Technology Metals Monthly – When will Hell freeze over?
What a month June 2016 has turned out to be. Faced with a prediction about the Rare Earths market, I think I would prefer to try to predict “When will Hell freeze over”. We have Brexit stalling any confidence in Europe, we have Trump/Clinton doing the same in North America and just this last weekend we have Australia’s business sector grinding to an unglamorous halt in the light of a National election that will prevent any market improvement for at least another three years. Who would be an analyst or commentator (in bad times that is). So let’s go through the process.
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The Chinese stockpiling of rare earths didn’t have much of a positive price effect as was wished for (by non-Chinese commentators).
They say “No news is good news”, but in the REO space, no news is exactly that. Nothing to show an improvement to fundamentals, to company technology progress, to any significant project development news. Nothing to say about news. But the Brexit, US and Australian elections does allow me to comment on what won’t be happening in the near to medium term. That is financing. I cannot see any risk money from Europe going into REO until Brexit, and indeed, the European Union (now challenged) is sorted through. I cannot see any risk money going into North American REO project development until there is a new strategic agenda incorporating REO. And since neither Trump or Clinton are even remotely on board here, does that mean at least until two terms are over? Australia – will have immense difficulty to get any new mining project approved since the chaos this weekend’s result brings puts all NGOs into a more positive position. Only one bright light is Alkane if it can maintain it’s forward momentum. That leaves Africa and Peak Resources. The financing model will decide that question.
In this series of comments, I have continually stressed that the financing of the project will be the key to development. Given recent events that looks increasingly troublesome and worrying. That is if you stick to Economics 101 with it’s historic view on risk : reward. The metals market has never seen such a dis-jointed scenario with pressures un-imaginable in a cauldron of political maelstrom.
Which way do we go? Well, as a start, imagine you are the off-taker. What do you want and what are you prepared to pay? Now realise that you are the developer faced with and understanding the off-takers position. You are not exactly in a position of strength here. The old question of what do I want may be better changed to what am I prepared to give away. How do I satisfy my shareholders? Well, the key is realising what your shareholders are prepared to accept. Remember, a project that never gets up is worth nothing. So what is your shareholder prepared to accept. Start there and work forwards to generate a financing model, that meets the needs of all, both now, into the future and for the life of the project. Sounds easy? It isn’t. But it can be done. Those that sort the issue through and develop the right model will have satisfied shareholders, a guaranteed off-take and all the financing you need to develop and operate a very successful business.
Sorry, I have no news out of China this month. I am thinking that the powers that be are looking at Brexit, Europe and the technology metals world in general and assessing the five-year planning process. See you next month.
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>