Shares in Tertiary Minerals (LON:TYM) today rallied strongly as it unveiled the findings of a positive scoping study on the Lassedalen fluorspar project in Norway.

The study found that Lassedalen is economically viable. This means that Tertiary now has two significant mine development projects in its pipeline.

This has been well received by investors. And today the shares are up nearly 18 per cent trading at 5.88p.

“Obviously this is a significant milestone for the project,” chairman Patrick Cheetham told Proactive Investors.

“Although it is a preliminary assessment it is a positive outcome and gives us the encouragement to go on and take the project to the next step. Now we need to do more drilling.”

He explains that sufficient resources already exist at Lassedalen to justify development (as today’s report confirmed), but a longer mine life would be preferred and the mineralisation is open at depth and along strike.

With the current four million tonne resources (grading 25 per cent fluorspar) Lassedalen would have enough ore for nearly seven years of mining.

So, the primary aim of drilling is to boost resources and extend the Lassedalen mine life – and a part of that work will focus on the possibility that a second mineralised area exists in parallel to the currently modelled deposit.

Cheetham says the upcoming drilling will involve ‘quite bold step outs’.

Cheetham explains that based on the findings of the scoping study, the upcoming drilling programme could provide a major boost to the project’s value.

“What today’s scoping study shows is that a relatively modest increase in resource has quite a substantial impact on NPV.

“Because it is an underground mine, and that means there are a number of fixed capital costs, a 25 per cent increase in resource gives us more than a 50 per cent increase in the project’s value.”

Once the drilling is complete a revised resource estimate has been done, Tertiary plans to move on to the prefeasibility phase of work for Lassedalen.

This will involve more drilling, this time to ‘infill’ the existing drill spacing. The idea is to improve confidence in the resource estimates, and ideally upgrade the resource up from the ‘inferred’ category.

Lassedalen is the smaller of Tertiary’s two fluorspar mine development project. The Storuman project, which has enough resources for at least 25 years of mining, is more advanced as it is currently at the pre-feasibility stage of development.

However permitting a new project in Norway is perhaps quicker than in Sweden, Cheetham says, and as such he believes the two projects could practically be developed in parallel.

He estimates that construction work could potentially start in the first half of 2015 leading to first productions the following year.

Storuman will be an open pit and as such it will be cheaper to develop, Cheetham says.

“It (Storuman) is shaping up very well. We have now got a very large resource there, and we have the potential to expand that substantially.”

The two projects combined are expected to produce 200,000 tonnes of fluorspar product per year.

In a note to clients today City broker Seymour Pierce repeated its ‘buy’ recommendation for Tertiary, with analyst Asa Bridle saying that the stock’s discount to NPV is now even greater following today’s news.

Bridle emphasised that Storuman has a more attractive valuation, which he puts at US$80 million, or 39p a share, but he says the initial valuation of Lassedalen, estimated at 15.4p a share, could be enhanced with the expansion of its mine life.

Today’s scoping study, prepared by consultant Wardell Armstrong, indicated that with a production rate of 100,000 tonnes of acid grade fluorspar concentrate each year, revenues could reach US$325 million over a six year mine life.

The initial capital cost is put at US$78 million with 34 months to pay that back.

The project has a net present value with a 10 per cent discount rate of US$ 31.6 million and a pre-tax internal rate of return of 20.2 per cent, said the study.

For the uninitiated fluorspar, also known as calcium fluoride, is an important industrial mineral. It is used in the manufacture of aluminium, to produce Teflon and is used widely in the chemicals industry.

China is the world’s biggest producer of fluorspar, but output that used to be exported is increasingly being consumed domestically by manufacturers. Indeed, analysts predict the People’s Republic may even become a net importer in the next five years.

“The market for fluorspar is holding up very well, prices in Europe are still very strong. And whilst there are quite regular fluctuations in the price, the long term fundaments for fluorspar are very encouraging,” said Cheetham.