Peak Rare Earths (ASX:PEK) is one step closer to delivering its name-sake commodity, with the Company having signed a binding offtake agreement and a non-binding memorandum of understanding for cooperation with Shenghe Resources for its Ngualla REE Project in Tanzania.
The binding offtake agreement will cover an initial term of 7 years and will see Shenghe purchase 100 per cent of rare earth concentrate produced from Ngualla and a minimum of 50 per cent of any intermediate rare earth products such as mixed rare earth carbonate or final separated rare earth oxides.
Under the agreement, payability for Ngualla’s concentrate will vary based on both the grade of concentrate produced and the market price of rare earth elements, with Peak currently aiming to consistently produce concentrate grading above 45 per cent total rare earth oxide.
The Memorandum of Understanding (MOU) will see Shenghe further collaborate with Peak to support the development of the Project by pursuing opportunities that will reduce both capital and operating costs while expediting project development and optimisation.
The agreement will first and foremost see Shenghe arranging and providing a fixed price and turnkey Engineering, Procurement and Construction (“EPC”) solution to accelerate the construction of Ngualla, potentially bringing on the Beijing General Research Institute of Mining and Metallurgy as a subcontractor.
Opening the door to BGRIMM is particularly compelling for Peak, as it will allow the Company to benefit from what is potentially the largest mining-related research and design institution within China which has extensive experience in developing projects in Sub-Saharan Africa such as Ngualla.
The agreement will also see Shenghe work to provide a funding solution for project development, with the potential for this to take the form of Shenghe making subscribing for a significant but non-controlling equity interest in the Ngualla, substantially lowering the Project’s funding requirements and minimising future debt and equity raising requirements and dilution to Peak shareholders.
Other potential avenues for funding include Shenghe providing a pre-payment structure for concentrate offtake, a loan/standby debt facility or external funding via Chinese commercial and policy banks.
While still subject to approval by Peaks board, securing this additional investment is a massive shot in the arm for the Company and a validation of its work so far as indicated by the binding nature of the agreement which suggests that Shenghe Resources must have significant confidence in Peaks’ ability to seize the Project’s potential.
The Company said the offtake agreement and non-binding MOU have been structured to create a strong alignment of interests between Peak and Shenghe.
“Shenghe regards the Ngualla Project as the premier undeveloped rare earth project in the world. We are excited to be partnering with Peak, and its Tanzanian entity Mamba Minerals, in the development of this world-class project through the provision of offtake, technical and funding support,” Deputy Executive Chairman of Shenghe Huang Ping said.
On the new arrangement, Peak’s Executive Chairman Dr. Russel Scrimshaw said “We are delighted to be extending our strategic co-operation with Shenghe. The combination of a binding offtake agreement and a non-binding EPC and funding MOU differentiates Peak from its peers and supports a pathway to a successful project funding solution for the development of the Ngualla Rare Earths Project.”
PEK’s Australian Stock Exchange-listed share price has risen 4.04 per cent today and is currently trading at 51.5c (2.46 pm UTC+ 8 hours).