EDITOR: | February 6th, 2014 | 22 Comments

Rare Earth meltdown reveals survivors as sector shows sign of reawakening

| February 06, 2014 | 22 Comments
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Rare-Earth-DemandRare 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.

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…

To review Chris Ecclestone’s list of survivors and his forecast on the rare earth sector, log-in to InvestorIntelReport or click here to become a member…

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.


Christopher Ecclestone

Editor:

Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>


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Comments

  • Tracy Weslosky

    I was going to post Chris’s piece in its entirety but the information would have my phones ringing off of the hooks and is the reason why we created InvestorIntelReport. Here’s another quote from his op-ed: “We remain bullish on prices for virtually all the Rare Earths, except the ubiquitous Lanthanum and Cerium.” — .

    February 6, 2014 - 11:07 AM

    • Bill Keenes

      Christopher Ecclestone is in my opinion the leading rare earth analyst in the world.

      I have read his work previously (and learnt a lot in the
      process), and now regard him very highly.

      It would be a valuable addition (to an already impressive line up) if he became a regular contributor to this site.

      February 7, 2014 - 5:20 AM

  • Kitjean

    Wish I had the $250 to subscribe to InvestorIntelReport in order to read the whole article but, alas, I won’t spend a dime more in the rare earth realm which has already cost me dearly.

    February 6, 2014 - 2:33 PM

    • Sue Glover

      Well if you change your mind I would be happy to assist. The signs of recovery are certainly heartening. Thanks for contributing. Sue@InvestorIntel.com

      February 6, 2014 - 5:17 PM

      • Kitjean

        I should amend what I previously stated. In reality, I haven’t lost anything since I’ve sold none of my stocks. However, any assistance being offered by you is most welcomed! Cheers

        February 6, 2014 - 9:43 PM

  • guest

    Molycorp is sold out of lanthanum yet unable to sell most of its cerium production. I fail to understand why those two elements are often paired. The new non-Chinese La supply is going to be offset by returning FCC demand. W.R. Grace has I believe at least 70% of Molycorp’s lanthanum contracted out in an offtake agreement. China continues to reduce domestic output, while virtually the entire Chinese industry is purchasing for immediate use. If restocking in China takes hold demand could increase quite significantly, while supply is being reduced. Outlook is positive for La prices, in my view.

    February 6, 2014 - 4:30 PM

  • Investigator

    Great article. I guess the question now becomes how quick can I get an InvestorIntelReport membership and get those names?. Thanks for providing great information,your site is really good.

    February 6, 2014 - 5:12 PM

    • Sue Glover

      Thanks for your comment Investigator…love the turn of phrase on your ‘handle’. Simply click the link and you can sign up via PayPal to receive instant access. Please email Sue@InvestorIntel.com if I can be of any assistance.

      February 6, 2014 - 5:14 PM

  • Motherearth

    Tracy , Chris Ecclestones’s said when talking about Great Western, that “This mine is NOT rocket-science.” I was hoping that JL might be able to comment on, the size of Great Western’s Steenkampskraal since JL also has had an opinion on Great Western’s size in the past. thank you..

    February 6, 2014 - 5:49 PM

  • Nevada George

    Yes, there are many REE investors that are “walking wounded.”
    Investor sentiment played an important role in this — pumping
    them up and down. It also, has the possibility of a rebound due
    to the same behavioral mindset of the investor world.

    Does the projected P&L’s of smaller right sized REE mines include
    vertical integration? If not, were projected transportation costs included?

    I read a report recently and cannot verify it …
    That Lynas expects lanthanum demand to increase 4% till 2020.
    And that Lynas has several signed contracts which the buyers
    are willing to pay higher prices for Lynas material over Chinese
    material. Reason stated was that the buyers wanted a more
    diversified supply base. ???

    February 6, 2014 - 6:35 PM

    • Tim Ainsworth

      NG, Lynas has forecast CAGR of 3.3% for NiMH & 8.8% for FCC the two primary La markets. Chinese exports last year were circa 15kt, approaching the peak year of 2008. This current demand has allowed Lynas to set a floor price of $15kg on future sales.
      Lynas does forecast a La CAGR slightly over 4% thru 2020 to 38ktpa and makes the comment “NdPr and La markets expected to be the key value drivers for Lynas”.
      All info in the public domain.

      February 6, 2014 - 9:07 PM

      • Nevada George

        Thank you for the information
        My intuition, which helps guide me, is
        that some unanticipated future event, in
        the next few years, will be beneficial to Lynas
        and a few other REE miners outside of China.
        “Just a Gut Feeling”

        February 7, 2014 - 10:59 AM

  • Christopher Ecclestone

    Thanks to everyone for the kind comments..

    The real situation on any Rare Earth is a matter of conjecture as the Chinese have shown themselves to be brutally manipulating not just the price of Rare Earths but the information flow. Just as they say that you only see the top ten percent of an iceberg the same is true of the rare Earth supply situation (at least for the moment). The arrival of Molycorp and Lynas has undoubtedly added to the supply of Lanthanum and Cerium.. We really need some non-Chinese producers of the heavy REEs to surface so the breaking of the Chinese “wall” around the real REE situation can be achieved.

    The thinning of the REE wannabes (probably should use culling as it was that brutal) was achieved by the Chinese deflating the price deck for REEs. They could have held it up if they wanted to and clearly and overabundance of other projects was not in their interest. Non-Chinese end-users have a vested interest (particularly Japanese and Koreans and dare we say, sotto voce, the Taiwanese) in paying up to have non-Chinese sourced product if it guarantees them a break from the Chinese capricious dominance. US users are obsessed with getting the cheapest or everything while these non-Chinese Asian nations know there is “Cold War” in minerals going on and being dependent on your “enemy” is the last thing they want to be.

    February 7, 2014 - 10:46 AM

    • Nevada George

      My hope for HRE production in the US is Ucore.
      The US government gives lip service for the need
      to support the REE/Mining Industry. However, the mining
      industry is so overregulated that it is suffocating.
      — and that does not take into account all the
      environmental attack dogs working in “unofficial”
      concert with the EPA. We are so bogged down with
      creating nonproductive social issues, peeping into
      bedrooms, and kindergarten political bickering that
      no time is left over for nation building.
      Our High Government Officials are in perpetual
      motion flying all over the Globe trying to dictate to
      other countries how to run their affairs of state —
      making us the laughing stock of the world as they
      know that we are failing at home.
      Maybe other world leaders are correct by saying that
      we have turned into a bunch of monkeys playing with
      hand grenades.

      February 7, 2014 - 11:41 AM

    • Tim Ainsworth

      Christopher,
      Just wondered if you could put some substance behind “the thinning of the REE wannabes” (where have I seen that before). While SP’s are certainly circa 10% of the bubble top my watchlist has actually expanded over the last couple of years. I note the TMR Advanced Rare-Earth Projects Index has also actually increased from Nov 12 to Jan 14, 57 compliant resources up from 48, 51 projects up from 44 and 48 companies up from 42.
      On that basis I doubt the “cull” has even yet begun.

      February 7, 2014 - 8:10 PM

  • Buckwheat

    Chris, Given your current analysis above,where do Quest & Rare Earth Elements fit in your perception of the grand scheme of the current survivors in the rare earth & critical materials sector? Thanks for your candor.

    February 7, 2014 - 1:10 PM

  • Christopher Ecclestone

    The lifecycles chart does not appear to non-subscribers I guess… as for Quest, its non-mention speaks volumes… and Rare Earth Elements is shown but not mentioned…. let you read between the lines on that one..

    February 7, 2014 - 1:19 PM

  • Joe o

    Well my $$ has been sunk in mcp,qrm, great western and ucore. Kinda stinks about now. Would be nice if one of them pans out. Got a little in lynas too.
    Would love if someone handicaps them as of now
    Sorta like odds of winning Super Bowl
    Right now I am thinking I am more Cleveland browns than Seattle seahawks

    February 7, 2014 - 2:46 PM

  • Mikey

    Stans Energy is expected to recieve favourble ruling in their court case with the Kyrgyzstan’s government. After that, we will see HREEs production for ROW. Exciting times for the company. Keep hope alive.

    February 7, 2014 - 3:25 PM

  • Christopher Ecclestone

    Maybe my latest note on Ucore might enlighten things:

    http://hallgartenco.com/file.php?path=Mining&filename=Ucore_March2014.pdf

    March 24, 2014 - 7:43 AM

    • hackenzac

      In a word, your Ucore note, say it like Monty Burns, excellent! Let me ask you in your opinion, how good of a prospect or not is Bokan for uranium? Your tin comments are spot on and another ace in the hole that most are unaware of. The Ray prospect is all state land so the fed layer is not an issue so much.

      March 24, 2014 - 1:48 PM

      • Christopher Ecclestone

        The uranium deposit there is as good as it ever was. It would obviously need designing with more care than back in its heyday and tailings cannot be dealt with so cavalierly. I think its ripe for splitting off and either being JVed or planted in a separate listed entity.

        In I am an enormous bull of, more so than REE… Ray River is very extensive and alluvial. That lowers the start-up cost massively. get some Malaysian or Indonesian tin engineers over and build a decent sized bucket dredge and one could be in business for several million dollars.

        March 24, 2014 - 1:56 PM

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