Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

I would like to welcome you all to this presentation of this rare earth deposit that is about to start. My name is Eduardo Hochschild. I'm Chairman of Hochschild Mining. And I will let you know a little bit about this company that my family created more than 110 years ago. It's a company that likes to develop projects, new projects, that's why we're in mining. And about 4 years ago, we decided to evaluate opportunities in minerals associated with new technologies in order to add to our strong and continuous focus on gold and silver. We focused on those minerals that showed exponential growth potential and the leverage on our competitive advantages. After evaluating several options, market and jurisdiction, we decided the best alternative for Hochschild Mining was this rare earth deposit in Chile. This opportunity presented by far, by far, the best combination of fit for our capabilities, product attractiveness and geological potential, as you will see in the presentation. I would like to thank the Board substantially for the continued support of this initiative and the management team, of course, for the leadership in making this project a reality. Hochschild Mining and myself are very enthusiastic with this project, and we'll continue both Hochschild Mining and myself supporting its development going forward. Now I will introduce the team. Ignacio Bustamante will take over with the presentation now as CEO of Hochschild Mining.

Thank you, Eduardo. We acquired 100% of BioLantanidos in October 2019 and since then have applied Hochschild's operational expertise and distinctive culture to move the project forward. Dealing with new minerals and a value chain dynamic that is totally different from gold and silver and relatively unknown to the Western world has required a significant amount of effort and innovation on our part, a challenge we have embraced and which has enriched our organization. The combination of the derisking process we have embarked on, together with the strong fundamentals underlying our investment thesis and increase in the prices of rare earths, which have almost doubled since the acquisition, makes us very optimistic about the future of this business. Today, we will outline the business case for heavy rare earths, together with important details of our first production volume. We hope you will find these results exciting and the strong evidence of the outstanding potential for value creation that this asset has for shareholders of Hochschild Mining as well as for all its stakeholders. And we are also pleased to announce that we have changed the Biolantanidos to Aclara, a name that was highly regarded by our neighbors in Penco and that represents clarity, transparency and a positive attitude towards all our shareholders from day 1. And now I would like to introduce our CFO, Ramón Barúa, who is also the project CEO. Thank you.

Thank you very much, Ignacio. Thank you very much, Eduardo. I hope you like the new brand as much as we do. Let me introduce the team for you. Well, many of you know me well for many years. My name is Ramón Barúa. I have been the CFO for Hochschild Mining for more than 10 years now. And I have been with the Hochschild Group for more than 16 years. I've been the Deputy CEO and CFO of Cementos Pacasmayo and also CEO of Fosfatos del Pacifico. The team has been joined by Rodrigo Ceballos. Rodrigo is Chilean. He works and lives in Santiago. And he has a lot of experience also with these specialty materials. He has worked with rhenium, molybdenum. He has been a senior manager at Molymet and most recently with Mathiesen Corporation. So very great addition to the team. Francois has worked with me for more than 10 years in the finance team of Hochschild. He has moved to Chile to lead the financial aspects of the project and of the company. He is bringing the culture and the rigorosity of Hochschild Mining to this new venture. Jorge Lerena is also relatively new to the company in the last 2 years -- it's been 2 years working with Hochschild already. He's the project manager of Aclara. He's had a lot of experience with processing mineral facilities in the U.S. and in many other countries as well. He's been the COO for PENTA an engineering firm in the U.S. And he also has -- brings a lot of experience dealing with desalination plants. So many of the techniques that apply to our process in Aclara. And finally but not least, Mauricio Alvarez. Mauricio is a lawyer. He has been internal counsel for Goldcorp in Chile for many, many years. He has also worked for Codelco and has worked also on the private sector for local firms and Cleary Gottlieb as well. So that's the team that we're putting forward. Both Rodrigo and Francois will be joining me in the presentation and you will get to meet them personally. So let's start by addressing what are the 4 most important takeaways that I would like you to keep after listening to our presentation. The first one is about ionic clays. I want you to know that ionic clays are different, they're special and they are very rare outside of China. Second, rare earths. The demand for rare earths is already growing exponentially and it will continue to grow exponentially. We believe that supply will have a very difficult time catching up with such aggressive growth and that creates an enormous business opportunity. Third, we are going to present you also with the economic results, the PEA results of the first module. But that's just the beginning of the story. We have a very clear plan to optimize those results, to grow and to further add value in this value chain, in this permanent magnet value chain through vertical integration. So remember this is just the beginning of the story. And last -- another very important concept, we are all very familiarized with how commodities work. But here, we are dealing with elements that are not commodities. These elements are highly specialized materials that will go -- that will be transacted through liquid B2B markets. The ultimate customers are going to be very technical, very specialized companies, probably the most demanding companies in the world. So our approach here has not been to find the cheapest and the most cost-efficient way to do it, but the most sustainable, the most traceable way of bringing these important rare earth elements to these customers through a value chain that is geopolitically independent. The agenda for today responds to these key takeaways. We're going to start discussing about heavy rare earths, not rare earths, but heavy rare earths. And we will go into a little bit of detail on why are they important and why are they special, especially the heavy rare earths that we're going to be producing. The second part is going to deal with ionic clays. We want to reinforce the concept of where can you find them, how rare they are, how special they are and how unique this deposit that we have in Chile really is. Then we will talk about demand. We have forecasted demand and supply in order to try to estimate where prices are going to be in the future. We want to show you this -- its scarcity and as a result of the exponential demand. And then the last 2 points, we're going to be talking about the project specifically. First, we want to tell you about why is Aclara special? Why is the deposit special? What are the competitive advantages that we have to compete in this new environment, in these new markets. And lastly, I mentioned that we have a clear plan on how to add value. Well, we will go step by step through that plan. We will tell you what our minimum viable product is, how quickly we can start operations. Second, how we're going to optimize those results, how we are going to grow? We have the opportunity to develop much more modules, multiplying really the throughput capacity of this asset. And then finally, what are our thoughts around vertical integration. Let's go directly and start about the importance of heavy rare earths. All rare earths are not created equal. As we can see on the table on the right, there are rare earths that are worth $1 a kilo and there are rare earths that are worth $1,300 a kilo. Here, in this presentation, we will focus on 4 of them. Two light rare earths, which are neodymium and praseodymium and 2 heavy rare earths, which are dysprosium and terbium. The common thread between the 4 is that those rare earths have the ability to perform as permanent magnets, and that is very important for the electric revolution. So summarizing this slide, really, we want you to take away that we're going to be focusing on those elements that have not only the highest value today, but also have the story, the fundamentals to support the value -- to support their value contribution going forward as well. Let me explain why permanent magnets are important. So when you think about an electric vehicle, there are 2 basic elements that will make that electric vehicle function. You have the battery that feeds the motor, okay? The battery, I think we're all very familiar with already and we know that it contains lithium, cobalt and nickel as their main elements. Rare earths are not battery metals. They do not go again into the battery, they go into the motor. Why is that? Because the motor works when -- in this way, when you feed energy into the motor, you create an electromagnetic field that creates a reaction and starts generating movement inside the motor. The movement is, of course, proportional to the amount of energy that we are feeding that motor. But if you have permanent magnets, then you have an additional source of power that allows you to either with the same amount of energy have a better performance or to maintain performance with a lower amount of energy. So in practical terms EVs are sold based on their capacity, on their range, on their capacity to accelerate and on the time that you require in order to recharge the battery again. Rare earths will help you materially on that front. You will have also better use of space inside an electric vehicle and you will lower the weight, making the machine more efficient. And of course, if you just want to keep or maintain performance, you can reduce the amount of the very scarce lithium, cobalt and nickel elements in that battery. Now all of these superpowers, you would think that add a lot of value to the vehicle. However, the cost of the rare earths as part of the vehicle is very low. It's only a few hundred dollars. Taking an example of an electric vehicle that's commercially available, we've calculated that the value of rare earths represents only 0.3% of the value of the whole vehicle. Why is this? And how do neodymium and praseodymium interact with dysprosium and terbium. Well, the simplest form of magnet is a magnet that contains iron, boron and neodymium, praseodymium. That is quite an effective magnet and it has many simple applications. However, in the motor of an electric vehicle or a wind turbine, as temperature increases the coercivity, which is the capacity of that magnate to retain its properties starts decreasing and after 80 degrees Celsius that magnet becomes forever demagnetized, okay? So how do you prevent doing that, especially when considering that the electric vehicle is going to function at a temperature of around 180 to 240 degrees Celsius. Well, the solution is to add a little bit of the heavy rare earths, you add dysprosium and terbium and the coercivity value increases quite substantially and protects the magnet and helps it to operate at these higher temperatures. And this applies not only to electric vehicles, of course, and I have already mentioned about helping wind turbines when the turbines receive a force from the wind, they are able to replicate that force into energy. However, if you put permanent magnets in that motor, you are able to lever on that force and increase more energy than the force originally received. Drones, for example, they are still toys, but there is a future in those products, in those technologies, and the rare -- and the permanent magnets are going to help them carry more weight, stay longer in the air. So there is a very, very real application for these elements. The other things, planes. Planes are currently using the permanent magnets in -- as part of their equipment in how they move the flaps on the wings, et cetera. But going forward, and Francois will talk about this, the electric planes are also on the works. We've seen very recently the IPO of Joby Aviation, a couple of weeks ago, very successful. And that's because the electric planes are going to be a reality very shortly. And also, there are many home appliances that we don't think about, but our refrigerators, our air conditioning units also use magnets. And as the world starts dealing more friendly with efficiency of these appliances in order to contain the environmental pressures, the heating of our planet we're going to be needing to use more permanent magnets in those appliances. The big problem is that currently, you can only obtain heavy rare earths by buying them from China. So we also know that rare earths are not rare. We have seen many deposits pop up in many different parts of the world. So if they're not rare, then why China dominates this market? And we believe that there are 3 main reasons. The first one has to do with the production of light rare earths. China has a mine in the north of China in a province called Inner Mongolia, where they have a mine called Bayan Obo. Bayan Obo is a huge rare earth mine -- light rare earth mine that produces around 35% of the world's supply of these elements. Then -- so they have the light rare earths. The second part is they have the heavy rare earths, and they obtain them through ionic clay deposits in the southern part of China. And lastly, they have, of course, an integrated value chain that they have created through many years, it's fully depreciated, and that gives them a very strong advantage as well. So what does the West do? How can we compete with these Chinese advantage? Really point #1, light rare earths, they are going to be available in many ore deposits. You know probably already that MP Materials out of the United States and Lynas Corporation out of Australia, they already produce light rare earths. And the third point is also a value chain where the technology is not a secret. When you produce sintered magnets, the technology, the patent is owned by Hitachi in Japan, and it's just a matter of putting capital and developing resources. But the second point, the heavy rare earths, there's no easy solution for that. And let's explain why. So heavy rare earths come primarily from ionic clay deposits. Why are ionic clay so special? There are 3 main reasons. The first reason is that the metallurgy is extremely simple. You just combine water with ammonium sulfate, which is a common fertilizer, and you are able to extract from these clays the heavy rare earths. So that requires low CapEx, low OpEx, very simple. Second, the product that you're obtaining contains a heavy rare earths that as I have showed you in one of the first slides of this presentation are very high value. And the third one, very, very, very important is that they contain either 0 or negligible amounts of radioactivity. Again, very simple process, very safe. And I have -- I'm showing you on this slide some pictures of Chinese production coming out from ionic clays and I have 2 reasons for showing you that. Well, of course, there are no images. For China, it's an important state secret, how they operate their ionic clay mines. So there are no pictures really available from mines. These pictures were obtained in the Internet. And there are again 2 reasons why I show them. The first one is to show you how simple it is to produce and how elemental it is to produce heavy rare earths out of ionic clays. If they can do it that easily we can do it. And the second reason is because I want you to remember this pictures when we show you how we're planning on mining in our deposit in Chile. And you will see that we're trying to do completely the opposite. This, from an environmental standpoint, is not the right way to do it. We're going to do it differently, better, and we're going to come up with a product that is going to be wanted and demanded by technology companies that will not accept to have their REE feed be done in this way. So what are the opportunities in the West? On this chart, you can see on the left, many projects, operations as well MP and Lynas that already produce from hard rock sources. And on the right, you see the ionic clays projects. We can identify only 3, is maybe a fourth one, but it's basically us, Aclara in Chile. The second one Serra Verde in Brazil, privately owned by Denham Capital. And the third one is Ionic Rare Earths, a company that has a deposit in Uganda and listed in the Australian Stock Exchange. So these deposits of ionic clays are mostly heavy rare earth producers. The grade is lower as the hard rock -- the overall grade -- the total rare earth grade is lower than the hard rock deposits, but it contains heavy rare earths. So as you can see, the average basket price of this ionic clay is around $55 a kilo compared to $25 a kilo of a rock project. And most importantly, as I mentioned earlier, there is -- these ionic lays do not have to deal with radioactivity, and that makes for a huge difference. Let me pass the presentation now to Francois to talk about how we project demand, supply and what is the implication of that in prices.

Demand for heavy rare earth is exponential. In this section, we show you the exponential growth fundamentals of the heavy earth demand. We will also walk you through the main assumptions that analysts are using to forecast the supply as well as the resulting dysprosium price forecast for the following decade. The heavy rare earth exponential growth is not driven by a technological change. It is supported by the commitment of governments to reduce the carbon dioxide emissions as soon as possible before the climate change becomes irreversible as is pointed out by Elon Musk. There are many countries that have already committed to net 0 carbon by 2050, which will push private companies to adopt new technologies and accelerate the energy transition. The environmental urgency, along with the large number of subsidies coming from world powers will accelerate the electric revolution. We can already see this effect in new demand forecast for electric vehicles presented in the following slide. Demand for electric vehicles is exponential. The main driver for the heavy rare earth market is the electric vehicles industry. The electric vehicle demand is from the international energy agency based on the Paris Agreement to achieve net 0 emissions by 2050. Some of the most reputable car manufacturers are leading this transition to electric vehicles with challenging objectives set for the next decade. China, has the biggest car market, plans to have 50% of electric car sales by 2050, a very ambitious objective. In 2020, electric vehicles represented only 1% of what's automotive fleet and by 2030, will represent 12%. So there will be a long transition to electric vehicle after 2030. Demand for clean wind energy is exponential. Offshore wind turbine market is the second most important driver for heavy rare earth demand growth. Offshore wind turbines use permanent magnets to reduce maintenance costs and to improve reliability and efficiency. As they are in the middle of the ocean, it is a lot more expensive to fix or maintain them if they develop operational issues. According to the International Renewable Energy Agency, the offshore wind additions will have a compound growth annual rate of 12%. In addition to offshore wind power, onshore wind turbines could also be an upside to rare earth demand if producers change to permanent magnets due to the already explained benefits. We have spoken about 2 technologies that are currently in the growth and consolidation stage of their product life cycle. But there are many other electrically powered technologies that are in a development stage. For example, the electrification of the aerospace industry has recently gained a lot of attention. In the left side, we can see this Rolls-Royce electric plane developed in collaboration with YASA and the U.K. government. The preferred technology is based on permanent magnets. Magnets give the required power and energy savings. Another example is Joby Aviation. We recently saw the IPO Joby a company that is developing an electric aircraft to operate as an air taxi service. Despite being far from commercial production, the market is already evaluating this company in $7.5 billion. Other important applications that will use permanent magnets include electric trains and boats, military applications and even day-to-day transportation applications such as e-bikes and e-scooters. Demand is exponential, and that is something we all can agree on, but we see that supply is rather limited. China has been the main controller of the rare earth industry and especially the heavy rare earth market for the last 20 years. We can see enormous resource depletion especially for elements that are currently very scarce such as dysprosium and terbium and that only represent 1% of the world's production of rare earth oxides. In the graph, we can see that 50% of the dysprosium and terbium has been supplied by illegal mines with very low environmental standards and poor social conditions. Chinese government is trying to improve their environmental standards by shutting down these illegal operations. These actions will definitely lead to more supply constraints in the near future. In the case of new projects outside of China, we have put a list of some that could reach production in the following decade. However, they are not really new. Most of them have existed more than 10 or even 20 years. The reason behind this delay is their complex metallurgy and the high amounts of CapEx required to put them into production. In addition to the complex metallurgy, these projects have to deal with radioactive waste or radioactive products, which have an effect on cost, CapEx and commercial discounts, making them unprofitable. As it is shown in the table as well as in the chart at the right of the slide, Aclara has the lowest CapEx amongst projects. The process has a simple metallurgy and the product and waste are free of radioactivity. These competitive advantages put Aclara ahead in the list of new projects as the new leading supplier of the heavy rare earth. Here, we have summarized the main assumptions that analysts used to forecast the demand and the supply and that we have used in our valuation model. On the left, only the most consolidated applications have been considered, such as electric vehicles, wind turbines and electronics. On the right, analysts have selected the most advanced project as well as expansions from the current producers. We believe this to be a very conservative assumption as it assumes that all projects will reach production when history has shown us the contrary in the last 20 years. Amongst all the projects outside of China, only 4 have the heavy rare earths, which shows that Aclara won't compete against light rare earth operations, such as Lynas or MP, we will complement their NdPr. Analysts have projected a very conservative dysprosium forecast for demand and supply considering the assumptions made in the previous slide as well as an increase of 7% compound annual growth rate from Chinese and Myanmar production. Despite these assumptions, we foresee a shortage of dysprosium from 2025 or even before considering the new applications will require heavy rare earths and putting into the equation that the low historic project execution. Western countries have already realized the importance of these elements and the shortage that is coming in the near future. For example, last year, President Trump signed an executive order declaring a national emergency to use the Defense Production Act to speed up the development of an alternative supply chain that would be independent from China. The Europe Union is also looking to diversify the sources of these critical minerals and limit the current dependence they have on China. On the right of the chart, from -- we can see from the Department of Energy that puts the dysprosium and terbium element at the highest importance for clean energy application as well as the highest supply risk because there is currently only one supplier, China. The Chinese government has also been aware of this future imbalance. They have been aware way before than Western countries. And because of this, they have been investing in several rare earth projects for the last 20 years. In addition, as they have a well-developed value chain, they have been able to secure all the production from Myanmar, which represents 40% of world's dysprosium and terbium as well as other Western heavy rare earth projects such as Serra Verde or Ionic Rare Earths. China's clear intention is to keep dominating the market, especially in the heavy rare earth and has already made a significant step to do so. In the following chart, we can see the historic dysprosium and terbium prices. In the last 5 years, China has been oversupplying the market to keep prices low and delay the entrance of Western projects. However, since last year, heavy rare earth demand and prices have started to grow exponentially, mainly driven by the increase in the demand of electric vehicles, which has marked the start of the electric revolution. To conclude this section, we present the dysprosium analyst forecast. Before passing to the forecast, we analyzed the price recent history, and we can see that price had an exponential increase from 2018 to 2021 of 123%. Despite that the demand is exponential and the supply is rather limited, analyst price projection only show 61% increase for the next 10 years. We believe there is a huge upside opportunity regarding the heavy rare earth prices that could be triggered even in the near-term future, especially if we consider the historic low project execution of the industry.

Hello, and thanks for joining. My name is Rodrigo Ceballos, and before introducing Aclara, I'm glad to share with you a short video about our Penco project, its location, its people and our vision. [Presentation]

Aclara's value proposition is not simply a competitive commodity product but a new supplier of heavy rare with a set of key advantages. So which are those? First, it is one of the few ionic clay deposits outside China. Aclara is environmentally and socially responsible. We will produce a premium product, high purity heavy rare earths carbonate. We hold very attractive exploration potential. There are mining concessions for 220,000 hectares and it is located in Chile, a world-class mining investment jurisdiction. In the following slides, we'll go through the details of each feature that differentiates us. So let's go into some detail about some key characteristics of Aclara. We have commented that China produces the vast majority of the world's heavy rare earths production from ionic clay. Besides ionic clay deposits are exceedingly rare outside of China and there are no ionic clays operations in the West. That's the main reason for Chinese dominance in heavy rare earths. Below, we have compared the geology and grade profile of the South China ionic clay deposits versus our deposit. Central left-hand side charts show the profile of Chinese and Aclara's clays. Vertical axis shows the depth of the deposit from 0 meters, meaning top soil, to be unaltered rock at around 40 meters below the surface. The horizontal axis relates to the recoverable grade of our rare earths. It is relevant to note that our deposits are very similar to those in China, almost identical. However, they even achieve higher grades. Our ionic clay deposits has key differentiating aspects when you compare it to traditional hard rock deposits. Its environmental impact is minimal given that we don't use explosives which eliminates any noise pollution. We don't need to do crushing and milling, so we can dramatically reduce the emissions of fine particles. The main reagent is a widely used fertilizer. There will be no tailings dam, but just the disposal of washed clays that will finally be revegetated with native trees. This will produce a net positive environmental impact. Our process and final product will contain no radioactivity and the reduction of water consumption is a core focus of our efforts. We will actually recycle 95% of the water used. Besides these environmental efforts, these features will also carry a very low energy consumption compared to many other traditional projects. Finally, there will be no combustion processes within the production plant. Because we keep on pushing forward, we are working with the world's leading authorities on rare earth and engineering to validate our results and optimize our project, that is the University of Toronto, ANSTO, Ausenco among others. Unlike hard rock deposits, there will be no blasting, no crushing, mined by digging soil with widely used construction equipment: simple, very low cost of mining and maintenance and with minimal environmental impact. We have designed our processing flow sheet to be both simple based on proven methodologies and environmentally friendly. We aim to be the greenest rare earth operation in the world. This chart shows how simple our process will be. So let's go through it. Step 1 is the feed and leaching of the clays. Step 2 is the washing and further disposal of the process clays. Step 3, the solution then goes through impurity removal and the carbonates are precipitated. Step 4 carbonates are dried and the final product, a heavy rare earth concentrate with a 92% purity is obtained. After being leached, the clays are washed, filtered and then sent to the specific disposal areas. The solution is recirculated and a reverse osmosis process removes impurities. Why simplicity is key for us? Water circulation reaches 95% and our freshwater consumption is really, really low, less than 10 liters per second. We have a low environmental impact. Our reagent is a commonly used fertilizer. There is a low technical risk with proven engineering and start-up equipment. Finally, it also means low cost in terms of OpEx and upfront CapEx. The left-hand chart shows the chemical basket composition of Aclara's carbonate. At the right-hand side, the basket composition in terms of value. I just shared with you that our deposit is almost identical to Chinese ionic clay's deposits in terms of geology. Now it is also extremely similar in terms of its chemical composition. Our rare earth carbonate will have about 5% of Dy 0.7% of Tb and close to 16% of NdPr. And let's make a double-click in terms of value. 55% of it is derived from 2 critical heavy rare earths, dysprosium and terbium. This makes Aclara deposit exceptionally unique compared to many light rare earth projects around the globe. In addition, 80% of the basket value is made up of dysprosium, terbium, neodymium and praseodymium. Francois has presented the exponential growing demand projections for these 4 specific growth elements, driven by the magnet-related industries such as EVs and wind power. Our basket is uniquely strong when assessing the global electrification trend. We have completed extensive testing of our products with Ansto a leading global authority on testing and classifying radioactive materials. Our product has negligible radioactivity and will not be subject to any conditions for hauling and transport relating to radioactivity. Ansto has declared that our process and finished products are considered exempt according to international regulation. That is not the case for many other rare earth products and projects, which exhibit high levels of radioactivity that means additional CapEx, additional OpEx and permitting complexities. So this definitely lowers the risk and reduces costs for Aclara. We believe we are just scratching the surface of the potential. Why? Because we have identified several priority areas that we believe offer potential to hold significant heavy rare earth resources similar to Penco. While our Penco module, the focus of the PA, covers only 500 hectares, we hold 220,000 hectares land package. This is approximately 0.25% of the total area. Our current resource at Penco is 91% measured and indicated and it's just the starting point of this journey. It is higher grade than other ionic clay rare earth deposits, and we believe our total resource will grow exponentially. After having gone through how simple our process is, it's minimal environmental impact and the similarities with Chinese heavy rare earth clays, let's finally focus on a last but very important key competitive advantage of Aclara: location, connectivity and infrastructure. The location of our project offers several distinctive elements. First, it is located in Chile, an investment-grade credit rating. Chile is a mining friendly country, produces more than 25% of the world's mined copper. The country has been historically very open to foreign investment, and there is a strong rule of law. Second, we hold the ability to leverage extensive local infrastructure and operating port is less than 6 kilometers away and an international airport at 20 kilometers from the project site. We have secured fresh water access and energy infrastructure at a distance of 3 kilometers. First-class motorways are within a few meters from the production plant. And finally, the project is located just beside Concepción one of the largest cities in Chile with top professional workforce. So all these competitive advantages keep us very enthusiastic about this project that it will be a key western source of heavy rare earths for the world. Thank you.

Thank you, Rodrigo. Let us talk about -- now about more detail about our strategy to develop this deposit in Penco. We have 4 different steps that we want to take, not necessarily in sequence, they are going to occur a little bit in parallel. But approaching the project in this way will help us the risk, the asset and also growing, we think, very materially. The first step is, we call it, we've taken this word from the technology sector. We want to come up with a minimum viable product. We want to access as quickly as possible. We want to demonstrate that we can do this economically. We want to have clients, and we want to validate everything that we are doing. At the same time, we are going to start with the second phase, which is optimization. We're going to talk about the PEA results of Module 1, but we believe that there are still important opportunities to do things better. The third element of our strategy is growth. We're starting with 1 module, but we will show you that we have room to accommodate many modules more. And last, at the end, we are going to talk about how we can add value to these very important elements? How can we integrate further into the rare earth and permanent magnet value chain? Let me start by the first one. And I will do so by talking a little bit about the history of the deposit. This deposit was found in Chile in 2011. It was done so by a company, a private equity firm in Chile called Mineria Activa and they did a lot of fantastic work. They really outlined the path that we are following now. And as a matter of fact, in 2018, they started with the process of permitting Module One. We acquired 100% of the deposit in 2019. We have been working to improve and on top of the work that Mineria Activa started. And this is another important -- today, it's another important milestone because we have a PEA ready that we're sharing with you and that sets the ground of where we want to go going forward. We are expecting the approval of the environmental permit by the end of this year. That is going to be, we believe, another very important milestone that will allow us to move into 2022. 2022 is going to be a year of first of optimizations and second of completion in Q4 of the feasibility study. With a feasibility study in hand, we believe that we can build this plant relatively quickly. It's not going to be complicated. Rodrigo has shown to you the flow sheet. It's not a complicated one. And we believe that we could be producing the first kilo of rare earth carbonate at the end of 2023. At the bottom of the slide, what you can see is that in parallel, we're going to start working on the development of the new models, and we'll talk about that. So what are the PEA results? This engineering work has been issued and completed by Ausenco. They have supported us throughout this process. We're going to be producing, again, a minimum viable product that for us is a rare earth a mixed carbonate. The asset will have a starting life of 11 years. CapEx, we believe, is rather low at $119 million. This is the CapEx, again, only of the first module. And we are showing an unoptimized NPV of between $152 million to $177 million. Right now, we're at $152 million, but we are fine-tuning with Ausenco in these coming weeks to get us to $177 million. And the EBITDA -- this is a very important number, the EBITDA that will be generated annually is approximately $50 million. Module One is going to produce around 2% of the dysprosium/terbium available today in the world. But I think that important figure here is that it will produce approximately 50% of the dysprosium and terbium that is produced outside of China. And that is a very unique source of material. On the chart on the right, you see the concept that we are -- that we have evaluated. You see there are 5 different pits or quarries with a processing plant at the center of gravity. We're going to be holding the mineral, the clays from the pit into the plan, wash it with the ammonium sulfate and then bringing the clays back into the quarries. In this slide, we have a summary of the PEA. You see there, again, the 11-year life of mine. We have a very low strip ratio of 0.4. Metallurgical recoveries are still at a very low level, only 18%. That's why we are so enthusiastic about the possibilities of further improving on that front. We're going to produce 750 roughly tones per annum on average of rare earth oxide's equivalent. CapEx, as I mentioned, very low and an all-in sustaining cost of $40. This all-in sustaining costs, by the way, does include commercial discounts as well. And to give you some orders of magnitude, we'll see later, but our basket price at current spot prices is around $60. So that gives you an idea also of the margin that we are going to be able to generate on a yearly basis. On the chart on the right, you have our production by element, this is by volume, not necessarily by value. In this next slide, I like this slide very much and this slide tells a very good story. So you can see there on the chart on the left, the current basket price of Aclara's project. And on the right, you can see where analysts are projecting the different elements that are going to be produced, how the basket price evolves in the coming year. And you see there a belly in year 2026 and 2027. And this is because, as Francois mentioned, they are using the assumption that they are going to be 2 plant expansions, that there's going to be 11 new rare earth projects coming into production in those years. And that China is going to be growing, China/Myanmar are going to be growing at a pace of around 7% per year. If you do not believe that those projects are necessarily going to happen as quickly as projected, there is certainly a lot of upside on prices. We are using for our evaluation for our NPV calculation the base case that you see there. Important to mention that projections of independent third parties only go up to 2030. So after that year, we have 4 more years in our life of mine and they are being projected as a straight line. On the table on the right, we have the base case NPV of $152 million to $177 million, and you can easily see the upside on prices. Potentially, I mean, on the high side, we could be doubling the NPV of this project. And on the bottom chart, you see the impact also on EBITDA generation. We are starting from around $50 million per year with higher prices in this scenario can go all the way up to close to $80 million. And to give you another idea of sensitivities, we have provided also what will be the impact on improving on metallurgical recoveries. As I mentioned earlier, they are only at 18% right now. And you can see there that by adding just 1%, this is taken off the base of the $150 million scenario, so we can move from $150 million to $174 million or even higher if we further improve on that front. And on the right, this is an important aspect also of what we're trying to do. I mentioned earlier that we are not trying to necessarily compete on cost with China. What we're trying to do is to have a rather unique product that is going to be highly desirable for companies that are looking at sustainable, traceable and geopolitically independent product. And we believe that given that these prices that we have shown you are tricky because they are prices at which a Chinese supplier sells to a Chinese customer. So really, there's no liquidity behind those prices. And for these companies, if they want to use the rare earths, especially the heavy rare earths, they will have to buy it from us, and they will need to pay a premium on top of those prices, and we see the effect also of those premiums in our NPV. Of course, our base case is with a 0 premium, but there is an enormous opportunity on that commercial front as well. Let's move now to the second leg of our strategy optimization and why we are so enthusiastic about it. First, let's talk about geology. Brownfield has not finished around these 5 pits that I've shown you, and we are actively, as of now, drilling more of that property to add more resources between now and the feasibility study. The pit is also a disseminated deposit. So as prices go up, there is an opportunity of continuing to grow the size of the pit and capture more resources. The metallurgy is key. Right now, the evaluation has been done through a very simple approach. We have come up with a standard formula and the fee coming from those 5 different pits are going through the plant using, again, only 1 formula with a certain content of ammonium sulfate, the pH, et cetera, et cetera. But we have identified different -- we call them geometallurgical units within the pits. So we can adapt or as we adapt that formula to address the specifics of each pit or of each geometallurgical unit, there is an opportunity to improve the overall recoveries as well. We have also completed batch pilot testing for the clays. We -- in the coming months, what we're going to be doing is we're going to be doing continuous pilot testing. And we believe that using our recirculated solution will also help to improve on the metallurgical recoveries. And then more for the medium term, we can test other reagents and other methodologies to continue extracting more rare earths. We will eventually -- if we do that, we will eventually have to modify the environmental permit. So it's not an opportunity for the short term, but the work will not stop there. Again, we will continue researching on opportunities. In terms of engineering, one of our main cost is going to be the transportation costs. Again, we're going to be hauling the clays from the pit or the quarries into the plant back and forth. So any improvement that we can do on that front -- right now, we are assuming that we're going to be trucking all that clay, but there are, of course, other alternatives that we could be using. We're working a lot also on water. We believe that, that will have an impact not only economically, but also it will have -- it will help on the economic circularity of what we're trying to do on the sustainability of the project. And that adds also to the last point. With our cement background, we did send this clays to be tested at Cementos Pacasmayo. They have confirmed that these clays can be activated and they can use as an addition to cement in a region in Chile, in the south of Chile, where cement is imported, clinker is imported. So it could have, again, not only an economic impact on the project, but it could also contribute to the circularity of the economy in the region. We're using -- we are buying a lot of superficial land from -- primarily from the forestry companies. And we believe that also in the future, for these purposes, we have kept that value constant through time, but we do believe that the value of land is going to go up as time passes as well. Let's talk about now the third phase, growth. How are we going to come up with more modules? Well, as you already know, we have 220,000 hectares, and we are only working on the first 500 hectares. There are 2 areas that we have very quickly identified. You can see them in the pictures in the slide, we're using code names at this point, but you can see Veronica there. We have -- when we have done in these areas, if we have used an [ over ] machine, which allows you to drill approximately very easily 2 to 3 meters. So that's a very easy activity to perform. We have taken lots of samples from those areas, and we have found rare earths at surface, even better results in many cases than the results that we had for Penco and in areas that are very large. You can see on the bottom right corner of each of those images, the size of the 500 hectares that Penco represents. So that gives you an idea also of the potential size of additional production that we could have in the future. This next slide summarizes that very well. On the left, we have the 500 hectares of Penco and the areas of interest that we are pursuing are significantly larger. Veronica is more than 12,000 hectares, and Catalina is very close to 4,000 hectares. In this next slide, what we show you is basically, this is just a graphic representation. The beauty of doing this in a modular way or in stages is that we can decide when to activate the next module. At this point, we're doing exploration to try to see where we want to deploy, but that doesn't mean that we necessarily need to invest the CapEx today. We can time that to see how demand evolves and be ready when demand is ready. Essentially, once exploration is concluded, we will have to go through a permitting process. We estimate, based on our recent experience that permitting will take around 3.5 years per module in Chile. That is going to be the bottleneck. But we could be in production with a second module as early as 2026 -- sorry, 2027 and then onwards. Why modular strategy? Well, just conceptually, you know the deposit is very shallow. It's not too deep. I think Rodrigo mentioned between 20 and 40 meters deep at the most. The cost of [ holding ] is very important. And the CapEx for each plant is relatively low. So it's more efficient rather than whole clays all over the place, but to have a new plant at the center of gravity for each set of pits or quarries in order to be more economically efficient. Finally, value added. Once we produce this rare earth carbonate, we will need to work on separating those -- that concentrate into the specific oxides of each of the 17 different rare earths. Today, we can do it in China. China has availability to treat these carbonates. Right now, they are working at 50% capacity. They have quotas regulated by the Chinese government. However, our product is not part of those quotas. So we could -- I mean, they would easily receive our product and put it through their plants. There are also plants outside of China, which are also important, again, especially for those clients who believe that the geopolitical independence of sourcing these materials is key. There is a plant owned by Neo Performance Materials in Estonia across Sillmet. There is a plant in India owned by Toyota. And there are new plants also in being total constructed, notably, MP Materials has plans to build a separation plant by 2023 in the United States. Pensana also has a plan to do a plant in the U.K. And there's really a list of other alternatives, either using solvent extraction, which is the technology that the Chinese use or other technologies who are using polymers that are also being discussed in the world. But our ultimate goal will be, of course, to have our own separation independence, build and operate our own plant. We are stating that. The technology is available. We believe that maybe not for the first module, but if we have already 2 models in production, that will be economically reasonable. And our ultimate goal really is to serve the customers that you see there on the right. Now customers, again, that will value not only the geopolitical independence, they will value the traceability, the sustainability. They would want to know what are they feeding into their high-end products? When they sell an electric vehicle, they are going to be saving a solution to sell -- to save the planet. They are going to be -- trying to decarbonize the world. So they are going to be -- they want to make sure that the raw materials that feed those vehicles also meet those very high standards, and that's the opportunity for us. This slide summarizes the process of value creation. Again, we want to reinforce this concept. We're only at the start. We are working on the PEA of Module One. We will optimize, we will grow, and we will add value. And through that journey, we will continue to create value for our shareholders. Let me finish with addressing where comparables are. We have received many questions how can we assess Aclara? How can we compare it to existing projects to existing producers of rare earths? I believe that, that is very difficult, and let me explain why. First, in the world, there are only 3 known projects of ionic clays of heavy rare earths. We've made a strong point that we're different to the rest. We have Serra Verde, which is a private company, so we don't have a lot of information about what they are doing, and they are based in Brazil. The second one is Ionic Rare Earths based in Uganda. And then there's us, of course, we're the third one. Then you have China and Myanmar, where information is highly confidential, and there's really not a lot of detailed information. So we're very limited in ways of comparing us with them. There are plenty of -- well, there are only also a handful of light rare earth operations. We have Lynas, of course, great company, Australian company listed in the Australian Stock Exchange. They have their mine Mount Weld is in Australia, but they process their mineral in Malaysia. Then you have MP Materials who has started recently, very successful also a venture. The mine against in California, in the United States, but they shift all of their mineral today to China for processing. And then there's Rainbow Rare Earths listed in the London Stock Exchange. You're very familiar with them. Their mine is in Burundi. And then you have plenty of light rare earth projects out there. There's a temptation to compare us with them, but we believe that we are very different to those projects. Our mineralization is not comparable. Many of them, as Francois mentioned, they do have to deal with radioactivity. And that is a major factor that differentiate us, not having that. And of course, many of those projects also don't have the access of funding that we believe to have in Aclara. So in summary, I think that there's no obvious competition, especially if you consider that we're going to be producing a very high purity product with no radioactivity in a stable jurisdiction with -- and we're going to have a product that is fully traceable. No, I don't think that in the Western world, there are many companies that will be able to compare with us. Here, we have a chart that summarizes the mineralization of us, the other 2 ionic clay projects and some information that we have gathered out of Southern China. You'll see that the deposits are very similar. We performed a little bit better on the heavy rare earths on dysprosium and terbium and a little bit softer in neodymium and praseodymium. But when you equalize all of that in the basket price at the bottom of the chart, you'll see that all of us have a basket value of around $60. So I would say mineralization in general is quite similar. In this slide, we show you on the left, we have the basket price of the heavy rare earth producers that we discussed in the previous slide. And on the right, we have the light rare earth producers, notably the Lynas and MP Materials with basket prices that are half of what we're going to obtain for ours already being very profitable and quite successful companies. And in terms of market valuation, we wanted to leave you with this thought. We're looking at enterprise value over 2021 estimated EBITDA, both for a rare earth associated companies and specialty materials companies, they're trading at much higher ratios than what the mining industry is used to. We see MP Materials trading at 27x EBITDA. There are clear plans of increasing production in the future. Same as Lynas. Lynas is trading at 13x EBITDA. And Neo, Neo doesn't produce rare earths, but they are -- they have separation facilities and they are more integrated in the magnet's value chain. So I think it's already a nice company to see what's happening with them. Livent, Albemarle, or Orocobre, you know them Orocobre has a lithium production out of Argentina, and they are also trading at significant higher multiples than where Hochschild Mining is trading today only at 2.5x. So we believe that there is enormous potential for rerating going forward. Let me go to the conclusion then. The conclusion will be splitting in 2 slides. We believe that there is a market opportunity, a very clear market opportunity. Heavy rare earths are rare, and they are going to be super important to support the electric revolution. Ionic clays, as I mentioned, they are special, they are different, and they are very rare to find outside of China. The world is already anticipating a very large imbalance between supply and demand of these elements. China knows this very clearly and has taken action already. The West is just starting. And Western companies who deliver a highly sophisticated products are going to be very concerned about this imbalance, and they are going to be looking for long-term stable supply of traceable, sustainable and geopolitically independent rare earth elements. And that's where we come in. That's the Aclara solution. We own a super large deposit of ionic clays. One of the best, if not the best, outside of China. We're not going to focus, again, primarily necessarily on cost. We are developing a flow sheet that is sustainable. The environment is our top concern. We are going -- we're not going to be doing -- remember the pictures I showed you at the beginning, we're not going to be doing in [indiscernible]. Our reactions are going to take place in close tanks. We're not going to be using any hazardous chemicals on the contrary. And our plan is to return the clays to the place where we took them. There's not going to be a tailings dam, there's not going to be radioactivity. And that is exactly how our plant and a supplier looks for a company of the quality of the suppliers -- of the OEMs, of the ultimate offtakers that we have seen in previous slides. We have a very simple strategy. It's very simple, very concrete, and we believe that it will generate a lot of value going forward. There's clearly a lot of work. We're going to be investing and working for the next 10 years. But we're also going to be creating a lot of value in the future. We have full exposure to rare earth prices, and we believe that, that is a very attractive exponential growth opportunity. Thank you very much for your attention. And we're here ready for your questions. Thank you.

[Operator Instructions] We will now take our first question from Ian Rossouw from Barclays.

A couple of questions from me. Just on the valuation, I mean, I guess you highlight in just one of the last few slides that these companies tend to trade much higher multiples than Hochschild. And I think you have mentioned before that the plan would probably not be to keep Aclara within Hochschild. Could you perhaps expand on that? And maybe just along the sort of timeline of modular expansions, what do you think the best timing would be to spin that out? And then maybe just from a funding perspective then, would you at some stage, beyond the first module, look to -- or I guess, just give us an idea of funding plans going forward? And then just the second question on the subsequent modules. I just wanted to get a sense of the synergies you would expect, I guess, from the pictures that you show these will be separate plants. But do you expect the CapEx and OpEx estimates for subsequent modules to be lower than the first module?

Thank you, Ian. This is Ignacio Bustamante. So regarding your first question, we are currently evaluating all options for Aclara. So we have made no decisions yet, regarding your first question. I can also tell you that the balance sheet that Hochschild has is very strong. It's probably the strongest that we have had in the past many years. So we should have enough capacity to both continue moving the project forward as well as to continue delivering on our strategy in Hochschild Mining. So we feel very comfortable from that standpoint. And on the modules, Ian, thank you for your question. Look, I think the nice thing about this modular strategy is that we have no commitments to put more modules, but we do retain all the optionality to add them when demand is ready or when we are ready also with funding. In order to put more modules, I mean the first stage is to do exploration in these new areas, that exploration has already started. We are, as of now, drilling in those properties. And after that, we need to go through a permitting process in Chile, and that will be the bottleneck. We estimate around 3.5 years in order to incorporate more modules. So the next module would be expected as I put that there on one of the slides as early as 2027. And then on the graphic representation, we used another module every year thereafter. But really, we could bring them forward or we can delay them, again, according to the situation of the market at that time. You asked about potential synergies or improvements. I totally agree with you. That's why we have a second stage of optimizations. We believe that those optimizations are very real in many fronts. The metallurgical, I think, is the largest one. But I think we will learn a lot from Module One that we can replicate in the other modules. I think the safe assumption is to kind of copy-paste a Module One to more modules, but synergies will certainly appear. Your question will be, of course, the size of the modules because what we are seeing in the areas that are not Penco, not Veronica and Catalina that we showed on the slides, the prospective areas appear to be much larger. So there's also the possibility of economies of scale in those additional modules. Thank you.

[Operator Instructions] we will now take our next question from Richard Hatch from Berenberg.

Just a few questions. Ramón, perhaps you can just talk us through a bit more in detail about the outstanding permits for this project just for the first module? And what are the key ones that you're waiting for? You did talk a little bit earlier on, but can you just talk to us mining, power, water, any other kind of key sort of permits that we need to be thinking about?

Sure. Thank you, Richard. Thank you for your comments. The most important permit is going to be the environmental impact study. In one of the slides, I showed that this process of obtaining the permit was started in 2018 by Mineria Activa. So we have inherited that process. We've gone already through 2 instances of community participation. We've received plenty of questions both from local authorities and the population of Penco and Concepción. We have responded. The first one. The second one, we're just finishing that. And our expectation is to receive the environmental permit towards the end of the year. Of course, there are going to be more permits then, but that is -- I would say that's a significant one. That's the most important one. In terms of power, we are, again, meters away from the grid. The grid has now been interconnected. The center and the north of the country is interconnected. That is important because in the north, there is a lot of solar power now and the power is rather cheap. In the PEA, we have used an assumption of $84 per megawatt. And we believe that there is upside in that assumption going forward. And in terms of water, our intention is to fully recycle the water at the plant. There are, of course, some obvious losses. So the water that we're going to be needing to keep the plant running is very low. In the environmental permit, we're considering taking water from a local source, but we are also considering using industrial -- to reuse industrial residual water. I mean our project can work with that. And we have not also still fully discarded the use of seawater that hasn't gone through a desalinization process. We believe that there is a chance that we can use seawater directly. So all options open, and that's part of the work that we need to complete during next year. But at this point, we're using a local sourcing of natural water. We emphasized on the video, I don't know if you noticed, that this is an area with -- in the south of Chile with a lot of rainfall. So it is very different to the operations in the north of the country where water is scarce, and it's a very big issue. We don't have -- we don't anticipate on having that problem. Thank you, Richard.

And just a couple more. The first one would be just on the -- can you just elaborate a bit more on the local communities? You sort of talked about your engagement there. Is the general kind of feedback from communities, they're supportive of the project? Are there any sort of risks you can see in terms of the area being quite large? Have you got to go through land acquisitions and any sort of [ full think ] concerns around that?

Yes. Clearly, every module will have their own particular situations. Right now, we're dealing with Penco. We're very close to the city of Penco, so we've made it a very big point for our company to establish contact and maintain a very good relationship with Penco. As I mentioned earlier, we have received a lot of comments and a lot of questions coming from their side. We've taken each of them very seriously, and we are answering all of them, and we're addressing their concerns. Obviously, as with every community, the information that we have is that they're going to be supporters of projects that are environmentally responsible and that even go beyond regulations and legal parameters, and that's our intention. As I mentioned, we want to have a premium product, a product that we are going to be very proud about because we want to supply the best companies in the world. So I think that the population of Penco will appreciate that effort. And our expectation is that they will be -- and we will be great neighbors to them.

Okay. Very helpful, Ramón. And a question on the payability and then the downstream. Can you just remind us on what the payability is of the production that you're going -- of the REA that you'll produce? And I mean as you scale up and become a more significant producer, I take it is downstream a consideration? Or would you prefer to send it elsewhere and you don't want to get involved in the downstream?

Sure. Yes, our intention, as stated, is to have a minimum value product. So a mix rare earth carbonate is the first stage of this value chain. We believe that we can send that product to many different offtakers. Of course, there's China. There are plants in the West that could be adapted also to receive that. And there are new projects. So there is going to be a market for that. And of course, the more we integrate into the value chain, the more we will control the product and the more we can add value. We're not there yet. I think that's the fourth stage of our strategy, but we will get there. I believe that in the short term, we are not going to have our own separation facility, but it's not discarded. Technology is available. I think the CapEx is also not too substantial. So depending on our relationship with clients going forward, if they require it and if they believe that there is value added on that, I mean it's an option for us. It's optionality. Thank you.

And then last one is just on the -- last one is just on Chile. You got constitutional changes and this elections coming up. Any concerns that, that may sort of disrupt the permitting process or taxes, royalties and such like?

Certainly. No, that's -- I mean, one of our biggest concerns going forward is, what are the changes going to be in Chile from a constitutional and political standpoint. We remain optimistic that Chile is a highly institutionalized country. Clearly, one of the top countries in Latin America. They are rated, I think, A minus or single A. So it's a country that is going through an important process of transformation. But we believe that they should continue to support private enterprise, and these type of initiatives fit perfectly within what Chile wants to be going forward. I know that there are discussions about new royalties for the copper and lithium sectors in Chile, rare earths have not been named because, of course, there is no -- that industry doesn't exist at this point. We will monitor that closely. But at this point, I don't think that there is nothing in concrete that we can communicate to the market on that front. Thank you.

All the best with it. Congrats.

Thank you.

We will now take a follow-up question from Ian Rossouw from Barclays.

Just you didn't answer Richard's question about the product discounts and I maybe just wanted to add to that. Within the cash cost, do you mind just giving us a bit of a breakdown how much the discount within that is assumed? I presume the 60,000 -- sorry, the $60 per kilogram basket price, the discount is not within that. You've showed it in the cost side. Just to get a sense.

Yes. That is correct, Ian. I mean the prices have been deflated by the VAT in China. That's the only discount that we have included in the prices. The commercial discounts are included in the all-in sustaining cost. The assumption that we have in the PEA is a $5 per kilo discount. And it's a rather low discount because our product is going to be totally different to what you see coming from other mines. It's a product that has 92%, 93% [ impurity ] of rare earths. And on the additional 7%, the [ impurities ] are going to be rather simple [ impurities ]. There's no aluminum there, which is a main concern. And notably and most importantly, and I cannot stress this more, is that, that product will not have any radioactive materials. It will not have thorium, it will not have a uranium or other materials on that -- on the radioactive spectrum. And we have tested all of them in Australia in Ansto. So we have done rather comprehensive research on that front. Thank you.

And just -- can you still hear me?

Yes.

Yes. Just to follow up on the cost base. I mean just within that $37 or $40 all-in staining cost, I mean, what -- have you assumed the royalty? What's the royalty in Chile at the moment? And maybe if you can expand on that would be great.

There is no royalty in Chile for a rare earth production. So the assumption is 0.

Okay. So the difference between the cash costs and the all-in sustaining cost is basically just the sustaining CapEx, the $3?

Yes. That is correct. Sorry, sorry, the all-in sustaining cost does include the CapEx. It does not contain the upfront CapEx, but it does include the sustaining CapEx.

There appears to be no further questions, and I'll turn it back for web questions.

We have our first question from the webcast from Mark Smith from Amati Global Investors. Will you consider producing finished product instead of just an REE mixed carbonate product?

Yes. Not on the first phase of the project where we want to produce again, a minimum value product. But going forward, yes, that is the fourth leg of our strategy to consider further integrating into the value chain. Thank you.

Thank you, Ramón. Our next question is from Franck Nganou from Hannam & Partners. What are the recoveries at 18%?

That is a great question. The reality is that we have a total grade of rare earths in the deposit of 2,500 PPMs, on average because, of course, every bit has a different composition. But I would say that's a good average. Now all of those rare earths do not necessarily react to the ammonium sulfate. There is a part of those rare earths that have a stronger chemical bond. So we only care about the [ dissorbable ] rare earths. Out of those 2,500 only around 1,000 PPM are [ dissorbable ]. Right now, we are recovering around 400 PPMs of those 1,000. So effectively, we have roughly a 40% and it varies between the different elements. So again, that is also an average. So -- but when we measure those 400 PPMs out of the total rare earths, that's where we are getting to an 18%. However, the important point here is that we believe that there are still rather low-ish recoveries. We believe that there are low-hanging fruit things that we can do to improve those and those better recoveries should be reflected on the feasibility study that we're going to be preparing in the coming months. And then there are other things that we have room to work on that are probably more for the medium term because they will require that we deviate from the existing environmental permit. That's something that we don't want to do in the short term. But in the medium term or for the other modules, we will certainly continue to do research and improve on this front. The party that is helping us, and I would like to highlight their support because they have been fantastic, is the University of Toronto. They have a fantastic lab, and they are doing a lot of research for us in this front. Thank you.

Thank you, Ramón. Our next question is from [ Carlos Alba from MS ]. He's got 3 questions. What would you produce concentrates or oxides? If concentrates, will you refine your materials into oxides? Number 2, do you have offtake agreements for your expected output? And the third one is how do REE China tariffs impact your realized price?

Yes. Okay. Let me see if I remember...

I can do each one separately, Ramón. So why don't we go for the first one about will you produce concentrates or oxides?

We will produce concentrates, we can easily produce oxides. The difference is just taking the water out. But so far, the conversations with potential offtakers, they tell us they are indifferent from receiving one or another. So it's just a trade-off between transportation costs and driving the carbonate.

And with regards to the offtake agreements for your expected outlook, do you have any?

Yes. We have a small contract that we inherited from Mineria Activa. Again, it's really a small contract, not representative of our production. So I want to say that it is there. But essentially, what we can say is that our offtake is fully available. We have not had any meaningful commercial discussions yet. We really were waiting to have the PEA in order to know the volumes, the quality and the timing of our production in order to start engaging more seriously with potential offtakers.

The final question from Carlos was, how do REE China tariffs impact your realized price?

Yes. Again, we are not necessarily selling to China. So they don't, no. It's a question, I think, for the future and how we negotiate with potential offtakers. We believe that the maximum value creation for our company is going to be the fee of a value chain that is independent from China that is geopolitically independent. We believe that Western customers would likely pay a premium on the existing prices, again, basically because there's no volume depth behind the internationally quoted prices right now. If you want to buy praseodymium at the Asian metals prices, you can't. China will not sell that to you. So we're going to be almost the only alternative, and we believe that -- again, that fact, together with the quality of our product, the sustainability, traceability that we are so hardly working for will command a premium, but those conversations have not taken place yet.

Thank you. Our next question is from Daniel Major from UBS. Why are you using a 5% discount rates? Are REO included in the review of taxi royalties in Chile?

Yes. Look, on the discount rate, I think we wanted to use the same discount rate that is typically used with Hochschild Mining to compare apples-to-apples. But I think you have enough information and enough assumptions to use the rate that you better prefer on the project. And on tariffs and on potential taxes on Chile, I think we've answered that question, there are no taxes or royalties for rare earths in Chile at this point.

Your next question is from Kieron Hodgson from Panmure. How much of the investment to date has been included in the published CapEx figure?

Yes. The public -- the CapEx figure that we have announced of $119 million does not include the acquisition cost of the deposit, which was $60 million. And from Hochschild's standpoint, we have invested so far around $20 million in permitting, engineering and most importantly, a brownfield and greenfield exploration and lab work.

Thank you, Ramón. Next question is from Ignacio Del Rio from Mineria Activa. What are the plans on a vertical integration up to the magnets, so the value chain does not go through China for end users like Tesla?

Yes. Thank you. That is a great question. I think the Western world should work very actively in developing that value chain. We have heard of many incentives. I don't want to list them each, but there are lots of news coming out from the U.S. government, from the European Union that they really want to commit on having an independent value chain. And as mentioned in the presentation, neodymium and praseodymium will be available. As a matter of fact, they are available from Western sources. We already have Lynas and MP Materials and many other projects that claim that can produce in BPR. The problem comes with a heavy rare earths and really, there are no credible sources apart from us, Serra Verde and Ionic Rare Earths. We are the only ones who can supply those elements. So we believe that there is an important scarcity value on that front. And even if you assume you know that all of us start producing, even at the same time, that large projects like Kvanefjeld for example, in Greenland, which is the largest rare earth project outside of China comes into production also in parallel to us, the growth in demand is going to outpace that supplies so much that our expectation is to see a crunch and prices continue to go higher. So yes, I think it's important. There are already efforts. We're hearing efforts from many different places. I think, for example, MP Materials has a very credible initiative to develop that value chain in the U.S. And we believe that we're a perfect fit for people who have plans like that, people, countries or companies that have plans like that.

Thank you, Ramón. And our next question is from Kieron Hodgson from Panmure. He says, one of the advantages of Chinese REE producers is their proximity to their customers. Is there the risk that the natural buyers of your product, at least in the early years, remains Chinese manufacturers, thus, potentially impacting the price assumptions of the project?

Yes. Look, I think that the Chinese are going to be, of course, very natural buyers for our product. They have a separation capacity -- a well-established separation capacity in China. That capacity is running our -- the numbers that we manage is that they are running at around 50%. And there's a limitation in terms of the amount that they can process because they have quotas. However, imported mineral like ours are not part of the quotas. So for those plants receiving our mineral would be fantastic. And we're surely in contact with them as well. The pricing assumptions will not be challenged because, again, now the prices that we have used are already conservative. They are deflated by the VAT. So that's the price that we would actually be receiving. As a matter of fact, there is upside if we do sell outside of China. Thank you.

Thanks, Ramón. Next question that we have there is from Daniel Major again from UBS. Did you say the $152 million to $177 million NPV includes cash flow to 2030 versus mine life to 11 years? Why is this? Given the size of the resource and the scope to expand, why is the module of mine life only 11 years? Is it due to haulage distance? Over time, will you move plant once you have a more exhaustive resource, thus reducing CapEx intensity? Fairly long question there. I hope you managed to get my question, Ramón.

Yes. No. It's fine, and it's a very good question, of course. Look, we -- you may recall that originally, we're pursuing to do a feasibility study. So we put a lot of emphasis in having a solid base of resources. As a matter of fact, you will rarely find a PEA that is constructed using measured and indicated resources as we have. So most of the work has been done in solidifying that resource, understanding it very well and infill drilling the property. We believe that there is still a brownfield potential. We're working on that. And the upside on that front should be seen in the feasibility study. And then something that we're trying to understand as well is what is the range of influence of the plan. How far can we track a mineral into this plant? The recent PEA is giving us a lot of light on that front, and that is something that we will be calculating soon in the coming weeks. Also, notably, with -- this is a disseminated deposit. So as prices go up and if our thesis that prices will increase materially is real, there is a lot of more mineral within the quarries. I would like to call them the pits, I call them the quarries, we'll be able to expand. So there's more minerals also that we can incorporate into the production. Why haven't we been more aggressive? Well, we've tried to come up with something, again, that is a minimum viable product. There are lots of fronts that we have been working on, notably metallurgy. But as we start consolidating all the data, all the information, remember that -- I mean, there's nowhere where we could take data or information or on an ionic clay like this. So we are rediscovering everything. Again, it's simple, but it requires the work to do it well and to do it like we're used to doing it at Hochschild Mining with Ausenco and with a lot of engineering detail. So that's been the reason. We wanted to have something robust, and then we'll grow it from here.

Wonderful. Thank you. Mark Smith from Amati Global Investors. Is there any Cerium in the mixed REE product? If so, will it be removed as a salable product or waste?

That is a very important question because one of the big problems that many other rare earth deposits have is the presence of Cerium. We do not have -- I mean, we do have Cerium but in miniscule or negligible amount. So Cerium is not a problem for us. The biggest element that we have in our product is going to be Yttrium. Yttrium used to carry a very large price because it was used in lighting applications. It came down quite dramatically in the past as the world moved into LED lighting. But Yttrium has been increasing in price quite substantially. And as a matter of fact, some independent analysts do project that Yttrium will grow in price considerably in coming years. That will be a further upside for us. But going -- I'm going through the -- I'm not answering the question again straight. There is virtually no Cerium and it doesn't require to be removed.

Thank you, Ramón. And Tim Huff from Peel Hunt. Do you intend to fully develop Aclara within the [ Hoch ] Group? Or have you looked at potentially spinning out the project to a certain stage of development?

Yes. At this point, all options are open.

Thank you, Ramón. Now we have one final question, which we will take from the conference call, Richard Hatch. Tracy, I wonder if you could put Richard through, please?

Yes. We will now take our next question from Richard Hatch from Berenberg.

Ramón, just to finish off on this commercial discounts question. You mentioned $5 a kilo. Is that kind of on my sort of numbers is that about sort of 8% or so versus the kind of like the basket price. And can you -- would you be able to give us any form of sensitivities around is that -- if that is too conservative and it's more like some of the other commercial discounts more like 13% or something like that? So what would happen if that $5 sort of increased to $10, say?

Yes, it's a good question and something that we have debated extensively in internally. When you look, for example, at what Rainbow was doing, they have enormous discount on their product because they're essentially mining and then shipping their product to -- for treatment in China. So they're shipping ore. In our case, our final product is going to have, remember, a 92%, 93% [ impurity ]. So that -- and then when these ores from other sources are shipped, they also contain radioactivity so someone has to deal with the radioactivity. And as you can imagine, dealing with that is not something easy or something cheap to do. We will not have radioactivity. So our product, we believe, that it will carry totally different discount rates and commercial charges. When we have looked at the historic numbers of China, we find that a long-term average, let's say, a 5-year average of separation, remember that they have a lot of spare capacity is around $3. It's around $3. So we actually don't know exactly where -- and when we have been talking to other potential separation plants in the West that have not been built and are intended to be built with high technology, et cetera. I mean, probably their numbers are going to look higher than those of what the Chinese have. So here, what is important is going to be what the final off-taker wants. If we talk to a credible automaker that is doing electric vehicles, if they want the cheapest cost possible, probably they'll have to go to China and get it there. But if they want a traceable, sustainable geopolitically independent product and they come to us, that will come at a premium or at a cost. We have not started, again, those negotiations. But it's a premise that we want to emphasize. We believe that the cost of -- I mentioned this in the presentation, but the cost of rare earths as part of an electric vehicle, it's probably a handful of dollars. So there is a lot of room there to pay more, if they want to pay more, again, for a quality product rather than not knowing where their source is. So sorry for the long answer. That's how I defend the assumption that we have used. But that is a number that certainly will need to be fine-tuned once we start meaningful commercial conversations in the months to come.

That's great. Thank you very much. And Ramón, we've got no further questions at the moment, and I think we've just about run out of our time. So I'd like to just pass back to yourself for any closing remarks that you have.

Thank you very much. Of course, we're very thankful for your kind comments about the presentation. We did put a lot of effort and work around it. I would like to thank Rodrigo Ceballos, and Francois, who also presented with me, Charlie Gordon, who helped a lot also for producing the materials that you have seen today. And needless to say, you know the rest of the team at now Aclara, I was going to say BioLantanidos, but now Aclara, they are doing a fantastic job, and we're really committed on the time line and on the numbers that we have given you. Thank you very much. Thank you for your questions. I hope to see you in person very, very soon. Thank you, and goodbye.