EDITOR: | July 18th, 2016 | 8 Comments

InvestorIntel Report: Arafura stock boosts rare earths image; Gold miners re-ranked; Discoveries galore

| July 18, 2016 | 8 Comments
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A rare earth company seeing its shares rise by 53.06% in a week? It’s an extraordinary event, and even more so because it seems to have entirely skipped the attention of the Australian financial press (so far as I can see from a news search).

Such was the case with Arafura Resources Ltd. (ASX: ARU) which saw its shares gain from A$0.049 at the close on July 8, to have them at A$0.075 when trading finished on the following Friday, July 15 (and there were trades as high as A$0.079 on that day). Moreover, there was no big news announcement regarding the company’s Nolans project in the Northern Territory.

Some of the investor comment suggested some reasons, including that the line of stale bulls wanting to get out had finally been exhausted, and those who had bought or were holding long term were not going to let go cheaply, especially when the news from Arafura had been improving. While the outlook for rare earth prices is not cheerful for the short term, Arafura has over recent years been working towards a much leaner project, with there having been a succession of budget trims and technical changes that reduced capital costs.

Indeed, Arafura referred to the latest one when replying to a price query from the Australian Securities Exchange. It pointed to the announcement of June 28 outlining the latest round of operational and cost efficiencies. These included the addition of merchant-grade phosphoric acid added to the potential product range that could be offered to the fertilizer industry once the Nolans project got going. (In fact, when I first began reporting on Nolans back in 2004, phosphate was considered almost on the same level of importance as rare earths so far as Arafura was concerned — and uranium was in the mix too). Also, in June the company reported it had adjusted its proposed REE mining plan to target the preferred elements only and thus defer some capital spending.

(There may be another point worth mentioning: Arafura has sold a gold project in the Northern Territory to Ark Mines (ASX: AHK). This deal includes a 2.5% royalty on any of the metal produced by Ark — and, as we all now know, any news about gold tends to glister.)

But the response to the ASX last week also made another point, which perhaps caught investor eyes as the week ended.

Arafura made reference to the decision by an international arbitration court in The Hague ruling against China and in favour of the Philippines in relation to territorial claims in the South China Sea. “The company notes that similar geopolitical events have previously impacted global rare earth supply,” it told the ASX.

This presumably refers to the 2010 incident over an island dispute by China and Japan, which led to China banning all REE exports to the Japanese customers. That was one of the triggers for the explosion in rare earths prices that made them soar through 2011.

It is a point worth considering. While it would be foolish to suggest that we would see a repeat of the 2011 frenzy, any uncertainties about the availability of Chinese-sourced rare earths would, at the very least, be music to the ears of companies such as Arafura, Peak Resources (ASX: PEK), Alkane Resources (ASX: ALK | OTCQX: ANLKY) and Hastings Technology Metals (ASX: HAS) in that REE end-users would probably be even keener to knock on their doors.

Gold stocks rerated

There’s further evidence that gold stocks are really starting to move as investors see a floor seemingly being put in place under the metal’s price. We have the rankings of the world’s top 25 metals and mining companies compiled by SNL Metals & Mining Research, of Charlottesville, Virginia.

As of June 30, 2015, Australia’s largest home-owned gold miner Newcrest Mining was ranked 42nd in the world; a year later it is No. 17. In the three months to the end of the latest June quarter its market capitalization rose by 31.3%; over the year to that date, it was up 71.3% (to $13.12 billion)

Barrick Gold went from No. 18 to No. 5 over the 12 months to June 30, and Newmont Mining rose from No.20 to No. 9. Even more spectacular was the rankings change for Russia’s largest gold miner, Polyus Gold International: it went from No. 60 to No. 13.

The four top rankings remained unchanged over the 12 months with BHP Billiton in first place, Rio Tinto second, Glencore third and Coal India fourth.

Discovery rates over the centuries

I this week happened upon a 1934 news item in The Washington Post. “Only nine of the ninety-two elements were known before Christ,” the report began. It was quoting a paper from the American Chemical Society. Those elements were the metals copper, gold, iron, lead, mercury, silver and tin, and the non-metals carbon and sulphur.

No more were discovered for more than 12 centuries when, in 1250, the world happened upon arsenic (now No. 33); the human race first heard about antimony in 1450.

As of the report appearing in 1934, the Post noted the more rapid speed of discovery. “Fifty of the ninety-two elements have been discovered in the past 200 years, and every decade in these two centuries except one (1850-59) had seen the discovery of one ore elements.”

The first decade of the nineteenth century (1800-09) was a bumper period with scientists identifying potassium, sodium, calcium, barium, strontium, magnesium and gallium.


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Comments

  • Tim Ainsworth

    Hilarious, Lynas reported 100% production capacity today.

    Censor as you will Tracy.

    July 18, 2016 - 11:31 AM

  • Bill

    Hilarious all right, Lynas reported 100% production capacity and is still not generating sufficient revenue to simply cover the interest on the massive US$430 million debt load.

    That being the case how then can it’s current market cap of AUD$265 million be justified. ?

    July 19, 2016 - 12:46 AM

  • HC

    Bill
    Seems you did not understand the report or the context in which Tim Ainsworth used the term 100% production capacity.
    Lets take a logical look at Lynas situation.
    Current debt is US$225m Mt K interest rate of 2.75%pa and JARE US$203m interest rate of 5.7%pa.
    At todays exchange rate that’s A$23,632,951/pa

    Looking at Lynas Q2 2016 results the company was marginally cash flow positive of A$900000.
    A$7.2m worth of production was delivered to customers during the quarter at no cost (was paid for in Q1 2016) and sales invoices for the period were A$55.9m compared to receipts of A$50.7m.
    That’s an additional A$12.4m of revenue that theoretically could be included in the Q2 2016 cash flow report and that’s at only 90% production capacity with recoveries still not at optimum levels.

    So looking forward there is a potential for the company to be cash flow positive to the tune of A$12.4m per quarter or around A$50m/pa which is ample cash flow to cover interest payments and service the principle debt also.

    Seems you need to check your numbers Bill because they are total wrong.

    July 19, 2016 - 3:06 AM

  • JJBeswick

    Arafura’s a good project.
    But in a market where Lynas.is just getting by I doubt there’s much appetite to fund any other light RE project unless it can demonstrate a big advantage over Lynas in production costs. Or, of course, a differentiated product like Alkane who also own the gold mine that might get them to production.

    July 19, 2016 - 8:37 AM

  • Tim Ainsworth

    My compliments HC, seems few can understand the basic numbers to that degree. Should also be noted that the $7.2M pre sale was anticipated off spec NdPr from the T4 commissioning process, and as of May 100% of assets running 90% capacity approaching steady state any further off spec material will be minimal.

    Point being, after a mountain of rhetoric, speculation, endless diatribe, for at least 6 yrs or more, the ROW finally has a sustainable primary source of RE, feeding at least three distinct ROW total supply chains, and it passes here without notice, incl from an Oz journo.

    Then again, the stunning news from Magnequench/Daido Steel/Honda that they’d conjointly designed & built a HEV motor from the basic premise of eliminating HRE appears none too popular either.

    Whether Magnequench is one of Lynas’ internal or external customers is irrelevant, they could be, provided they get/got in quick, with 1200tpQ NdPr now pre sold. Although the update is the LAMP 22ktpa “nameplate” now viewed as an interesting theoretical, and on a practical “recoverable” basis Mt Weld feedstock now established @ 27% NdPr, over nominal 23.5%. Do the numbers.

    For a set of steak knives, extremely positive to note this extension of the potential of the Magnequench/Daido Steel/Honda bonded NdFeB breakthru comes from the US:

    “Another exciting processing technology that has the potential to revolutionize the production of bonded magnets is 3D printing or additive manufacturing. MAI has teamed with researchers at Oak Ridge National Laboratories (ORNL). The technical objective of the proposal is to fabricate net shape isotropic NdFeB bonded magnets utilizing additive manufacturing technologies at ORNL. The goal is to form complex shapes of both thermoplastic and thermoset bonded magnets without expensive tooling and minimal wasted material.”

    magneticsmagazine.com/main/articles/bonded-magnets-a-versatile-class-of-permanent-magnets/

    With Chinese RE exports running +82 % YTD May, plus Lynas, reasonable assumption ROE re-engaged the LRE story.

    July 19, 2016 - 12:13 PM

  • Tim Ainsworth

    With Chinese RE exports running +82 % YTD May, plus Lynas, reasonable assumption ROW re-engaged the LRE story.

    July 19, 2016 - 12:16 PM

  • Bill

    HC – thanks for the clarification – and I see where you’re coming from

    It will be believable when Lynas start reporting it in their quarterly results – so hopefully next quarter

    July 19, 2016 - 7:02 PM

  • HC

    Anytime Bill
    All the information was included in Q2 2016 results. No need to wait for Q3 2016 results for it to be believable 😉

    July 19, 2016 - 7:41 PM

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