The Great Western Minerals Contender in the Race to Rare Earth Vertical Integration

Jim-Engdahl-Great-Western-MineralsDid you read Jack Lifton’s near dissertation titled Rare Earth Bull (Part II): China, Molycorp, and the Attempt to return to 1984, about Molycorp (NYSE: MCP) and NEO Material Technologies Inc. (TSX: NEM). At 3700+ words, and a beautiful Sunday afternoon; may I add – I did.  This said, it was good enough to have Constantine E. Karayannopoulos President & CEO of Neo Material Technologies write Jack and me to request posting his comments.

In this compelling ‘document’ Jack provides a history lesson on the Chinese rare earth industry. The ‘chart’ Jack made clearly shows how these two companies coming together has created a vertically integrated rare earth company.

Speaking of debate, is it just me or is Great Western Minerals Group Ltd. (TSXV: GWG) getting a lot of buzz these day. Shares trading at around CDN$0.53* and a market capitalization of CDN$203.29* million, Great Western Minerals is also on its way to becoming a vertically integrated rare earth producer. Vertical integration refers to involvement in all steps of the supply chain – in the case of rare earths, this means from mine to market. For Great Western Minerals this translates into being involved in both upstream (mining, mixed chloride production, solvent extraction separation) and downstream processes (metal making and alloy production).

In case you weren’t aware that Great Western Minerals was involved in all these segments of the rare earth supply chain, here’s a brief overview of their operations:

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Mining: 100% ownership of the South African Steenkampskraal (SKK) mine output and 74% ownership of the SKK mining operation; historical tests indicate that the SKK mine has one of the highest grade rare earth deposits with 16.74% rare earth oxide.

Mixed Chloride Production: 100% ownership of chloride production plant to be located at the SKK mine site; design work is in process and has been upgraded to allow a 12,000 tonnes per year capacity.

Solvent Extraction Separation: 75% ownership of separation plant, 100% of oxide production through Great Western Mineral Group (GWMG) marketing company; to be located in proximity of the SKK mine site with plans for a capacity expansion from 2,700 tonnes  per year capacity to 5,000 tonnes per year once operational.

Metal Making: 100% ownership of metal making which purchases oxides produced by GWMG.

Alloy Making: 100% ownership of Less Common Metals Ltd. (LCM) and Great Western Technologies Inc. (GWTI) that manufacture alloy from GWMG owned metal; focused on permanent magnet industry and is a significant supplier of neodymium-iron-boron (NdFeB) alloys; supplies 20% of the world’s samarium cobalt alloy; LCM’s facility in the UK is undergoing expansion with installation of new processes to allow for the production of rare earth metals.

With investors and industry followers keen on knowing when rare earth production will begin, Great Western Minerals has put forth a timeline for its operations and here are the key highlights:

  • 1st Half 2012: Complete NI 43-101 at SKK mine site
  • 2nd Half 2012: Launch mining operations at SKK
  • December 2012: Complete Mixed Chloride Production Plant
  • Early 2013: Complete Separation Plant
  • 1st Half 2013: Begin production with mining, mixed chloride production and separation.

In a news release dated March 5th, Great Western Minerals announced that LCM was granted a rare earth metal making environmental permit to carry out electrolytic production of rare earth metals. The permit issued by the United Kingdom Environmental Agency allows LCM to make rare earth metals in accordance with the highest of national environmental, health and safety standards. Jim Engdahl, President and CEO of GWMG said, "The process of fused salt electrolysis of rare earth oxides to metals increases the existing metal and alloy making capability at LCM into bulk production of metals, principally for the permanent magnet alloy business. This represents one more step toward GWMG being the most fully integrated rare earth company in the world. That, in turn, translates into additional self-sufficiency for our production cycle and certainty of supply for GWMG’s global customers."

So why all of the fuss with the commentators on RareMetalBlog about Jim Engdahl stepping down as CEO with Great Western being an undeniable contender as a REE leader? We decided to contact Jim who in his usual eloquence stated the following: “It was always my intention to step down once funding to production had been secured. This said, I will remain as both a Director and President to insure that we continue to meet the goals of investors and shareholders alike.” For everyone that knows and respects Jim, as we do – Jim’s health is his priority. Undoubtedly the new CEO will be a compelling player…recruitment process will start shortly.

*Prices taken from Yahoo Finance at 11:35 EST 2012-03-19
Disclaimer: Great Western Minerals is a sponsor of RareMetalBlog.

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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 over 50 publicly listed companies globally that are listed on Tracy is also the Founder & CEO for ProEdge Media Corp., an online publishing and media production company since 2001; and is the Managing Partner for 724 Capital Corp., a business consulting firm that currently represents U.S. Rare Earths, Inc. 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. “focused on permanent magnet industry and is a significant supplier of neodymium-iron-boron (NdFeB) magnets”
    Did you mean: “focused on permanent magnet industry and is a significant supplier to neodymium-iron-boron (NdFeB) magnet manufacturers”?

  2. …thanks for the edit…always appreciated. Went back into the GWG PPT and here was the error…I wrote: “focused on permanent magnet industry and is a significant supplier of neodymium-iron-boron (NdFeB) magnets” and should have instead written — “focused on permanent magnet industry and is a significant supplier of neodymium-iron-boron (NdFeB) alloys”….so the word “magnets” should have been “alloys”
    Whew, better tighten up the editorial team…I mean — me.

  3. Dr. K thank you for your years within the REE industry and you kind attention to the REE business.
    Within China: What do REE, salt and tobacco have in common?
    2 Questions Dr K.:
    1. Is NEO/Molycorp inside or outside the Chinese Guanxi system?
    2. Shall NEO/Molycorp get Chinese permit to sell REE in the future?
    Background Information:
    My concern is China consolidation of the REE industry inside China. The reality of Guanxi on non-Chinese entities doing REE business inside China like NEO Materials/Molycorp.
    Guanxi describes the basic dynamic in personalized networks of influence, and is a central idea in Chinese society. In Western media, the pinyin romanization of this Chinese word is becoming more widely used instead of the two common translations—”connections” and “relationships”—as neither of those terms sufficiently reflects the wide cultural implications that guanxi describes.
    Bloomberg reports:
    “Rare-earth stocks: Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (600111 CH), China’s biggest producer of rare earth, gained 4.3 percent to 71.91 yuan. Rising Nonferrous Metals Share Co. (600259 CH) surged 8.6 percent to 69.40 yuan.
    China may start the trial use of specialized receipts for rare earths in the provinces of Inner Mongolia and Sichuan in June, the Information Times reported today, without citing anyone. The receipts would mean that rare earths have been added to a list of goods that can only be sold with government approval, such as tobacco and salt, the newspaper reported.”
    What does REEs salt and tobacco have in common? Chinese government permission to sell?
    Where could that leave NEO? Outside the Guanxi and without permission to sell REE products?
    Kind regards,

  4. Add to all this compelling complete integration information the fact that last week Great Western announced financing that makes them fully funded for finalizing their NI-4301 and completion of all constructions needed for complete operations in South Africa. Nothing stands in the way of this company now!

  5. - Thankyou RareMetalBlog for shinihg some positive light on this little known company, which seems inexplicably to be flying below most investors radar.
    - GWMG continue to execute their plan on all fronts simultaneously; without hype; without fanfare; and most importantly without stumbling. They are quietly, and methodically; assembling formidable talent; forming the necessary strategic alliances with host S./African mining officials/governments; acquiring crucial Chinese REE seperation expertise; and end-user Japanese/European/and North American clients; …. all vital components to achieving a totally integrated Rare-Earths supply chain.
    - I believe that the market has to date, not fully grasped the significance of these achievements; nor acknowledged how in fact this has substantially de-risked their projects going forward !

  6. GWM is as good as it gets. They have laid out clearly successful
    Mine to Market business plan, executed the plan with intelligent, well focused hard work, avoided costly shortcuts and miscalculations, and are now rightly garnering the respect, attention, and investment of many new people and institutions.
    This is a classic “overnight” success that has taken many years of dedicated work to accomplish. GREAT WORK MANAGEMENT >American waving a Canadian Flag !!

  7. With a few more steps to be taken in ensuring the completion of the last financing arrangement through a Secured Convertible Bond Issue GWMG will then proceed into the next level in becoming what Gary Billingsley envisioned 12 years ago, bring back a fully integrated rare earth industry to locations outside of China, which it currently dominates.
    Mr. Engdahl dedicated the last six years in having GWMG progress to the position it is now within the Rare Earth Sector outside of China. Those six years have taken a toll on his health and his family and he has requested that GWMG management take efforts in recruiting a replacement to his current position as Chief Executive Officer although he does intend to remain in that position until a suitable replacement is recruited and will also stay in some capacity with GWMG as a Director and/or President.

  8. I too believe that management at GWG has done an amazing job. From Neo and Moly’s comments, they are green with envy.

  9. Does anyone know the real story on Engdahl’s planned exit? Was it really voluntary on his part, or was he forced or prodded out?

  10. I personally spoke to Mr. Engdahl and it was absolutely voluntary and was Mr. Engdahl’s decision when he took on the CEO’s job to bring the company to this level and then find someone to take it upward into the production stage. The workload on him in the past six years has been extremely demanding resulting in long terms away from his family and on his health.
    He has indicated to the Board that he will remain in the position until a suitable replacement is recruited. He will remain in some capacity with GWMG.

  11. When and in what capacity did you speak with Mr. Engdahl? Is it possible that he just gave you the “public” story, and not the real story, in the event they differ?

  12. I spoke to Mr. Engdahl on March 16th, 2012 11:15AM PDT as a private investor and have known about Mr. Engdahl’s medical conditions long before he made the announcement.

  13. That is just nonsense.
    I note on the GWG Stockhouse board that there was a consolidated effort for posters to come to Rare Metal blog to flog their company in this thread. This shouldn’t mean dissing other REE companies, which is just silly and immature behaviour.

  14. Steeplechase… it was not to “flog” as you say… but GW rarely gets the press it deserves and it is a rare thing to be on REE blog with such a nice article. Especially after reading about how great Moly and Lynas (supposedly) are — ad nauseum. Nothing wrong with saying nice things about a nice company. And Jim Engdahl is going to be hard to replace and GW is lucky that he will be staying around.
    GW up 10% …. now just doesn’t that make you smile?

  15. For far too long, the investment community has believed and invested in rare earth wannabes that profess a bigger deposit size is better.
    Great Western Minerals Group (GWMG) is the only company that is now positioned where it projects that bigger EARNINGS are better. With its very efficient, low cost and modular design for rare earths separation at its Steenkampskraal operation in South Africa, GWMG is projected to earn upwards of $5.2 billion in the next 5 years.
    Business is about making money, not being “bigger”. GWMG’s management is the only one outside of China who have put a vertically integrated, efficient business plan by partnering with a Chinese company.

  16. Who projects GNWG to earn upwards of $5.2 billion in the next 5 years, and on what basis, and more importantly, where can I get some of what they’re smoking?

    • I finally found it. This was the comment/thread which apparently made me the toast of the town at stockhouse. Unfortunately, the links to the dropbox earnings projection and stockhouse discussion are no longer valid. In fairness to everyone, I would like to see that earnings projection document linked in the post immediately above by Sunrize, so that we can all assess it now with the benefit of another year and a half under our (and Great Western’s) belt.

  17. Those projections show the earning power of the fully integrated production model Great Western is building. It is the same model that MCP is attempting to mimic with its recent takeover of NEO material technologies.

  18. Veritas Bob, I am glad you are amused. It makes me happy to have put a smile on your face.
    Oh by the way, you had asked “where can I get some of what they’re smoking?”.
    You are welcome to join our party which is coming up shortly. We have some nice Cubans in the humidor that are waiting to be smoked.

  19. Springtrader – GWMG is only on a smaller scale but with a much greater profit margin and much more efficient operation. Smaller in size is better, a quote from Jack Lifton.

  20. I just looked at what you’re talking about. You’re talking about Veritas Bob, lol. One of you called him a promoter, and someone else said he turned down a date with the prom queen. Real professional discussion.

  21. Mr. ‘Veritas Bob’.
    I spoke with Jim yesterday (March 19th) when writing this story…Great Western is still a very significant role for him; but if you knew the challenges he is having with his health — you would be supportive, compassionate and respectful for his wise decision to prioritize his health for both himself and family.
    This is a wise decision by an esteemed professional whose role in our industry is highly regarded by many, including me…

  22. Message boards are what message boards are. There is more great discussion on the GWG stockhouse board than probably any other board on the Internet. I suggest you all give it a try. GWG is the best investment of the decade!

  23. @Steeplechase: And your buddy Veritas Bob is real professional in asking “where can I get some of what they’re smoking?”.

  24. Thanks for the link.
    poncho462 is a riot, writing he has a houseboat on de Nile. He ought to know, as he apparently has a mansion there. I’ve read his writings on a number of forums, and despite his apparent education and intelligence, apparently all things Great Western are fantastic and all things with any other rare earth company are horrible. Anyone so much as daring to question anything about Great Western being the greatest investment in the history of mankind of course must be in a state of denial, or their vision is so clouded, or they are paid (I am NOT) to express such a view.
    And someone can feel free to post this back on stockhouse or whatever.

  25. Just to clarify, in writing “he has a houseboat on de Nile”, poncho462 was referring to Veritas Bob (i.e., me).

  26. poncho462 also wrote “He turned down a date with the prom queen, because he was sure someone better would call.” I take it that Great Western Minerals Group is the prom queen, and I should go out on a date with (invest in) her, as there will be no one else better coming along, just as there wasn’t lo those many years ago when the prom queen came acalling?

  27. Bob,
    This is his MO with several people looking for content based discussions. Just wait for the Steen drill results like me. Why would a company waiting on drill results in April do a $80-90 million convertible at 8%? The answer may come with those pending drill results IMO.
    BTW, Byron may already be looking at a covertible bond arbitrage strategy judging from the GWG tape this week.

    what specific companies will consume all these GWG magnets, etc and in what products, in what countries and when?
    perhaps that is why a MR. BIG BUCK$ did not offer GWG the $ 80 million needed to survive; which they were fotced to risk finance.

  29. Fran-
    Aichi Steel (toyota) and Vacuumshmeltze (oldest magnet maker in Europe) have spoken for most (if not all) product that LCM can produce. I am surprised you don’t already know this caveat emptor and all…

  30. please answer the same questions for these two supply chain companies. will that volume make GWG a profitable enterprise? who else has demand? for what? how much? when?
    do any firm conracts with volumes/prices/delivery dates exist? if so, why not ante up the whole or part of the the needed $ 80 million to assure delivery? it’s a word game without commitment.
    CAVEAT friend

  31. fran,
    You have had a very conservative view of GWG for the last three years or so. What aspects of GWG’s Mine to Market plan have they not accomplished, in order, as part of their overall vertical integration, to date? To me, GWG has performed as advertised. That seems a pretty good historical record, sufficient to merit reasonable expectation that they will continue to be successful, solving inevitable problems as they are encountered.
    “Complete paranoia is complete awareness”

  32. FIRST– i’ve owned GWG [ .PK @$0.20/sh; sold> $1.00 +] due to their purchase of metals[ england + michigan ] and overall strategy. i sold when TSHUSO ended their arrangement and noone [ BIG BUCK$ ] bought in and still hasn’t. see my above response to jake [ Aichi ]. when there are so many canidates/solutions in the contest, i follow the signal from MR. BIG BUCK$ [ FOLLOW THE MONEY ]. HE knows best the mkt need/size/schedule. i don’t. HE wanted no part of the $ 80 million needed by GWG to stay alive. perhaps that will change. i’ll wait to see.

  33. Tekton and all,
    I’d say the mine part. This whole set of comments on this board are assuming great drills at Steen. If the drills are good then I will say GWG was nuts to take 8% on the convertible before drill results. And if the drills are weak I will say GW, through the convertible, has “bet the ranch” on Steen and lost. I further don’t see why the bond holders did this at this stage for the same reasons but they get some protections of course. And while blogs generally act like GWG is all but done and integrated I firmly disagree. Most of the model is not built or even started. Good luck to GW for now. If for no other reason than so that their holders will be more in reality. I am amazed how few seem to appreciate the obvious risks in this stock.
    And BTW, you guys all say GW has this great record of achievements. Can someone list their achievements after about 30 years?

  34. Is Great Western risky? Yes. So is Molycorp.
    And as for your beloved Lynas, why do you fail to see risk where it is at least as apparent as with those other firms?

  35. Veritas Bob,
    What? Lynas is right around the corner, production hill, leaving everyone in the dust… you didn’t get the memo? Oops. I just looked at the chart. I guess not.
    Looks like they all have issues. 2012 should be interesting.

  36. Bob,
    Lynas has risk too. Although on a valuation basis I think Lynas is a risk well worth taking. Moly is a 30 PE with a bunch of foundations and shells for Phoenix and an impossible to understand business model. GWG is years away with investors in dreamland not realizing they are entrenched in the orphan period whether the company does feasibility studies or not. Lynas is very near first feed with the best resource facing political risk and a handful of unsubstantiated NY Times articles. I recognize Lynas’ risk far better than these comments here show appreciation for GWG’s risks. But yes the risks exist with all of these companies.

  37. “Lynas is right around the corner, production hill, leaving everyone in the dust.”
    Jake, I think that will be the 2012-2015 story line mostly.

  38. Fran,
    You ask good questions.
    LCM had been producting rare-earth metal alloys before GWG bought them. Back then LCM was getting their rare-earth oxides from China. Aichi Steel was already there customer. GWG bought them to make LCM part of the rare-earth mine-to-magnet vertical-integration.
    The off-take agreement with Aichi and GWG just means that Aichi has first-take on LCM products. Even with the new foundry added recently in LCM, their products are all selling.
    But you ask a good question, will LCM produce enough to make GWG profitable? One thing we bought know is that in a rare-earth life cycle rare-earth metal allows is worth more than rare earth oxides. So if you ask that question against all rare-earth miners, GWG still ahead of the game.

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