EDITOR: | December 18th, 2015 | 5 Comments

Rare Earths 2015 – Lessons for 2016

| December 18, 2015 | 5 Comments
image_pdfimage_print

Budget 2016 Torn Paper ConceptAt 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.

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.


Steve Mackowski

Editor:

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>


Copyright © 2016 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • Robert Richardson

    Thank you Steve. As a long-suffering Lynas investor for the past 6 years or so, while its still hard to see real light at the end of the tunnel, I and other LT investor colleagues remain confident that these materials will be increasingly vital to our rapidly evolving high technology future. And I genuinely hope that our new PM is really serious about supporting Australian innovation and related businesses, because there are many great ideas out there!

    December 19, 2015 - 10:21 PM

  • Ann Bridges

    Steve, I agree with you wholeheartedly, which is why I tried a different tack–bringing awareness to the populous to make it part of the political/governmental agenda via fiction in “Rare Mettle”. No self-respecting hi-tech firm will admit publicly they may not have a consistent supply chain–it might hurt their stock price. No Wall Street investor wants to publicly crow about that risk and invest in a long-term answer–where’s the short-term ROI?

    Anyone want to join with me to get the word out to business media as the most underreported story of the year? Or to the political journalists looking for the next, big story to stump the candidates? We need a Jurassic Park-type platform to raise the cry that the next-gen cell phones and electric cars will be a L-O-O-O-N-G time coming if we don’t all come together with a sustainable solution.

    Isn’t sustainability the buzzword of the moment? Why can’t we make it stick on this topic? Maybe we need to get to the millenials and let them make it go viral before their favorite gadgets go dark…

    December 21, 2015 - 9:40 AM

  • Tracy Weslosky

    Thanks Steve. We are all big supporters of ALKANE here at InvestorIntel. For starters they just announced that the Dubbo Zirconia Project Mining Lease was granted today http://bit.ly/1ZkhrsO — and Professor Kingsnorth on the ‘Real State’ of the Global Rare Earth Market, seems to agree with you on several fronts: http://bit.ly/1J28qjX

    Happy holidays, as we have loved your columns on InvestorIntel this year – thank you!

    December 21, 2015 - 1:41 PM

  • shankar vishwanath

    Hi Steve, good read. Do you feel that the past years, till VW got exposed, has been predominantly driven by corporate greed and hence, the tendency to buy cheapest, at any cost! The intent has not been to lock away ethical supply chain, although they could have, and perhaps should have. My belief is that 2016 will see the rise of a few producers (not a lot of producers out there today), more consolidation and businesses hopefully focusing on good sustainable production plans. love to hear more as this industry is now a key driver of the future global initiatives.
    Shankar

    December 21, 2015 - 3:49 PM

  • Steve Mackowski

    Shankar,
    I think the world is a complicated enough place to manage the honest people. Criminal activity will always find a way, or lets be sympathetic, easier cheaper ways are unfortunately always there, even though they may border on environmental or safety unacceptability.
    Better to be proactive and lets all do what we can do in a manner that we are proud of. That our kids can be proud of.

    December 30, 2015 - 3:33 AM

Leave a Reply

Your email address will not be published. Required fields are marked *