Weekly Review: Prognosis positive (in more ways than one) and TUC gets noticed
Here’s a view from the chief executive of an Australian REE company. He has just put together an update for his board – and he’s positive.
He notes that rare earth company stock prices seemed to be recovering in January but have since flattened again. He feels there is reason to believe the sector has bottomed as most REE prices have continued to fall over the past four months, the exception being yttrium which jumped by 30 per cent in March.
In his view:
* Rare earth demand/supply fundamentals have not changed one bit and remain robust.
* The extreme price (and stock) bubble is now clearly visible in hindsight.
* We have not yet reached the upturn part of the cycle. It is perhaps three to nine months away when we could see inventory restocking.
* Rare earth speculators have left the stadium; now the longer-term current investors are being tested.
* The sector is still viewed as being exotic and high risk. New institutional investors won’t enter until this situation changes.
* And that perception will come with successful rest-of-world production, and from Lynas and Molycorp turning a profit and setting a new cost curve.
* The customer/end-user countries – Germany, Japan, the U.S. and South Korea – will remain the sources of project funding.
* In summary, REE sector is now two years into a five to 10 year birthing process.
Part of that process will be showing how vital rare earths can be in our modern life.
Meanwhile, we have a broker report of interest.
In Monday’s The Australian newspaper, I had a tongue-in-cheek tilt at the new leader of the Greens in Australia’s federal parliament. Christine Milne says one of her key aims is to target “rapacious” miners. I suggested the best way to do that was for the Greens, and the 1.6 million people who voted for them in the 2010 election, immediately stop using any product that relied on mining – like laptops, aeroplanes, automobiles, mobile phones, bandages (they have silver in them) and cosmetics.
I also pointed out that wind turbines are reliant on REE and the environmental damage caused in China by REE mining. I also mentioned medical applications using REE (including gadolinium in regard to treating brain tumours) and the CEO cited above emailed me to say it was important to educate readers about the uses of these elements as the sector continues its transformation from a “curiosity” in Western eyes to a critical industry.
And, on queue, there’s a report that magazine Nature Medicine says a team at Stanford University School of Medicine have engineered nanoparticles that allow brain tumours to be delineated and so more easily removed. These are coated with gadolinium, an MRI contrast agent, in a way that keeps them stably attached to the relatively inert spheres in a blood-like environment.
It’s been mentioned here several times, but now it appears TUC Resources (ASX:TUC) is on the investment radar.
The Australian heavy rare earth explorer is now being covered by Sydney-based Foster Stockbroking. As the market opened for another trading week, they put out a “speculative buy” recommendation on the stock with a target price of 40c a share. It had closed at 17.5c Friday and in early Monday trade was up nearly 6 per cent on a day when resource stocks were tanking on the Australian market.
Foster analyst Hariq Khaliqi sees TUC’s Stromberg deposit has one of the highest global HREE to LREE ratios at 86 per cent weighting to the heavies, with high levels of dysprosium and yttrium. He argues that HREE, when compared to LREE, tend to offer a simple metallurgy and processing need, require significantly lower capex and, in his view, will be less exposed to price fluctuations and looming supply as will Mt Weld and Mountain Pass.
Besides being hosted in xenotime, there are signs that TUC’s HREE may be hosted in clays. “Clay deposits are proven to be a major low cost source of REE production within China, have simple processing options and can extract up to 90 per cent of rare earths producing a higher grade concentrate,” writes Khaliqi. He expects TUC to attract a cornerstone investor; the only other local REE junior with such an investor is Northern Minerals, which has Lynas Corp on its register.
TUC’s current cash balance is about A$3 million with the company flagging to the market that discussions on possible partnership and funding with various groups have begun.