Hexagon Resources Limited (ASX: HXG) announced that it has executed a binding Investment agreement whereby it has secured an option to acquire a 49% interest in an advanced, downstream rare-earth elements separation technology from Innovation Metals Corp. (IMC).
This JV marks a strategic shift for the company to diversify its business model.
Innovation Metals Corp
IMC is a highly credentialled and regarded private technical research company, incorporated in Canada and based in the greater Toronto area.
IMC was set up to provide low-cost separation and purification processes to the rare-earth elements (REE) industry, based on commercially scalable processes and materials.
Existing SX technique
The dominant processing technology currently employed to separate REEs into individual elements is SX.
SX is a liquid-liquid separation technique used to selectively transfer metals from an aqueous phase to an immiscible ‘organic’ liquid phase, containing specific extractant reagents designed to pluck specific metals or groups of metals from the aqueous phase.
However, REE separations using the SX technique currently requires very high capital expenditure for sufficient land and equipping of so many mixer-settler units and support services; high levels of metals in inventory; as well as significant power and labour costs associated with running so many units on such a large plant footprint.
RapidSX™ separation technology
IMC’s proprietary RapidSX™ separation technology for REE separation cuts the number of stages required for separation by up to 90%, with significantly faster flow-through rates for the metals, while maintaining commercial-level recoveries and product purities. This offers major capital and operating cost savings.
RapidSX™ separation technology will enable current and future rare-earth producers outside of China to serve US, European, Japanese and Korean markets, mitigating the current extreme concentration of rare-earth supply and separation capability in China.
Hexgon IMC joint venture
Hexagon announced that IMC and Hexagon’s wholly owned US-based subsidiary, Energy Materials of America, LLC will form an incorporated joint venture, American Innovation Metals Inc. (AIM) with IMC contributing the RapidSX technology IP for rare-earth separation.
The agreement provides for Hexagon to earn a 49% interest in the application of the RapidSX technology for REE separation via equity in AIM, the US incorporated joint venture.
The company reported that the objective of this transaction is to combine the relative skills of the two parties to commercialise RapidSX for REEs.
Hexagon said that the rare-earth processing business meshes well with Hexagon’s build-out of downstream processing of energy materials and is well covered by the US team that the company has already assembled.
Hexagon to construct CDP plant using RapidSX
Hexagon has completed a review of the existing SX and alternative technologies and concluded that the RapidSX approach is the most advanced, proven process technology and is ready for commercialisation with the construction of a Commercial Demonstration Plant (CDP).
The CDP essentially comprises pipes, tanks, pumps and electrical components assembled in an existing building. It can easily be placed on care and maintenance at little cost if there are no clients to utilise the facility.
The CDP will be operated at a site in North America with a planned production capacity of 60,000 to 80,000 kg of rare-earth oxides (REOs) per year, representing a conservative scale up of approximately 3-5-times compared to the pilot circuit previously developed. The CDP is expected to take approximately 6 months to construct and can be scaled up with the addition of new lines.
CDP is planned to be completed for Q3 of 2020.
AIM said that it is currently in early discussions with several REE producers which will hopefully progress to agreed test and licencing terms, to be closed subject to successful CDP performance.
Total consideration of $6 million
Hexagon said that the total consideration is US$6.0 million, comprising an upfront payment of US$2.0 million to fund the construction of the CDP and to complete the process of protecting the associated IP via worldwide patent applications; and US$4.0 million in Deferred Consideration, payable to IMC from Hexagon’s future AIM cash flows.
Hexagon has also agreed to make an additional US$0.5 million available, if required, to meet any cost overruns which will be deducted from the Deferred Consideration component.
Note, there is no recourse to Hexagon if the cash flow distributions from AIM are insufficient to meet the Deferred Consideration and Hexagon will be entitled to retain its 49% joint venture interest.
The acquisition is structured as an option which provides Hexagon up to 12 months to pay the US$2.0 million to enable commencement of construction.
Hexagon’s Managing Director, Mike Rosenstreich said, “The lack of US-based downstream REE separation capacity presents a serious vulnerability to US national security and the security of its allies, as REEs are critical for defence technologies and US economic growth plans.
REEs are also vital non-substitutable components of renewable-energy supply chains, critical to meeting America’s future economic, energy and environmental goals. Without downstream capacity to separate and purify REEs, the USA is unprepared for potential supply disruptions, price spikes and trade disagreements related to REEs. It is our intention to remedy this situation with the successful commercialisation of the RapidSX approach to REEs.
REE supply is very topical amid the US-China trade tensions. Whilst casting a useful spotlight on this supply-side crisis, this is not a ‘supply bubble’ triggered by politics, that is merely a backdrop to a more fundamental issue of declining Chinese supply and processing.”
IMC’s Chairman and CEO, Dr. Gareth Hatch commented, “In the past few years, the authorities in China have been more strictly enforcing environmental protection and pollution-control measures, leading to the closure of non-conforming industrial plants and facilities.
The REE industry is no exception, and these steps have led to a gradual reduction in REE production capacity, tightening supply. AIM will bring a proven technical solution to the challenge of cost-effective REE separation for the REE supply chain and is poised to make a major contribution to serving increased demand from geographically varied sources of supply.
Since the US Congressional hearings in May 2019, and widely reported indications that China could potentially use its REE supply as a bargaining chip in US-China trade negotiations, we have received numerous inquiries from companies with current and near- term mixed REE chemical-concentrate production.
We are now in active discussions with these and other companies. Through AIM, IMC looks forward to working with the Hexagon team, which contributes deep experience in other energy materials, as well as marketing and financing experience, to enable us to focus on the realisation of our objectives.”