EDITOR: | January 29th, 2014 | 12 Comments

InvestorIntel readers on ‘where to list?’ in today’s markets

| January 29, 2014 | 12 Comments
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InvestorIntel readers put their fingers on a problem — so let’s get a debate going…

You can’t go past Investor Intel’s readership. Just this week, three of our regular commentators out among the audience, “Vacuum”, “Veritas Bob” and Bill Keenes, have put their fingers on a real issue — one that affects companies in the sectors we cover (rare earths and critical metals, graphite and graphene, uranium, and potash and — to a lesser degree — phosphate.

The responses came to a Tracy Weslosky posting, “Technology Metal leaders join 3D consumer printing tidal wave“.

The first came from “Vacuum”, referring to some graphite plays but in a comment that really applies to all the sectors we cover here at Investor Intel. He wrote: “Somebody could inform Triton, Hastings, Stellar and a few others that if they want deep U.S. investor participation that they need to offer a US ticker on the OTC or pinksheets. It is astonishing that companies mentioned on this (quasi US audience) website have not availed themselves of US participation.”

Tracy then responded saying she was certain that companies were aware of this problem. Citing the rare earth sector, she noted that “many of the rare earth sector companies were hit by 55% reductions in their market caps in the last 12 months — placing this obvious manoeuvre on hold“. Only too true.

Veritas Bob weighed in: “Great. When these ASX-listed companies do dilutive rights offerings, which should be expected, U.S.-based investors will be precluded from investing in them, and therefore they will get disproportionately diluted. i.e., U.S. based investors will be transferring their wealth to those who are allowed to participate in the rights offerings. That’s a big headwind to face”.

And then Bill Keenes posted: “I thought Jim Kennedy summed it up best when he nailed the issue with: ‘The total economic value of the entire rare earth market is only about $3 billion (mines to metals). The big money is in the value adding and that is what China is after. Through its monopoly China now controls the future of nearly $5 trillion in rare earth dependent, value added goods and services.’ That’s exactly what control over the rare earth market has been and still is about.”

Yes, there is a problem. The rare earths sector is feeling it acutely because of the fall in valuations, but graphite companies, uranium explorers and potash juniors (the last operating in a sector where capital costs have a “b” for “billion” in them) are feeling it too. And that problem is the very nature of the two systems: China with the government always in the background and able to order changes (think consolidation of rare earth companies, think playing around with export quotas and taxes) and government financial backing available while we in the West have a whole host of junior and medium-sized companies, all to some extent playing to China’s rules, all competing in the market for finance, and all working without a net.

The real problem: no one has come up with an option. (TINA, as Margaret Thatcher put it: there is no alternative — or no “apparent“ alternative, at least in our case.)

Not only do we have these sectors all with so many companies, but they’re listed in different places, mainly Toronto and Sydney, but also in London. The size of many precludes their gaining listing in Hong Kong (just look at the problems facing Dingyi in its proposed takeover of Elemental Minerals) or New York. (And, when one thinks about it, Japan is such an important player as a consumer of rare earths and many of the critical metals — particularly tungsten and graphite, and may soon again be a uranium customer  — but Japanese companies have tended to ally themselves with Australian or Canadian companies rather than have anything listed in Tokyo.)

But there must be something that can be done. Last month Tasman Metals (TSX.V:TSM) and Flinders Resources (TSX.V:FDR) showed the way in one respect when they began what they described as preliminary negotiations for a merger, joining Tasman‘s REE and tungsten to Flinders‘ graphite. Of course, such a scheme requires both complementary and geographically close projects.

Look, the problems of small companies raising money is not going away in the foreseeable future. And, as Vacuum points out, they need access to the U.S. capital markets (and Hong Kong/China ones, too).

I think what our sectors need is some critical mass. They have the numbers (in terms of companies and projects) but not enough collective grunt.

Needless to say, the remedy and answers are not readily to hand (or mind).

But I think our correspondents have pointed out issues which we should probably be talking a good deal more about.

This post, I hope, could be a beginning.


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Comments

  • Veritas Bob

    Just to show an example of what I was talking about. I believe this is typical at least with regard to U.S. shareholder treatment, if not always the case for ASX-listed rights offerings: So a U.S. shareholder won’t be allowed to participate in a dilutive rights offering, which means such shareholder get disproportionately diluted, in effect handing over a portion of the value of their shares to shareholders who do participate in the offering.

    Per p. 37 of http://www.northernminerals.com.au/new/index.php?option=com_edocman&task=document.download&id=394&Itemid=135 ,
    Ineligible Foreign Shareholder
    Either:
    an existing Shareholder whose address in the register of members of the Company is outside Australia and outside New Zealand, Singapore and Switzerland; or
    a person who is, or is holding for the account or benefit of, a person who is a U.S. Person or in the United States.

    January 29, 2014 - 2:22 AM

  • Tim Ainsworth

    Bob, I do hope you understand the reason for this, and it’s not because Oz companies don’t want your greenbacks, in fact they’d luv ’em.
    It’s because the cost of preparing a prospectus that complies with SEC regulations is often equivalent to the sum being raised! Perhaps an exaggeration but the costs are truly prohibitive for the juniors and even some of the mid caps won’t go there.

    January 29, 2014 - 6:52 AM

    • Veritas Bob

      Regardless of who is to blame, and I think SEC rules are asinine (in fact it’s so bad, that dual listed companies which have a listing in say Canada and the former AMEX, such as Rare Earth Element Resources, not only did not allow U.S. investors to invest in share offerings, U.S. investors aren’t even allowed to know that such offerings were being made – ah, hello, can you get any stupider? Well, actually, they can and do get stupider, as even after the fact, press releases announcing completion of offering were withheld from U.S. distribution), my point is pertinent to vacuum’s point, and is part of the “issue”.

      January 29, 2014 - 9:43 AM

      • Veritas Bob

        And this is for companies listed on a U.S. domiciled exchange, such as AMEX (NYSE Alternext), not just pink sheets.

        January 29, 2014 - 9:45 AM

  • Tim Ainsworth

    Tracy, you highlight the glaring great hole that has been fairly obvious in the ROW RE story for sometime, Jack’s been articulating it for at least 4/5 years and Lynas made it quite clear in their Nov 12 Roskills presentation.
    China controls the MSC, the companies that turn RE into something useful, to the extent of 90% of the high value segments, magnets, metals, alloys, batteries & phosphors, and have kindly left ROW with 65% of catalysts (Ce & La). Really is way past time the wannabes stopped promoting FOB oxide prices, particularly HRE, in their feasibility studies when 90% of the high value market lies inside China.
    Irony is that while the US, or Americas, are the great hope for a resurrection of ROW manufacturing on the back of cheap energy it is the EU & Japanese companies that are reaching upstream to primary RE producers in an effort to rebuild a ROW supply chain, namely Toyota/Matamec, Shin Etsu/Alkane, Siemens/Lynas & Solvay (Rhodia)/Tantalus/Lynas. Even Moly’s largest SH the Sth American Molymet has a major EU SH in Plansee, and we may hear a lot more from those two before much longer.
    ROW primary RE producers can only reach so far downstream independently outside China, maybe metals in worthwhile volume, so where are the big US manufacturers, GM, GE, etc, in the scheme of things? They’ve allowed themselves to become totally dependant on Chinese RE enabled componentry and while the current trend appears to be squeezing profits rather than LT business growth are they seriously just sitting back and talking about it?
    Presuming there is in fact something to investigate perhaps an objective of this website might be to uncover any concrete efforts/support to re-establish a North American RE supply chain by the major end users?
    Mind you DoD seem to be making reassuring noises that everything’s OK now, Lynas & Moly will save the day all on their own.

    January 29, 2014 - 9:34 AM

    • Bill Keenes

      Tim, your comment …..

      “Really it’s way past time the wannabes stopped promoting FOB oxide prices, particularly HRE, in their feasibility studies when 90% of the high value market lies inside China”

      …… does not make common sense to me because:-

      1) if the budding explorers (wanting to be producers)have to compete with Chinese rare earths supplied at FOB prices then why shouldn’t they use FOB prices in their feasibility studies

      2) if the budding explorers wanting to be producers will be paid say 30% of the FOB price for their concentrate – then isn’t that what should be used in their feasibility studies

      the reason 90% of the market lies inside China is a produce of design (and manipulation) by the Chinese – telling the rest of the world “move your factories to China and we will supply you all the rare earths you need at China domestic prices”. In the process Western Manufactures risk having their intellectual property “stolen” if they do relocate to China just to secure reliable supplies of rare earths at the cheaper China Domestic prices

      so what does FOB prices have to do with 90% of the high value market being inside China?

      January 29, 2014 - 12:59 PM

      • Tim Ainsworth

        Bill, where are the ROW HRE producers going to sell their concentrate, or even chlorides/oxides? Perhaps some into Japan as per Alkane/Shin Etsu but over 90% of the market lies inside China, with whom Shin Etsu need to be competitive.

        Do you expect the Chinese processors to pay FOB, where the difference to the domestic price is largely a function of export tax?

        Lynas have already abandoned reference to FOB prices and now talk “domestic with a premium”. Their magnet stream is being sold into China, and partially onward to Japan.

        January 30, 2014 - 11:18 AM

        • Bill Keenes

          Tim, why would anyone want to follow Lynas (it’s hardly an inspiring track record), I mean next you will be telling us the new rare earth producers should also set up in Malaysia … because Lynas did.

          January 31, 2014 - 11:35 AM

  • Sue Glover

    Congratulations to Vacuum and Bill Keenes for inspiring Robin Bromby in this latest Intel. Your contribution is invaluable.

    January 29, 2014 - 12:32 PM

    • Veritas Bob

      Does that congratulations come with an honorarium?

      January 29, 2014 - 1:18 PM

      • Sue Glover

        It comes with honor but no honorarium 🙂 Thanks!

        January 30, 2014 - 11:37 AM

        • Veritas Bob

          Consider me to be honored, if poor.

          January 31, 2014 - 12:17 AM

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