The reframing of the undeveloped Toliara mineral sands project in Madagascar has driven a merger between Australia’s Base Resources and the US-based Energy Fuels.
Base Resources, which operates the Kwale mineral sands mine in Kenya, acquired Toliara in late 2017 in a deal worth around A$100m. While Toliara has been touted as world-class, Base Resources has been trying to agree fiscal terms with the Madagascan government for more than five years and on-the-ground work has been suspended since late 2019.
Madagascar held elections in late 2019, which saw President Andry Rajoelina re-elected. It paved the way for talks between Base Resources and the government on fiscal terms and the lifting of the suspension to resume.
Though field work has been suspended, Base Resources has continued to try to advance Toliara. In December 2023, the company released a prefeasibility study into the additional production of monazite at Toliara.
Monazite, a rich source of rare earth elements, comprises just 2% of the heavy minerals in the Toliara resource, but the prefeasibility study (PFS) showed it had the potential to not just enhance, but transform, the economics of the project. Adding monazite to the production mix doubled Toliara’s post-tax real net present value to $2bn.
The monazite PFS generated an internal rate of return (IRR) of 78.6%, boosting Toliara’s overall IRR from 23.8% to 32.4%. The addition of monazite production, which previously was considered waste, will increase Toliara’s overall stage one capital costs by $71m to $591m.
Toliara is set to produce just over a million tonnes per annum of ilmenite, rutile and zircon and 21 800tpa of monazite over its 38-year life. Operating costs, including royalties, per tonne produced are forecast at US$112 per tonne for a life-of-mine cash margin of US$365/t.
Life-of-mine free cashflow is forecast at US$10.65bn, including US$4.7bn from the monazite stream.
‘Transformational’ merger
While the monazite PFS was being carried out, Base Resources had started talks with US-based uranium company Energy Fuels. A scrip-based merger was announced in April. Energy Fuels will issue 0.026 of a share and pay A6.5c cash for every Base share held, valuing Base at A$375m. “We searched the world far and wide and landed on what we believe is the perfect opportunity,” Energy Fuels president and CEO Mark Chalmers said the day the merger was announced.
While Kwale is Base’s operating asset (but is due to close at the end of the year due to depletion), it was Toliara that was the main attraction for Energy Fuels. All of Energy Fuels’ projects are in the Americas so the pivot to Africa may have been a surprise for some. But the obvious reason behind the move is Toliara’s monazite resource.
Energy Fuels’ White Mesa mill in Utah is the only operating conventional uranium and vanadium mill in the US and is the only mill in North America that can extract rare earths from monazite feed. In June, the company reported that it had achieved commercial production of separated neodymium-praseodymium at White Mesa and would ship its first product in the following weeks.
Assuming the Base transaction is completed, Toliara will account for about 50% of Energy Fuels’ monazite feed.
Canaccord Genuity analyst Katie Lachapelle said the deal made sense for Energy Fuels. “In our view, it solves a key problem that was facing the company – the ability to secure reliable monazite feedstock to ramp up rare earths production at White Mesa,” she said.
While the merger is centred on Toliara, the project remains stalled. However, Base Resources managing director Tim Carstens believes that will change. At the time of writing, the company was yet to reach agreement with the government. “It’s been a long process but there have been some pretty reasonable reasons for it and we’re in a good place now,” Carstens said, referring to COVID-19, the new mining code and the elections.
Carstens was hopeful the suspension would be lifted in June and the fiscal terms could be finalised by July. He said the terms had been agreed in principle and added that it would be based on the mining code with an uplifted community investment. “We’re very confident this is going to move forward … we believe it will be done this year. We’re very bullish this is all going to happen,” Chalmers said.
These are the best projects that I believe are out there to finance, to advance, and they’re going to get a lot of attention for all the right reasons – Mark Chalmers, Energy Fuels
Base has previously said it would take roughly 11 months from the agreement of fiscal terms to final investment decision, meaning it would be made in June 2025 at the earliest. Toliara has a 27-month construction period (29 months for the monazite component) and the merger presentation assumed commissioning would occur in September 2027.
Energy Fuels says the company’s increased scale would deepen the pool of potential financing sources for the project. There is also the potential to secure low-cost US government funding.
At the end of March, Energy Fuels was debt-free with a working capital position of US$222.5m, which included US$195.5m in cash and marketable securities, as well as large inventories of uranium and vanadium. The company’s uranium operations were profitable in the March 2024 quarter.
“We think there’s going to be a huge appetite for financing these projects,” Chalmers said. “These are the best projects that I believe are out there to finance, to advance, and they’re going to get a lot of attention for all the right reasons.”