Kristie Batten: VHM just months from FID on groundbreaking Victorian rare earths mine

With major project status and a pending mining licence a key catalyst, VHM could raise the curtain for Victoria’s critical minerals industry.

VHM is aiming to produce rare earths, zircon and titanium feedstocks as soon as next year. Pic: Supplied/Stockhead

One of Australia’s top mining journalists, Kristie Batten writes for Stockhead every week in her regular column placing a watchful eye on the movers and shakers of the small cap resources scene.

VHM (ASX:VHM) is well on the path to production after releasing an updated plan for its Goschen rare earths and mineral sands project in Victoria.

Last month, the company released a revised development plan for Goschen, culminating in a phased development plan which could see the company achieve first production next year.

“Which makes us the next rare earth and heavy mineral company to come into production,” VHM managing director Ron Douglas told a webinar last week.

Goschen has a reserve of 210 million tonnes and a large resource of 892Mt at 3% total heavy minerals.

The company is planning to kick off development in the December quarter of this year, pending finance and approvals, of an initial 1.5 million tonne per annum operation using a modular plant, expanding to 5Mtpa two years later.

Pre-production capital costs for stage one were forecast at $160 million.

Stage one is expected to produce 4300 tonnes per annum of rare earth mineral concentrate and 69,000tpa of zircon/titania heavy mineral concentrate at operating costs of $77 million per year.

“It puts out good cash but then self-funds to the 5Mtpa,” Douglas said.

“It enables us to keep exploring as well.”

Capital costs for the expansion are $85-90 million, which will increase production to 9000tpa of rare earths and 134,000tpa of HMC for at least 19 years.

The combined project returned a pre-tax net present value of $1.64 billion, an internal rate of return of 65% and a payback period of 3.3 years, based on pricing assumptions from TZMI and Adamus Intelligence.

Despite weak spot prices, Douglas said the project would make money in current market conditions.

Around 60% of the revenue will come from heavy minerals, which Douglas said left the project highly leveraged to an improvement in rare earths prices.

Government supportive

Douglas said the project enjoyed strong support from federal and state governments due to Goschen’s potential to be a multigenerational critical minerals operation.

Goschen has been awarded major project status by the federal government, which enables additional regulatory support for projects of national significance through their contribution to strategic priorities, economic growth, employment and regional Australia.

The major project status was extended by three years last month.

It follows the endorsement of Goschen’s environment effects statement by the Victorian minister for planning Sonya Kilkenny in December.

“This was a big step forward,” Douglas said.

The endorsement paves the way for Resources Victoria to assess the company’s mining licence application.

In January, Douglas spoke to Victorian resources minister Lily D'Ambrosio, who he described as “very supportive”. He added that the minister had put together a small team to expedite the company’s remaining permits.

VHM is hoping to receive the mining licence in the next month.

“We see low risk of an ML not being granted given the positive EES assessment by the Victorian government and extension of major project status for another three years by the Australian government,” Canaccord Genuity analyst Tom Prendiville said in a February 28 note.

Catalysts looming

VHM’s share price is trading close to an all-time low, which Douglas described as disappointing.

Canaccord’s price target of $1.15 is more than four times above current levels.

Douglas said the grant of the ML was a looming catalyst and would hopefully give investors further reason to believe.

“There have been a lot of disappointments in the marketplace,” he said.

“Once the market believes, everyone will pile in.”

VHM has $4.5 million cash and Douglas acknowledged it would need more cash to get through the next few months of work.

“To keep that pace, we will need to raise some money in April,” he said.

That overhang, plus an expected equity raise later in the year to fund the project, was a likely reason for the share price underperformance, Douglas suggested.

VHM is focused on offtake and financing talks ahead of a final investment decision by mid-year.

The company is in talks with domestic and international commercial banks, Export Finance Australia and other Australian agencies that could provide funding.

Douglas said VHM was also in talks with potential customers and strategic partners regarding debt, equity and pre-payments.

VHM has a binding offtake agreement with China’s Shenghe Resources for a portion of production in the first three years.

“We understand it is looking to contract its uncommitted volumes, noting Iluka Resources is moving ahead with its Eneabba rare earth refinery and will likely require additional third-party feedstock to fully utilise the refinery over life of plant,” Prendiville noted.

Canaccord has a speculative buy rating for VHM.

“Despite challenging market conditions, VHM continues to de-risk its project (noting the lower funding hurdle) ahead of FID in 2025,” Prendiville said.

“We think its shares can trade higher as it executes on its potential near-term catalysts (ML, funding, additional offtake), which positions it well for a recovery in rare earth and mineral sands prices in latter part of 2025.”

At Stockhead, we tell it like it is. While VHM is a Stockhead advertiser, it did not sponsor this article.