There are still literally dozens of graphite juniors in existence and for any of them to survive and prosper, they must demonstrate to the marketplace that they can produce a product that end users want at a price that allows juniors to generate positive cash flow. Northern Graphite and Flinders face their own challenges, but they are two primary examples of companies that have proven their staying power in the graphite space.
TMR: In his recent interview with The Metals Report, Alex Knox said, “I see a dramatic need for development of heavy rare earth element (HREE) deposits in the Western world, now that China’s crackdown on illegal mining has presumably cut into its production of HREEs.” Do you agree that shifting politics in China will lead to an increased interest in HREEs in North America?
CB: Interest in HREE deposits in North America is still quite strong. In fact, you could make a compelling argument that investors have completely disregarded light rare earth element (LREE)-dominated deposits in favor of the rarer and more valuable HREEs. This is likely a mistake, though, as there are still substantial end markets for products that require LREEs.
Investors and politicians alike have become much more educated about the import dependence issues we have in North America regarding access to REEs and their necessity for domestic supply chains. The real challenge that exists today is the same that existed before REEs became a household name in 2009: successfully exploration, discovery, development and commercial production of a deposit on North American soil. The capital expenditure numbers and metallurgical challenges associated with some projects have combined with the relative scarcity of capital today in the junior space to bring us no closer to solving this problem. However, companies like Quest Rare Minerals Ltd. (QRM:TSX; QRM:NYSE.MKT) and Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) have been able to successfully raise capital in recent months.
It’s true that China appears to be taking steps to consolidate its REE industry, but those changes will benefit China first, no matter what the World Trade Organization (WTO) tries to do.
China is pushing forward aggressively with its own technological development as urbanization continues, albeit at a slower pace than in recent years. China’s old export-led growth model utilizing low-cost labor is changing—and it must. The new model that emerges will focus more on the consumer who will demand a higher quality of life through increased disposable income among other metrics. REEs will play a crucial role in this development and this foretells a tightness of supplies of most types of REEs in the future. If you believe this thesis as I do, then yes—Mr. Knox is absolutely correct.
TMR: Rare earth prices show signs of improvement, and even mining stocks are showing signs of life. For example, Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE) climbed over 25% this month, up $0.17; Medallion Resources Ltd. (MDL:TSX.V; MLLOF:OTCQX; MRD:FSE) climbed to $0.40 from below $0.10 in May. Do these price movements signal a meaningful shift in market dynamics?
CB: As China moves to clean up the environment and reign in illegal mining, this will eventually help put a floor under REE prices. The global economic slowdown is also compounding efforts at an REE revival of sorts, and so I really do not see any shift in market dynamics at this point. That said, companies in the REE space that can achieve positive catalysts should reap share price gains and Medallion Resources and Tasman are two such examples.
Medallion recently raised capital and has entered into two agreements with institutions based in Jordan and Oman to jointly research ways to construct a monazite heavy mineral sands processing facility. The company continues to execute its strategy of constructing a supply chain focused on low-cost production of REEs and the share price has responded. Medallion offers a much different take on investing in early-stage REE companies—one that I have liked for some time.
Tasman, which I visited recently, has received its mining lease at Norra Karr that will be in effect for 25 years. The company also recently received a permit for test mining on site. This will allow the company to further the metallurgical studies and get a handle on potential costs. Additionally, Tasman received funding from the European Commission through the EURARE project to conduct processing and metallurgical research on Norra Karr and another Tasman project known as Olserum. There were apparently only four projects selected for funding here, so acknowledgement of these projects’ significance is a positive long-term catalyst for Tasman.
TMR: Avalon Rare Metals Inc. (AVL:TSX; AVL:NYSE; AVARF:OTCQX) is seeking funding for Canada’s first REE mine. Do you believe Canada is the next big REE frontier?
CB: Not necessarily. The advantages that Canada has are undeniable including the rule of law, and clarity of the permitting process, but a number of other deposits in other jurisdictions like Africa are making well-deserved headlines lately, including Namibia Rare Earths Inc. (NRE:TSX, NMREF:OTCQX). Namibia has quietly pushed forward with exploration of the Lofdal deposit and recently was able to show that it can produce an attractive HREE concentrate there.
We’ve known for some time that REE deposits are not “rare” at all. What is rare is the ability to find economic deposits in reliable geopolitical jurisdictions with sound metallurgy. There are a number of countries throughout the world where this could be the case, but Canada is certainly near the top of that list.
TMR: Chris, thank you so much for speaking with us.
CB: It’s my pleasure.
Chris Berry, with a lifelong interest in geopolitics and the financial issues that emerge from these relationships, founded House Mountain Partners in 2010. The firm focuses on the evolving geopolitical relationship between emerging and developed economies, the commodity space and junior mining and resource stocks positioned to benefit from this phenomenon. Berry holds a Master of Business Administration in finance with an international focus from Fordham University, and a Bachelor of Arts in international studies from the Virginia Military Institute.
1) Alec Gimurtu conducted this interview for The Metals Report and provides services to The Metals Reportas an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
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