Kavango Resources – searching for Rare Earth Elements as sector approaches critical transition period (KAV)

Forecast soaring demand for Electric Vehicles (EVs) threatens to end China’s decades-long tight hold over the Rare Earth Elements (REEs) market. As the world’s largest producer of REEs, accounting for more than 90% of global supply, China has used its dominant position to control prices. This has given it a crucial strategic advantage in international trade negotiations, not least as more and more nations seek to transition their economies towards “green” vehicles. However, this increased demand could prove to be a double-edged sword for the Chinese. While the demand has worked in China’s interests over the short-term, it has also caused mining exploration companies to seek out alternative sources of these valuable commodities. One company joining this hunt is Kavango Resources (LSE:KAV), as it pushes forwards with its Ditau Project in Botswana.

A crucial group of elements

Rare Earth Elements (REEs) are a series of 17 chemical elements found in the earth’s crust. The metals are applied primarily to increasing the efficiency of many technologies due to their unique magnetic, luminescent, and electrochemical properties. Their uses include everything from cutting weight, emissions, and energy use to enhancing performance and thermal stability in sectors ranging from consumer electronics to transport and defence.

List of rare earth elements (Source: Thermo Fisher Scientific)

Despite their name, REEs are not actually that ‘rare’ – being present in far higher concentrations than precious metals like gold in the Earth’s crust. Instead, their name comes from the fact that they are often challenging to extract because it is unusual to locate them in concentrations high enough for economic extraction.

According to the Society of Economic Geologists (SEG), the primary source of REEs for nearly 50 years has been geological formations called “carbonatites”. These are a rare type of igneous rock almost exclusively formed from continental rift-related tectonic settings. Carbonatites develop from volcanic activity that failed to erupt meaningfully at the earth’s surface. They typically form “ring structures” due to their lithological complexity and their tendency to “dome” the surrounding geology, leading to apparent “rings” after erosion has worn down overlying rock formations.

Alongside REEs, carbonatites can also often contain economic or anomalous concentrations of other highly-sought-after metals like phosphates, magnetite, strontium, niobium, and even copper.

Formation of a volcano vs a carbonatite (Source: HiTech AlkCarb project)

China’s dominance over the REE market coming to an end?

As it stands, the REE market presents a comparatively unusual dynamic. Even though there are more than 500 known carbonatites in the world (according to SEG research), only four are currently mined for REEs. Three of these (the Bayan Obo, Maoniuping, and Dalucao deposits) are based in China, while the fourth (the Mountain Pass deposit) is based in California.

Because of this, China has a near-monopoly on the sector, accounting for more than 90% of global production and supply during the past decade on average according to the US Geological Survey. Not only that, but refining these REEs is very difficult. With few, if any, nations boasting the technology to complete the task other than China, global superpowers are indebted to the country for its processed REE supply. For example, Bloomberg estimates that the US relies on China for 80% of its rare-earth imports.

This currently puts China in a dominant position in the REE sector for two reasons. First, with almost complete pricing control, China has been able to force others out of the market by flooding it with supply and keeping prices low – continuing to advance its lead in REE mining and process all the while. Second, REEs have become a significant bargaining chip for China in its ongoing trade war with the US. Specifically, the prospect of sanctions on the export of REEs from China led prices to soar in 2019 – almost entirely to China’s benefit.

However, this could be set to change.

As with many areas of the natural resources market these days, the key lies in Electric Vehicles (EVs). This is because several pounds of rare earth compounds are used in the batteries that power every EV and hybrid-EV.

According to Bloomberg, concerns about energy independence and climate change will see annual passenger EV sales rise from 2 million in 2018 to 10 million in 2025, 28 million in 2030, and 56 million by 2040. This will require a considerable increase in REE supply that analysts expect to exceed China’s output capacity. In the meantime, China’s REE reserves are thought to account for fewer than a third of the world’s total REE reserves (99 million tonnes).

Carbonatite occurrences around the world (Source: eGeology)

With nations like the US now acknowledging the rising importance of REEs, designating them critical minerals and pumping money into their research, the mostly untapped reserves outside of China look increasingly appealing as investment opportunities. Indeed, companies currently sitting on REE-rich carbonatites that are not now economic to mine could soon find their assets in high demand.

Kavango Resources – hunting for Rare Earth Elements

Kavango, which listed in London in July 2018, completed a two-hole drilling programme on its Ditau prospect in Botswana’s Kalahari Suture Zone in February 2019. The work fell short of the firm’s primary goal of identifying copper, nickel, and platinum group element-rich sulphide orebodies. However, it did find evidence of “fenitization”, a type of extensive alteration associated with the emplacement of carbonatites. This suggested Ditau could be highly prospective for economic mineralisation, but this time for REEs.

In the months following the initial drilling at Ditau, Kavango subsequently learned that Canadian miner Falconbridge had drilled into three carbonatites in the early 1970s less than 25km from Ditau. Not only were these carbonatites close to the surface, making them amenable to open pit mining, but the one carbonatite sampled reported high grades of niobium. Several known kimberlites have also been discovered close to Ditau. These formations are often found in association with carbonatites.

Shortly after announcing this shift in focus, Kavango announced that it had identified ten magnetic ‘ring structures’ prospective for carbonatites within the Ditau licences. The firm has now initiated an orientation programme over Falconbridge’s carbonatites and has also signed NDAs with several significant and mid-tier mining firms concerning a possible Joint Venture (“JV”) for Ditau. To strengthen its position locally the company also acquired a second Ditau prospecting licence, increasing its ground holding considerably and demonstrating its ongoing interest in the project.

Kavango’s co-founder and non-executive director Mike Moles told MiningMaven that the firm plans to return to Ditau to confirm that carbonatites are present:

“We want to go back to the project area to do some more geophysics and soil sampling to test whether these ring structures contain carbonatites. This work will include gravity surveys since carbonatites are heavy and give a good response to this kind of testing. If we get good results, we will put holes into a few of the targets to test further.”

Moles adds that he is encouraged by the historic “hit rate” that carbonatites boast:

‘Carbonatites often occur in groups, so to find ten of them in one area is not unusual. If we can confirm their presence, then there is a very high strike rate. Around one in three carbonatites that are tested end up being mined for one or more elements. With ten in the bank, this bodes well – the odds are that at least a few will be productive.’

Next steps for Kavango at Ditau

Kavango’s focus in the short-term at Ditau is to complete its desk-based analysis of its drilling results from February and Falconbridge’s historic results. If these suggest evidence of economic deposits of REEs, this could significantly bolster the company’s hand in any discussions with potential JV partners. Given the economic potential of carbonatites and the increasing global demand for non-China sourced REEs, this project could well attract a good deal of interest. If Kavango is able to secure a JV, then the company could find itself carried through to a feasibility stage in return for selling down its stake. There is also the possibility that the firm could recoup the costs it has so far incurred at Ditau.

Any result like this would almost certainly be well received by the market and it is now up to Mike Moles and his team to complete their proposed exploration and analysis.

Author: Daniel Flynn

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