Rare Earths and Technology Metals – Was 2014 a Lost Year?
In 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.
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.
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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”.
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.
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…
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>