Brokers assess Lynas, Molycorp, Peak, Namibia RE, Tertiary

There is a growing number of brokers following the rare earths and rare metals space. From London, Libertas Partners seem to be well across the subject.

“Another set of splendid drill results” is how they report progress by Australia’s Peak Resources (ASX:PEK) at its Ngualla rare earth project in Tanzania. The analyst notes the intersecton over 170 metres – from surface – grading 4.18 per cent rare earth oxides. The report describes as interesting a hole in the South West Alluvial zone which assayed at 3.2 per cent REO along with niobium, tantalum and phosphate. Libertas seems enthusiastic about the Peak story.

In the same report, Libertas turns its spotlight on Namibia Rare Earths (TSX:NRE) and its most recent presentation on the Lofdal project which “returns to the contentious subject of using heavy rare earth oxide grades to offset relatively low overall total rare earth oxide grades to generate excitement”. The analyst continues: “We pin our colours to the higher-the-better overall TREO grade mast, as it must be easier to extract something grading greater than 2 per cent TREOs than it is less (often a lot less), and then of course one enters the tricky process of extracting the individual rare earths from the TREO concentrate”. The deposit is heavily weighted toward yttrium and Libertas argues that the market has not taken on board the high HREE ratio. The company is capitalised at $C42.8 million, “not desperately expensive considering they have $C25.1m of cash”.

Fluorspar is not exactly rare – world reserves are estimated at 230 million tonnes – but it is a critical metal (with China the main producer although substantial deposits are found in Mexico, South Africa, Namibia and Mongolia). It is used in steel production and ceramics, along with various chemical processes (fluorcarbons, for example). We frequently report on Globe Metals & Mining (ASX:GBE) and its Mozambique REE project, but fluorspar is also part of that deposit. Now Libertas draws attention to Tertiary Minerals (AIM:TYM) and its Sturomen fluorspar project in Sweden. The analyst said the company is very excited by its latest drilling, believing it is on to high grade areas.

The rare earth story at Lynas Corp (ASX:LYC) is intact, according to Deutsche Bank analyst Levi Spry. He is standing by his “buy” recommendation (with Lynas shares closing on Friday at $A1.17). Commissioning of the Malaysia plant, given the delays with the operating permit, is now expected by Deutsche to be mid-February. Consequently Spry has pushed out his 2012 and 2013 production forecasts but his market REO outlook remains intact. Financing through Stage II (22,000 tonnes a year) appears adequate and he sees the stock now trading well below his $A2.42 price target.

The Malaysia processing plant was 78 per cent complete at the end of September due to delays in contractor resourcing and procurement. “Given the project complexity, further hold-ups are not unexpected”, says Spry. His production forecasts now stand at 1,000 tonnes for fiscal 2012 (that is, to June 30 next year), 9,500 tonnes in fiscal 2013, 19,000 tonnes in 2014 and getting to 22,000 tonnes in 2015.

The only real cloud on LYC’s horizon, in Deutsche’s view, is that any capex blow-outs or production delays have the potential to see Lynas’ funds tighten up around December 2012, which would have implications for the $A264 million Stage II expansion. Despite present basket average spot REO prices of $US128/kg, Deutsche continues to value Lynas on $US60/kg for calendar 2012 through 2015, returning to $US30/kg once LYC and Molycorp (NYSE:MCP) have fully ramped up.

And here is a footnote from Deutsche that should interest all those RareMetalBlog readers following the lively (to put it mildly) debate here in recent days following Jack Lifton’s latest comments. Spry notes: “Our visit to Molycorp’s Mountain Pass operation in Nevada has shown it is ahead of our expectation but we remain positive on the rare earth market and see room for both MCP and LYC but few others. [My emphasis]