In analysis published Wednesday, Hallgarten & Company’s Christopher Ecclestone suggests, “The storm of the last two years has winnowed the wheat from the chaff (largely) in the REE space.”
“The two bulk producers managed to get into production after a titanic struggle and have been rewarded for their perseverance with relatively lowly market caps,” he noted, adding that the fact Lynas and Molycorp have started churning out light rare earths products “are undermining Chinese dominance in some metals.”
Meanwhile, “Tensions between Japan and China over disputed islands may yet be the touchpaper to set REEs and other specialty metals alight,” he speculated.
Nevertheless, Ecclestone suggested that “the behemoth properties with gargantuan capex budgets have gone the way of the brontosaurus. Only Lynas and Molycorp have got away with the creation of mega-mines/complexes and they have paid the price in valuation for such ambitions.”
Hallgarten remains bullish “on virtually all the rare earths, except for the ubiquitous Lanthanum and Cerium,” he observed. “These two really spoil the mix and the onset of production from Molycorp and Lynas, which are both biased to these two elements, has made the price appreciation prospects for them look grim and put the lid on any and all projects that are overly weighted towards these ‘mass-market’ metals.”
“The mantra now is ‘small is beautiful,’” he stressed. ‘Those with bloated capex and NOT advanced into production are destined to, as the Bard put it, spend ‘all the voyages of their life bound in shallows and miseries.’”
“The more serious of the juniors have spent their dark days of 2012 and 2013 conserving cash, moving production studies forward and tweaking their business model and industrial/processing aspirations,” he noted, adding “pure explorers can be discarded at this point.”
“The nadir of the sector is now past,” Ecclestone proclaimed. “Financing will not be easy to get but super-focused projects should get the most traction with those investors wanting to take a strategic position in a sector that is more beaten down than most.”
“The most foolish thing to do at this point would be to bet on a large market cap name thinking that this signifies some sort of superior survivability,” he counseled. “The devil is in the details and stakes should only be taken in those names that can cogently show a path to affordable (and profitable) production.”
In his analysis, Ecclestone asserted that UCore Rare Metals’ highly political strategy is paying off in garnering support from local politicians, state government and Alaska’s U.S. senators. “In this respect it is following in the steps of Molycorp and enhancing upon that approach,” he said.
Meanwhile, Tasman Metals has taken the opportunity of the relative strength of graphite to merge with Flinders Resources “to corral all the cash into one place and run with two projects at once in the same country. This is an admirable facing of reality,” said Ecclestone. “Eventually the cashflow from graphite start-up (which is near to production) will get the REE project onto its feet.
Texas Rare Earth has downscaled its project into a REE/Fluorspar and Beryllium project with a much smaller capex. “This was the quintessential example of right sizing coming into play,” Ecclestone observed.
Alkane Resources has never strayed from promoting its Dubbo Project as a Zirconium mine, with MEE and other mineralization (primarily Ferro-Niobium) as icing on the cake, he noted. “This strategy has managed to put it ahead of all the other wannabe producers and over the hurdle into the production space.”
Ecclestone also expressed dismay that Great Western Minerals “is still flapping around at the feasibility level rather than actually trucking out product. …We certainly hope the new crowd hasn’t slipped into consultantaphilia which involves vast monies going for reports as an excuse for not actually moving things forward.”
“This mine is NOT rocket-science,” he declared.
iPad Version: Picture – A monument, which reads: Home of rare earths welcomes you, stands in a field of wind turbines near the town of Damao in China’s Inner Mongolia Autonomous Region: REUTERS/David Gray