REE stock implosion? Not in Australia

In this edition: what’s happening with Australian REE stocks, Alkane provides an answer to reader questions, and promising news from Mozambique.

So where does Australian investor sentiment lie at present in relation to rare earth companies? Frankly, it’s impossible to tell because there‘s no uniform trend – but certainly the general market sentiment has dragged down most stocks. REE prices may be soaring, the Chinese are setting up an REE exchange and some elements are heading for short supply, yet to Australian investors none of this makes much difference (with the exception of two companies to which we will come). The reasoning seems to be: they’re metals companies, so they should suffer along with the rest.

I checked out the stocks (as at around midday on Monday, Mar 30, Sydney time) after reading on a New York-based financial website that “As Expected, The Rare Earth Stock Bubble Implodes”. It goes on to say that the charts for these stocks are a mess. The writer adds that “many investors don’t really know what they are investing in” (too true) and “all these stocks have weak fundamentals and technicals as well” (not really – you can‘t compare a near producer with a greenfields explorer).

Certainly the charts don’t look that good in Australia, but then the REE sector is moving in tune with the general resources sector which is on a marked downward trend. Weakness is everywhere and there are some sectors where the fundamentals (in general terms) are much better than the market allows – and I’d include REE in that, along with thermal coal and uranium.

But imploding? No way.

Let’s look, though, at the two stocks that are not moving with the trend (all prices are in A$ and as of mid-Monday trading – and all comparisons are within the period January 1 through May 30).

Lynas Corp (ASX:LYC) hit its low for 2011 in March at $1.675 and then bounced a month later to $2.70, but today is at $2.235. That doesn’t look like implosion to me, and the pull-back surely reflects concern about the enquiry ordered by the Malaysian government. It cannot be construed as a commentary on the REE story.

And then there’s Alkane Resources (ASX:ALK). Its low for the year of 91c was right at the beginning of January and today’s $1.895 does not suggest implosion either, although it was at $2.73 in April. Again, it’s the market sentiment generally. Incidentally, as there had been several questions from RareMetalBlog readers after my last mention of Alkane, I asked Ian Chalmers to sum up recent activity. He wrote:

“On the DZP (Dubbo zirconium project) REEs, we have produced about 30kg of heavy REs and now about 20kg of light REs from the demonstration pilot plant at ANSTO and have been reviewing the process to determine what other modifications and improvements we can achieve. At this stage we do not propose to alter our start up strategy of supply a HREE concentrate and a LREE concentrate, so are not planning any further separations. Samples have been/will be sent to appropriate end users/existing separation facilities to check the quality and separability of the concentrates. Our preferred option to proceed into development is to have a joint venture with an existing separation plant to provide individual REs for their end use and also to provide products for other end use customers. There appears to be flexibility within the separation facilities and off-take requirements, to satisfy Alkane’s requirements. The MoU announced last week on zirconium off-take almost certainly guarantees that we will go straight to the 1Mtpa start up operation.”

Nor does “implosion” seem the word for Globe Metals & Mining (ASX:GBE) which saw its shares rise by more than 10 per cent in Monday morning trade here in Australia. This followed the announcement today that the company had identified multiple and wide REE zones at its Mozambique project area. The samples showed that there were strong indications for dysprosium and europium. GBE stocks prices have indeed suffered as 2011 has worn on with its low of 23c recorded last Wednesday. However, it’s the niobium-dominant Malawi project that has been the main focus, but a good jump on REE news is a sign that the market is listening and not running.

The worst performing stocks are those from which no important news has been issued recently. Expect that to change with announcements.

It’s been a very choppy 2011 for Hastings Rare Metals (ASX:HAS) and the stock is at its low point so far. But there hasn’t been any news for some time so that, and the general market trend, have a lot to do with it. It was choppy, too, for Orion Metals (ASX:ORM) and the stock hit a 2011 low of 15c in March, but has fought back to 23.5c today.

Greenland Minerals & Energy (ASX:GGG) has, however, has been one of the poorer performers of the REE sector, dropping from its 2011 high (so far) in February of $1.41 to 63.5c in mid-May, and trading at 67c today. But then Northern Minerals (ASX:NTU), which rose from 36c in March to $1.075 in April, was trading today at 75c.

So there it is. A decline for most stocks, yes. Implosion, no. As GBE showed today, just one piece of good news can turn a stock around – and that does not happen in implosion territory; when the market is really dark on any sector, no one will listen to any good news. The market is listening; all its takes is some good news.

Naturally, we’ll end up with diverging performances in the years ahead as some projects make good progress, others not. But you will never be able to argue from the particular to the general.

And then, of course, is the issue of rising REE demand in the years ahead.