Kingsnorth responds to Lifton’s Lynas and Molycorp update

Note from the Publisher: I have Professor Dudley J. Kingsnorth’s update on the rare earth industry, he graciously mailed us that we received last week titled The Rare Earths Industry: Marking Time. Currently in preparation for a summary article for our InvestorIntel readers, we noted the following commentary underneath Jack Lifton’s article Dudley posted earlier this morning. Due to the length of his response, I have elected to post this as a stand-alone commentary for our audience review and debate.

Professor Kingsnorth: “I am not sure what Leader Myths with Respect to Lynas and Molycorp that Jack has debunked (click here to access Jack Lifton article), but the facts are:

  1. Mountain Pass and Mt Weld are the only non-Chinese rare earths projects that have been constructed in the last 10 years. No other project has achieved full approval (financial and environmental), let alone have the funding in place and commenced construction. So, by my reckoning Lynas and Mountain Pass are Leaders.
  2. LREEs also include neodymium and praseodymium, for which supply is tight short supply. So, while acknowledging that there are large surpluses of cerium and lanthanum, the potential shortages of these ‘magnetic’ rare earths cannot be ignored. No comment from Jack.
  3. I chose my words carefully in stating that to restore confidence in the rare earths sector in the immediate term Molycorp and Lynas have to demonstrate that rare earths production is viable in terms of generating a positive cash flow. Whether this cash flow represents an acceptable return on the capital invested or is adequate in terms of paying off debt is another issue. There are many instances in which the early pioneers of a ‘new’ project have gone out of business due to large debt, but have subsequently been taken over/purchased by an organisation at a fraction of the debt and then been turned around.
  4. Molycorp has been in the rare earths business for over 50 years, while Solvay/Rhodia (who are providing technology to Lynas) have also been in the business for over 50 years. Rare earths processing is a complex business as shown by the extended start-up times at Mountain Pass and the LAMP at Gebeng. I am not aware of any technology arrangement in place at this moment in time by any of the companies/projects identified by Jack that would provide the confidence required for investors to consider investing in them. So, in terms of technology Molycorp and Lynas/Solvay are Leaders.
  5. Similarly, Molycorp and Lynas are selling/shipping product from their operations; in total in excess of $500 million. This would seem to contradict Jack’s comment that that they are not qualified suppliers; the issue of a ‘premium’ is all part of negotiating a supply agreement which are confidential and is therefore irrelevant as the majority of sales are B2B. To my knowledge none of the projects identified by Jack have any contracts of supply in place that would underwrite financing, let alone sold $1 worth of rare earths to an industry specification. This would seem to indicate some leadership by Molycorp and Lynas.

For a while Jack has been trumpeting the ultimate demise of Lynas and/or Molycorp. I fail to see how the demise of one or both companies would encourage investors to invest in other projects. Furthermore, can Jack identify anyone, apart from the major Chinese rare earths producers, who could takeover Lynas and/or Molycorp and ‘turn them around’. If there were such people available they would be leading producing rare earths companies and available to ‘assist’ Molycorp and Lynas.

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I have visited both operations in the recent past and remain in regular contact with the companies. While, we are all disappointed with the time taken to start-up their respective operations I remain confident that both Molycorp and Lynas will achieve regular production for extended periods at their respective Stage 1 design capacities in the not too distant future. Furthermore, I believe that they should both generate positive cash flows from their operations in 2015 at average prices for the year to date. These conclusions are based upon public information and tours of the respective facilities.

Jack is very fond of making predictions based on miss-information. Myself and several others recall him stating at a rare earths conference in China a few years ago that “Molycorp will never produce a kilogram of rare earths”. Undoubtedly, his knowledge and understanding of the industry has improved since then, so perhaps he could provide us with some ‘guidance’ as to when his favoured five rare earths companies are likely to be in production

Yes, the rare earths sector is still experiencing uncertain times, but now is not the time to conclude that ‘we are all doomed’. The current journey to the start-up of Mt Weld commenced some 20-25 years ago and Mountain Pass some 5-10 years ago. Unfortunately, they still need more time. Rome was Not Built in a Day.”


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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. Dudley, any thoughts re La where Chinese exports appear to be back around 2008/9 levels? Given the lack of price separation from Ce no doubt much of this demand has been met from stockpile to date but are those volumes sustainable without price appreciation?
    The other intriguing one is Pr where recent prices have been up around 2011 average levels and appear to have disengaged from Nd suggesting demand outside the magnets stream.
    Appreciate any thoughts on perhaps a couple of “green shoots”.

    • Good points Tim; I’m also surprised La has failed to diverge from Ce price-wise.
      Have read some research articles about Pr salts being used as (dissolved) catalysts in the polymerisation of synthetic rubbers for applications such as car tyres. Anyone know if these applications have been commercialised? If so, that may explain it.

  2. Dudley – I have always respected and appreciated your opinions, but I would like to call you out on making the comment “Jack is very fond of making predictions based on miss-information.” and am flagging you with a professional foul for what I deem an “under-the-belt” maneuver.

    Nothing further needs to be said on this point, other than emphasis on being courteous to other members of our editorial team.

    On another note, and if you review my position on MCP and LYNAS, I have believed that MCP would and will make it, but have always drawn attention to it being a take-out candidate as the present financial model is built on challenging architecture that I would not envy being the one to lead them out of…

    Just reviewed the Google News feeds and it does appear that the financial community is leaning towards Jack’s position (copied and pasted in order of headlines):
    Is Leon Black making a move on Molycorp?
    Leon Black’s investment company, Apollo Global Management LLC, has been buying up Molycorp Inc.’s bonds in an apparent attempt to gain …
    Black’s Apollo Said to Add Molycorp Bonds to Gain Edge
    Vultures Circling Molycorp; Dilutive Event Could Happen Within …Will Apollo Global Management (APO) Stock Be Affected By Its …
    Apollo’s Leon Black Seeks Backdoor Takeover Of Molycorp (MCP)
    Bond purchases may be an attempt at a backdoor takeover of Molycorp if the company’s debt has to be restructured. In the case of a capital …
    Why Molycorp (MCP) Stock Remains A ‘Sell’

    • So one of the most respected REE experts is “flagged” by you for telling things every REE mining exec/institutional investor already knows about Jack Lifton? There are not many who take Jack serious anymore, particularly after his switch to TRER.
      Pursue with this, and I’m sure not many will take this entire site very serious anymore.

      • VC – Dudley is a respected colleague. He was published, and you are trying to start a ‘clay storm’ which any professional will step over. I publish Dudley and many other international leaders in our sector from Steve Mackowski to Robin Bromby. I invest more in top writers in our sector, and have a more established library of data on rare earths than any other free site on the planet. So for this — you are welcome.

        Whether you like Jack or not, I doubt he will lose sleep over it. In reviewing numbers online week after week after week…since December 2008 — Mr. Lifton continues to be our #1 most read writer.

        The point? Someone reads him….

        You do not need to be negative to make your point, and that was the point I made when I flag anyone. No professional needs to ‘slag’ another one.

        You do not make a point above other than you disapprove of Jack’s role as a Board member on TRER. I hope you will listen to Anthony Marchese’s interview where he discusses Jack and appreciate what we all do on any good site — and that is everyone is entitled to a qualified opinion.

        Again — opinions can be made intelligently, without ‘dissing’ anyone.

        • Lifton being your number one contributor doesn’t have anything to do with quality of content. I noticed most of the InvestorIntel content being promotional at the same time. It isn’t easy to select interesting, objective information or insights, especially for retail investors who don’t like to do a lot of dd.

          Dudley picking on Lifton could have something to do with a continuously shifting Lifton: 1. supporting GWG for vertical integration for years; 2.abandoning GWG and supporting Lynas for size; 3. supporting vertical integration again; 4 supporting TRER; 5. bashing Moly and Lynas, to name a few examples.

          Especially the vertical integration based on one REE project is complete nonsense, as no end user would take the risk of a vertically integrated producer with just one mining project for feed.

          • Please re-read as I did NOT say he was my #1 contributor, I said (again) — he usually ranks #1 for most viewed. Jack barely writes 2 columns a month as he is a busy man, so you can redirect your energy. We have nearly 2 dozen contributing writers, like Robin Bromby who is an internationally recognized business journalist, who writes an original column on InvestorIntel 3x’s a week; Alessandro Bruno is a hard nosed geopolitical expert and he usually does the same — and we have more examples, but you have a mission for ‘whatever’ — but I will NOT allow you to intentionally misinform and mislead our audience just because you have a Lifton burr in your saddle….

            As for GWMG – we have done an outstanding job of coverage, and we just did a lovely interview with Jim Engdahl of STAR Resources, formerly of GWMG that you may enjoy…

            Again, Dudley is an esteemed colleague and associate that we treat as well as Jack…and Steve…– and all of our editorial team, contributing columnists and many of our tremendous commentators.

            We have 30,000 pieces of original content to DD through — including players like James Hedrick that dispel this reality you are selling.

          • VC. I just reviewed your history and I laughed because you have reminded me that one should always do their due diligence, even before commenting. Had I done this previously, I would have noted your regular propensity to say negative things about…absolutely…everything. I dare you to write under your REAL name, so your friends can collaborate on an intervention to take you out for a good time, and hopefully redirect that black cloud over your head to….another site. Seriously, write something relevant, positive and yes, maybe even intriguing to enhance all of our understanding on this complex subject matter. PS. In reviewing your comments, you must like Northern Minerals? Our team does as well, and yes: so does Jack….

  3. Tracey seems any one who calls jack to account you call foul on ,seems to me that jack can say what he likes with no right to reply from anyone else.
    If you remember you did the same to me when I had a disagreement with jack over Texas rare earths and you called foul that’s ok because I’m a nobody but to stop Duddley from commenting on Jacks misinformation people will consider this board a dictatorship .

    • Steve,
      I have no idea what you are speaking about, but no one is allowed to be rude: including you. So make a point or say nothing.

      Professor Kingsnorth is a respected player in our sector, but his one comment — was out of line. Now take a position on this debate, and do it by backing it up with more than an opportunity to repair your ego from being called out on misbehaviour. Again — this is a forum for intellectual debate from players in the industry and those trying to understand it better.

      The rare earths are one of the most complex sectors in the world to understand and no one owns the key to the gate…so let’s learn together.

      • “no one owns the key to the gate”

        Key point Tracy, RE market emerging from a period of severe disruption and I really doubt anyone has a firm handle on where all the diverse segments of the industry will be in the next year or two.
        Really doubt the LRE bad/HRE good mantra is going to aid that discovery.

        • Tim – thank you for quoting me, and agreeing with me that there is no one right answer…and I have called in some experts to respond accordingly. Give InvestorIntel’s linebackers 24 hrs to respond accordingly…I am a moderator, not the muscle on the team.

  4. Tracy, I read Dudley’s comments as being fairly specific to Mt Pass rather than Moly’s broader business model, which I think most would agree is “challenging”.

    • Thanks Tim – and undoubtedly Dudley will respond to this and clarify. My read however, is that (direct quote from Dudley) “that they should both generate positive cash flows from their operations in 2015 at average prices for the year to date.” — suggests to me that he believes that MCP can make it with their existing business model.

      • Well, let’s see what prof Kingsnorth has to say. “generate positive cash flows from their operations” could be interpreted as not accounting for debt service, of which Molycorp has a nontrivial amount.

        • Bob,

          I asked the exact same question when I read that the new Molycorp CEO, Ms Lacaze said exactly the same thing about generating “positive cash flows.”

          Jack

  5. Tracey I have made my point and by the way I have never been rude to anyone on this board.

    Best wished

    Steve

  6. If Dudley and jack were 30 yrs younger, they could be on the latest Floyd mayweather undercard!!!
    Maybe Floyd can float moly/lynas some $$$$

  7. I have to say, Tracy, it appears that no one is entitled to be rude, except for you by your own remarks? Where is it that I may find the documentation where you have the right to call professional fouls, to demand and control how people leave their comments, or to admonish them for seeking ego soothing? And by which statute were you appointed the Guardian of misbehavior?
    I believe these all fall into the category of narcissistic and arrogant if one were to look them up in the dicrionary

    • Justin – if you would like to thank me for working around the clock, as both the founder and person who pays all the bills: you are most graciously welcome. While InvestorIntel was indeed my vision (to find the best writers in the world to attract a smart and conscientious audience) — today, it would not be InvestorIntel without both the brilliant writers, and the audience; and our VERY hard working team. This said, I worked from 8AM-11PM last night: took some emails at 4AM (ask Chris Ecclestone) and was back in meetings at 8AM and have 4 interviews lined up this morning. So yes, if working to build an online dream of a gathering place of great writers makes me whatever you called me — then you should get a new dictionary. So I’m flaggin’ you too baby…(smile)

  8. I’m a bit confused, Jack, as why Molycorp is given zero credit for heavy rare earth production. What does the heavy rare earth concentrate they produce contain if not heavy rare earth? Do we really know how much more heavy rare earth they can extract from the ore with the new leaching process? I believe I heard, according to their last conference call they claimed that they already supply 80% of their heavy rare earth needs.

    http://www.molycorp.com/molycorp-announces-start-up-of-heavy-rare-earth-concentrate-operations-at-mountain-pass-calif/

    “The heavy rare earth concentrate we will produce at Mountain Pass will support our production of a full range of high-purity, custom-engineered materials from light, medium, and heavy rare earths. Such vertical integration strongly positions Molycorp to compete successfully across multiple markets.”

    Molycorp’s heavy rare earth concentrate contains dysprosium, terbium, europium, and other elements that will be further processed by the Company into rare earth oxides, metals, alloys, and magnetic materials used in such technologies as hybrid electric vehicles, wind turbines, high efficiency appliances and motors, consumer electronics, and many other important applications.”

    • Andrew the reason is they represent a small (but not insignificant) portion of the overall value by metal; high value but very small %. No extraction improvement will change the raw material.
      Did a back of the envelope using data from TMR (relative grades) and Arafura (FOB China prices).
      For example Ce is about 49% of the RE content with a going price of about $5.30/kg so the cerium content contributes $0.49×5.3 = $2.60/kg of total RE produced.
      (Of course we don’t know what’s sold into/ex China for starters so all this is very ballpark.)
      I got (rough figures):
      La $2.7, Ce $2.6, Nd $7.8, Pd $5.2,
      Eu $0.9, Tb $0.4, Dy $0.2, Y $0.15
      per kg of overall REO produced.
      Total: $17.25 so less than 10% of value is contained in the last 4, even if they were sold purified and separated.
      The total is a pretty good match for the TMR “basket” price by way of cross check.
      Out of interest I did the corresponding numbers for Lynas:
      La $1.4 Ce $2.7 Nd $11.7, Pr $6.5,
      Eu $4.4, Tb $0.7 and Dy $1.0 for a total of $28.4, with 21% coming from the last 4.
      For both the good news is the value is loaded in to the magnet metals where most of the growth potential lies IMO.

      • Thanks JJ.

        Molycorp real business model is more about the value added specialty products, like metals, alloys, magnets, Sorbx, etc. Don’t see why we should compare Lynas with Molycorp. As long as Molycorp has enough heavies for it’s own market don’t see why it needs more. Wouldn’t be surprised if they either discovered or bought a rare earth deposit near them with more of the heavies, if and when needed.

        • Did the comparison because I wanted to see why the Lynas “basket price” @ $30/kg was so much higher than Moly @ $19/kg on the TMR site.
          Turns out it’s a combination of more Nd/Pr and also EU/Tb/Dy in their ore.
          I still think the success of both centres on the key magnet metals Nd and Pr and the HREE market is a relatively minor distraction.

  9. Having been an employee of Molycorp during the 1980’s and instrumental in the beginnings of the Mt Weld journey I appreciate the complex and covert nature of the rare earth industry. To enter and maintain a position in this industry over decades is no mean feat. Molycorp was a pioneer along with Rhone Poulenc and the Japanese (Mitsui etc) in the business and understood the business well. I think this point is at the heart of Dudley’s comments. Both Molycorp and Lynas businesses are built on excellent resource bases (Mountain Pass & Mt Weld), quality technology and sound knowledge of the business.

    New players face many challenges. Buyers want good reasons to change supplier, not only quality but a consistent track record in the business. Those moving towards production will not be immune from the challenges these two players have and are facing. It is important to be very realistic and sober in judgement when assessing these new projects.

    Best regards,

    Graham Willett.

    • Great and thoughtful, and better yet — commentary with real experience and knowledge. Send me an email Graham and I will extend a free subscription to you for just being wise, and providing advice that everyone should follow…visit anytime. Tracy@InvestorIntel.com

    • In a normal business environment, the junior REE miners would be hard pressed to find buyers for their mine output. But the REE market is as weird as a three eyed billy goat. If you’re building a cruise ship, you can be fussy about who provides life jackets for the ship. If you’re drowning in the water, you aren’t as fussy. While current users of REE’s aren’t drowning in the water, they have very recent memories of what sea water tastes like. And the conditions that caused the last calamity are only worse today.

  10. May we now move on from Lynas and Molycorp and have a good look at Australia’s Alkane and Northern Minerals. Much more interesting!

  11. Yeah Jack, perhaps you can could provide us with some ‘guidance’ as to when your favoured five rare earths companies are likely to be in production ?

  12. Come on Jack, we are still waiting for some ‘guidance’ as to when your favoured five rare earths companies are likely to be in production.

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