechalacho to a mixed rare earths product that would be shipped to separation plants in Europe and North America for the final stage of processing.
The significance of establishing these rare earth supply chain links in Canada was threefold. First, it marked the first and only rare earths mine in Canada. Second, the rare earths that were being mined at Nechalacho are seeing a major surge in demand due to their uses in clean energy and transportation technologies. Third, China controls roughly 70% of the rare earths mining and at least 85% of the processing and separation of these elements into materials that manufacturers can use.
This Vital strategy, however, was hampered by technical and financial difficulties, along with competing visions at the board and management levels. As a result, the upstart rare earth company found itself struggling with debt, delisted from the Australian Stock Exchange, and its Canadian subsidiary charged with building and operating the Saskatoon rare earths plant was forced into bankruptcy.
Down but not out, Vital still had Cheetah Resources Corp., a second Canadian subsidiary that owns rights to Nechalacho, and a grander vision to establish a mine at the much larger Tardiff deposit at the Northwest Territories project.
To get back on track, Vital has entered into an agreement that provides Shenghe the opportunity to invest up to A$14.8 million (US$9.4 million) to acquire a roughly 18.2% stake in the Australia-based rare earth company.
"Shenghe recognizes the potential of the Tardiff deposit to be a world-class large-scale and long-life rare earths project, and is excited by the work completed to date by Vital Metals to progress the asset," said Shenghe Resources Holding CEO Wang Xiaohui.
A shift in strategy
Spearheaded by former Vital Metals Managing Director Geoff Atkins, the original strategy for Nechalacho was to leverage ore sorting technology to quickly establish a mine capable of upgrading North T material that already averaged around 9% rare earths to an even higher-grade direct shipping ore.
Without the need for a complex ore processing facility, this operation at Nechalacho was something akin to a gravel quarry – simply mine and crush near surface rock and sort out the best material to be shipped to Saskatchewan for further processing.
Mixed rare earth carbonate products produced at Vital's Saskatoon plant were to be forwarded to third-party facilities that would separate out individual elements ready for market.
During the summer of 2021, less than three years after setting this plan into motion, Northwest Territories-based Nahanni Construction Ltd. was mining high-grade North T ore for Cheetah to sort and ship to the second link of the supply chain in Saskatchewan.
It was not long, however, before signs of Vital troubles began to emerge.
The first indicators came with an A$45 million (US$31.6 million) financing completed in mid-2022. While such a significant infusion of cash is typically a good sign for a young mining company, a rift in the Vital management and board became immediately apparent.
Following this financing anchored by A$30 million (US$21 million) contributed by Lionhead Resources Fund, a private equity fund focused on mid-tier clean energy mineral producing companies, Atkins resigned, and Lionhead partner Russell Bradford filled the top executive position on an interim basis.
This transition in leadership ushered in a new strategy that pivoted Vital to a sharper focus on Tardiff, a near-surface deposit at Nechalacho with 119 million metric tons of resources averaging 1.4% (1.67 million metric tons) total rare earth oxides.
While not the fantastic 9% grades contained within North T, Tardiff is much larger and still high grade by rare earths mining standards.
Vital's new financial backers believed Tardiff offered the best path for Nechalacho to become "a globally significant producer of rare earth minerals."
The Australian company, however, was buried in debt and delisted from the Australian Stock Exchange.
Upon completion of a strategic review carried out earlier this year, Vital's new leadership team, which has seen several executives come and go over the past two years, determined that the previous rare earths supply chain strategy anchored by the high-grade North T deposit and Saskatoon processing plant was not economically viable.
As a result, the company decided to no longer pursue the rare earth processing plant in Saskatchewan and direct resources to its larger vision for Nechalacho.
"Whilst we are disappointed with the situation at Saskatoon, Vital remains focused on creating significant value for shareholders by advancing the Tardiff project, a recognized globally significant rare earths deposits in a very favorable jurisdiction," said Richard Crookes, founder of Lionhead Resources and now chairman of Vital Metals.
To begin advancing its vision for a larger mine at Tardiff, Vital has entered into a financing agreement with Shenghe.
"We are pleased to secure this partnership with Shenghe via this strategic investment that will allow us to progress our development plans for the world-class Tardiff rare earth deposit at Nechalacho with a refreshed management team that is focused on this goal," said Crookes.
Under this arrangement, the China-based rare earths mining and processing company has agreed to invest up to A$14.8 million (US$9.4 million) to buy an 18.2% stake in Vital in two tranches.
This includes an initial A$5.9 million (US$3.4 million) to acquire 589 million Vital shares at A1 cent each, which will give Shenghe a 9.99% stake in the Australian junior.
Vital says this first tranche of the financing is enough to pay off its current debt, with about A$2.9 million (US$1.8 million) left over to advance its plans for Nechalacho.
With this initial infusion of cash, the Australian company plans to complete a scoping-level study for Tardiff.
Shenghe also has the option to buy an additional 592 million Vital shares at A1.5 cents each, which will provide Vital with an additional A$8.9 million (US$5.6 million).
The second tranche, which will increase Shenghe's ownership in the company to 18.2%, is subject to a vote of Vital shareholders.
In addition to becoming a major shareholder of Vital, Shenghe has agreed to pay up to A$2.4 million (US$1.5 million) to buy an initial 50% non-government stake in Vital's Wigu Hill rare earth project in Tanzania. (Tanzania government is entitled to a 16% interest upon issuing a mining license, which is a customary practice in the country). Shenghe can increase its non-government interest to 75% upon funding and completing a feasibility study for Wigu Hill.
"Our investment also allows Shenghe to gain exposure to the Wigu Hill project, which is also a promising but earlier stage rare earths deposit," said Wang. "We look forward to working collaboratively with the Vital team to assist with development of these important assets."
CORRECTION: This article was updated on Nov. 21 to include the updated Tardiff resource estimate.