Interview: Frontier’s James Kenny debunks the major rare earth industry debates

Tracy-Interviews-James-KennyMarch 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.

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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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Tracy Weslosky

About Tracy Weslosky

Tracy Weslosky is the Publisher and Editor-in-Chief of InvestorIntel, a leading global investment intelligence source created for the innovative and entrepreneurial minded that represents publicly listed companies that are listed on InvestorIntel.com. Tracy is also the Founder & CEO for ProEdge Media Corp., an online publishing and media production company since 2001 that owns InvestorIntel. Tracy is also the Managing Partner for 724 Capital Corp., a business consulting firm that lists all clients on 724Capital.com. Previously she has owned a boutique Investment Banking firm for 7 years that was the basis for a business reality television series called, DealFlow. Aired around the world for 3 years on CNBC World, WealthTV and many other networks globally; Tracy is a speaker, writer and an entrepreneur.
  1. Yes, some excellent points. It is most useful every now and again to have a moment when everyone stands still and takes stock.

    I plead guilty to the branding of LREE and HREE when, really, as James said the demarcation is much more complex, and we should always look at the particular mix of REE rather than separating them into two categories.

    Couldn’t agree more about North Korea and Afghanistan. As for Russia, it strikes me as interesting that Moscow hasn’t made a bigger effort in this space. The industry in the West should never be distracted by these alleged future sources; many of the Western companies have the trump card in being in attractive jurisdictions from the political risk point of view. And I include most of Africa in that: in a recent comment I made on the Syrah graphite project in Mozambique I pointed out there have been relatively few nasty surprises in sub-Saharan Africa for the many mining companies that have ventured there. Even two of the previously more problematic jurisdictions – Liberia and Sierra Leone – seem to be trusted places to invest.

  2. Equally Robin should we rely on 2010 data, updated 2011, as the RE market slowly emerges from a period of severe disruption?
    Global markets, innovation, certainly hasn’t been standing still while the RE industry get’s it’s act together over the intervening 3/4 years.
    The phosphors stream, Eu, Tb & Y was largely predicated on CFL, with the growth of LED, OLED, etc, is this still relevant? Moly & Lynas both report weakness in the segment, Chinese capacity rates are 40/50% batteries/magnets yet 22% phosphors. Lynas will contribute 80tpa Eu, or roughly 25% of demand, at full run rate, will demand support current prices? Most Dy resources will need to produce a mountain of Y, will it, in contrast to being a CREO, become the “Ce” of HRE? Current China domestic prices circa $9kg, well under CoP for the HRE wannabes.
    With the tech advances in Dy free & Dy efficient magnets reduce its criticality? Dudley Kingsnorth certainly thinks so, recently forecasting a 2016 surplus, with demand at 800/850tpa and NTU alone promising to deliver 300tpa.
    Does Pr join Nd at the top of the growth profile? Recent price action would suggest it could be well on the way.
    Does the much maligned La make a surprise appearance? Streaming to multiple segments but most particularly FCC & NiMH, US shale oil demand for RE catalysts appears to have driven Chinese exports to a rate only bettered in 2008, will that continue as the US ramps energy independence over the next decade or so?
    Are the new CREO Nd/Pr on the first tier with La & Dy back a way? That certainly wouldn’t suit popular wisdom being circa 98% LRE by volume, and if Dudley’s correct 99%.

    • I agree. It is time for a total reassessment of where the rare earth sector stands, both in terms of production and changing demand patterns. We are either talking about the production end or the demand end: an updated overview of the whole sector would be overdue.

  3. Great questions raised by Tim. I see as if for sure Y will become the “Ce” of HRE and Pr will join Nd at the top of the growth profile. Indeed as Robin has remarked, an updated overview of the whole sector is overdue.

  4. Really good interview. I have been following this company for a while and truly appreciate the knowledge and passion Mr. Kenny has for the rare earth space. This is the kind of information you just can’t find anywhere else. Good interview Tracy, thanks.

  5. Pingback: Bitcoins are dead, Rare Earths are ‘alive’ and FDIC vs. Libor to re-build trust for the 'little people'? | InvestorIntel

  6. Tracy,
    Nice to see someone with inside knowledge in the industry comment about some of the adsurd ideas being presented by mainstream media as great new sources of rare earths.

    On another note, will it be possible to ask James more specific questions regarding the progress (or apparent lack of progress) on the creation of the PFS for Zandkopsdrift. Shareholders of the company, including myself, are concerned that after two years delays we still do not know the exact date when the company plans to publis this study. Do we have to nail down every single detailbefore this study is released? Will this reduce the time required for the final FS?, etc

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