Miracle on REE Street.

“There are two ways to live: you can live as if nothing is a miracle; you can live as if everything is a miracle.” — Albert Einstein

Preparing research and market analysis for the Critical & Rare Metals Summit in DC this week, and specifically for the panel on Equity and Investment Banking Perspectives some impressive conclusions stood out that I will treat as a 'miracle' to kick your Monday off right. Afterall, how do you explain a 'boutique' investment sector that rises from a $2 to $8 billion market cap – 256% in less than 1 year?

REE_MarketCap

Created via a sample sector analysis (*estimate), we used all of the RareMetalBlog sponsors, plus a few additional companies that we deem pertinent players in the REE sector and represented in www.raremetalstock.com.

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Let's just say, that if you had bought all of these companies in January, held constant; your portfolio would be up 64%. So for all of the newsletter writers espousing brilliance in the marketplace — anyone can be a rockstar in a bull market.

Here's a quick overview of the conclusions (Brian Bugg, CFA):

  • Total Market Cap Change Since December 2009: 256%
    Biggest driving factor was Molycorp’s public offering, next was price appreciation of the shares and we noted that new share issuance had a minor impact (appreciation of the CA$ against the US$ had a minimal impact with a 2.5% appreciation: sample spreadsheet was done in currency of primary market listing, market cap totals were figured in US$)
  • Market Cap Increase excluding Molycorp: 148%
  • Price Appreciation:     64%
    Adjusting for Molycorp, New Share Issuance, and Currency value
?

Stay tuned…will be blogging from DC tomorrow and Wednesday.


 
Disclaimer: Outstanding share numbers* were taken from annual reports, but where unavailable we used www.bigcharts.com and www.yahoofinance.com towards calculating the market cap. This is meant to be a sample indicator and special thanks to Brian Bugg, CFA who compiled his data.


  1. INTERESTING QUESTIONS–WHYS?
    why has this rapid growth occured? are the population characteristics and/or investor motivations different from other past parabolic growth? what are drivers[eg, the casino[market?] payouts have been lower in recent months; therefore,investor risk appetite has changed]?
    ?
    another why– capital investment appetite regards buy-in/out, offtake seems different for REE vs other metals juniors. yes/no, why?
    japan/korea pursue searches in asia while ignoring north american knowns. yes/no, why?
    do REEs represent a new paradigm or has enough time passed that dot com[.COM] is a forgotten anomaly?
    musings from an old geezer,
    CAVEAT EMPTOR

  2. Morning Fran.
    …knew you would like this…thanks for the questions, have printed them out and stashed them in my briefcase to ask my panel tomorrow afternoon…Tracy

  3. I think the better question is, why did the market so undervalue these resources a year or a year and a half ago.
    RES’ entire property (plus the gold play) could be had for under $100MM this year – based on fully diluted numbers.
    Personally, I think the market has finally begun to appreciate what China has been trying to telegraph for so long:
    They do not intend to rape their own environment and deplete all of their valuable resources just to continue to monopolize REE production. It does them no good as they are by far the major consumer of these materials. The Chinese appear upset that they have sold these precious metals for so little money for the past twenty years and even domestic prices have risen at a good clip.
    Thus, in this new paradigm, it is important to figure out what prices are going to be out there long term, and what projects make sense and what projects do not. I would suggest applying a 60% discount to current FOB prices and think that that is reasonable for long range pricing, given the demand curve here.
    If you’re in the money at those levels, I think the resource is a decent investment to go into production.

  4. PRESCIENT11–
    a question-over priced now or under priced last year? only with the passage of time will we know. the asians[china, japan, korea] appear to have opted out of bidding, now and then. choosing instead[japan, korea] to keep searching. don’t we all wish we knew what they EACH seem to be keeping as hole cards. as to china, i’d not play poker with any–too many centuries in the games of chance, deception and subsequent survival.
    the sole paradigm i’m confident with is china’s hegemonic rise in asia, if not globally.
    what ever be your comfortable investment logic,
    CAVEAT EMPTOR

  5. Hi Fran,
    There we are agreed, which is why one would be wise to eye some good copper plays…
    My guess is that the non-Chinese Asian nations will continue to look for deposits in countries that have very limited rules, i.e., third world countries. However, the problem for them is that is a “gap-filler” unless they find a very big deposit urgently.
    There are several large deposits, two in Canada, that could secure supply for a long, long time. My view is, who makes a move and when? And at what valuation.
    What is encouraging as far as I can tell is that it appears there is universal agreement that the cut throat prices at which China was exporting these REEs will likely not be seen again. Thus, if demand makes sense and you are a profitable mine at current Chinese domestic spot prices, I guess that’s probably as good as you can feel as far as investing dough!
    But I do view with caution all these new companies announcing every other day that they have rare earths, a lot of hot money seems to be pouring into those companies.
    My established players that are the real deal are:
    MCP, QRM, AVL (troubling financials with AVL though), REE, LYC (not happy with Aussie disclosure, but they appear to be for real); ALK (same); Arufura (same, but dominated by Chinese); TSM.
    My maybes are:
    UCU, GWG (need to actually own a deposit!), and RUU.

  6. I’ve been harping on price increases for some time. Given the doubling of refined REE prices in the past year, I’ll stay with my prognostications of at least another doubling soon. Money being poured in to juniors who have REEs in the ground, will continue, as this space continues to get noticed by new novice investors, constituting a bubble.
    Companies like Lynas, MCP, ALK, and even GWG with downstream facilities on the build should not be so negatively affected when the bubble begins to deflate for the mining-only juniors. I think there is significant “Mine the Market” hype occurring right now as I see more mining-only juniors now commnenting on their proposed processing and refining facilities. There can be only so many of them, and how many such 10+ TPA REEfineries can be justified or supported by western/non-Chinese demand?

  7. Tek, yep, I know you’ve been there too.
    As far as processing/separation facilities, I see it being funded either by end-users/acquirers or by a conglomerate of some type depending on future demand.
    I would throw out a wild card for you though, I think you need to account for CHINESE demand with regard to how many such facilities can be justified by future demand.
    Agree with your prognostication presumed at a minimum. I will further note that one should look carefully at the most excellent chart compiled by Tracy. MCP and LYC have market caps almost combined at $5B!!! Yet, these resources are somewhat limited in scale and are vastly dominated by LREE deposits. And then REE is numero tres… Again, small deposit dominated by LREEs (with the nice bonus of good % of Europium)
    One should carefully be looking at both AVL and QRM, as I think the market will eventually recognize the vastness of these deposits and the value of having such a world class resource that spans the entire spectrum of all REEs… And yes, I’m talking my book.

  8. TEK,PRESCIENT11, AND ALL–
    in the end we may all be surprised. i’d still, at this point, follow the money. when things become clear, await the inevitable pullback[we do still have 4 to 6 years before significant profits/cash flow]. much can happen in this timeframe.
    but, i’m less the gambler than many and i did my quick trades by 1Q 2010.
    CAVEAT EMPTOR

  9. Pres, Fran, Tek.
    One other thing missing from our consideration of these companies is the incredible shrinking fiat dollar in which we price these companies. At the weekend, Goldman’s chief economist Jan Hatzius estimated that the Fed needs to create another 4 trillion in new money next year, in order to achieve its stated goal of truning around the US economy in the face of the Great Recession. Trying to value our rare metals companies is hard enough given a stable currency. Given a currency being deliberately debased, and with zero interest rate policies driving money into stocks, current prices might look cheap to a professional money manager betting that the dollar’s purchasing power will dive in the two or three years directly ahead.

  10. GRAEME–
    precisely why the USA gov’t or any USA company will not enter the REE fray in north america or elsewhere. this country is bankrupt-fiscally/monetarilly. we have little,if any, industry in need of REEs. this condition is also a drag on canadian jr. ventures. look to asian sources for available capital investment, as they see appropriate for their needs.
    sorry for the sad, but true, assessment. the USA $$$ is not sought as the basis of sound investment; nor is the EURO, or its ilk[NOR/SWE krone[a] excepted].

  11. I like the comments and the Einstein quote.
    However the overriding change in retrospect I believe is the USA China “star wars” conflict.
    Non Chinese Miners/Manufacturers have benefited.
    Hindsight is always 20/20. Wish governments were by nature more translucent.

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