EDITOR: | January 10th, 2014 | 36 Comments

Jack Lifton: “2014 — a great year for rare earth prices.”

| January 10, 2014 | 36 Comments
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Lifton-WesloskyJanuary 10, 2014 — Tracy Weslosky, Publisher and Editor-in-Chief of InvestorIntel, interviews Jack Lifton, founding principal of Technology Metals Research LLC and Sr. Editor at InvestorIntel on what to expect in the technology metal sector in 2014.

They start with a discussion on the substantial impact of new policies surrounding environmentalism in China’s rare earth mining industry and how the deployment of new regulations will impact the global rare earth supply. After an overview on what is really happening in China, Tracy asks about pricing and Jack responds with: “2014 a great year for rare earth prices.” and then follows this up with his forecasts for 2014.

In their discussion, Tracy asks Jack about the rumors surrounding the survival of the fittest in the resource market and whether or not there is any validity to these rumors. Jack denies the rumor and adds some breadth to the overall sector by expanding his usual list of favorite technology metals to copper by identifying copper as ‘the key technology metal’.

Jack Lifton will start doing a monthly column via video that may only be accessed with a subscription to the InvestorIntelReport (IIR). You may become a member by clicking here or contact Sue Glover at Sue@InvestorIntel.com for more information.


Tracy Weslosky

Editor:

Tracy Weslosky is the CEO of InvestorIntel Corp., a company that publishes InvestorIntel.com. A leading source for investors, entrepreneurs and industry leaders alike, InvestorIntel is ... <Read more about Tracy Weslosky>


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Comments

  • Ben-at-it

    Copper? Jack – can you tell us what copper companies we should be watching?

    January 10, 2014 - 12:59 PM

    • J. Best

      Copper, always good to follow and I can’t help but wonder about Tin? Thanks for the interview Jack few put themselves as ‘out there’ as you do to say what you think.

      January 10, 2014 - 2:18 PM

      • Tracy Weslosky

        Bromby is our ‘tin man’ — and I am onside…’best’ comment of the day, thanks.

        January 10, 2014 - 2:46 PM

        • Motherearth

          Tracy you and Jack make a great team . When he said Trans Pacific, I “m taking that to mean Lynas right?

          January 10, 2014 - 5:00 PM

          • Tim Ainsworth

            I heard it as “trans Pacific’s rival”. As Lynas has no US assets (other than FCC sales contracts) reasonable assumption trans Pacific is a ref to Moly.

            January 10, 2014 - 5:58 PM

          • u4eah

            – I heard it as “trans-Pacific-survival”, meaning “Lynas” of course! … (leave it to Jack to speak in riddles)
            – BTW Tim; are you and “Ausheds” over at “Hot-Copper” one in the same? …can’t help but notice the similarities; and appreciate the content of both.

            January 10, 2014 - 6:56 PM

          • Tim Ainsworth

            Lol, just another punter. Looks like Tracy may need to add a transcript, with the value quotient.
            Re value, there are any number of crop/price forecasts from wannabe farmers & industry media, but very few demand indicators from the bakers, more next seasons trends for French pastries.
            Some solid info from the MSC might just instil some confidence, particularly with the wide disparity of demand forecasts from those above. Particularly thinking Kingsnorth’s 2016 Dy surplus & phosphors suite commentary apparently at odds with consensus.

            January 10, 2014 - 10:05 PM

      • Bob R

        Jack’s logic on RE’s makes sense, and I think he’s right about copper: all the new power infrastructure and billions of new consumers who want appliances. Telecomm isn’t all fiber-optics, either… a lot of data is carried on braided Cu.

        January 16, 2014 - 7:56 PM

  • Aat Oskam

    Jack has the capability to make you feel good investing in (C)REE’s, I (and not only me, I think) needed that after the desastrous year we left behind us.
    Thanks Jack (and Tracy)!

    January 10, 2014 - 3:40 PM

  • Bill Keenes

    Excellent interview and commentary, thank you.

    January 10, 2014 - 6:27 PM

  • Jack Lifton

    Thank all of you very much for listening and watching.

    By “trans-Pacific” I mean Lynas.

    It really seems to me that:

    1. Lynas is so much less encumbered than Molycorp in both debt and only, at best, symbolic time and cash draining acquisitions, and that

    2. Lynas executive and technical management is more professional, and that

    3. Lynas reacts to the market rather than trying to control it.

    Molycorp could still make a comeback, but I believe that it needs, more than anything else, to slim down severely and sharpen its focus. Its past corporate eyes were much larger than its corporate stomach. Constantine Karyannoupoulos and Eric Noyrez are probably among the most successful,in the recent past, managers in the non-Chinese rare earth space. They tower above most of their North American and Australian “competitors.” In any case I think that just one of them will wind up as successful in, at most, the next 24 months.

    I just think that Lynas has less obstacles to overcome as a volume supplier of LREE products. And i believe that Lynas will anchor a profitable total rare earth supply chain outside of China by the end of 2016.

    Thanks again for reading, watching and listening.

    January 10, 2014 - 11:34 PM

    • Tim Ainsworth

      Lol Jack, as in “across the ocean”, thnx for the clarification.
      Certainly agree the significance of your points 1&2 but 3 is the major differentiation from a business plan perspective IMO, in fact 1&2 flow from it.
      Lynas’s long genesis was in a different age, research market needs and configure your resources to meet those needs (classic mktg), whereas Moly was more “build it and they will come”. Witness the rationale for second stages, Lynas LAMP2 founded on a agreement of Japanese demand (at the time) plus 100% financing, whereas Phoenix2…………..Sorbx??? As a consequence, once reality dawned Moly went out to “buy” a customer base at the very top of the market, and perhaps one not terribly well suited to only 16% of their suite.
      Following Lynas’s basic raison d’etre, from 2010 they have recruited middle supply chain specialists, customer interface, the most obvious EN now CEO and quite recently pricing strategy & mktg expertise at Board level. LT key to RE is keeping the little “enablers” within their economic threshold and the key to doing that profitably is being able to maximise margin by balancing ROM suite to a diversity of product, but in sync with customer needs/margin 24/7, 365 days a year. With 25 product approvals to date & a similar number pending, now using LAMP2 assets for finishing additional product, I think this strategy will become more apparent in the months ahead. Not hearing any such from Moly, in fact Q3 they appear to be shipping concentrate AWAY from Mt Pass. Moly & Neo were a “shotgun” wedding triggered by an overly generous dowry, can’t avoid the thought that the sum of the parts is greater than the whole, and perhaps stakeholders are positioning.
      In contrast, the more I look at, & talk to, Lynas the more I see an iceberg, 10% visible, and icebergs don’t sink. (Well, not often anyway, just my POV of course).

      January 11, 2014 - 1:04 AM

    • guest

      Lynas left a huge amount of cashflow on the table by not moving downstream. 1 kg of NdFeB powders or alloys can sell for more than 1 kg of pure neodymium. Now only one third of the NdFeb alloy is neodymium. Therfore, at the very minimum there is a triple-ing of revenue by moving downstream. Lynas should have looked to acquire Less Common Metals or merged with Great Western. Molycorp could sell them Santoku, since the Neo acquisition has made that business somewhat irrelevant. But we wouldn’t want to help out our competitors.

      January 11, 2014 - 11:27 PM

      • guest

        My bet is on trans-Pacific as well. California to China and Japan.

        January 12, 2014 - 2:10 AM

      • Tim Ainsworth

        You need a reliable supply of oxide before you can turn it into anything, however:

        http://epa.tas.gov.au/regulation/lynas-corporation,-pilot-plant,-bell-bay

        “Lynas Corporation had proposed to develop a pilot plant at the Research & Technology Development Centre, Bell Bay, to prove an electrolysis process and produce up to 100 tonnes per year of Didymium and Lanthanum metals for up to a three year period.”

        As I understand it this project is yet to be approved by the Board but is a glimpse at the other 90% of the “iceberg”. While the original Siemens JV appears defunct in favour of “will eventually do something together”, there may perhaps be some new urgency, courtesy Mr Buffett:

        “Siemens recently announced it is the supplier of the largest onshore wind turbine deal in the world (448 turbines), an order from Warren Buffett’s MidAmerican Energy to be located in Iowa; …”
        Now Siemens is back in the news with plans to provide 3.5 megawatt offshore wind turbines for the 130-turbine Cape Wind Project.”

        http://www.fool.com/investing/general/2014/01/05/is-wind-power-ready-to-move-on-without-taxpayers-h.aspx

        Just because Lynas has largely stuck to its core business, and not splashed out $1.5B in dilution & debt, doesn’t mean it lacks a fabled “mine to magnet” strategy, and I suspect quite a bit more given the MSC expertise inhouse (without betting the house).

        January 12, 2014 - 2:15 AM

    • guest

      Investors in Lynas love to take the advantage Molycorp has over Lynas, which is revenue boosting, high margin capture, downstream capabilities and turn it into a negative. Molycorp has significant debt but that can be dealt with. Unprofitability cannot. This is a company that is going to be around for a long time and rare earth demand is likely going to grow faster than any other metal over the course of say the next 20 years. Molycorp went from non-existent to a market leader in a very short amount of time. Of course money had to be spent along the way.

      It also seems the management at Lynas Corp. are the ones who like to control the market, by issuing statements such as minimum price schedules and demanding prices rise so their company can be profitable.

      Lastly, inflation will very likely pick up, perhaps significantly, between now and 2017 and this can help to ease Molycorp’s debt burden.

      January 12, 2014 - 6:28 PM

      • guest

        It’s a very prime timeframe in the global economic cycle for Molycorp to be coming online. If they need to make a lot of money to pay down debt, the next few years are opportune.

        January 12, 2014 - 6:42 PM

      • guest
        January 14, 2014 - 9:31 AM

        • Tim Ainsworth

          Same old, let me quote another commentator:

          “I will add a small note on how many of you are not understanding capital allocation right (from Adam Smith).
          Neo merger with MCP doesn’t “add value” to Neo. Nor does it add value to MCP. Two different capitals are involved, operating sequentially.
          Walmart doesn’t become a better company by buying a shirt maker in China. It will need to put up capital for that-and the capital returns are to be added independently.
          There is no synergy in buying a supplier or a costumer. This is a common misunderstanding of economics. The advantages of getting “access” to customers, etc. is minor-from capital allocation, those are two different capitals.
          From Smith…If a baker were to plant his own wheat, his returns won’t go up..he will need to put up capital to plant the wheat, and therefore some capital and returns from his bakery will have to be given up to plant that wheat.”

          The thread (not too hard to find) continues an interesting discussion with a comment from Jack at the end:

          “In 2009 I asked Constantine Karryanoupoulos why Neo didn’t buy one of the even then numerous rare earth deposits under “development.” He said that Neo was the only rare earth based business in North America making profits and that it was doing so without the anvil of a money-draining mining project hanging around its neck, he said, why should Neo go into mining?
          It seems to me that Neo was sold to Molycorp at the top of the market, so that Neo shareholders were rewarded as they could not have been before and never again could be.
          It also seems to me that Neo will ultimately become a freestanding company again perhaps getting some light rare earths from Molycorp, if that entity still then exists, and buying heavy rare earths in China as always.”

          January 15, 2014 - 4:22 AM

        • Tim Ainsworth

          I should note that is ADAM Smith rather than Mark, lol.

          January 15, 2014 - 4:50 AM

      • Michael Roat

        There are benefits to vertical integration. Increasing sales outlets and presence in new markets, controlling a scarace resource which in this case could either be neodymium or processing technology, company credibility and rcognition i.e. Molycorp Magnequence, and increasing profit margins to allow the company to remain defensive and profitable in all economic scenarios, and the creation of competitive advantages which in this case is the ability to process rare earths into various compounds for the many needs of end users.

        Rare earth mining is not a money draining project. That may have been the case in 2002, but not currently.

        January 15, 2014 - 11:45 AM

        • Tim Ainsworth

          Michael, exactly how does Moly improve Neo margins or Neo Moly’s?
          Both need to return a margin on respective sunk capital, “increasing profit margins” looks a lot like shuffling deck chairs on the Titanic here.
          How does Moly provide Neo a comparative advantage without compromising its own margins, or Neo Moly? Surely Neo can buy lower cost Nd/Pr inside China, if only the difference in freight costs? Can Moly not sell Nd/Pr at higher ROW pricing to customers outside China?

          January 16, 2014 - 2:59 AM

        • Michael Roat

          Add $150 million ebitda every year. While Lynas is demanding prices rise, Molycorp is positioning itself defensively because the Neo acquisition has allowed the company to remain cash flow, positive in any environment. Look at the company as a whole, and I have said it many times, Molycorp is much more profitable, and advanced technologically.

          Last comment.

          January 16, 2014 - 10:20 AM

        • Veritas Bob

          Michael Roat wrote “Molycorp is positioning itself defensively because the Neo acquisition has allowed the company to remain cash flow, positive in any environment.”

          Huh? Since acquiring Neo materials, Molycorp has yet to become cash flow positive, let alone maintain it in any environment. Molycorp was actually profitable for a while in 2011, which was an environment of very high REE prices (including for Lanthanum and even Cerium).

          Perhaps Molycorp will become cash flow positive in the right environment, but certainly not any environment. Are you still drinking Mark Smith’s Kool-Aid? If so, please remember that Niobium is the new “rare earth” so to speak – not that it’s a rare earth, but that it has all the investment merit that rare earth used to, or so he would have you believe.

          January 16, 2014 - 10:31 AM

        • Michael Roat

          You are simply incorrect. The quote relates to in China magnet production capacity, not raw material supply. The prices of NdFeB are based on prices of Nd. Neodymium is not in oversupply now and especially will not be when the market turns. Ask any wind turbine manufacturer if there is an oversupply of Nd. I can almost assure the answer would be no.

          January 17, 2014 - 11:34 AM

        • Tim Ainsworth

          Does Neo not compete in that market???
          Nd prices are certainly not suggesting any shortages, or even rising demand ATM.
          Way past time for a reality check Michael.

          January 17, 2014 - 9:41 PM

    • Michael Roat

      As Phoenix ramps up to Phase 1 levels, Molycorp will be cash flow positive, not factoring in any increase in selling prices.

      January 16, 2014 - 1:28 PM

      • Veritas Bob

        That remains to be seen.

        By the way, how is the $2.77/kg production cost coming along?

        January 16, 2014 - 4:19 PM

      • Joe o

        I believe it will operating cash flow positive. But that won’t cover interest expense. They are going to need some rise in prices. Optimizing Phoenix won’t do the trick itself. What they really need is to sell cerium stockpiles. Sorbx won’t do it in 2014. They really need some traction with it or hope that there are some other uses for cerium

        January 16, 2014 - 6:39 PM

  • vacuum

    thanks Jack.

    ———
    my twobits:

    Debt and shares factor a lot in management having maneuverability. (As indicated on YahooFinance currently) Molycorp has a lot more debt; Lynas, shares. Moly could issue shares for debt. Lynas could r/split. How that would affect attitudes of shareholders and potential shareholders is an interesting question.

    AUD/USD. Since many resources investors are dollar bears, then they might consider the product pricing in light of the forex cross. AUD/USD might have a bottom on its chart–and today’s rise in gold hints. . . . Speaking of Chinese. Likewise, what could be the rationale of Chinese investing in US and UK–perhaps they have some ideas about direction of dollar vs yuan.

    “To hell with circumstances; I create opportunities.” – Bruce Lee

    January 11, 2014 - 2:13 AM

  • Andy

    Jack-great interview! Can you comment on Quest Rare Minerals? I would love to know your opinion.

    January 11, 2014 - 1:04 PM

    • Jim

      I agree, I would like to hear some opinions on Quest.
      Thx

      January 12, 2014 - 5:48 PM

  • Joe o

    I would love jack and some other well educated people chime in on the prospects of both quest and ucore. Haven’t heard a peep about Hokan. I know jack used to like ucore and REE.

    January 12, 2014 - 7:34 PM

    • Tracy Weslosky

      Joe. We just did an update on InvestorIntelReport.com written by Jack Lifton, but your right — we need an update on Bokan Mountain. I spoke with Mark Macdonald from Ucore last week and I am speaking again to him today: will let you know.

      Quest, I have been leaving messages for Peter and Anil recently; and indeed — we need a proper Quest update. Thanks for the feedback.

      January 13, 2014 - 4:11 PM

  • Tracy Weslosky

    This was the #1 viewed article/video for January 2014.

    January 31, 2014 - 2:33 PM

  • Dean

    2014 was a tough year, indeed.

    December 22, 2014 - 2:27 PM

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