Canada Rare Earth eyes a refinery in Southeast Asia
Vertical integration is the order of the day in the rare earth element (REE) space. The folding of many parts of the value chain into a single operation yields higher margins, more investor interest and greater overall impact resulting from exposure to the highest value market segments. This is particularly true for the REE market since China dominates processing and therefore commands the lion’s share of revenues (only four refineries of note exist outside China).
To this end, Canada Rare Earth Corp. (TSXV: LL) (“Canada Rare Earth”) has been eyeing a rare earth refinery in Southeast Asia and remains on the lookout for any other processing opportunities that may become available. Already an active seller of rare earth concentrates that it sources through joint ventures and rare earth oxides that it sources from an affiliated refinery, the company also owns a number of rare earth properties in Canada and is considering ownership participation in other countries, meaning that Canada Rare Earth is an unusual smallcap resource company in that it is already fully in business.
The company is now moving confidently into the most sought-after end of the market. Processing rare earths is the most challenging part of the chain and effectively functions as a very expensive wall between the miner and the end user. Canada Rare Earth’s strategy has evolved to focus on developing a vertically and horizontally integrated supply chain connecting miners to concentrators to separators and refiners of rare earths, selling to major international manufacturing companies and their supply networks.
Canada Rare Earth has been working to obtain the final permits that would allow the new refinery to commence operations, providing the full spectrum of rare earth products to companies looking to balance their primary rare earth products with an independent second source. Around 200 major companies worldwide are dependent on Chinese REE supply and are very much looking to diversify their inflows.
A third party paid a non-refundable fee of US$500,000 for the right to purchase a 50% interest in the refinery subject to the company exercising its option. The price and terms would cover all of Canada Rare Earth’s financial requirements, ultimately meaning that for no participation cost the company would get a 10% carried interest in a world-class, fully permitted rare earth refinery built by a proven and capable owner/operator.
Canada Rare Earth will retain the rights to provide concentrate to the refinery and to sell its products, but all interested parties will immediately proceed to prepare a definitive agreement and a shareholders’ agreement covering their respective rights and obligations. This rights agreements provides some independent assurance that the plant’s operating permits are not too far away.
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The refinery is based on the design of the owner’s other successful operating facilities and is therefore capable of separating concentrate into the entire spectrum of commercially traded, light, heavy and critical rare earth elements to high levels of purity. The refinery is intended to become a core aspect of the company’s vertically integrated operations, and significant and sincere offtake interest has already surfaced.
When discussing company strategy, Tracy A. Moore, CEO of Canada Rare Earth, indicated that “the integration strategy and business is based on four pillars which all need to come together, namely;
- Having a consistent and long stream supply of concentrate
- Having a number of refineries or processing facilities
- Ensuring long term, reliable customer offtakes
Canada Rare Earth has been working consistently on all of these key metrics simultaneously and today can boast a market cap of just under $10 million, is fully funded for the near term and has a decent chance of eating into China’s market share.
A Sr. Editor and Analyst for InvestorIntel and Managing Director and Founder of Core Consultants, Lara is an internationally recognized expert in the field of ... <Read more about Lara Smith>