Broker backs Chinese HREE deal in Australia
Sydney analyst Haris Khaliqi of Foster Stockbroking has put a “speculative buy” recommendation on heavy rare earths explorer TUC Resources (ASX:TUC) after it signed a financing deal with Shandong Provincial Bureau of Geology and Mineral Resources. The Chinese company will, in several stages, take new shares worth A$19 million to give it an eventual 50% stake in the rare earths joint venture covering eight tenements in Australia’s Northern Territory. The first stage will involve a A$4 million injection to take Shandong to 15%.
There are two main points here. One, it signals another move by China to locate heavy rare earths abroad as the country faces shortages in the future; better to mine them overseas yourself (or with a joint venture partner) than have to go cap-in-hand as a buyer in a seller’s market. Two, as Khaliqi points out, “importantly TUC has aligned themselves with a partner who has access to specialised knowledge of HREE clay deposits and processing technologies, which to date have been confined to China”.
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It has been one of the more interesting aspects of the TUC story that the geological processes that have formed at the Stromberg Prospect are similar to those that the Southern China Clay rare earth deposits.
TUC’s projects — should they prove to be as good as the company claims (and you have to wait until final production justifies those claims) — are tailor-made to Chinese requirements. The Stromberg deposit is more than 80% heavy rare earths: yttrium accounts for 70% of the TREO mix, with dysprosium at 7.3% and erbium at 5.4%; there’s also europium.
Dysprosium is one of the head-turners: by 2020, according to some studies, world demand will stand at 3,744 tonnes a year but production will be just 2,799 tonnes. The company’s Scaramanga deposit is, so far, 81.2% heavy rare earths.
Khaliqi says that, with financing in place, the joint venture should be able to rapidly progress the evaluation of all the tenements and determine a plan for developing an HREE mine. For Shandong, it means certainty in terms of off-take rights.
“We view the proposed transaction as an excellent deal for shareholders given we believe it will see TUC funded through to feasibility”, he added. Shares have struggled in the expectation of a capital raising through normal channels and thus dilution to shareholders. This deal removes the near-term funding risks, according to the Foster report.
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