EDITOR: | January 8th, 2015 | 5 Comments

Rare Earths and Technology Metals – Was 2014 a Lost Year?

| January 08, 2015 | 5 Comments
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2014In a space in which there are too many “lost years” of late, we cannot deem 2014 as anything but yet another lost year, especially for the Rare Earth space. Let’s hope it will be the last of such periods. The first half was pretty good with many, including ourselves, calling a turn in fortunes but this was a more generalized improvement linked to a better vibe in the mining space in general. It was certainly not linked to price appreciation in Rare Earths or indeed, in any of the specialty metals. REE prices remained firmly stuck were they were with the Chinese sending out vibrations that didn’t give much hope for improvement either.

As the general mining sector’s mood slid back into pessimism in the second half so did that for the bulk of the Technology Metals, and almost universally for the REE stocks.

The School of Hard Knocks

Below can be seen the 2014 share price performance for the stocks in the Investorintel universe.

REE_table

There are few standouts with Niocorp, the Niobium developer being chief amongst them. We might note that the company was an early exiter from the REE space, but curiously was able to do it because its property was also a Niobium deposit. There may be a lesson in that for those amongst the remaining REE players who also have other metals either in their portfolio of assets or within their main deposit. This includes many of the names in our list.

We suspect that the coming year will see more companies joining Niocorp and Avalon in repositioning away from REEs. This will make life easier for those that persevere as it will narrow the field of targets for acquirers and hopefully trigger offtakers to finally consummate some marriages (even if only marriages of convenience). We would note that the Japanese were early adopters of REE offtake relationships and then shied away when they discovered that so many of the first wave of REE players were mere fakers with flapping gums. The companies that have persisted and reached PFS and pilot plant status will present themselves as more credible partners for those REE end-users becoming ever warier of Chinese intentions. With equity markets not likely to be in conditions to fund major plant builds over the coming year (even though we do forecast generally better market conditions), it is vital that deep-pocketed parties with a vested interest in a secure REE secure their supply lines by funding the construction phase of an advanced project.

Molycorp – Extreme Makeover Required

This company is in need of a personal trainer and the type of transformation required reminds us of the US television program Extreme Makeover. The wakeup call (if those already made were not enough) should have been the NYSE putting the company on notice in recent weeks for a listing review due to its stock price being stubbornly under the $1 mark. The inevitability of some sort of change in the company’s listing status gives a good opportunity for the initiation of an Extreme Makeover to freshen up the tarnished image of this stock. First step would be a name change. This is something like five years overdue. Changing to Neomaterials would be a good first step in repositioning the company. If the delisting threat becomes any more real then consideration needs to be given to an alternative listing venue and/or a stock consolidation.

However, this company needs more than the merely cosmetic. As we recently commented on Tasman Metals some sort of combine of Silmet with a holder of a Scandinavian (potential) production would give synergies for all concerned. Closer to home, Molycorp has long been criticized for lacking a North American rare earth asset that was weighted towards the heavy Rare Earths. It has repeatedly failed to pick up the ball by making a move on relatively cheap situations like Texas Rare Earth Resources or UCore.

Thinking of the broader market it is hard to think of a sector (or sub-sector if talking of REEs) where the doyens of the space (Molycorp and Lynas) make up such a disappointing spectacle. Both have spent the last year pretty much marking time, fighting financial brushfires and praying that REE prices might take off. As we have noted, the latter is a big imponderable, and certainly highly unlikely for Cerium and Lanthanum. The way these two have remain wedded to these two product lines reminds us of a horse & buggy dealer claiming “these automobile contraptions will never amount to anything”. They should take care to hear the words of the poet Rilke, “Du mußt dein Leben ändern”.

Conclusion

The best way to sum up 2014 would be to call it the “Year of the Metallurgy” with most companies in this space serving up new, old or tweaked technologies to the market place, frequently bandying around the “disruptive technology” buzzword. Frankly there is nothing to disrupt here as there is NOT a REE Establishment to ruffle the feathers of. We scarcely count Molycorp and Lynas as some sort of entrenched aristocracy afraid of disruptive REE peasants waving sharpened technological advances at them.

Heads_on_pikes

In another piece here we described 2015 as potentially the “Year of the Manager” but were referring mainly to existing producers showing (or not) that they can manage static price environments without losing their shirts (or their heads). We would nuance that in the Technology Metals space and refer to 2015 as the “Year of the Doer”. Those companies that, in one year from now, are not substantially on the road to construction or production (and that excludes having merely a pile of blueprints) might as well send their CVs to McDonalds and take up flipping burgers.

Gentlemen, you have twelve months… on your marks, ready.. set…


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Comments

  • Tracy Weslosky

    Thank you Christopher. I was going to publish these numbers on InvestorIntelReport only — but in lieu of all of the upset emails from shareholders we have been received lately, decided that we should share with people how much the whole sector was down last year. I mean I find it incomprehensible how many companies not only in the REE and TM sector are trading at substantial discount, but in the resource sector overall. Companies like Alkane Resources continues to achieve major benchmarks + revenue from gold production, Frontier Rare Earths has stayed on track and has nearly 30mm in the bank….Northern Minerals rose to #3 in market cap for the sector (story on this is forthcoming for the whole sector) — US Rare Earths has just been approved towards listing on NASD based on review of their public filings…lest I not forget the great teamwork at Ucore with the state of Alaska towards financing their project — Largo (vanadium) went into production….Hastings had an oversubscribed PP just before the holidays….Peak and their deal with Appian — Rare Element Resources new advanced technology process…and didnt Hykawy just recommend Arafura? — Eric Noyrez just joined the Board for Texas Rare Earth Resources?!

    I would argue that yes — it was a great year: just not for my portfolio bottom-line. Thank you as always Christopher! PS. GeoMegA was another exceptional mover last year in addition to Niocorp — look forward to updating everyone this month….

    January 8, 2015 - 7:09 AM

  • Mr.Jimmy

    “PS. GeoMegA was another exceptional mover last year in addition to Niocorp — look forward to updating everyone this month”

    I look forward to your interview with GMA Tracy. It appears Simon and team are onto something big which should come to light very shortly. A black swan for the industry perhaps? We’ll soon find out.

    Cheers……Mr.J

    P.s Nice new avatar Trace.

    January 8, 2015 - 10:30 AM

  • Michael Roat

    One question. Why is the cyclicality of the rare earth industry continuously ignored? Once prices stop falling and begin rising companies will restock in mass just as they’ve proven before. Price volatility is a fact of the rare earth industry. Current prices can triple in a short period of time when the industry recovers and it will be driven by restocking. Everything is hand to mouth at the moment. All the bad news such as lifting of the tariffs or new production is already priced in to Molycorp’s stock and it will be offset through government intervention in China including crackdowns on illegal production, higher taxes, and national stockpiling. I believe 2015 is going to be a great year for rare earth prices. In essence, I believe Chinese prices (soon to be the only prices) will rise above current international prices. Prices may fall slightly when the tariffs are lifted if the resource tax isn’t enough to directly offset, although then prices will have reached an absolute minimum and companies will restock. The uncertainty will be gone.

    January 8, 2015 - 1:10 PM

  • Jack****

    Changing the name of Molycorp back to Neomaterials is a good idea, it reflects who runs the company.
    Could Mr. Ecclestone please explain where a cash-strapped company like Molycorp would find the money to purchase other rare earth assets? Wouldn’t it make more sense to sell off some non-core (i.e. non rare earth) businesses to raise some cash?

    January 13, 2015 - 11:05 AM

  • Christopher Ecclestone

    Molycorp should use stock… I wouldn’t suggest cash.. not even a dollar should change hands…

    The potential targets are somewhat putty in its hands as they too are down and out…They might baulk at MCP’s beaten down stock price, but that would just be the pot calling the kettle black!

    January 13, 2015 - 11:15 AM

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