Rare earth stock takes off – gives hope to others

Something unusual happened on the way to the Australian Securities Exchange: a rare earth stock rose substantially – albeit belatedly – on some good news.

Yes, that’s perhaps a bit flippant – but no one can deny that rare earth stocks have taken a terrible beating of late, and in Australia in particular. The rare earth story is still intact: as readers know, Australia has some very promising projects. The market has just not been prepared to listen.

Until now. The most recent surprise was the one session 14.6 per cent jump by Metallica Minerals (ASX:MLM). This came two weeks after the company produced its most recent scandium results – which were impressive – and the general view is that it took a while for the market to realise the importance of this, and then some investors began buying aggressively. Metallica now sits at 25c against 52-week highs and lows of 44c and 20c respectively.

And here is some context in which to view what is happening in the rare earth space.

True, the general market for small resources stocks is terrible but the falls in stock prices in the REE sector are in many cases simply indicating a far too gloomy mood. Mind you, I have been writing elsewhere about the metals markets in general. What is happening – and it must be affecting the rare earth story, too – is that bolts of good news are being reflected in the equity and bond markets – but not in commodities. Which is, to say the least, a bit of a worry.

Almost two weeks ago, European Central Bank president Mario Draghi made the “whatever it takes” speech about saving the euro. Then last Friday there were indicators that the ECB would come to the rescue of the Spanish government. On both occasions, equity markets soared; on the latter occasion, this was joined by a sharp fall in Italian and Spanish two-year bond prices.

But – again in both instances – metal prices hardly budged. The euphoria did not flow through.

Australian REE stock prices, judged over the past 52 weeks, do not make for cheerful reading.

There seem to be only two stocks that have broken the pattern. One is Metallica, the other Alkane Resources (ASX:ALK) which had a 52 week high of $1.95, a low of 74c, and is now 94c. The company has had two good pieces of news of late: one, the rare earths deal with Shin-Etsu and more recently the clearances received for its Tomingley gold project. So it’s hard to judge which one is helping more.

But other news this week has had little affect. Arafura Resources (ASX:ARU) gave an update on its Nolans Bore project; it was mixed news, although generally positive and the company claimed it was on track to become one of the largest rare earth producers. All it did was move the stock off its 52-week low – from 16c to 16.5c (against a year high of 75c).

And Greenland Minerals & Energy (ASX:GGG) updated its ownership situation in Greenland to not much avail. After highs and lows of 72c and 34c respectively, the stock as of Tuesday’s close stood at 38.5.

And all the heavy rare earths news in the world has not been much of a tonic for TUC Resources (ASX:TUC) which is at 9.6c – after ranging between 26c and 9.5c over the past year – while Northern Minerals (NTU) sits at 24.5c (after ranging between 72c and 22c).

Some others (with 52-week highs and lows in parenthesis):

Hastings Rare Metals (ASX:HAS): 11c       (28.5c and 9.5c)

Peak Resources (ASX:PEK) 16c                (63c and 16c)

Lynas Corp (ASX:LYC): 75c                       ($2.07 and 74c)

Kimberley Rare Earth (ASX:KRE): 6.6c    (16.5c and 6.1c)

Crossland Uranium (ASX:CUX): 6.3c         (12c and 0.4c)

Ram Resources (ASX:RMR): 0.2c               (1.4c and 0.1c)

Globe Metals & Mining (ASX:GBE): 9.5c      (22c and 9.2c)

So, you can see it’s not terribly encouraging.

No doubt the levels of frustration are high at some of these companies. Even those with advanced stories and real prospects just can’t get any traction at present.

However, the Metallica response last week shows that all is not lost. There’s also been a big nickel-copper discovery in Western Australia that has sent stocks in several companies soaring – so the market is able to respond to something exciting.

So, glum, yes – but not out for the count by any means. Some day investors will be kicking themselves for not buying at these levels – but the problem is that we don’t know which story it will be that succeeds.

Watch this space.