Hastings Technology Metals Limited (ASX: HAS) has provided its annual report to shareholders for the year ending 30 June 2020.
In his letter to shareholders, company chairman Charles Lew said:
In the last twelve months, there has been numerous media coverage on rare earths and the strategic importance of two rare earth elements, neodymium (Nd) and praseodymium (Pr), being critical minerals needed in the manufacture of permanent magnets for electrical motors and advanced technology including electric vehicles (EV) and military hardware. This growing prominence has generated a lot of interest in rare earth mining companies and we are pleased to say that we see Hastings as the next major rare earth producer outside of China. Our Yangibana project has achieved many significant milestones in the last financial year and we have made important strides forward to commence construction next year and move into production by 2023.
One of our ongoing objectives is to continually extend the project’s mineable reserves and to this end, following a review by independent consultants, the Company reported an updated ore reserves in late 2019, thereby extending mine life from 11 to 13 years. Early this year we reported a 73% increase in indicated mineral resources at Simon’s Find and the data showed extended mineralisation at the Auer and Yangibana prospects. This led us to commence a 25,000 metre drilling programme in June this year for reasons of grade control and to increase mineable reserves to add to mine life. An updated mineral resource estimate is targeted for release in November.
We received WA Minister for Environment approval in August last year, followed by Commonwealth Environmental approval in April. These approvals, which are subject to conditions standard for such developments, permit construction and operation of an open pit rare earths mine, processing facility and associated support infrastructure at Yangibana. In June, the Company received a Works Permit from the WA Government Department of Water and Environment Regulation, which provides all stakeholders with assurance that the forthcoming mining and extraction activities will be undertaken in an environmentally sensitive manner.
In March this year, when COVID-19 was spreading rapidly worldwide and financial markets tumbled from their highs in February, your directors and management felt it was necessary to implement a thorough review of the project capex of $517 million as determined at the end of last year. The objective of this exercise was to look for capex savings and to make our Yangibana project more robust with improved mine economics. After four months of focused and dedicated work, the board and management took the bold move to decouple the hydrometallurgical portion of the process plant from the beneficiation plant and relocate the hydromet plant to a coastal location, resulting in a significant capital cost reduction of $68 million. The outcome is a much reduced capex of $449 million. Relocating the acid-baked rotary kiln, the heart of the hydromet plant, to a fully serviced coastal location removes the requirement for a lateral gas pipeline and positions it closer to the port for convenience in importation of reagents and export of our mixed rare earths carbonate (MREC) product. In addition, the Yangibana site layout based on the Definitive Feasibility Study completed in 2017 contained distinct scope to realise operational improvements by relocating the accommodation camp and a minor re-arrangement of the process plant and Tailings Storage Facilities to a more central and customised location. This will reduce internal haulage road length, construction cost and much-reduced main access road distances.
In the last two years, we have spent considerable time working on the front end engineering design with DRA Pacific, a diversified global engineering, project delivery and operations management group headquartered in Perth. We built up mutual trust and confidence in the project and in October last year, we signed the Engineering, Procurement, Construction and Management (EPCM) contract with DRA. The key component of the contract terms is a comprehensive performance guarantee linked to ore throughput for the entire process flow sheet. The EPCM contract has an estimated total value of $350 million and covers all aspects of the design and construction of the processing plant and associated non-process infrastructure capable of producing 15,000 tonnes of MREC per annum. Due to the onset of COVID-19, all work on the contract was temporarily suspended as the Company implemented risk management controls and measures at all locations to protect the health and safety of its workforce, their families, contractors and neighbouring communities. The health and wellbeing of our staff and other stakeholders is of paramount importance. Nonetheless, we envisage that this contract will be reactivated in October.
Being a greenfield project and non-existence of a hedging market for NdPr, our negotiations for debt funding are protracted and complex. The disruptions caused by COVID-19 have delayed progress on our commercial activities and the resulting credit approval from KfW IPEX-Bank (KFW), Euler Hermes and North Australia Infrastructure Facility (NAIF). All three financiers did extensive due diligence on the Yangibana project last year. KfW who is advising Hastings on the German government sponsored untied loan guarantee scheme (UFK) have reaffirmed their continuing support for the project. A further positive development was the receipt in July this year of an in-principle eligibility from Finnvera Oyj (mandated by the Government of Finland as administrators of its export credit scheme), for an indicative loan amount of $75 million in view of our procurement of capital equipment from Finnish suppliers of technologically advanced mining and plant equipment. We are working closely with KPMG, our debt adviser to secure the necessary project financing by 1Q 2021.
As mentioned in our previous announcements, our eligibility for UFK loan is based on 10 years supply of MREC for one-third of our production volume to Schaeffler AG, a German Automotive Tier 1 supplier. Despite the interruptions to our negotiations caused by the COVID-19 lockdown, we eventually signed the Master Agreement in June this year with Schaeffler, a global automotive and industrial supplier of high-precision components and systems in engine, transmission and chassis applications primarily focused on the automotive industry.
Schaeffler’s ambition is to be a major manufacturer of electrical motors and axles for the European and global electric vehicle industry. Recent global trade tensions between the US and China, together with the COVID-19 pandemic, have highlighted the need for Europe to develop a degree of self-dependency in its supply chain from mine to magnets. The realisation of this long term plan is core to Schaeffler’s strategy of building a non-China supply chain which currently does not exist in Europe. We are pleased to be able to assist Schaeffler in its ambitions.
We recently recommenced negotiations with Thyssenkrupp for a long term offtake agreement (having signed an MOU in 2018) and similarly with another major European automotive component company. We have previously signed an offtake contract with Skyrock Rare Earth New Materials Co Ltd of Baotou, China, for 2,500 tonnes of MREC a year for 5 years. Their main product is sintered neodymium magnets. Recently we initiated discussions with potential customers in the US, Japan and China for long term sales opportunities (when in production) which are ongoing and complex due to the different demands of each customer in the supply chain. Our commercial strategy is to have a diversified customer base. The combined volume of these offtake contracts will further enhance the long term investment attractiveness of the Yangibana project.
Since 2014, when we first commenced drilling at Yangibana, the project’s continued progress and development has been made possible by the ongoing support of our shareholders, many of whom have come on board in recent years. We now have more than 2,000 shareholders spread across 10 countries. In 2H 2019, we raised a total of $15.1 million and more recently in August, post the financial year end, we raised a further $20.7 million in a shares placement which was over subscribed due to strong support from shareholders and institutional and retail investors. So as to ensure that all shareholders are given a chance to participate in the future success of Hastings, your board concurrently launched a $3 million fully underwritten share purchase plan. In the last 7 years, a total of $133 million equity capital have been raised which represents a significant portion of the equity in the Company’s future gearing and capital structure. At present the company has no debt.
In the face of COVID-19, the management took multiple steps to establish systems and protocols to ensure the health and safety of its workforce and contractors at Yangibana, and in the Perth and Singapore offices. As business activity slowed considerably in April, we felt it was prudent to introduce operational costs saving measures and this included an immediate cut in staff and directors’ remuneration by 20% for a 6 month period to end September. I would like to take this opportunity to thank our Hastings team for their continued dedication and professionalism during this last 6 months. The board has recently committed to implementing a performance rights scheme for all our staff that will take us into production so that we are aligned with our shareholders on a single dream and goal.
On behalf of the board, I would like to thank you, our shareholders, for your continued support for Hastings. We have come a long way towards our dream to become the next major rare earth producer in the world. We are confident of our future and the role we will play in the emerging EV industry and renewable energy. Our timing is opportune and the challenges of the last 12 months have helped us improve the robustness of the Yangibana project.
Finally, I also express my gratitude to my fellow Board members for their valued input throughout the year.
Our motto: One dream, one team.
Charles Lew Executive Chairman