Rare Earths 2015 – Lessons for 2016
At the end of last year, I attempted to overview the performance of the rare earths space in 2015 and to look to provide lessons for 2016. Well, we haven’t gone very far have we! Or so it seems on the surface. There has been a departure of a few players, a few more on the cusp, some still have a little cash left, but Lynas is up and going well. A mix of news but me always looking at the bright side, I don’t see 2015 in a too negative way. The Lynas success can only be good for the industry as a whole – yes, we can do it outside of China! Pity about Molycorp though. Alkane looks very well developed and continuing to tick all the boxes. The other remaining players whilst not as progressed as they might have wanted to be, have spent their funds wisely and time will tell on their future. The recent article by Alastair Neill provides some encouragement around those remaining dozen or so even though his fancied list is a little shorter than that.
What I find startling though, is that 2015 didn’t provide one single proper production plan (other than Alkane). The need for a production plan was my most critical lesson for the 2015 year! It is therefore not surprising to me that there was no successful, large financing deal announced. BTW congratulations must go to Peak Resources for their BFS financing arrangement. I am looking forward to reading their production plan as they keep ticking the boxes on the way to possibly being the next pure REO operator.
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OK the good news! When I started working again in the REO space in 2004 I was attracted to working in the technology space. iPhones and iPads. Electric cars and hybrids. Mag Lev trains. Wind turbines. Governments looking for technology to provide better energy solutions with lower environmental footprints. What a future! Expected good growth will result in good prices. A demand / supply that could only imbalance to favor us developer/operators. Well, what has changed? Nothing! Absolutely nothing! The fundamentals of the REO/technology space have not changed from year to year and from my view they are still the same. Repeat: The fundamentals for the REO space are still the same. So what has happened? The answer is timing. The projected growth (the Dudley graph) did not get the timing right.
I would like a dollar for every time I have been asked about what do you think the REO prices will do in the next year. As a developer I was never particularly interested in that question. It had no direct relevance to the project. What mattered to any project I was part of was what is the overall economics, the NPV, the value of the project when it started up and the subsequent years thereafter. That is, what is the price of the REO in 5 years time? Not now! And so what governs the price of REO in 5 years time? The fundamentals! And if the fundamentals haven’t changed then the business opportunity hasn’t changed. Is there any one out there who doesn’t think that the fundamentals presented by the need for hi-tech are not real? Well, I know you think you answer yes, but there must be a number of you who really do not believe. The most influential ones follow so read on and take note.
From their lack of action, governments do not believe the fundamentals of a hi-tech economy. They do not believe that their country needs a home grown hi-tech supply chain to solve the socio-economic questions of our near future. Because if they did, they would do something about it! They must see the situation the developers are in, yet there is no action. There are no loans. There are no tax breaks. They do not even acknowledge the situation. They cannot truly believe. Maybe in the US, another JFK “men on the moon” moment is needed! That does not seem likely. That would need another leader like JFK.
From their lack of funding, financiers do not believe the fundamentals of a hi-tech economy. They do not see profit in being part of the supply/demand development of hi-tech. Or perhaps they do not see the timing of that larger, long term profit versus the smaller, short term value they can achieve by using their money elsewhere.
I am no harbinger of doom but something has to change. And that change is all about leadership. And leadership can only come from those who can actually achieve something. Obviously, it is best coming from our Governments. It appears that their short term, next election horizon, will not allow an effective solution to be found.
So my lesson for 2016? What needs to change? If the likes of Apple, Tesla, Google, Microsoft etc. etc. want a long term future, they better think long and hard about supply chain.
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>