EDITOR: | April 6th, 2015 | 20 Comments

Lifton on Texas Rare Earth’s uranium deal with Areva

| April 06, 2015 | 20 Comments
image_pdfimage_print

Rnd Top 4Texas Rare Earths Resources (OTCQX: TRER) has reached a milestone in its business model of creating shareholder value from not only rare earths but also from other valuable metals and materials to be co-produced from its mineral deposits, and it has, in doing so, achieved a first among rare earth juniors. The company has signed an off-take agreement with the global French owned vertically integrated nuclear engineering group, Areva, which entitles Areva to up to 300,000 lbs of uranium oxide (“yellowcake” in the industry parlance) per year as a by-product of rare earth mining and processing from the company’s Round Top Mountain deposit in West Texas.

It cannot be overemphasized that this off-take agreement is a conditional contract, not an MOU. This means that if Texas Rare Earth Resources produces uranium oxide between 2018 and 2022 then Areva is obligated to take up to 300,000 lbs per year during that period at a market in-dexed price. The contract can be renewed for an additional term by mutual agreement during the first 5-year term.

Another point that needs to be emphasized is that Global1000 manufacturing corporations almost never contract for “production” with junior mining ventures due to the distance between their respective places in the natural resources supply and value chains for the resources in question. Producing mining companies (let’s call them “senior” miners) often purchase deposits from junior miners, which are by definition “exploration” companies. This is for the common sense reason that it is costly to maintain staffs of geologists and pay exploration expenses when for most of the time the senior miner is interested only in bringing proven deposits into production. It is difficult to manage individual exploration geologists (the “prospectors”) or groups of them. Prospectors do not like to sit around in offices waiting for assignments. It has traditionally been much easier for seniors to allow juniors to follow trending interests in particular resources and wait for them to approach the senior with an offer of a claim.

In the rare cases when a junior plans to actually transform itself into a senior, such as TRER is doing, and the even rarer case when that plan is taken seriously by the market it is up to the junior to prove it has the ability to do the job. This need to prove its ability is a very high bar to the entry of a new senior of a any size.

In my opinion this is the first time that a major senior miner (AREVA) has had enough confidence in a rare earth junior’s probability of success in developing a producing mine to agree to contract for a future delivery. This is not a first right of refusal this is an agreement that in consideration of AREVA agreeing to a price formula ahead of time and to taking a minimum amount un-der that formula then TRER offers to produce such material as a by-product of its extraction of and refining of rare earths from the minerals at Round Top and to deliver it to Areva.

It finally cannot be overemphasized that this is not a “memorandum of understanding,” a commonly touted document that signifies no more than that the parties agree that they are talking about the issues in the MOU. The AREVA/TRER agreement is a completed and valid contract between the parties. TRER has made an offer that AREVA has accepted and consideration has been given by both parties.

In my opinion this off-take contract is a good indication that AREVA’s view on the long-term pricing and availability of U308 is such that it wants in early with people its procurement officers think can deliver.

At today’s spot prices this contract has value of as much as $11.9 million a year at today’s U308 current spot price of $39.50 per pound. I do not know of any other junior rare earth miner that has done this. It is not a giant step but it is a solid step towards TRER becoming an operating mining/refining (going, i.e., profitable) concern.

This move places TRER well along its development of a business model that plans for the commercial production of separated individual heavy rare earths with co-production of uranium, lithium, potassium and beryllium. Those who ignore the company or sideline it as “too low grade” or “without a viable extraction and separation technology” do not seem to have been very convincing to  AREVA’s procurement operations.

I congratulate the executive management of TRER on a job very well done.


Jack Lifton

Editor:

Jack Lifton is the CEO for Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. Technology metals ... <Read more about Jack Lifton>


Copyright © 2017 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • hackenzac

    Even though this is a piece on TRER, I’m wondering more generally on the idea of other ree mine offtake agreements of non target minerals. Others could do similarly. UCore could make some kind of JV to re-open their Ross Adams uranium mine in consideration of low grade now being less of an issue and the fact that they’ll have an mrt uranium separation circuit going nearby for the Dotson Ridge ree mine anyway. ,The U in Ucore is for uranium so if not why not?

    April 6, 2015 - 2:57 PM

  • JOE O

    Had to dump my TRER today just cause I wanted to make 23% today
    looking to start accumulating again once it trickles back down some
    same with REE
    Have a decent amount of of ucore already
    TAS too although I cant get a good read on it

    April 6, 2015 - 4:31 PM

  • Bill

    it’s not that big a deal Jack, Areva once had a Strategic Alliance Agreement as operator of uranium exploration and development with Northern Minerals

    lets see if this agreement between TRER and Areva leads to the sale of any uranium, then and only then will it count for anything

    April 6, 2015 - 5:00 PM

  • JACK LIFTON

    Bill,

    TRER and AREVA are not strategic partners, which was the status between AREVA and NORTHERN. AREVA is to be a CUSTOMER of TRER. AREVA is depending upon TRER to.mine, extract, and separate the U2O3 which it has contracted to buy. THERE IS LITTLE TO COMPARE BETWEEN THE TWO SITUATIONS.

    JACK

    April 6, 2015 - 7:27 PM

  • Jack Lifton

    Veritas Bob,

    You are an astute businessman. I cannot answer your question directly, but you clearly know how off-takes work.

    Jack

    April 6, 2015 - 8:42 PM

  • Steve Mackowski

    The co-development of uranium and rare earths has been a topic of interest since the mid-seventies. At Mary Kathleen Uranium we looked at extracting rare earths from the uranium plant raffinate using D2EHPA. Quite successful at 1/20th pilot scale but at $1/kg not economic. However if the target was rare earths as the main driver then much improved leaching extraction would be targetted (ie 85% REO extraction rather than 15 when only targetting uranium).
    300,000 lbs/annum is a significant number and ranks as a uranium project without the REO.

    April 7, 2015 - 9:24 PM

  • VACLAW

    UCU has very low grade.It is not economical!

    April 8, 2015 - 8:58 AM

  • VACLAW

    TSM low grade,HREE/TROE 52.6%, very low Nd,Pr.

    April 8, 2015 - 9:01 AM

  • VACLAW

    RES grade only 3.77%,HREE/TROE only 4.3%,Dy 0.45% not much

    April 8, 2015 - 9:07 AM

  • VACLAW

    UEX has contract with Areva too, look at their stock.

    April 8, 2015 - 9:09 AM

  • VACLAW

    We cannot compete in REE industry with China!!!Take your money and run,run, run!!!

    April 8, 2015 - 9:13 AM

  • VACLAW

    Where are the comments about GWG, Jack?

    April 8, 2015 - 9:23 AM

  • Jack Lifton

    VACLAW,

    China is “leaning” out its REE industry, which should make it even more competitive, but in the next few years China will be spending a huge amount of its GDP to remediate the damage done by the last quarter century’s rapid build up of its industrial base. No where is this damage more extensive than in the mining and refining industries. Therefore I predict that non-Chinese resources of the rare earths will become competitive with Chinese ones in the very near term. After that it will be a matter of keeping up with innovation, and in this metric the USA and Europe are far far ahead of the Chinese. The “sudden” influx of Chinese REE companies making deals outside of China for producing and refining REEs, Tantalus with Shenghe and GGG with China Nonferrous, as good examples, should tell you about the state of the domestic Chinese REE industry.

    Jack

    April 8, 2015 - 9:26 AM

  • VACLAW

    How many companies are going to survive and go too production?This recession will kill all mining.I stopped believing in REE industry.Too many victims.They dont want CREE they want money.Investors are loosing big time.

    April 8, 2015 - 12:17 PM

  • VACLAW

    I like that “I predict ” Jack.It doesnt cost anything!

    April 8, 2015 - 12:46 PM

  • VACLAW

    China is going to buy technology and more resources the bankrupt ones.I think we should give them everything.Gold even cheaper than is right now.

    April 8, 2015 - 12:52 PM

  • VACLAW

    Star Minerals next GWG mine to market manganese and GWG mine to market REE. GWG is almost bankrupt and a few months ago Jim Engdahl was their CEO.Watch people !!!

    April 8, 2015 - 5:49 PM

  • JOE O

    vaclaw? really cant someone banish him/her?

    April 8, 2015 - 5:53 PM

  • VACLAW

    Joe I warn everybody because I have got burned.I was very naive.I liked the idea of REE industry in western world.It is not going to happen.Banksters and politicians are destroying mining industry, plus we dont have to good deposits.Look at LYC.AX, they are producing REE and their shares are $0.045 (huge debt)Watch the chart for last 5 years.The same with MCP.N, from $75.00 to $0.40.REEcan hit you very bed.Ask Jim and Jack,they know” business of specialty metals and they still looking for naive investors. Take your money and run!!! fast.Dont get burn like me.

    April 8, 2015 - 7:16 PM

  • Lifton on why this is ‘the very best time ever’ to invest in rare earths | InvestorIntel

    […] sector. In this interview he discusses China, their impact on demand and prices and the recent ‘game changer’ deal that Texas Rare Earth Resources Corp. just announced with […]

    April 11, 2015 - 5:52 PM

Leave a Reply

Your email address will not be published. Required fields are marked *