October 06, 2009
Over the years we have prided ourselves with being able to get our investors into new investing ideas early. One sector that has caught our eye as of late is that of the rare earth elements which has caught fire. After evaluating the sector and dabbling in it with a few trades here and there while conducting our original research we decided it was an opportunity too good not to share with our readers.
A few years ago we were early on the uranium bandwagon. So early in fact, that there really was not any information out there available to the public for free. When we caught wind of the REE idea a few months back in mid-summer the available information was much the same, very little. Since then there has been an explosion of interest in the sector as well as a flurry of information.
We have had months to sit back and evaluate the companies claiming to be rare earth element developers/explorers as well as the prospects behind the initial thesis. Our bet is that this sector can deliver tremendous profits to investors over the next two years and that we will also find out that there are far more REE deposits than current logic affords. That is in the future and in the present we figure that we can educate and help our readers rummage through the sector and pick out some winners.
REEs are not “rare” at all, in fact they are quite common. The only problem with them is that they are not currently found in many places around the world in mineable deposit form. You can find them in many places around the world, however mining them is another story. You can find REEs as by-products to other metals and our guess is that this will be a growing trend in exploration in the future; that is multi-target exploration projects yielding a primary target with REEs being the by-product.
Now although REEs are not truly rare, they are currently in short supply. China, the world’s leading REE supplier with somewhere between 95-97% of the world’s mined REEs , has recently announced that they are cutting back on their exports in order to use that output for production of end products in China. This is what has lit a fire under the industry and highlighted the industry on a geopolitical level. Since that announcement Australia has blocked a deal where the Chinese where going to buy a 51% controlling interest in Australian miner Lynas (LYC.AX). It seems that the world has finally awaken to the Chinese dominance in this strategic field and begun to block their attempts to consolidate the industry further.
China is the wildcard here because they can cut and increase supply as they please, however we believe that Australia, Canada, the western United States and West Africa offer some very promising plays in the REE field. There are other areas of the world which offer solid deposits containing REEs as by-products but they do not represent a geographical region, they are scattered throughout. Australia seems intent upon protecting their REE companies, to the short-term detriment of Lynas shareholders we should note, and Canada will probably take the same route when they must face that issue. The Americans already have with Mountain Pass a few years ago when they kept it out of Chinese hands, but that was luck rather than intent.
When it comes to the end market for REEs, one need not venture far to find a product which they are located in. The very computer you are reading this off of has them, your flat screen television, hybrid car, many new tech batteries, windmills, nuclear power plants and a litany of other products. The market is growing quickly for these raw materials, and it should continue to grow (possibly at growth rate higher than the current one) as the current products grow in popularity and as researchers find new uses for these materials.
We have already mentioned Lynas, the Australian company trying to bring a world-class REE project online, which after their fundraising will have somewhere around 1.7 billion shares outstanding. For that reason we are staying away from the stock for the time being until we can get a grip on volume and the prospects after the capital raising (we would hope to see institutions buying many shares, which has already happened to an extent). Another company which has been on a run as of late is Quest Uranium (QUC.V), which was a uranium company which by chance had some REE properties. We imagine there will be a name change to take the emphasis off of uranium, as the company has the Strange Lake and Misery Lake Projects, with the focus being on Strange Lake. The company’s stock has been enfuego, partly due to certain newsletter writers pumping the company and the fact that they just have a great project in Strange Lake. The company has 33+ million shares outstanding and a market cap of roughly 124 million dollars (C$) according to figures from the Toronto Stock Exchange website.
Avalon Rare Metals Inc. is a world-class explorer with its Thor Lake Rare Earth Project with an NI 43-101 Compliant Resource for the project from January 2007. Investor’s need to know that the company is changing the name of the Lake Zone REE Deposit within Thor Lake to the Nechalacho REE Deposit by the Yellowknives Dene First Nation. This is obviously to gain favor with the local tribe, which we imagine will pay off in the future when they need to get approval for either further drilling or mining or one of the many other issues that arises when attempting to develop a deposit/project. This company has 70+ million shares outstanding and has a market cap just under 250 million dollars (C$) according to the Toronto Stock Exchange website.
In the next few days we will be posting an article we have been working on that further describes this exciting new industry as well as our first recommendation for our readers. The company is undiscovered, undervalued, well financed and has 300+ million lbs of RREs in a deposit which seems to be open to further mineralization. The deposit has been drill tested and this seems to back up all the historic work as well, so this could be an opportunity to get in on the ground floor.