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