EDITOR: | November 10th, 2013 | 10 Comments

REE Index: An ‘undervalued’ rare earth market trends downward, but for how long?

| November 10, 2013 | 10 Comments
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It was March 2012 when we successfully launched an industry metric so that we could reliably evaluate the movement, trends and postulate on rare earth market forecasts with the REE Leaders Index (Bloomberg: REEL) through the London-based REE Stocks Company Ltd.  As we know, rare earth prices and market valuations based on resource calculations, which are based on rare earth prices; are questionably ‘artistic’ and deny extraction costs and end-user price agreements, so I question other sources and rely on the daily calculations of REEL — and can answer with more confidence of where are we really today?

2013-11-10-REEL-YRNumbers don’t lie and when it comes to the only rare earth index in the world  — the REE Leaders index, maintained and calculated daily by FTSE — the numbers are decidedly down. REEL, which tracks the average for the15 largest and most traded publicly owned global rare earth elements (REEs) companies outside of China and India, celebrated a high of 749 points on November 1, 2012 versus REEL’s all-time low on July 3rd at 322 points: it has been a wild and volatile ride for the industry and investors alike in a relatively short period of time.

Last week REEL Index slipped -0.028%; down 10 points, from 346 points (on November 1st) to 336 points (on November 8th’s close) — and in October, we were down 41 points, closing off the month at 353 points, down -10.40%. This said, while the numbers may be low, they may not be telling the whole story.

For starters, the fundamentals of the REE industry are strong, the Russians are investing a billion dollars into acquiring rare earths and the WTO’s recent verdict against Chinese Rare Earths export quotas underscores criticality of Sustainability. Our industry fundamentals haven’t changed since late 2010/early 2011 when the run up in virtually all REE stocks (I believe we clocked at 165% that year). Back then, it didn’t matter which REE stock investors bought. Anything and everything that remotely mentioned “rare earths” jumped in 100% multiples within a six-month period. It was like shooting fish in a barrel (a very small barrel with a lot of fish in it). The unsustainable performance and ridiculous returns were often based on minor drill results or an inferred resource estimate, coupled with China increasing REE tariffs and export restrictions. Shares in almost all REE companies blasted through the roof. Complex metallurgy, along with significant CAPEX and OPEX costs associated with these projects, were not fully realized, appreciated or even really understood at the time (and in a lot of cases CAPEX’s and OPEX’s were not yet known) — and well, I would argue they are still not. As one would expect, there was an eventual market ‘correction’ in the sector, which began in February 2011 and has continued ever since…

2013-11-10-REEL-6-MonthsBack to reality. We know that the higher-value critical rare earths are key in long-term, profitable REE projects going int o production. China, the world’s dominant source for all REEs, has a limited supply of the criticals and heavies (a 15-year supply remaining by some estimates) and is looking to tighten its resource-nationalization grasp on its own supply. And, rulings aside, the WTO and the rest of the world (ROW) may be powerless to stop them. The rest of the world needs a steady, stable and secure supply of HREEs for instance. That undeniable fact is not really up for dispute (although we can argue about specific forecasts for demand). There is also a lot of sentiment among those in the REE industry that the demand will increase sizably, when there is a definitive rest of world supply in place. Meaning, once China’s chokehold on the industry is loosened (slightly), demand will increase. The industry will create the market is a compelling argument on how the market will consume more REEs than it does presently — once the materials are proven to be readily available (again, a steady, stable and secure supply). And, of course, there’s also the need to address sustainability as common sense dictates that no one country (or countries) should be beholden to another single country for anything as this undoubtedly places us in a weakened state. With the importance and value in super critical materials needed for national defense and vital high-tech strategic applications, we do not need to look farther than the UN Iran nuclear discussions headlining the news today as a reminder that our global reality and economics may value these technology metals more than we may realize.

Now why do I know we matter? Well, on Thursday InvestorIntel was the target of another malicious hacker attack. This is our 2nd substantial attack and it is responsible for me not going to Hong Kong this week. I mean why would we be the recipient of such negative attention if what we were saying doesn’t matter?

2013-11-10-REEL-Month

London-based REE Stocks Company Ltd. is behind REE Leaders Index (Bloomberg ticker: REEL) — the world’s leading international REE index. The REEL Index serves as the headline indicator for the global REE equity market and represents the pressures that the industry itself has been under, but all the additional challenges that all resource markets have had to endure during the past two-plus years.

The 15 REE companies that comprise the REE Leaders Index are:

  • Molycorp, Inc. (NYSE: MCP)
  • Lynas Corp. (ASX: LYC | OTCQX: LYSDY)
  • Orbite Aluminae Inc. (TSX: ORT | OTCQX: EORBF)
  • Alkane Resources Ltd. (ASX: ALK | OTCQX: ANLKY)
  • Avalon Rare Metals Inc. (TSX: AVL | NYSE MKT: AVL)
  • Greenland Minerals & Energy Ltd. (ASX: GGG | OTCBB: GDLNF)
  • Great Western Minerals Group Ltd. (TSXV: GWG | OTCQX: GWMGF)
  • Focus Graphite Inc. (TSXV: FMS | OTCQX: FCSMF)
  • Rare Element Resources Ltd. (TSX: RES | NYSE MKT: REE)
  • Arafura Resources Ltd. (ASX: ARU)
  • Quest Rare Minerals Ltd. (TSX: QRM | NYSE MKT: QRM)
  • Peak Resources Ltd. (ASX: PEK)
  • Ucore Rare Metals Inc.  (TSXV: USU | OTCQX: UURAF)
  • Tasman Metals Ltd. (TSXV: TAS | NYSE MKT: TAS)
  • Stans Energy Corp. (TSXV: HRE | OTCQX: HREEF)

Tracy Weslosky

Editor:

Tracy Weslosky is the CEO of InvestorIntel Corp., a company that publishes InvestorIntel.com. A leading source for investors, entrepreneurs and industry leaders alike, InvestorIntel is ... <Read more about Tracy Weslosky>


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Comments

  • vacuum

    the technology metal tantalum (Ta) is named after Tantalus, who was made to stand in a pool of water beneath a fruit tree with low branches, with the fruit ever eluding his grasp, and the water always receding before he could take a drink. Investors might empathize.

    November 10, 2013 - 4:52 PM

  • Daniel McGroarty

    Never knew Tantalus was a junior miner.
    Now… As for Tracy’s keen-eyed piece, there does appear to be a dislocation in the (ROW) REE marketplace. REEL bears watching, Weslosky bears reading.

    November 11, 2013 - 6:11 AM

    • Ty Dinwoodie

      Undeniably, high-tech applications, defense, but also the exponentially growing sustainable energy (clean tech, green tech, electric vehicles, smart grids, etc., etc., etc.) industries will create a long-term and increasing demand for these critical materials. It’s seemingly impossible to deny the future need and demand for a ROW HREE supply chain (as Jack Lifton refers to it, a ‘Total Rare Earth Supply Chain’ or TRESC) — on multiple levels. Those REE projects (and I guess I’m emphasizing HERE projects at the moment) with the strongest project economics are critically important. It’s critically important that they go into production. Not just from a return-on-investment point of view (which is obviously a great thing too), but for the best interest of our respective economic growth and security. This is an important issue that we need to address. The more you look into this issue (the complex geopolitics, future supply/demand, sustainability, etc.), perhaps, the more passionate you too may very well become. I firmly believe these projects matter. Simply put, some must be built and go into production (with separation/refining). I agree with Tracy and personally think that the REEL Index indicates that the REE sector is undervalued and/or that the industry is positioned for a rebound.

      November 11, 2013 - 3:18 PM

  • Bill Keenes

    “Numbers don’t lie …. ”

    yes they do, especially when they are misrepresented as you have done

    you should have two separate indexes one for the lights and one for the heavies

    – LREE Leaders Index

    – HREE Leaders Index

    at the moment you are combining two completely different markets, each has different fundamentals, pricing and economics

    November 11, 2013 - 2:18 PM

    • Tracy Weslosky

      If this is a thank you – then your welcome. Otherwise, I would like you to invest in this sizable venture for the benefit of watching this industry. Let me add, it is not a simple HREE or LREE — as the top 7 critical materials include: BOTH. And yes, your welcome.

      November 11, 2013 - 3:33 PM

      • Bill Keenes

        It’s me that should be thanking you.

        Do you want debate on this site or don’t you?

        November 11, 2013 - 5:41 PM

        • u4eah

          – “Not Trying To Pick Sides Here” ; … but the whole REE space, despite the incredibly compelling story; has yet to deliver “The Happy Ending” ! …..and it is why we get cranky when the “REE Leaders Index”,(is that an oxymoron?), gets rubbed into our faces.
          – On a brighter note, I’ll add this; …”There is No conclusive evidence, that suggests to me; that the Need; …No make that the Criticality of certain REE, shall be reversed / or displaced, anytime soon” ! …not as long as civilizations continue to advance, at least. It is why I continue to remain invested in the REE space, for the longer term; in what I believe to be, the correct Picks !

          November 11, 2013 - 8:11 PM

        • Tracy Weslosky

          You state that REEL is a misrepresentation and I have disagreed with you and stated why.

          November 12, 2013 - 10:39 AM

  • REvestor

    REE’s are far more akin to industrial mineral markets than the commodity metals. There is no “build it and they will come” model that works in the industrial minerals industry as the output is just too specific. REE projects need to start with low cap-ex and small production, produce regular commercial product and gradually displace existing supply on the basis of quality, supply security or price. There are not many projects (on the leaders list or elsewhere) that can do that.

    November 11, 2013 - 6:00 PM

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