EDITOR: | February 17th, 2015 | 19 Comments

Lifton on the Rare Earth and Technology Metals Bull Run Alert.

| February 17, 2015 | 19 Comments
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BullHarvesting the Value from the Market-Critical Rare Earths

Small investors alert: I think that in the middle of financial headline themes like “The End of the Commodity Supercycle” or “The Chinese Financial Meltdown” It looks as if the professional investors in the market are reacting to the news of the consolidation and modernization of the domestic Chinese rare earths supply chain by actually trying to understand it and its implications for the future of rare earth supply AND demand. This I believe is the reason that they are focusing their interest on the best of the rare earth juniors, which the market’s rise is defining as those with deposits of rare earths predominantly used in the manufacture of rare earth permanent magnets, phosphors, optical glasses, and lasers. It is the perception of increasing CONSUMER demand for all of those rare earth enabled devices globally plus taking note of the actual (dramatic, in the case of rare earth permanent magnets) increase in demand in the Chinese domestic market coupled with China’s looming inability to produce enough of these market-critical rare earths, MCREs, even for its domestic consumer demand that has focused Wall Street, Bay Street, How Street, and The City of London on those juniors that

  1. Have already or are closing in on the publication of bankable feasibility studies,
  2. Have a plan to produce downstream products at a point where such products make their entire participation in the supply chain to that point profitable,
  3. Are working deposits that are principally MCREs,
  4. Have excellent technical management,
  5. Have an end-product (of their business model) marketing plan, and
  6. Are working on separation of the individual rare earths by
    1. Advanced LOWER CAPEX/OPEX traditional technology (SX), or
    2. MRT, or
    3. CIC/CIX

I first thought two weeks ago when Molycorp shares were at first dramatically tanking and then started to rise that it was a battle among Molycorp shareholder groups that didn’t want it delisted, which event would then ensure bankruptcy, and short term financial manipulators such as short sellers. I thought that the best of the rare earth juniors that meet my above metrics were just being swept in a rising tide. But in the last week it has become obvious that there is much more at work here.

Among the factors driving the revival of interest in junior rare earth ventures are:

  1. The restructuring of the Chinese rare earth industry putting it under the ABSOLUTE control of the central government,
  2. The recognition that China’s economic problems PROMISE that CHAOS is LIKELY with regard to the global supply of any resource controlled by the Chinese government especially one such as the MCREs for which Chinese domestic demand is THE CONTROLLING FACTOR around which iyts (currently the world’s) supply will be planned!!!
  3. A recognition that the sale of only marginally changed and more and more expensive consumer devices such as iPhones, iPads, and Macs, for example, cannot be sustained in any economy where the middle class is shrinking, so that the future of this type of device will be controlled by low cost producers who also have access to MCREs. Apple has already admitted that its strategy is to focus on areas with high GDP and PPP growth by its “re-set” to the Asian market as its primary sales target. But even Apple, a behemoth of supply chain maintenance, could not foresee or control political and economic events in China.

To continue to have them we must immediately manufacture rare earth enabled components for our domestic markets. We will need to reshore not only component manufacturing industries but EVEN BEFORE THAT to also secure supplies of the MCREs. It seems to me that the prices for MCREs may be lower here than in China by 2020.In that event Chinese component manufacturers may consider moving MCRE dependent operations to the USA as Chinese automotive component manufacturers already have begun to do (in their case for logistical reasons as well as for access to American intellectual and CREDIT markets!)

  1. Recognition that Chinese rare earth supply chain operations such as Shenghe (Mine to magnet) are ALREADY issuing real off-takes to non-Chinese official (not spot market) sources; that Chinese refiners are seeking j/v customers for technology licensing outside of China, and that the Chinese government’s hostility indicated by its bureaucratic interference until now to outsourcing rare earth processing and even mining is changing rapidly.

Look at the chart below and filter it for the BEST MCRE producers. If it were a horse race the little guys would be lining up at the two dollar window, because the big guys are already jammed around the 100 dollar window. Note that some companies are not listed on exchanges in North America, such as Tantalus, but are already on Chinese radar.

IIR-2-17-2015V2(Note from the Publisher: The above is taken from the InvestorIntelReport and is usually reserved for members only. Click here to become a member)

The FINANCIAL markets rate companies by market capitalization metrics, but before you make an investment decision think about adding to the basis for your investment decisions some or ALL of the above selection metrics for the BEST of the juniors. Above all think about the demand from the point of view only of MCREs!


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>


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Comments

  • charlie steen

    I think you may be right about this, Jack. Time to grab my fishing pole and go fishing for some more TAS and others.

    February 17, 2015 - 12:22 PM

  • walbangerharvey

    Like the expose and do agree with your assessment that things are a changing. But, PLEASE, not another ree acronym! We SURE DON’T need MCRE’s. That general notion already in inherent in the CREO–assuming that a supply/demand mechanism in the market is valid. The only additional ree acronym we need is WSDNMREEA–We Sure Don’t Need More REE Acronyms”. And I would like credit for that new acronym!

    Regarding the renewed race among the juniors in the REE Derby, my personal choices are Ucore and Tasman. The advantages of both are numerous–CREO-rich with right-skewed ores, physical geography (ready access to transport)/relative locations, more than favourable political geographies (super support and stability), non-fanatic labour, relatively low CAPEX, short timeline to production, etc. Being a more major market listed security, I would expect Tasman to initially outperform and lead into at least the far turn. And that Ucore, merely a Venture and Pink listed stock (which takes it off the radar of many investors), will perform well but will accelerate in the home stretch following bullish news. These are my only ree “horses” and I had been adding up until last Thursday–I now will just sit with these two thoroughbreds in my ree stable (REE Farms) and enjoy the season.

    I see that Molycorp has moved up in the field but I don’t fully understand given that its ore is what it always has been. And, what can be said about Great Western? I don’t expect this hobbled nag to even finish the race. Given its stuck-in-the-mud performance, it looks like the market/odds makers think the same. Checking out the GWG Religion’s Stockhouse board (church bullboard), I see there is some religious paranoia present that attributes its low sp (performance) to THEM driving down the share price so THEY can pick up cheaper shares and come to own/dominate this little gem. Really!

    February 17, 2015 - 1:58 PM

  • Jack Lifton

    Wallbangerharvey,

    I think acronyms can and should be used in the REE sector, because it is a VERY complicated topic that has been needlessly oversimplified. The rare earths are created equal but that is where their similarity ends.
    Note please that I am trying to deconstruct the acronym CRE, critical rare earths; sometime written as CREOs, critical rare earth oxides, or CREMs, critical rare earth metals. In fact the OED does not define “critical metals” or “critical materials.” I thought up Market-Critical Rare Earths in order to emphasize that what is critical depends on the specific market and the specific time being described. I will be at PDAC, and I warn you that if anyone speaks to me they will be subjected to my views on MCREs and on magnet metals in general.

    Jack

    February 17, 2015 - 3:27 PM

  • Positroll

    @Jack Lifton
    Re: your number 6: I think we both agree it’s even better if you got a take-off agreement with ShinEtsu that already has a working plant ….

    With Alk being the only non-Chinese candidate I can see starting serious construction this year (thanks to cash flow from gold) and the Chinese taking more and more juniors out of the “possible independent supplier” picture (see the newest financing deal for NTU), I wonder whether REE end-users like Apple might join the financing picture …

    @all
    The numbers for Alk.ax (compared to ANLKY) are a little misleading due to a trading halt. The more relevant numbers, imO, are that a month ago they stood at 0,25 and yesterday (Tuesday) they traded for 0,40 AU$ – which is still below Petra Capital’s valuation for just their Tomingley gold mine (0,43). Basically, you still get the DZP for free at the current price …

    Cf. http://www.minesite.com/2015/02/15/alkane-fires-on-gold-revenue-and-zirconiarare-earth-promise/

    For those who haven’t seen it yet: Lifton interview with I.C.:
    https://www.youtube.com/watch?feature=player_embedded&v=34MCzp_LUNc

    February 17, 2015 - 3:51 PM

  • Dean

    Avalon Rare Metals- up 67 %- Feb 12 to Feb 17. Ticker- AVL- NYSE

    February 17, 2015 - 5:20 PM

  • Lou

    Well Jack. If you are of a mind to talk about magnets, perhaps you can answer a question for me. We often hear that substantial demand for rare earth permanent magnets will come from the auto manufacturers, from wind turbine producers, from power hand tool makers, and consumer electronics. I have read that the U.S. Dept of Energy estimates that 65% of all the electricity used in the industrial sector of the economy is dedicated to running motors. (I realize that the word motors encompasses a broad variety.) My question is this: Are the economies and other advantages of rare earth permanent magnet motors such that, assuming there is supply to meet demand, the demand for replacement motors from the industrial sector will amount to a big market for rare earth permanent magnet motor manufacturers. Lou

    February 17, 2015 - 6:02 PM

  • Jack Lifton

    Lou,

    Here is what you need to remember: You want a motive power source of any type to be as light weight as possible, so that the least part of the momentum generated will need to be used to overcome the inertia of the motive power source itself. Rare Earth Permanent Magnet Motors are the lightest weight PM motors, because of the amount of rare earths needed to give them the same performance as ferrite magnets is perhaps only 1% of the mass of the ferrite magnet.
    When you start an electric motor you have its full torque immediately, but it still must overcome inertia. If you have ever seen a large non RE PM motor start, for example on a big cutting machine, you know there is a pause before the rotor overcomes the rest inertia. It presents as a hum, a vibration really.
    Note that your Dyson vacuum cleaner or the hand-dryer in the public restrooms start right away and at full power. Imagine what it takes to start to turn the propeller shaft of a diesel-electric submarine, and you will understand why REPMs are so attractive to machine and vehicle designers.
    But, I’m babbling, as usual. I’m sure you understand now why REPM motors are so popular.

    February 17, 2015 - 6:22 PM

  • Lou

    Thank you for the clarification Jack. It sounds like RE PM motors could be an easy sell for the right industrial applications. Lou

    February 17, 2015 - 6:46 PM

  • anne

    I just discovered the Rare Earth space about 3 weeks ago and I have been studying up and readying as much as I can find all over the internet in that time (this website is the BEST resource I have found by the way). The one company with the big jump last week that surprised me is Molycorp–I didn’t think they had a significant stock of MCREs…thought they were predominantly light rare earths. Did I miss something?

    February 17, 2015 - 7:29 PM

  • Michael Roat

    The highest value portion of their business is neodymium/praseodymium and magnetic materials. Molycorp doesn’t need to sell any of their cerium in order to be profitable. The question mark is what is going to happen with lanthanum prices. Molycorp will only be producing around 5k tons of La annually at Phase One levels. I personally believe lanthanum prices will increase along with all other rare earths with the exception of cerium.

    February 17, 2015 - 7:48 PM

  • walbangerharvey

    Dean: Super longshot AVL up that much. Looks like there needs to a heck of a lot more differentiation before logic prevails in the ree junior miners herd. Seems some folks just assume a big board listing makes a stock a better investment. Evidently, many of these investors just don’t do much DD.

    February 18, 2015 - 12:21 AM

  • Alex

    Jack does it means that instead of making security supply chain for USA demand REE (15-18% of World demand ), you consider that those juniors USA mines will fight for Chinese market supplying (60% of World demand) with Chinese, African, Asian new mines ?

    February 18, 2015 - 3:19 AM

  • Positroll

    What happened to my (lengthy) comment ??

    February 18, 2015 - 6:09 AM

  • The Fallacy in Mining Valuation | InvestorIntel

    […] and junior company valuation difficult to the point of being worthless. Yesterday, Jack Lifton penned an excellent piece listing out his thoughts on what the “best” REE juniors must possess and I agree with his […]

    February 18, 2015 - 9:23 AM

  • Jack Lifton

    Alex,

    Chinese domestic demand for rare earths is surely more than 80% of the total, but this is in two sectors, domestic consumption and export. Demand for rare earths in places such as the USA is reported as if it were a demand for raw materials; it is most significantly a demand satisfied by the rare earth content of finished goods. The market for what North American mines will deliver in the present state of the American rare earth supply chain is today CHINA for all but the LaCe blends used by FCC manufacturers.
    Therefore American miners MUST look at Chinese off-take financing for the near term.
    I, as you, believe that it is now time for American (and European) industry to look at security of supply, and it is happening. BUT OEMs that are not in mining are naturally reluctant to take large positions in non core “adventures” for fear of hucksterism (justified) and lack of understanding of the use of proceeds (self imposed).

    Jack

    February 18, 2015 - 10:29 AM

  • Positroll

    Since my above comment seems to somehow been invisible for a while, I’d like to try a last time:

    @Jack Lifton
    Re: your number 6: I think we both agree it’s even better if you got a take-off agreement with ShinEtsu that already has a working plant ….

    With Alk being the only non-Chinese candidate I can see starting serious construction this year (thanks to cash flow from gold) and the Chinese taking more and more juniors out of the “possible independent supplier” picture (see the newest financing deal for NTU – Chinese investors will now control >50% and that’s before final financing), I wonder whether REE end-users like Apple might join the financing picture for Alk, too … ?

    February 18, 2015 - 5:15 PM

  • Michael

    This bull market is just beginning. Companies haven’t started restocking yet. Watch how high pices go.

    February 18, 2015 - 6:43 PM

  • Frederic Cuccarolo

    I would like to ask what opinion does anybody have about Matamec Explorations INC (MAT.V)? Its a producer of rare earths and Toyota Motors is behind them.

    February 19, 2015 - 10:43 AM

  • james.c1

    Matamec dont produce anything Frederic, and it will be a long time until they do. Toyota have now withdrawn from the project. While the mineralogy of their deposit is good, and HREO/TREO% decent, it is one of the lower grade projects with a fairly high stripping ratio. They wont be troubling the scorers for a good while….

    February 26, 2015 - 2:51 AM

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