Cobra Resources — Progress indicates first quartile potential

Cobra has recently released a series of metallurgical test results relating to its Boland project in the Gawler Craton in South Australia. Testing for recoveries of rare earths under various acidity conditions matter, as Cobra is seeking to develop Boland using ISR and factors such as recovery rates and acid consumption are likely to be key to the economics of the deposit. The testing was completed by the Australian Nuclear Science and Technology Organisation (ANSTO). The results of the first bench scale ISR study, released by Cobra on 1 October, include the following highlights:

The bench scale testing by ANSTO is a process commonly used to test uranium ores for the potential of ISR. The ISR process has two phases. In the preconditioning phase, acid is injected into the orebody and aquifer to lower its acidity. The first bench scale tests indicated 10 pore volumes (c 80 days) to lower the pH from 7.1 to 5.2, the point at which rare earth extraction began from the ore and reporting to the pregnant leach solution (PLS). The second phase is extraction, where acidity is maintained below 5.2 and rare earths report to the PLS over five pore volumes (and an additional c 34 days).

Initial optimisation tests indicated that should a more acidic lixiviant be used (ie pH2) the extraction phases could be shortened and recoveries increased. These tests at low pH indicated maximum recoveries of 84% Nd, 78% Pr, 86% Dy and 87% Tb from high-grade samples at pH 2 (see chart below).

The potential to increase recoveries was clearly demonstrated by the second ISR bench scale study released on 26 November. The key highlights of the results were the impressive permeability rates of 24.3 and 8.6 metres per day at a bar pressure of 5.5 and 2.5, respectively. As a result, the second study was completed in just 24 hours compared to c 150 days for the first bench scale tests. The company expects to announce recovery results from the second study within the next two weeks.

The process planned at Boland is a controlled operation similar to that used in uranium extraction, where an acid is injected into the permeable zone, the right extraction conditions are reached and then the PLS is pumped to the surface for rare earth removal. This is different to the process used by Chinese ionic clay deposits that use ISR, where the extraction is targeted in unconfined low-salinity groundwater (see Exhibit 3).

Cobra’s test works are ongoing, but preliminary results suggest future operating costs that could position Boland in the lowest quartile of the cash operating costs for rare earth miners globally. More work is needed but some sense checking of this potential can be made.

Rare earths are difficult to place on a conventional industry cost curve for a variety of reasons, including the co-production of a wide range of elements and the opacity of the industry (notably in China). As in lithium extraction, there are a variety of deposit types and extraction and processing methods that can be difficult to compare.

An important differentiator of the Boland project is that its mineralisation occurs within permeable sands in an aquifer that is confined by impermeable clays. We nevertheless believe that some comparisons can be made to ionic clay projects that are further along the development curve. Major ionic clay developers outside China include Aclara Resources, Meteoric Resources (the Caldeira project in the Brazilian state of Minas Gerais) and Serra Verde (see our previous note for further details on each of these), although all three of these companies use conventional mining methods, rather than ISR.

In its September 2024 investor presentation, Meteoric Resources indicated that Caldeira’s scoping study supported a first quartile cash cost position, with a life-of-mine (LOM) average C1 operating cost of US$7.04/kg TREO and all-in sustaining capital costs of US$9.00/kg TREO, with an NdPr only C1 operating cost of US$21.30/kg. Meteoric’s scoping study presentation indicates that the middle of the cost curve is dominated by production with a cash cost of around US$10/kg REO equivalent. Meteoric has a measured, indicated and inferred resource of 740m tonnes, grading 2,572ppm (LOM scoping study grades for the above costs were 3,500ppm), with MREO/TREO of 23%. In its scoping study, recoveries of MREO were indicated at 54%. Meteoric’s capex was reported at US$297m for processing and mine equipment (excluding contingency of 35%), with a 9kt/year LOM average production of REO. The scoping study indicated a net present value (using a discount rate of 8%) of US$699m.

Cobra’s cost make-up is likely to be different as it will not be extracting, moving or stockpiling but instead extracting the rare earths through in situ recovery. Cobra’s total grades are lower than Meteoric’s, as its targeted Zone 3 for ISR at Boland averages 0.8m at 2,099ppm TREO (where Nd2O3 + Pr6O11 totals 414ppm and Dy2O3 + Tb2O3 totals 63ppm (although these heavy REE grades are higher than at Meteoric project, where comparable grades are 29ppm), making 22.7% TREO and 28% HREO from ~26m). However, the intersection used in the bench-scale ISR studies graded 4,506ppm TREO.

Initial testing for recoveries is in a similar ballpark (56% at Cobra vs 54% at Meteoric), although recoveries at both are likely to continue to be optimised for acid consumption. However, Cobra’s operating costs are likely to mirror the make-up of uranium ISR, where wellfield drilling and recoveries, together with acid and reagent consumption, make up most of the operating costs.

Cobra appears confident that these costs, as is the case in the uranium industry, are likely to be very competitive (ISR dominates the bottom third of the uranium cost curve), with an indication of first quartile potential pointing to costs under US$10/kg TREO equivalent. This could translate to cash operating costs in the region of US$6–8/kg MREC, which is the intermediate product that Cobra is likely to produce and which trades at a c 30% discount to REO equivalent. It should be noted that REO baskets (ie the particular mix of rare earth elements produced by a mine) are unequal as REO prices vary significantly by element, so this is a broad indication of cost competitiveness. Importantly, this relatively low cash cost does not come as a trade-off with capital costs. In fact, capital intensity for ISR is typically far lower than for traditional mines.

Cobra will need to continue to advance this testing as it progresses towards a maiden resource and scoping study. However, the indication for potential cash operating costs in the first quartile is very encouraging. If Cobra can demonstrate that ISR in rare earths can be structurally lower cost (as it is in the uranium industry), it will be a significant step forward. ISR holds the potential to recover rare earths from clays, without the costs and difficulties of mining and handling clay material through processing operations. This negates the need to handle and process clay, which is challenging and can require significant volumes of water and desliming reagents. ISR also holds the potential for a far more easily scalable production method.

Although Cobra’s stock price has improved from a low of 0.73p/share to 1.2p/share currently, its market capitalisation remains at just c £9m, well below some of the projects that are at a more advanced stage. For example, Meteoric Resources, which is at the scoping study stage, has a market capitalisation of A$225m (£115m) and was valued as high as A$660m (£336m) in late 2023, before REO prices retreated. Cobra is not yet at the equivalent stage of development. It will need to release a maiden resource and progress to a scoping study to confirm the bench-scale economics.

On 26 November Cobra announced it has raised £1.7m in an oversubscribed two tranche equity placing. The company plans to use proceeds from the raise to further advance the Boland project. Approximately £0.6m is expected to be spent on resource drilling, which should result in establishing a maiden mineral resource estimate (expected around mid-2025). An additional c £0.4m will be used on in field permeability testing to replicate the rates achieved at bench scale and on additional metallurgical tests to further optimise the project. This work should support the completion of a scoping study, which is expected by the end of 2025. With the initial ISR testing now complete, Cobra’s near-term focus is on resource definition and production flowsheet development. We understand that the company is several weeks away from releasing its maiden MREC product results.