Broker: another supply estimate, nod to Alkane

Everyone these days has just about written off the light rare earths. Well, if not writing them off, then being very dismissive about the chances of anyone making much money out of them. Petra Capital of Sydney disagrees. “Light rare earths are correcting but remain attractive,” the brokerage argues in its latest report of emerging Australian producer, Alkane Resources (ASX:ALK).

Its other headlines:

* Heavy rare earth prices remain very strong;

* Global demand to rise by 8 per cent to stand at 175,000 tonnes by 2015;

* Deficits likely for heavy rare earth elements in 2015;

* Light rare earths may come into balance by 2015.

That last one is at odds with other forecasts, which see cerium and lanthanum as already moving into balance and heading for surplus, or doing so by 2013 at latest. Interestingly, Petra’s price forecasts – an average of $US35/kg for lights and $US70/kg for heavies – are very conservative when contrasted with current prices of $US101/kg and $US377/kh respectively, but it nevertheless is very bullish about Alkane and its Dubbo project in New South Wales.

Petra indicates a net present value on Alkane of $A4.86 a share, compared to Friday’s close at A$0.94. The valuation includes, of course, Alkane’s gold projects in NSW. But it likes the stock because 70 per cent of the Dubbo deposit comprises heavy rare earths, some 60 per cent of Dubbo’s overall production will consist of zirconium and niobium (metals that will provide a hedge against any fall in REE prices), and because Alkane has done its project estimates based on REE prices well below present levels and even Petra’s conservative forecasts.

The Petra report is also useful because it gives us a snapshot of where REE prices stood as of November 21 ($US per kg) and its forecasts of deficit/surplus size in 2015:

                                        Present Price                     2015 balance (tonnes)

Lanthanum                         65                                         6,500

Cerium                                 55                                       12,300

Praseodymium                   210                                     1,750

Neodymium                         240                                     (2,400)

Samarium                             90                                         2,750

Europium                         3,800                                       (250)

Gadolinium                         135                                             500

Terbium                             2,820                                      (125)

Dysprosium                         2,020                                   (325)

Erbium                                 n/a                                         (450)

Yttrium                               130                                       (1,550)

(Apologies for the columns not being straight – but they are readable