Vital Metals agrees to sell existing output of NWT mine to China

All of the material mined to date at the Northwest Territories’ Nechalacho mine is set to be sold to a Chinese rare earths giant.

Vital Metals made the surprise announcement on Sunday as it finalized a deal that gives Chinese company Shenghe Resources an initial 9.9-percent stake in the company.

Some MPs had called for Canada’s industry minister to review that investment, which was announced in October, on the grounds of national security. Canada and other nations have a stated aim of trying to break Chinese dominance in sectors like rare earths.

Vital is an Australian company, which limits Canada’s power to intervene, but its ownership of Nechalacho (through Canadian subsidiary Cheetah Resources) does give the federal government some say. Legislation suggests Ottawa could, for example, order Vital to sell Nechalacho or cease operations in the country if the minister reviews Shenghe’s involvement and decides national security is threatened.

Whether or not any review took place or is ongoing – the federal government won’t say – Vital said on Sunday the transaction had gone through and Shenghe is now a “cornerstone investor.”

Shenghe is spending roughly $5.3 million to acquire its 9.9-percent stake. Vital has previously said Shenghe’s stake could rise to a little over 18 percent at a later date. Shenghe has made clear that the promise of Nechalacho is the reason for its investment.

Nechalacho, around 100 km east of Yellowknife, first entered operation in 2021. At the time, it sustained around 30 seasonal jobs.

Sunday’s news release (issued on Monday morning in Australia, in advance of trading resuming on the Australian Securities Exchange) contained the revelation that Vital plans to sell all of the “stockpiled rare earth material” mined at Nechalacho to Shenghe.

Selling all of the material mined so far to a firm reportedly part-owned by a branch of the Chinese government represents a shift in Vital’s approach.

In 2021, the company stated its mine could help “play an important role in breaking China’s dominance” in supply of rare earths, and it was planning to sell material from Nechalacho to Norway and possibly the United States.

Two years later, Vital is preparing to give a Shenghe representative a non-executive seat on its board and stands to receive $2.3 million from the sale to Shenghe of its rare earths.

Vital said the proposed sale – which it expects to complete “by early 2024” – refers only to what has been mined so far. Shenghe will have “no preferential rights over future production” at Nechalacho, Vital stated.

Vital and Shenghe have not responded to interview requests sent on Friday.

‘Funded for key milestones’

One reason for Vital’s change in approach is money.

The company has experienced multiple changes of management, cashflow difficulties and the abandonment of a project to build its own processing plant.

After those failures, and with trading in its shares suspended while Nechalacho sat dormant, Vital had been searching for any form of investment to keep the project going. The company wants to tap into what it says is a larger, “world-class” rare earths deposit named Tardiff, which is right next to the existing small-scale mine.

Shenghe’s purchase of a stake in Vital, and all the rare earths mined so far, gives Vital millions of dollars to rejuvenate its Nechalacho vision.

In its Sunday press release, Vital said it was now “funded to deliver key milestones in 2024.”

Immediate work planned includes updating estimates for the rare earths available at Nechalacho, clearing millions of dollars in debt, and producing a “scoping study” for Tardiff.

The company is also planning a “reinterpretation of historical lithium exploration” and lithium-related testing at the site, a nod to the lithium exploration boom under way east of Yellowknife.

“We are appreciative of the strong vote of support shown by Shenghe in the company’s projects,” read a quote from Vital chairman Richard Crookes.

Crookes said money from Shenghe would allow Vital to “continue to progress development of the world-class Tardiff deposit.”

With the announcement, Vital’s shares resumed trading on the Australian Securities Exchange after a months-long suspension. As of 7:30pm on Sunday (1:30pm on Monday in Australia), the share price was down 30 percent in the day’s trading to AU$0.007.