In Search of Success – Clues in Rare Earth development
I was recently reading the Australian Institute of Company Directors monthly journal, and I took particular interest in a piece by Phil Ruthven, AM FAICD, Chairman of IBISWORLD. The article titled, “In Search of Success” looked at 1,241 of Australia’s largest enterprises in 2014, which together accounted for 48% of the national revenue, and examined and ranked the return on shareholder funds (ROSF). Although the data, trends and implications are very interesting in a local context, my interest was piqued at the concluding questions and remarks.
“Seeking answers. Why do we have so few high-flyers? What are the secrets to success that so many companies don’t know or ignore?”
He presented a dozen golden rules that “If a CEO and Board can tick off these or most of them, they too can join the nation’s best 100 businesses”. I examined the list and looked for clues, or lessons, for the rare earths (REO) space to perhaps gain from, or at least to think about. I will focus on those 7 rules of the 12 that seem to have most applicability.
- Stick to one business at a time, do not diversify; expand overseas if growth is needed.
As a small cap REO hopeful with a reasonable piece of turf with good REO in the ground, what business are you in? Yes, you are in the project development game, but what is your product? Are you in the light REO (LREO) space? Well, LREO encompasses the cerium game, the lanthanum game, the light magnet metals, Nd and Pr, game, as well as samarium, europium and gadolinium. Which is your business? Some or all? What is point 1 trying to say? Look at cerium. Two key markets; automobile catalysts and polishing powders. Both world’s away from each other in terms of knowledge required of the market. And in fact, world’s away in terms of product specification. The difference in specification creates more points to consider. Each different specification requires different R&D, resultant recipe (OPEX), resultant equipment needs (CAPEX), resultant marketing needs. Think about it. Cerium on its own is a major business in itself. The same questions loom with the other LREO as you think about splitting them in ever-expanding businesses.
- Aim to dominate a segment or segments of one’s industry or market.
Similar to point 1 but let’s think about dominating the magnet market, as is in vogue for some of the LREO projects at the moment. Who is your market? Is it the guy who wants Nd, or the one who wants Pr? Oh by the way, do they want them as oxides or metals? Or maybe in combination as didymium (Nd/Pr)? Each of these decisions requires knowledge and differing OPEX and CAPEX. And are you going to eke out any dysprosium and terbium from your heavy REO (HREO) suite available? Again the challenges and economic consequences of knowledge, OPEX and CAPEX are waiting.
- Outsource non-core activities to enable growth.
Those HREO temptations beckon! But oh, think of the technology development, the OPEX and the CAPEX! Stick to your guns and develop a LREO magnet business and off-load an HREO concentrate whilst you bed in your main business.
- Don’t own “hard” assets (land, buildings, equipment).
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A good start-up model for any new business.
- Plan from the outside-in not the inside-out.
It may be wonderful market announcement material to declare that a small cap exploration venture is going to part of an as yet undefined, rest of world REO supply chain, but it makes better sense to announce that you have an existing next in chain market identified, with a definite engagement plan, or even better an off-take arrangement in development.
- Develop strategic alliances.
As an example, the decision as to where to locate your chemical processing facility is much more influenced by the logistics and economics of the reagent supply, than by the logistics and economics of the transport of your beneficiated mineral concentrate. I once visited a “created” chemical precinct near Shanghai. I say created because it was reclaimed land, all of the industrial blocks had been identified by the incoming raw materials and their wastes (potential by-products), the by-products were identified as raw materials for the adjacent (nearby next business), the interlinking pipe works were in place, the precinct waste management needs were identified, the ship unloading systems were in place, the accommodation precincts were constructed, the labour and the required training was set in play, and then the various international industry players were invited to be participants. Now that’s strategic alliance at it’s best!
- Anticipate any new industry life-cycle changes.
Just as 40 years ago, the REO lanthanum world was rocked by the cerium polishing bonanza, and 30 years ago, the REO magnet world came in force, and 20 years ago the REO phosphor created more chaos, there are other “world shattering” uses of REO still to come, so pay attention, keep your R&D budget active and be ready.
Plenty to think about.
Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>