Korea and Canada to boost large-scale rare earth resources mine in S. Africa

South Korea's state-run Korea Resources Corporation (KORES) has reached a definitive agreement with Canadian Frontier Rare Earths Ltd. to secure a 10 per cent interest in the Zandkopsdrift rare earth element mining project in South Africa.

The contract, signed in Johannesburg on Thursday, involves an investment by KORES in both Frontier and in the large-scale rare earth element project owned by the Canadian company, along with an off-take agreement that could commit up to 31 percent of future production, reported Mineweb.

In a call conference held this morning, Frontier’s president and CEO James Kenny said that the strategic partnership will allow the company to accelerate the project and reduce its risks.

"The consortium [including Samsung Group, Hyundai Motors Group, GS Group, Daewoo Shipbuilding & Marine Engineering Group (DSME), and AJU Group] have combined annual sales of approximately US$300 billions, so their willingness to partner with Frontier is a strong statement about the economic potential of the Zandkopsdrift project, and the capabilities of our management team," said Kenny.

Frontier’s shares were up 30 cents to $1.35 on the Toronto Stock Exchange early Monday after the final agreement was announced. 

Although Kenny did not give a monetary figure for the deal, he said the value of the initial 10 percent would be calculated based on the company's market value after it releases a preliminary economic assessment (PEA) in early 2012.

"There will be a price point taken after that, and that will calculate enterprise value, but subject to a minimum share price of Frontier, which is C$2.39," Kenny told reporters.

"Korea has an international reputation for world-class manufacturing, technological and financial capabilities.  KORES is at the forefront of Korean industry's drive to secure stable supplies of natural resources, of which rare earths are considered to be one of the most critical. Working together with our Korean partners, we are confident that Frontier will achieve its objective of becoming one of the first new large-scale rare earth producers outside of China," he added.

Asked about production, Kenny said that the company expects to generate about 20,000 tonnes of separated rare earths per annum from Zandkopsdrift, which is located 450 kilometres (280 miles) north of Cape Town. It also plans to put out a PEA in the first quarter of 2012, with a prefeasibility study six to seven months later, starting production in 2015.

In a press release distributed earlier, Shin-Jong Kim, President and CEO of KORES said that the development of Zandkopsdrift will be “a strategic priority project for the KORES Consortium and a critical element of KORES' efforts to secure a long term, stable source of rare earth supply for Korean industry.”

Read the full agreement here.