With a management team loaded with former executives from BHP Billiton (NYSE: BLT) and a definitive feasibility study under its belt for a specialty metal project with a 20-year mine life based on just 10% of the resource, Scandium International Mining Corp. (TSX: SCY) tends to stand out in the crowded landscape of junior mining companies.
Its large, high-grade scandium project in the Australian state of New South Wales, about 500 km northwest of Sydney, is a shallow and flat surface-mineable resource that can be put into production as early as the first quarter of 2018 at a cost of US$87 million. The company has already submitted its Environmental Impact Statement and has signed the first of what it hopes will be many off-take agreements.
“The significance of this project is that there are no primary scandium mines anywhere yet,” says George Putnam, the junior’s president and CEO. “We wouldn’t know of another place to go to find another highly weathered lateritic environment that would deliver the same level of scandium grades.”
For those not that familiar with scandium, its primary use is to enhance aluminum alloys and make them superior performers. The specialty metal refines the grain structure of aluminum making it stronger. Aluminum-scandium alloys are also known for their corrosion resistance, weldability and heat-working tolerances. Scandium is a superior heat stabilizer in solid oxide fuel cells (SOFCs), for example, and can work in metal halide lighting to better resemble natural sunlight.
The most obvious uses of scandium-enhanced aluminum alloys are in the transportation business, (aircraft and automotive and marine) where light-weighting carries a premium.
“The Russians in the Soviet era figured out how dramatic scandium’s impact was as a grain refiner and were using it in their military programs,” Putnam says. “While we knew something about it and understood what it did to aluminum, there was not really a decent source to build on, so military aircraft designers in the west retained their focus on titanium and its alloys.”
When the Berlin Wall fell in 1989, Russian technology on aluminum scandium alloys was picked up by Airbus technical groups in West Germany, he says, giving a clearer picture of scandium’s impact on aluminum alloy performance. Boeing has also known about scandium aluminum alloys for just as long and has done its own research, while Alcoa patented scandium aluminum alloys long enough ago that the recipes are now off patent so anyone can make them.
“There is no secret sauce, we all know what to do with it in the aluminum alloy business,” Putnam says. “The only people left to clearly understand this opportunity are investors.”
“We see an explosive forward market in scandium and we saw the opportunity to be first and very different from everybody else and we liked that,” Putnam continues. “We believe investors who like specialty metals should really like scandium because of this significant market potential.”
The Nyngan project sits in the clay belt of New South Wales where past exploration had focused on finding economic values of nickel, platinum and cobalt—metals commonly associated with scandium. But in each case, exploration generated only limited success, with interesting but marginal values of these metals found (less than 1% nickel and less than 1 gram per tonne platinum).
“Whatever Mother Nature did to displace the nickel and cobalt primary mineralization and concentrate it with scandium hasn’t happened elsewhere and that’s really the game-changer here—that’s what allows us to build a scandium-only project, get good economics and bring a substantial amount of scandium to the market,” Putnam explains.
According to the definitive feasibility study completed in April, the Nyngan project has the potential to produce an average of 37,690j kilograms of scandium oxide (scandia) a year at grades of 98.0% to 99.9% and generate an after-tax cumulative cash flow over the project’s 20 year mine life of US$629 million. The initial capex of US$87.1 million can be paid back in 3.3 years and the project produces an after-tax net present value at a 10% discount rate of US$177.5 million and an after-tax internal rate of return of 33.1%.
The feasibility study was based on a revised resource estimate of 16.92 million tonnes of measured and indicated averaging 235 parts per million scandium, up 40% from a previous estimate in 2010. (Proven and probable reserves stand at 1.44 million tonnes grading 409 ppm scandium.
The mine plan envisions a plant feed of 240 tonnes per day or 75,000 tonnes a year based on a conventional open pit operation with a strip ratio of overburden to resource of 2.1:1. Processing will involve the initial application of high pressure acid leaching (HPAL), using a continuous autoclave pressure-fed with pre-heated ore, dosed with sulphuric acid. Subsequent circuits will then recover the liberated scandium using solvent extraction (SX), oxalate precipitation and calcination, to generate a finished scandium oxide product.
Once at nameplate capacity, the plant is forecast to produce between 36,600 and 42,000 kilograms of scandium oxide product annually, and average 37,690 kilograms a year of the mine life. Oxide product will be produced on-site at grades of between 98% and 99.9%, as Sc203, and will be offered at grades that meet customer requirements and suitably packaged for direct sales to end users.
The most significant operating cost will be reagents, sulphuric acid in particular. Total mining costs have been estimated at about US$18.45 per tonne or US$35.15 per oxide kilogram with total annual cash operating costs of US$292.10 per processed tonne and US$556.57 per oxide kilogram. Based on available price estimates for scandium oxide, the feasibility study used US$2,000 per kilogram as its price assumption.
Putnam says commissioning could start as early as the fourth quarter of 2017, start-up in the first quarter of 2018, and first production in March 2018.
“We’ve turned a corner with the final feasibility study and the economics are good, dare I say robust,” Putnam says, adding that the company has spent about US$1.5 million to complete the flow sheet over the last four years. “I don’t see the financing as problematic. I know raising US$100 million is not something that can just be assumed will be automatic, but we’ve prepared well…[and] we think the project is unique and robust enough to get funded.”
The company already has an off-take agreement for 7,500 kilograms a year over three years with Alcereco, a private Canadian company in Kingston, Ontario that was founded by former scientists at Alcan who specialized in research and development on advanced alloys.
Putnam doesn’t believe it will be that difficult to find other off-takers to sign on.
“It won’t all be absorbed by the aircraft business, some will be in the automotive business, particularly automotive parts,” he says. “You could make a great high-speed train out of this, a good subway, or a light-rail system—the faster the train goes, the more light-weighting is important and the more important it is to pay a premium for the scandium application…we believe scandium aluminum is also going to be particularly adept in the extrusion area, and that’s a huge specialty market; extruders get strong premiums.”
Putnam, whose career includes decades as assistant treasurer at BHP, says Scandium Mining’s management team is perfectly geared towards the next leg of Nyngan’s development.
“Almost all the management is ex-BHP—we’ve all run operations before and we’re miners,” he says, “so we’re just moving towards our sweet spot in terms of our collective management experience.”
Scandium International owns 80% of Nyngan and the remaining 20% is held by Scandium Investments LLC, a Nevada corporation owned by private interests.
Shares of Scandium International were trading at 19 cents at press-time, within a 52-week range of 7.5 cents and 23 cents.
Christopher Ecclestone of Hallgarten & Co., a boutique investment firm based in London, has a 12-month target price on the stock of 60 cents.
“Scandium is one of the lesser talked of technology metals but one that is getting increasing focus and mention,” he wrote in a research note. “It is the only DFS on a primary scandium property that we know of.”
“One might call the Nyngan project the ‘Bayan Obo of scandium,” he adds, referring to China’s massive iron ore deposit and the world’s largest rare earth mine.
The Chinese are currently the major producer of scandium oxide in the world, which is in limited supply.