EDITOR: | May 13th, 2013

The Pulse: TUC beats path to China; Tin becoming more critical; Mitsui boosts hydro portfolio

| May 13, 2013 | No Comments
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Pulse_FinalMr Market seems to have decided that a jilted heavy rare earth explorer might be worth another look.

After its battering last week (down 30.4% on Thursday, down a further 4% on Friday and no trading Monday), TUC Resources (ASX:TUC) bounced 13.2% after the Australian market opened Tuesday morning to hit A6c.

No further announcement has been made since TUC reported on Thursday that Shandong Provincial Bureau of Geology and Mineral Resources had shelved the memorandum-of-understanding that would have seen A$19 million invested in the junior’s projects which have good yttrium, dysprosium and erbium content.

However, on Tuesday morning also Sydney analyst Haris Khaliqi at Foster Stockbroking released a note revealing that TUC management is off to China to seek clarification from Shandong.

Moreover, Khaliqi has some reassuring words about the company’s projects. “We don’t believe their (Shandong’s) decision reflects the merits of the project but rather continues to highlight the difficulties of consummating alliances with Chinese state-owned entities and the credibility of their proposals,” he says in today’s note. Furthermore, the analyst believes the language used in the letter – where Shandong states it is hopeful about re-opening the MoU in the “not too distant future” – leaves the door open for reinstatement of the deal.

As the analyst points out, Shandong completed its due diligence on the project last month. If that due diligence had been unsatisfactory, then surely the Chinese would have made some reference to that eventuality. For them to leave the door open suggests that the due diligence did not throw up anything untoward.

However, in the meantime, TUC is seen by Foster Stockbroking as being in a ‘precarious situation’ as its cash position is running low, with about A$1 million in the bank. Foster has downgraded its recommendation from ’speculative buy’ to ’hold’. Its price target for the stock has been reduced from 25c to 10c.

The cash position is certainly something about which to be concerned. And it will affect all Australian rare earth projects that have not yet got substantial financing in place. It is not just REE: the whole junior exploration sector in Australia is finding it difficult to raise new money, and the Australian Securities Exchange is now in the process of writing to exploration companies considered to have inadequate finance to judge whether they should continue to be listed.

CRITICAL METALS: This column has been pushing the notion that tin should be seen as a critical metal, not only because it is vital to electronics – tin solder – and packaged food – tinplate lining food cans – but because there’s a supply crunch looming.

London-based Macquarie Capital is the latest in what is still a short queue of analysts who have woken up to the looming shortage of this metal.

They point out that the top three producers who between them account for 80% of tin produced all have something in common: the output of mines in Indonesia, Peru and China has flat-lined in recent years. In Indonesia’s case, Macquarie sees the recent increase in Indonesia exports as caused by de-stocking of inventories, but the April export figure – if annualised – represents a 13% fall this year. In addition, from July Indonesia is imposing new standards for tin exports, imposing higher purity and less lead content. Many smaller producers are expected to be unable to meet the new standard, which could lead to a sharp fall in Indonesian exports.

China’s output fell 3% last year and, in Peru, the world’s largest tin mine (San Rafael) is seeing production falling sharply as it moves to exhaustion and closure by 2017.

Says Macquarie: “There are no known tin mine start-ups or expansions of any significance this year and stocks are quite limited outside of China.”

GREEN ENERGY: Mitsui & Co is spending 70 billion yen ($690 million) to by a stake in a large-scale hydroelectric development in Brazil. The Jirau hydro station will be located on the Madeira River, a huge system that rises in the Andes and eventually joins the Amazon. The station will have 50 turbines with total generating capacity of 3,750 megawatts.


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