Improved Production Basket Price impact on FRO's revenuesIt seems that almost evryone has ignored the achievement of Frontier in improving their production basket price or it could be that I am missinterpreting it :)
From https://www.frontierrareearths.com/media-cover/press-releases/press-releases-2013/86-frontier-rare-earths-provides-an-update-on-the-zandkopsdrift-rare-earth-project
"Rare Earth Product Strategy
Frontier’s rare earth product strategy is focused on the use of process technology for the ZPP and SSP that will allow it to produce a higher volume of the CREOs that are used in magnets and phosphors, which are the highest growth and value applications for rare earths, and to produce the highest purity rare earth products, for which premium prices can be achieved.
Preferential CREO Recovery
The current Zandkopsdrift flow sheet has been demonstrated to recover a higher proportion of the higher value CREOs over the lower value REOs such as cerium and lanthanum. This results in a higher value for the Zandkopsdrift production “basket” compared to the in-situ geological distribution.
High Purity Output
The improved process technology package that Frontier intends to utilise in the SSP will allow the production of higher purity and higher value rare earth products than the typical standard purity level for which companies such as Metal Pages publish market prices. The proposed output from the SSP will comprise a considerably wider range of separated rare earth products and higher purity levels than any of the known current proposed new rare earth projects outside China
....several purity levels and corresponding price premiums are listed...
Improved Production Basket Price
The preferential CREO recovery process and the high purity product plan is expected to have a significant impact on the average price received per kg of output product from the SSP (the Production Basket Price or “PBP”) compared to the in-situ basket price (“IBP”), which is calculated using the relative in-situ distribution of REEs at Zandkopsdrift and prices for standard purity products. Using current FOB China prices (October 2013) from Metal Pages, the Zandkopsdrift PBP is estimated to be $44/kg, compared to an IBP of $36/kg. It is also expected that the availability of higher purity lanthanum and cerium products will assist Frontier in securing preferential market access for its standard, lower purity lanthanum and cerium products for which supply is expected to increase significantly in the coming years.
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This last paragraph seems to be very important since it implies that FRO will receive a premium of around 8 dollars per Kg based in the proportion of CREOs and the purity of the oxides being produced. This is an excellent advantage in comparisson to other projects.
Note that current prices are different from those used to perform those calculations and also that future prices, especially for CREOs, could be very different in the future when FRO goes into production and the demand/supply relationship has chenged.