Rare Earths 2014 – Lessons for 2015
As the New Year looms large, it is an opportunity to reflect on the rare earths space for the last year and try to work out what happened. Or what didn’t! It is an opportunity to be inwardly honest with ourselves and to really work on the question: “why was 2014 the way it was”.
The argument I wish to present is deliberately simplistic. After all it is the season to be jolly, don’t want to need to use the grey matter too much. But use it we must if we are to progress in 2015 in a manner that we obviously did not achieve in 2014. I’ll need to introduce some simple definitions to progress the discussion.
Speculator – one who buys generally low priced shares in the hope of a fast and large return. “A ten bagger by Easter!”
Investor – one who is obviously desirous of a share price increase but really has his heart (and his wallet) in a more long term view. The possibility of future dividends is on the menu here.
Developer – one who has a project opportunity and needs to prove up a resource, develop the technology, finance the development, identify and obtain market space, and finally build the business for the financial benefit of all.
Financier – it gets a little tricky here as there are a number of models. You can have a straight financial deal where $s return is the only interest. You can have an off take arrangement where the supply and demand arrangement between project X and downstream market Y can facilitate the financial requirements for the development. Or you could have a strategic arrangement where government (or very big business) sees a more overviewing need. Read defence here, or domestic supply for technology industries, etc.
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Ok. 2014 saw a stagnation in the REO space. Correct or not? Well, speculators certainly think so. Most developers think so to. Don’t think the demand side would necessarily agree though. Why? Well, cerium still got sold, so did lanthanum, so did neo, hey, there was many sales of REO in one form or another to produce those hi-tech products we all love. So let’s look closely at each of the player’s performance in 2014 and see what happened and is there a lesson there to take forward into 2015.
Speculator – the gold rush is over. The boom and bust has passed, thank goodness. Wild speculation is a thing of the past in the REO space, so the speculators of the 2010-12 time have moved on. At least the ones who still had their shirts! So do not expect to hear from the speculators. Unless they want to remind us of how they lost their shirt!
Investor – I believe that there are a number of intelligent investors out there who see the REO future and are prepared to back good projects. I will expand on that a little when I talk about the developer and the financier.
Developer – I want to highlight a couple of what I see as the success stories for 2014 and I want to use their progress as a model to learn from. The first is Alkane Resources. Resource development – tick. Flow sheet development – tick. Approvals – tick. Market development – zircon value add products, tick, niobium value add products with Triebacher, tick, REO value add products with Shinetsu, tick. Now its financing and development for Alkane. Story two is Northern Minerals. Resource development – tick. Flow sheet development – tick. Approvals – tick. Market development – still waiting for news here. What do these two projects have that differentiate them from the many others? What have Alkane and Northern provided that has attracted sufficient investor interest? The answer? The answer is they have a clear and believable production plan. You can see where the zircon, the niobium and the REO are going in the Alkane case. It is a credible picture that an investor can understand. He can see that the market risk is reduced and the production model is one that he can feel confident in putting his money into. Although Northern are yet to announce their final production destinations and delivery mechanisms, I feel sure that 2015 will see that project continue on it’s no nonsense progression to production.
Financier – I believe that 2014 was a time when the financiers were waiting for the right project with the right story. Let us delve here. As I read the many commentaries on InvestorIntel and others, I see many good projects. Lots of good resources, lots of clever metallurgy, the occasional revelation of some new technology that is going to revolutionize the REO space, but that’s it! What I don’t see is production models. And by that I have to stress that the production model is one that has to work! It is of no value to a potential investor to hear that Project X has developed the world’s answer to solvent extraction if that investor cannot see where the separated REO is going. I agree with Jack Lifton here. Unless there is a clear REO oxide to metal to magnet model (using Nd as a model) or REO oxide to phosphor to lighting application (using Eu as a model), there is a production void, a market black hole if you will, an unanswered question of where is this production going to go? For how much? And with what risk?
I don’t want to rabbit on too much about this, but if the developer does not develop and present a transparent and workable production model all the way to finished products (and that’s for each product as per Alkane) then 2015 will be a year where potential investors and financiers will continue to look for other opportunities.
So the lesson to be learnt is production plan. Let’s keep our fingers crossed and hope that the REO space can learn from 2014 and that many more successes can be highlighted to keep the REO space well and truly alive.
Seasons wishes to you.
Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>