My 2018 Underdog Bet: Canada Rare Earth Corporation
For me, a smallcap can be considered an underdog if it trades cheaper than its peers for no real reason. Often, a lack of media coverage means that there isn’t much worth talking about, but a decent look into Canada Rare Earth Corp. (TSXV: LL) (“CREC”) reveals that this company is in very good health, having drastically improved its financials over the last year, and is looking forward to growing sales yet further through 2018.
The company is developing an international integrated business within the global rare earth industry, and since it’s still early days, the immediate key focus is to generate revenues and positive cash flow from a variety of profit centres in the rare earth production and sales chain. This has been achieved this last year by sourcing, adding value and selling rare earths in all stages and forms. CREC is in the process of establishing its own mining, concentrating and refinery capabilities in addition to working with affiliated and third party organizations.
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CREC released its interim financial statements, available on SEDAR, on November 27th, which demonstrated that management has been highly effective in regard to their corporate goals; comparing the six months ending September 30th in both 2016 and 2017, operating expenses and losses have each been reduced by around a third, and revenues have increased by a staggering 600%. Additionally, in the two months following September 30th, 2017, CREC has completed more than $250,000 of sales of rare earth products and is due to close an additional $160,000 before the end of the year.
With increasing levels of sales, consistent margins and strict attention to controlling costs, CREC has improved operational losses by $187,331 compared to the six-month period ended September 30th, 2016. The operating loss in the most recently completed six month period was $57,367 which included amortization of $9,947 and share based payments of $8,769. Net cash of $50,528 was generated from operating activities in the six months ended September 30, 2017, an improvement of $295,180 compared to the six months ended September 30, 2016.
With such a good year under their belt, we can look forward to a confident advance of the company’s operational plans throughout 2018. CREC is studying supply opportunities in over 10 countries to enhance the flow of rare earth materials to customers with increasing levels of demand while simultaneously developing concentrate enhancement and separation capabilities. Furthermore, the company will continue to develop its Red Wine Complex rare earth project in Labrador in order to gain a proprietary supply of ore, but CREC remains engaged in sourcing and processing rare earth materials in partnership with an existing designer, builder and operator of rare earth refineries.
In 2018, we can look forward to a continuing increase in the value of rare earth elements, particularly those critical to permanent magnets (neodymium / praseodymium), both of which CREC currently supply via their own trading platform amongst 14 other rare earth oxides. Wind farms and electric vehicles depend heavily on these two elements in particular, and China’s recent environmental crackdown has opened the door for new suppliers outside of China to enter the chain.
Furthermore, CREC is currently working with a joint venture partner to procure and process a 50 tonne bulk sample from a resource in South America. The activation of this site would be a major growth factor for the company in 2018, and the JV partner is currently preparing a permit application to allow mining and delivery of ore derived from the property. CREC’s 2017 was both great and unsung, but with a vertically and horizontally integrated business really taking shape, 2018 will be the year of boom for Canada Rare Earth Corp.