Transcript: Appia Rare Earths & Uranium (API) - Focus is the Key
Appia’s management, directors and consulting team have extensive experience with uranium exploration in the prolific Athabasca Basin district of northern Saskatchewan, and uranium and rare earth development and mining in the historic Elliot Lake mining camp.
Northern Saskatchewan is one of the best mining jurisdictions in Canada and has been consistently highly ranked as a mining district. Appia has found rare earths which appear to be one of the best rare earths discoveries globally. Appia started out as a uranium focused company but rare earths are found in similar areas to uranium deposits and given the emphasis on electric vehicles, clean energy and critical materials, Appia has decided to concentrate on their rare earths discovery in addition to the uranium assets.
Appia has raised money a couple of times this year which has given the company enough money to complete the 2021 drilling programme which was expanded from 5,000m to possibly 10,000m. The company has built an all weather camp which will enable them to work throughout the Canadian winter and continue drilling.
Appia is currently focused predominantly on the rare earths but also has the uranium assets to consider going forward. The Alces Lake project has a high quality occurrence of rare earths and the company is drilling towards a 43-101 report from the 2021 drilling programme. The next step will be a PEA or further drilling to enhance the project.
The Saskatchewan research council is currently building Canada’s first rare earths processing facility in Saskatchewan which Appia could possibly utilise for their rare earths once it is up and running. Appia now has the money which will predominantly be spent on rare earths but the company also has the capacity to drill the uranium projects this winter too. Appia aims to give clear guidance on how they plan to insert themselves into the rare earths space and the strategy for the uranium assets going forward.
00:00 – Company Overview
00:59 – Recent Changes, Raising Money & X China Projects
08:11 – Elliot Lake Project, Current Potentials & Confidence Booster
14:44 – Eliminating Hydrocarbons Emissions, Open Market & Current Scale
20:32 – Investors’ Expectations, Suffering Shareholders & Decision Making
25:46 – Separate Entities, Current Value & Unrecognized Assets
29:07 – Company Timeline & Near-Term Future
31:51 – Outro
Frederick Kozak: Greetings, my name is Frederick Kozak, I am the president of Appia Rare Earths and Uranium Corp. We are a Canadian-based critical materials company. We have assets in Northern Saskatchewan in the Athabasca Basin, which are exposed to both rare earth elements and uranium, as well as a historic uranium deposit in Elliot Lake in Ontario. One thing I should note about Northern Saskatchewan is it is one of the best mining jurisdictions in Canada and has been consistently ranked as a very highly ranked mining jurisdiction, but the rare earths that Appia have found to date appear to be one of the richest rare earths occurrences globally, with 16.65% total rare earth oxides.
Matthew Gordon: Lovely to meet you, Frederick. I think we’ve been trying to do this for a while. We’ve certainly been keen to for some time, so I appreciate you coming on the show. We’ve not met or spoken before, so I think if you don’t mind today what I’d like to do is get a broad understanding of what Appia is trying to do, because I notice things like name change during the year, also this shift to a bit more prominence of the rare earths’ component of the story. I know you’ve been finding it, but you want people to start taking notice of it too. Can we just start with when this change in mentality in terms of the story happened, and why?
Frederick Kozak: Sure, listen, Appia has always been - Appia started out as a uranium focused company with assets in Ontario, and in the Northern Athabasca Basin of Saskatchewan, it’s known for uranium, there are a lot of historic uranium mines. If you go to the eastern basin, there is a lot of uranium development underway, some of the majors in the world produce from there. Now, rare earths were found. The way they occur in nature is not directly associated with uranium, but you do have them in the similar province, and this is all Canadian Shield hard rock, so it is known for the rare earths. When they were initially discovered on the Alces Lake Project by the exploration team, it was a program that commenced slowly but given the importance and the increasing importance in electric vehicles, clean energy, and now critical materials, a decision was taken to spend more time and money on trying to delineate and explore for the rare earths, in addition to the exploration of uranium that still continues with Appia.
Matthew Gordon: How do you do that as a junior with limited cash? I know you’ve raised money a couple of times this year, which is going to allow you to - you’d better tell us. Why did you raise money a couple of times this year? What are you trying to do with that money?
Frederick Kozak: Thank you for bringing that up, we’ve raised money a couple of times this year and we have a great vehicle in Canada called flow-through shares, which allows you to flow through the tax benefits to your investors. We also did some flowthroughs at the end of last year as well. We started this year with a planned $5M program. We had more than enough cash on the balance sheet to fund it, but we also took the opportunity in the spring to raise some flow-through as well as some hard equity dollars, and that’s given us enough money to complete this year’s program, which was expanded to - we were going to drill 5,000m, now we’re probably going to drill at least 7,500m; it could be as many as 10,000m of diamond drill core, and then the opportunity to raise some more money this fall, again into the flow-through funds, gives us a really strong balance sheet as we look into this year’s program, and into starting next year’s drilling program. One of the things we did this summer with the additional capital that we had was we built an all-weather camp so we could literally work there throughout winter. Although I’m not sure in Northern Saskatchewan you would want to be there in the depths of winter, we have the capacity to do that. It was all about expanding our balance sheet, having a strong balance sheet as you noted, being a junior you just never know when you can raise money.
Matthew Gordon: These are clues into the way that the management team think. Obviously, uranium has had a couple of bumps along the way in the past 12-months. It’s had a good year generally across the board, certainly, some of the Athabasca players have seen that, and most of the African assets too. You’ve used that to raise some capital, flow-through or otherwise, but you’re not necessarily going to spend it chasing the uranium. You’re going after rare earths too. This is the bit that people need to try and understand, or I need to try and understand, which is a small junior with a little bit of money, you’re going after 2 quite distinct markets, energy and battery metals. Well, certainly automotive, let’s say. I’m not quite sure what you’re egging to be producing. You’ve got very different audiences there. Rare earths, traditionally quite hard. Ex-China projects don’t tend to do well. What gave you the confidence to move into that space?
Frederick Kozak: Great question, because when it comes right down to it, it’s all about being the lowest-cost producer. One of the things that is really critical about Appia is that you’ve seen some of the pictures in our presentations, so our rare earths that are coming from monazite have a much higher degree of the critical rare earths’ elements, including neodymium and praseodymium, the permanent magnet materials. That makes it first and foremost very, very attractive because as we know, the world right now can barely supply its current demand, let alone the 5X that we’re talking about in the next 10-years. But rare earths are not all that rare. They are everywhere in the world; however, the critical thing is the cost of extraction. We’ve got rare earths that are on the surface in massive occurrences, like I’ve stood on the boulders and they’re too long to measure - not too long to measure, obviously, you measure them, but they’re too long to even describe versus how you usually find monazite if it’s not monazite sand, is very fine-grained monazite crystals for want of a better word in the base material. We’ve got a naturally concentrated monazite occurrence that we’re now delineating at Alces Lake. Our program this year is on the original discovery, what we call the WRCD Zone, which is an amalgam of 4 different names. We’re going to drill at least probably on the order of just over 5,000m on that. That’s more than all the drilling that’s been drilled on Alces Lake in the previous 4-years combined. We’ve got a very near-surface, looks like a very high concentration, high-quality rare earths deposit or discovery, and then we are looking at the ability to in theory extract it very economically and become one of the low-cost producers.
Matthew Gordon: But it’s the theory bit - that’s the bit that people need to focus on because from where you are today to delivering the in-theory bit, you’ve got a lot of work to do. It comes back to the money - where do you deploy your money? Where do you see value in your company’s assets today? Because you sat around for quite a while on the uranium assets, like all uranium juniors - the market wasn’t really doing much for you until I guess the end of 2020, we had a little bump, and then again, a couple of little bumps this year. You’ve decided what – you’re going to park that up and get focused on trying to prove that theory of scale, and you’ve got grade and scale, which will answer the economic question? Is that where the money is going, or are you going to spread yourself thin? That’s the other danger here.
Frederick Kozak: Well, we won’t spread ourselves thinly. We do - I would just highlight that the Elliot Lake Project in Ontario has a 43-101 resource report on it, so it is from a proven historic mine. The obvious is that uranium prices have not supported continual operations there. On the uranium side in Northern Saskatchewan though, we have been drilling over the years, small programs. We just finished some geophysics - well, we just finished some radiometrics, now we’re doing a VTEM survey over a couple of the projects, and these are near-surface, high-quality, high-grade, which would be consistent with the idea - you get that stuff out of the ground economically. The reason for spending the bulk of our time on Alces Lake is that it appears to be such a high-quality occurrence, and the question is drilling - we’re drilling towards getting a 43-101 report for this year out of this year’s program, and then the next step will be, whether it be a PEA or whether more drilling is required, it’s a little bit early but we have a very good understanding of the geology and we are testing the modelling, I mean basically figuring out how much is the resource going to be there.
Matthew Gordon: Okay, so the name is now Appia Rare Earths and Uranium Company, right? Not Appia Uranium and Rare Earths. Again, is that a clue about the focus of the company? In which case, I’ve got to ask, would you look at some point to spin out or get rid or sell, or whatever, the uranium component because you don’t see the potential that you do with the rare earths?
Frederick Kozak: Well, that’s always, when you have companies that have a set of diverse assets like that, there’s always the question as to is the market giving you value for your uranium, and giving you the value for your rare earths’ assets? The question then comes, does it make sense to shareholders to go, okay shareholders, maybe it’s better that you take the company and send it in 2 different directions, raise money to accelerate the uranium while the rare earths are being driven forward as well? One of the things about the rare earths is that the Saskatchewan Research Council in Saskatchewan is building Canada’s first rare earths processing facility, so there is - it’ll be 3,000t per year, at least initially. There is an opportunity for us literally 1,000km away from Saskatoon to be one of the feed sources for their facility, which again is part of the development scenario in that if you’ve got a processing facility that close to your extraction point then you can drive the economics because now all of a sudden, our economics in field development has gotten that much better.
Matthew Gordon: Right, so I used the phrase ex-China, and you’re an ex-analyst who knows a lot about rare earths so pick me up if I get anything wrong here, but for a long time - I know you’ve got Jack Lifton on the board too, it’s very intimidating. Sorry, as an advisor I should say. Anything outside of China was always going to have the ability to control their own margins, their own destiny, controlled by what China decided to do anywhere along that food chain, right? Again, it comes back to that question of what gives you the confidence that you can make it? I get the Saskatoon facility, and that’s great that Canada’s funding that, but you need a whole bunch more moving parts, and you need to know where you fit into that chain of players. What is giving you the confidence that you can do this, that Canada is going to allow you to be successful?
Frederick Kozak: Canada and the US have signed off on a critical materials agreement, looking to build the North American supply chain, the 49th parallel in this case may or may not be imaginary, but again it comes down to the big question. When you say ex-China, the world has recognised the fact that China is not necessarily the enemy, but they’re certainly not friendly in some regards. There is at all levels, both federally and provincially in Canada, an interest in developing critical materials. Both countries, Canada and the US, have a list of critical materials, which is 30 odd items, of which they’ve just lumped rare earths in as 1 item even though there are 17 of them. There is a drive to go ahead to have this as one of the Canadian staples, and you see at the recent climate change and G20 conference, the prime minister of Canada is standing up and taking the lead in terms of the clean energy drive, of which eliminating hydrocarbon emissions is part and parcel of that. The drive to go to - no pun intended - electric vehicles and wind turbines, and even solar cells that that sort of thing, which requires all of these critical materials. If we have it, they will come, and so far, it looks like we have something very significant, to be determined just how big, but we think there is a drive, at least in North America, and then, of course, North America is talking with the EU, and everybody is getting on the same page. The fact that Energy Fuels is exporting a rare earth oxide to Estonia to the Neo Performance Materials refinery is just a very thin chain in that, but I think it represents what may be happening.
Matthew Gordon: Okay, that’s interesting. Canada and the USA are working together on the critical minerals list, we’re all friends here around the table. Does that mean that you have the option of using something like the White Mesa Mill with Energy Fuels? I’m trying to work out how Canadian this is, or is it just North America, in which case there are a lot more options on the table for you. NVPR, yeah great, it’s in huge demand for North American automotive manufacturers, but at what point do you have to start working out how you plug yourself into that system or are you just selling in the open market and it’s a case of first come first served, and you’re not really in control?
Frederick Kozak: Yeah, what I think is going to happen, and that’s a very good question, I mean whether it is a Canadian silo and an American silo, that’s how things happen in a lot of instances, but at the outset, we have something that’s very valuable to anybody who makes anything with a permanent magnet, and you could - well you see the headlines all the time about how the end-users, the automotive manufacturers, are now starting to look at how they’re going to integrate their supply chain. In essence, let’s say - I’m trying to think of who I saw in the headlines recently. Let’s say Mercedes is going to come knocking on Energy Fuels’ door to say, ‘Okay, you guys have a supply of X, you’re doing the monazite sand, we want to hook up with you and tie up a portion of your supply so that we have a guarantee.’ How does Appia fit into that? Well, first and foremost, we have to prove up the size of what we have, and are we going to strictly plug into Saskatchewan Research Council’s facility and sell into the open market, or do we align ourselves with somebody else? That is to be determined, but there is the option of doing it both ways. Whatever makes strategic sense from our shareholders’ point of view, because as you know we’re a public company, we have to do what’s best for our shareholders and their value, and then being also part of the global solution of clean energy, etc.
Matthew Gordon: Okay, I want to move it away from theory to reality. I like the fact that there are options because it means there’s competitive tension. It means you don’t get squeezed on margin by only having 1 option. Great. Let’s get back to - as you correctly said you’ve got to show that you’ve got scale here. You’ve got an amount of money, it’s not huge, so how do you go about doing that over the next 12-months or so?
Frederick Kozak: With the drilling program that we have underway, we’re not finished yet and we have a lot of samples in for testing, and as we get the assays and we evaluate them, and we lug them into our geological model to figure out what we’ve got and where we’re going with it, that will be the part that then generates the NI 43-101 report. That will be a formal resource report of some sort that will give us the idea of what the independent third-party consultants see with our Alces Lake project. The next step then is to go, okay well if they’ve defined this then can we expand it? Do we need to expand it or can we go straight to a Preliminary Economic Analysis of some sort? Right now, it probably means we may need to do some more drilling next year, but once we close this financing, we will have enough money on our balance sheet to do that, we will be funded for a program next year, which could, in fact, be similar to the size of the program we did this year. The program this year, I mean we put $1M into a new camp onsite, so that’s something we don’t have to spend money on, and you put more money into the ground. But out of this year’s program, the analysis will tell us what does next year look like? Do you go in and are you putting in holes every 5m as a delineation of how you’re going to develop it, or do you need to find some more resource within the properties?
Matthew Gordon: Right, I know you haven’t announced the closing yet, but you’ve talked about upsizing it to $7M - is there an expectation from the people who have invested in that private placement that you’re going to be spending money purely on the rare earths’ component, or has there been some allocation towards the uranium?
Frederick Kozak: We haven’t really had that as a conversation. We are clear that we were going to do some uranium exploration this year, and we’re flying the geophysics right now. Typically, everybody, as we all know, geophysics leads to potential for drilling. There is the expectation that we may - we’ll probably do some drilling on the uranium properties, but that’s to be determined once we evaluate and analyse and machinate on the geophysical data.
Matthew Gordon: Right, so the geophysics leads to drilling, but it identifies targets, and targets are just targets. Anomalies, targets, right? They’re not discoveries yet. I’m just wondering in terms of having been through a few years of just static market for uranium, whether the board is eager to get going and create some headlines, capture some attention because you’re sitting at - what’s your market cap today?
Frederick Kozak: We’re $0.75 Canadian, which would give us just over $100M, I think. Simple math in my head, I’m sorry.
Matthew Gordon: Okay, it’s better than it was 12-months ago, it’s better than it definitely was 24-months ago. It’s all good news, but at the same time, you’ve got some long-suffering shareholders expecting you to or hoping that you’ll be able to take advantage of this market, or the uranium market, and then you’ve jinked left off to rare earths because you think, well actually I think we can get more value over here. Has that caused some consternation in the marketplace that people are like, what are they playing at? What sorts of questions have you been having to answer in shareholder meetings or questions sent in?
Frederick Kozak: I think we’ve had a lot of positive responses to our name change execution. It was actually approved at our shareholders’ meeting earlier this year, and I think a lot of shareholders have looked at Appia over the years. Yes, I wouldn’t call them long-suffering, I think they’re hall pretty happy right now, especially - some of them took some money a few months ago at CAD$1.20. But they recognise, you’re right, we have those 2 distinct asset bases, and it may be, how do we unlock the value in terms of the uranium assets versus the rare earths? Right now, we’re bifurcated, but the focus is on the rare earths processing facility, or processing – the focus is on the rare earths’ delineation to see if we can’t be one of the feedstocks for the processing facility in Saskatoon. That’s a no-brainer, and then given the proximity of the Athabasca Basin uranium properties to the existing facilities there, it’s still 2 parallel paths.
Matthew Gordon: But it’s one of those difficult things. I think Athabasca, known for high-grade uranium – that’s all good news. Also known for long permitting processes and trouble with First Nations and things like that too, so it’s not a quick win. They’re great projects, great grades, and very efficient drilling, all good stuff, but it comes with problems. Is that part of the decision-making in terms of saying, ‘Do you know what, I think the quicker win, the better win, is this rare earths’ stuff because this whole, the magnet side of the business is in huge demand, 5X growth over the next’ – well, you said 10-years, I think it’s probably shorter than that? The number is getting bigger and bigger every week, so it’s an exceptional market. Again, is it just like you’re saying, we’ve got to place our bets somewhere. The thing I’m trying to dig you out about is, come on, let’s be honest, you’ve got to focus on something, you’ve got to get known for something. Trying to operate in 2 different distinct markets is going to be tough. It’s going to be more expensive, surely. So, the quick win for you, and get a bunch of cash in, is surely offloading the uranium.
Frederick Kozak: Yeah, and that is a decision that has obviously not been taken. I mean, public company, obviously you have to disclose everything. It is - you look at it from what we’ve talked about before and that is at what point in time do you say, ‘Okay, shareholders, we see a better value for you as 2 separate entities, particularly in the uranium space right now where things are hot, you could do that’? We haven’t done anything on that because we have been focused on the rare earths’ space, absolutely, and we are working on the uranium, but it does take more time and all of those issues. In terms of Northern Saskatchewan, we’re working closely with all the First Nations, and the treaty and non-treaty, so the Métis as well. We have great dialogue with them, we’re engaging, we’re very supportive of them and coming to all of - having them be part of the process. It’s just a matter of what makes the most sense for our shareholders-
Matthew Gordon: But you can’t make that decision without actually - I’m curious, you must be curious about what do you think you could get for them? You’re going to have to go through a process and work out how you value that bit of the business. That’s got to be a way - come on, you’re an ex-analyst, you’re not going to do the CEO, ‘Oh we’re undervalued,’ thing, you want to put an actual number on it, DCF or otherwise, and say, ‘I think this would be a reasonable price to get from the market given where we think uranium is going, leave enough on the table for someone to capture value further down the line, but for us to capture enough value today to get this rather exciting, quite sexy, rare earths thing going, and going meaningfully.’ Is there a point at which you’re going to make a decision about instigating a process to get a value on the uranium bit?
Frederick Kozak: Great question. Thinking, we’ve all seen bubbles in the market and the question is are we just opportunistically looking at spinning those assets out, or is this real for the uranium space in that it makes sense to do that as opposed to just creating a new uranium company that is good for a couple of years and then the market says, ‘Yeah, we don’t like uranium any more,’ and it’s stranded, versus keeping those assets within Appia. I mean, the first thing we could do would be to take our existing 43-101 report on the Elliot Lake project, update it for current costs, current pricing, and go, ‘Here’s the value of Elliot Lake to our shareholders, and is it accurately reflected in our market cap and the market’s estimation of our value?’ That’s always - I know as an ex-analyst, I’m undervalued of course I am, but when does it make sense that you have a set of assets that are significantly not recognised by the market that it makes sense to do that. It’s 2-fold, it is as I say, what is the long-term view of uranium and uranium exploration as the world works towards net-zero, it’s a big problem because the sun doesn’t always shine, the wind doesn’t always blow. We’ve seen this all around the world, recently, in fact, you can have tidal power or you can have hydroelectric but they’re having a drought in the Western US and their reservoirs are down, well not just the Western US but their reservoirs are way down, so now all of a sudden, your clean energy resources are strained so to get to net-zero - uranium and nuclear power has not been in favour for many, many years - the world has to adopt and adapt to more nuclear power, to clean power-
Matthew Gordon: Yeah, we know. We talk about that every week on our weekly energy show. Nuclear is green now. It wasn’t always thus. We’ve got lots of other shows where we talk about batteries and how renewables feed into it, where there’s money to be made, and where there’s money to be lost. We talk about it weekly, it’s a big topic. I want to talk about you. The question was about you guys and the timing of when you guys start making decisions about what you do with it, whether you let it just sit back there. You could update a 43-101 reasonably quickly, but you’d need to throw some cash at it. You’ve decided not to, so that tells us something. Your focus on rare earths tells us something. It’s a fair question, lots of people ask it - what’s the intent her going forward?
Frederick Kozak: We are paying attention. There are things obviously we can’t talk about without disclosing them to the market, so we’re paying attention. Your point is not lost on me, and on us as a company and as a management team and board. To be determined, based on all of the things that we’ve talked about.
Matthew Gordon: Okay, fair enough. IN terms of moving forward, you’ve got money, and you’ve got to close this private placement. You’ll make a decision about how much of that goes in the ground, but it is going to be predominantly rare earths focused. I know you understand the rare earths market extremely well, as does Jack who is advising you. It’s a question of, we should expect to see, from you, more movements on the rare earths front, not just drilling but otherwise in terms of giving clear guidance about how you intend to insert yourself into that space?
Frederick Kozak: That’s correct, yes. And again, we have the capacity to do some drilling on the uranium projects this winter as well. Not to polarise it, but there’s still capacity there.