Arafura takes the trouble to explain rare earths today
Time for stocktaking in the rare earth space, time for pausing for a moment to consider just where we are. This is important as the cascading information makes it hard for all but industry insiders to keep pace.
Recently the annual report of Arafura Resources (ASX:ARU) was posted on InvestorIntel. How many people read it? If you didn’t, then you cannot be blamed: the art of writing annual reports has faded in recent years, and many contain nothing more than a recitation of the year’s work and all the required financial statements. Largely annual reports, so far as the general reader is concerned, are not worth the trouble and time.
Years ago financial journalists made a point of reading annual reports because many of them contained comments by either the chairman or the chief executive that were newsworthy. Annual report comments were a regular staple of reporting in the financial pages. No longer.
Yet Arafura’s chairman Ian Kowalick in his comments in the annual report made some sensible and informative comments which, given the varying degrees of understanding of rare earths by investors and financial journalists, might have proved instructive to reprint. The report also includes a very useful update on the REE market which is worth reading by InvestorIntel followers – and worth putting in the files for future reference. This is especially as I can find no mainstream media financial sections that even noticed them.
Ian Kowalick makes one very interesting point, especially as several companies (including his own) for some years maintained it as the guide to the specific company’s value. But he says that the traditional notion of the “basket of REE” is now less relevant as rare earth suppliers and users outside of China become more sophisticated, and investors gain a better understanding of the market segments of each of the rare earth elements.
(Yes, of course: haven’t we started talking about neodymium and praseodymium and the magnet business, almost it seems to the exclusion of any of the others? But few people have actually spelled it out as well as has Kowalick.)
He then goes to make this point: It is becoming important for REE companies to highlight the specific elements from which they to expect to derive most value.
This is especially the case with Nd and Pr: they now comprise 59% of the overall value of the global rare earths market. “With demand for permanent magnets forecast to grow by 10% annually over the next decade, security of supply of NdPr will become increasingly important, particularly as structural changes take place in China and market participants look to lock in secure alternative REE sources,” he adds.
He claims Arafura is founded on “one of the best” resources of neodymium and praseodymium. He argues, too, that its location in the Northern Territory of Australia is a low risk place to be.
Yes, I can hear many readers say “we know all that”. But my point is that this is the sort of information the general financial press should be publishing but, so far as I can see, is not.
Last week this item appeared on Australian radio, the network owned by the Australian Broadcasting Corporation and which covers the entire continent. The segment in The World Today program went like this:
CLINT JASPER: The 17 chemical elements that make up the rare earths group can actually be found in small amounts all over the world. So while they aren’t exactly rare – some of their applications are pretty exciting.
(Beeping of car staring up)
ELECTRIC CAR SALESMAN: So that is the sound of the Leaf started.
CLINT JASPER: So as we can hear, there is no sound…
Take electric and hybrid cars for example: they use about 13 kilograms of rare earths – cerium is used to polish the glass, europium and yttrium are used in the LCD screen, and lanthanum’s a key component of rechargeable batteries.
But most importantly, for the miners of these elements, are the ones that make magnets: neodymium, praseodymium, and dysprosium – these are used in the engine’s traction motor.
But despite this. it’s pretty rare to find anyone who actually knows about them – even the guy who sells electric car.
Here we are, four years on from the great rare earth craze, and this is the level of sophistication we are faced with. And that makes the comments offered by Arafura so important yet, of course, so largely ignored except by those who follow the company.
The annual report is posted here on InvestorIntel. If you look in the Operations Review, there is a very handy summary of the rare earths market. There are some useful up to date Chinese export figures worth filing.
Thanks, Arafura, for keeping alive the reason to read annual reports. More companies should follow your example.
Go back and read the report.