March 13, 2014 — James Kenny, CEO of Frontier Rare Earths (‘Frontier’, TSX: FRO), a rare earth play in South Africa, spoke to Tracy Weslosky about the Zandkopsdrift rare earth element project in the Northern Cape Province of South Africa in the context of some of the big debates surrounding the rare earths industry. These include the market difference between light and heavy rare earths (LREE vs. HREE), the US Energy department’s ‘critical elements list’, Chinese rare earths overcapacity and potential massive rare earth resources in North Korea and elsewhere that might reduce overall prices.
In addressing the confusion concerning the market difference between heavy and light rare earths (HREE vs. LREE), Kenny suggests that this is an “overly simplistic and, in fact, misleading way of describing the elements, because the underlying suggestion is that light REE are bad and heavy are good”. Rather, Kenny suggests that “what is required is to identify those elements that are going to be in greatest demand and those with the biggest supply gap”. The problem is that the US department of Energy has identified five critical elements that are going to be at the centrepiece of a high tech economy”. Those elements are Neodymium, europium, terbium, dysprosium and yttrium. In this respect, Kenny advises investors to always look for the presence of the critical rare earth oxides, which offers “a more useful evaluation of the economic prospects for various deposits”.
Is there an oversupply of REE from the Chinese? Kenny frames the issue in the perspective of the time horizon being held as a reference: “There is no shortage: What is relevant to Frontier is what is the position of supply and demand in the medium term and the latter part of the decade when production begins — anticipated in 2017 — and that is when I see a significant shortage of rare earths if companies like Frontier and its peers don’t start producing”. So, you could argue that there is no issue in supply and demand today, but that is only if a number of new mines come on stream in the next few years, otherwise, the prices for rare earths will be significantly higher than any analyst is forecasting.
Kenny also commented on the much publicized claims that North Korea intends to start producing rare earths. He suggests the claims are just that and that they lack factual evidence: When the media talks about massive amounts of rare earths in special deposits found in Russia, Afghanistan, at the bottom of the ocean and even the moon — not to mention asteroids — “we may have at best an occurrence of rare earths….When I see a code compliant resource report published by a credible source I would look at that information differently”. Therefore, Kenny urges investors to make a difference between an occurrence of rare earths and a commercially attractive and feasible deposit that someone is actively involved in leading to production.
While Kenny has no reason to doubt the presence of rare earths in North Korea — or, in fact in many other parts of the world — it is more important to determine if such discoveries are being developed, what is the host mineral, who owns them, what are the radioactive signatures. Ultimately, Kenny does not consider the possible supply of rare earths in North Korea being in any way relevant to the anticipated shortfall in western demand in the medium and long term”.
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