Rare Earth meltdown reveals survivors as sector shows sign of reawakening
Rare Earths have been more like scorched earth in recent years. The sub-sector has been a true Bonfire of the Vanities with scores (if not hundreds – if some tallies can be believed) of companies going to their doom. However, like any apocalyptic event, there follows in its wake signs of green shoots.
We have been witnessing more REE survivors heading over to Europe to escape the icy glares that they generally get in North American markets where those burnt in the meltdown are way more numerous. London missed the whole REE showboat and thus did not lose meaningful money at the gaming tables.
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The passage of time has made clearer which companies shall be the survivors and of the REE space though who have money in the kitty and hope to fight another day despite their projects being essentially dead in the water. This makes sorting the wheat from the chaff all the more important as the space awakes from its dormancy. It is all too easy to go for the larger market cap survivors who may not have any more chance of moving forward than they did the first time around.
If never a truer word was spoken on this space it was when Jack Lifton brought “The right sized mines with proven metallurgies and the best mix of critical rare for an ideal producer, (these) are the lowest costs, the best mix of critical rare earths, and the right size” – a size small enough to be able to supply the market and remain profitable. What he said then has even more poignancy now.
The behemoth properties with gargantuan capex budgets have gone the way of the brontosaurus. Only Lynas and Molycorp have got away with the creation of mega-mines/complexes and they have paid the price in valuation for such ambitions. The mantra now is ‘small is beautiful’. Those wannabe projects with bloated capex and NOT advanced into production are destined to, as the Bard put it — spend all the voyage of their life bound in shallows and in miseries…
Disclaimer: The above is written by Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. The opinions of Chris Ecclestone are his own and do not represent those of InvestorIntel or the publishing company ProEdge Media Corp.
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