EDITOR: | January 28th, 2013

Rare Earths and Critical Minerals Weekly Review: a Dash of Molycorp and some Optimism

| January 28, 2013 | No Comments

DoDThe rare earths sector generated considerable speculation last week as Chinese statistics show that China produced much less rare earths than planned while Molycorp announced more disappointing sales numbers, prompting renewed speculation about its future and its potential as a takeover target. These developments occurred against a more optimistic overall backdrop as the United States started sending more optimistic economic signals based on three-year highs for new home sales and better than expected employment statistics. There was also optimism from Beijing, as one of its major economic research institutes predicted that China’s economy would grow at 8.4% in 2013, or 0.6% more than in 2012. The two largest economies, in other words, are exceeding expectations already and this suggests that optimism is warranted for the rare earths industry as well.

Last year China exported about 16,200 tons of rare earths ore far below its self imposed export quota of 30,966 tons and some 3.5 percent less when compared with the 2011 exports.  The drop is explained by a deliberate effort to reduce the supply of rare earths after decades of over-exploitation and production in an attempt to conserve resources and protect the environment. The drive for tougher environmental standards will be one of the main themes of the next Chinese ten year plan as the population at large has become more aware of pollution problems and is demanding measures to curb emissions of toxic waste in general. Indeed, the Chinese Commerce Department has set a far lower quota for the first batch of 2013 exports (15,501 tons) to be divided among 24 companies, which is divided in 24 companies. The rare earths industry is also being consolidated in a process that is also believed to vastly reduce the amount of illegal rare earth mining. The combination of economic recovery and tougher standards in China, the world’s largest supplier of rare earths, could generate a renewed interest in rare earth mining worldwide.

President Obama’s presidential inauguration speech, moreover, was adamant about the need to both protect American technology and resources while also accelerate the development of ‘green technology’, which relies on rare earths for technological advancement. Political tensions in the Middle East, meanwhile (showing no hint of respite) will help to boost oil prices, driving demand for non-fossil fuel energy resources even further with bullish effect on rare earth prices. A recovery of the housing sector and improving employment in the US combined with higher than expected growth in China should also help boost consumer confidence, especially in the automobile sector resulting in sustained demand for rare earths. That said, Molycorp stock, perhaps the largest potential supplier of rare earths outside of China continues its rollercoaster ride.

Last week, the stock tumbled to below USD$ 7 and then recovered slightly after announcing that its sales for the first half of 2013 should be  significantly lower than previously expected. The stock sagged sharply, even as the Company announced a capital increase. Molycorp (NYSE: MCP) announced a capitalization operation in order to finance the expansion of the Mountain Pass processing plant. ProEdgeWire made the case that Molycorp, despite the financial difficulties, may still have some potential left as a takeover target. Meanwhile, the German government signed an important agreement with Australia, which among other aspects included the deepening of cooperation on matters related to energy and commodity issues including rare earths. As Germany has decided – for the time being anyway – to give up nuclear power, it is very interested in developing ‘green tech’ alternatives that will necessarily require a variety of rare earths. Australia’s Lynas (ASX: LYC) is slated to become one of the leading rare-earths producers thanks to their recently launched REE processing plant in Malaysia. To this effect, the Lynas plant received some unexpected endorsements last week as Chinese officials visited the region of Kuantan (where the Lynas LAMP processing facility is located) to open a China-backed industrial park.

The Chinese facility is seen as a move to strengthen the (pro-Lynas) Barisan Nasional party’s re-election chances, which is good news for Lynas.  The Chinese government fourth highest ranked official Jia will formally launch the Malaysia-China Kuantan Industrial Park (MCKIP) on February 5 in with Prime Minister Datuk Seri Najib Razak. Polls in Malaysia have shown that most undecided voters are from the Chinese community and official Chinese endorsement for the BN might help the BN gain points at the ballot box.

The ProEdgeWire weekly stock index for Rare Earths and Critical metals sponsors showed a very steady market performance for the sector with just -0.62% difference with respect to the previous week. Some notable movers included TSX-listed Great Western Minerals Group (‘GWMG’, TSX: GWG, OTCQX: GWMGF) which announced that it started a 65-hole diamond-drilling programme at the Steenkampskraal monazite mine in South Africa. GWMG gained 20% over the past week. Ucore Rare Metals (TSXV: UCU; OTCQX: UURAF), which is developing a rare earth project in Alaska, announced that it plans to start building the actual mine by 2014 and start producing by 2016. Ucore expects to process 1,500 tons per day. Alaska is said to have some of the most prolific rare earths deposits in the United States. South of Alaska, in Canada, Pele Mountain Resources Inc. (‘Pele’, TSXV: GEM, OTCQX: GOLDF) saw a major gain on the Toronto Exchange, jumping 30%. Last week, the Company announced results from its recent drill program at the Eco Ridge Mine Rare Earths and Uranium Project at Elliot Lake, Ontario. Pele has published a Preliminary Economic Assessment for Eco Ridge that holds promise for the company to start producing rare earths and uranium oxide.

2013-1-28-REE-Stocks (2)


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