Rare Earths: What Is To Be Done?
What Is To Be Done? was the title of a pamphlet published by Lenin in 1902 which was intended to provide a road map for Russian Marxist revolutionaries. It was a seminal work and laid the groundwork for what lead to the 1917 revolution.
While that title could well be adopted for a consideration of the present situation in the rare earth sector, perhaps I should call mine How Did It Come To This? For those of us who have been following the rare earth for some time (I first began writing about the business in 1996), the rare earths sector was until recently a shining example of the promises of the future. Now it seems to be in survival mode.
Let me note early on in this post that I am not providing any sweeping solution. There is one idea I float below but, generally, what I am saying is that it is in the industry’s interests that something be done, and my suggestion is (I hope) one that could provide a good starting point. I write about all sections of the mining business, and none has seen the investment destruction that has occurred in REE.
Two developments have started me thinking we really need to stop and consider just where the rare earth sector is going. One of those was Jon Hykawy’s latest posting here on InvestorIntel; the other is the weekly chart of share price performance for InvestorIntel members (see below). Add to that the pasting that Lynas Corp took in Australia last week after announcing it was going to raise another A$40 million and the market performance by Molycorp. Lynas was today trading at A13.2c, a dismal look for a rare earth producer whose shares were worth around $2.25 back in the heady days of 2011. Molycorp, as reported by Alessandro Bruno on this site, has already taken a pounding on the NYSE. Then on Friday MCP lost another 66c to close at $3.05.
Looking at the chart below of last week’s action provides little comfort. Arafura Resources (ASX: ARU) was a stock selling at just A6.5c on Friday; this a company with a project highly regarded by some commentators. I won’t go through the list but you can see for yourselves from the chart the fact that rare earths is a sector deeply out of favour. Long gone are all the articles in the mainstream business media about REE except, of course, when something goes wrong or the market takes news badly (as it did last week with the Lynas capital raising announcement).
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If Jon Hykawy is right, then there are some trying times ahead. That he can even contemplate a potential scenario where “Molycorp and/or Lynas go bankrupt” says more about the malaise that we are in than just about anything. But it was the figures for certain elements that really shook me.
Take Praseodymium. It now seems astonishing that in 2011 it was worth $204,067/tonne. Last year Pr was worth 91,385/tonne. But look at what Jon sees for 2019: $70,178/tonne. His chart has similar patterns for all the rare earth elements. True, the forecast chart shows an uptick by 2025 but a minimal one and one that is a mere shadow of 2011 prices.
Perhaps the most encouraging fact we have is that, even with all this negative atmosphere, the rare earth companies have not given up. No quitters there.
Yes, I do have one suggestion. An industry organisation. Yes, it will take the rare earth companies to work together; and, yes, it will cost money that many of the explorers can ill-afford.
Let me cite two examples. And both relate to small sectors of the mining industry. The first exemplary example is ITRI, the International Tin Research Institute. It sends out weekly news bulletins, it helps organise tin conferences, its chief Peter Kettle travels widely talking about tin. It is an organisation to which small tin companies can look to promote their industry.
Then there’s the International Tungsten Industry Association. I have here an impressive book on tungsten produced by the ITIA, and glossy bulletins arrive in the post from time to time. Now tungsten has something in common with rare earths: its production is dominated by China and non-Chinese companies are trying to get footholds in this business. Also, interestingly, it has as supporters a raft of large Chinese companies; the Japanese and Germans are also well represented. Why could not this be a blueprint for the rare earth sector; after, Jack Lifton has argued that China will keep calling the REE shots, so see if we can work with them. It seems to work with tungsten.
Both these organisations have good websites that are real go-to sources for information about in and tungsten.
As I say, this could be a good starting point: you know that thing about “united we stand”. Something has to be done.
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