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There are few mining sectors where chemistry, metallurgy and the supply chain meet in such a complex yet potentially profitable way as rare earths. Companies must keep an eye perpetually toward the future, making prescient judgments about end-user demands and constantly evolving technologies. In this interview with The Critical Metals Report, Gareth Hatch, founding principal of Technology Metals Research and president and director of Innovation Metals Corp., gives an update about which projects are closest to production and which have the right recipe to entice customers.

The Critical Metals Report: Gareth, many investors have abandoned rare earth element [REE] equities either because equity prices have fallen dramatically or the path to profits is more complicated than other equities in the mining space. Why should investors remain here?

Gareth Hatch: The answer to that question lies in understanding the cycle that we are in, with respect to the ongoing development of exploration plays and their transformation into nascent mining operations within the next two or three years. Clearly, the vast majority of companies in this sector are not going to follow that path, as is true in every mining sector. Some of their projects will go into production; the vast majority will not, at least not anytime soon; and investors need to do their due diligence.

This is no longer a sector where investors should be looking for a five- or tenbagger. Investors have already sunk a lot of money into these stocks. In the long term, investors should focus on the technical side and follow the companies that are doing the right things. If investors are here and want to stick around, they should look for the companies that are going to go into full-blown mining and processing, the companies that are going to actually make metals and oxides and sell such material through offtakes and the like.

TCMR: What about this sector still remains unclear to many investors?

GH: Few investors have a real appreciation of the complexity of developing processes that turn attractive geological deposits into actual commercial-grade materials that can be sold. It is interesting to me that four or five years after the interest in this sector underwent a major uptick, people are still not really aware of just what it takes and the questions that they should be asking to determine the probability that projects will go forward. There's a lot of fuzziness and uncertainty.

TCMR: What are some of those questions that investors should be asking?

GH: First, do you understand exactly what type of minerals make up the deposit? That will tell an investor the approaches that the company will need to take to recover, process and develop the metallurgy, the chemical engineering required for those minerals.

Second, investors need to understand exactly where companies are at in their development. What is the status of a company's resource development work, its mine design and its environmental permitting plans for building infrastructure? Investors need to dig into the reports-the preliminary economic assessment [PEA], the prefeasibility study [PFS] and any other information that is published to assess how a company is addressing each of these areas.

Another critical question concerns the handling of radioactive materials that can occur in REE deposits. Companies need to address the issues of handling radioactive substances, regardless of how low the levels may be, instead of, in some cases, just brushing this off. Sometimes that only starts to get focus and attention as a company moves into the pre-feasibility stage.

TCMR: What are some companies that have done a good job of communicating the answers to these questions?

GH: I think it is less about the individual companies and more about where they are listed. Canada has guidelines that require companies to put out high-quality, independently developed information, for example, into the public domain. For such companies, there really are no excuses for investors to not review this information, if it exists. And if it doesn't, depending on where particular companies are at in the development cycle, investors should be asking themselves why such companies have not yet put out such reports.

Investors can look at companies that are much further along in development and that have put out a PFS or who are working on one- Avalon Rare Metals Inc. (NYSEMKT:AVL), for example.

Companies like Matamec Explorations Inc. (OTCQX:MHREF) have done a good job of outlining the information at the PEA stage. They are not the only ones.

Australian companies that have put out a fair amount of information even though they are not required to make such information public include Arafura Resources Ltd. (OTCPK:ARAFF) and Alkane Resources Ltd. (OTCQX:ANLKY).

You can't do due diligence by press releases alone, although unfortunately there is a sub-group within the retail investor community that seems to think otherwise. You've got to delve into the other information, if it's available, and place importance on its availability. I have little patience for those who get upset with me for not talking about the deposits owned by certain companies, when such companies have put little to no independently developed information out into the public domain. What is there to talk about, exactly? Getting excited on the basis of company-generated press releases alone is not doing your homework-it's simply a classic case of confirmation bias. There's a reason for the existence of the NI 43-101 guidelines. Any retail investor who does not know about the scandal that triggered the introduction of those guidelines, needs to read up on it.

TCMR: I wholeheartedly agree. You recently hosted a riveting webinar that covered the critical elements that will make or break every REE project. What are those critical elements?

GH: Neodymium, a light rare earth element [LREE], would be considered critical to the future green-energy sector, along with dysprosium, which is a heavy rare earth element [HREE]. Both of those are used in high-performance magnet materials, which are absolutely critical to the functionality of so many electrical machines and devices. Alongside those are europium, terbium and yttrium, which are primarily related to energy-efficient lighting, display screens and other high-tech applications.

TCMR: You've done a remarkable job of improving the clarity of information surrounding a number of these companies. One of the ways that you've done that is by creating the TMR Advanced Rare Earth Projects Index. There are now about 50 projects on that list. Tell us about the index and what you're trying to tell investors through it.

GH: A criteria for inclusion in this index, which can be found at www.RareEarths.org, is that an independent, code-compliant resource estimate has been published for a particular project. Two years ago, there were about 13 projects on that list and now there are 45 projects, 42 companies and 14 different countries represented as of October. The projects that will successfully go into production are on this list-but inclusion doesn't mean that a project will definitely be successful.

TCMR: What are the latest additions to the index?

GH:. There is the Glenover project in South Africa, which is owned by Galileo Resources Plc and Fer-Min-Ore. It's a phosphate project, but they're looking at the REEs that are present. Also, there is the Songwe deposit in Malawi, being developed by Mkango Resources Ltd.

TCMR: In early November, Avalon said it had a couple of successful attempts at pilot plant testing at different facilities in Ontario. What did you make of that news?

GH: Avalon has previously acknowledged that it has had some technical challenges that it was working on. A critical component of any process development work is the building of solid relationships with third-party engineering and test houses. Avalon figured out that it needs to look at a number of options-not to close off specific options too early.

It is no secret that the mineralogy at Avalon's Nechalacho project is not quite as simple as some other places. There are multiple REE-bearing minerals present there; but Nechalacho is not the only one. It's always going to be a challenge when there are multiple REE-bearing minerals present, because the chemicals and reagents that work well for one of those minerals may be problematic for another and vice versa. That's why a company needs to understand its options at the early stages, when doing the physical separation that comes before the chemical separation.

Presumably, Avalon is going through the appropriate technical steps that are required to find the right path. Maybe it won't process every single thing that's present and maybe that leads to a slightly reduced recovery rate overall, but the cost savings more than make up for it. They'll be looking at multiple scenarios, as they should.

TCMR: A lot of companies have produced the oxides, but few have produced the actual metals. Does that increase a company's likelihood of getting project financing?

GH: If a company can demonstrate that it has a process that's economic and scalable, then sure, that can help its outlook when it comes to raising the money to do the final engineering and construction. Companies typically need to have offtake agreements or other commitments from customers and end-users in this sector to raise the kind of money that's going to be needed. Being able to produce either an oxide or a metal to purity levels that are of interest to end-users is no doubt a positive thing-if it can scale.

You don't always want to produce a metal though. Metals, REE metals in particular, are very reactive. One of the reasons that companies frequently stop at the oxide, or some other compound, is so that there is a stable form of the material to send to the end-user or customer, who can then convert it into the metal form, or even an alloy, rather than storing it and having it corrode or oxidize over time. You have to manage these materials and they have a finite shelf life.

TCMR: Even when these metals are employed in various applications, whether they be magnets or whatever, they're actually changing as they're in use?

GH: That's actually a more complex question than you might think, but let me give you a short answer. When you make a permanent magnet based on, for example, neodymium, you're actually making an alloy-i.e. a chemical compound that contains different metals. The precursor for such an alloy needs neodymium, iron and boron, as well as dysprosium, cobalt and some other trace elements. You'd melt those together and produce an alloy, with a very specific ratio of those particular elements to each other. Once the neodymium and the dysprosium are in that magnet, they're acting as part of a distinct chemical phase, one of a number present in the magnet, each with a specific job to do.

TCMR: These other elements in that alloy are stabilizing REEs?

GH: That can be a secondary effect, but really we should think about it in terms of the presence of the REEs helping to enhance the natural magnetic properties of the iron present.

TCMR: If the metals are somewhat unstable, why would a company go to those lengths to develop the metals?

GH: If a company can produce metals to a particular specification and an end-user is willing to buy those metals on that basis, that's a perfectly fine approach to take. The question concerns the practicality of handling those materials, especially as you go to higher starting purity levels. There's a lot of energy required to convert an oxide to a pure metal, particularly with the REEs. It's balancing the ability to store something on a shelf for a long period of time-and even as an oxide, you may still see some deterioration of the material in less than strictly controlled conditions-and flexibility with respect to inventory and stockpiling at the industrial level. This is the cost and the hassle of turning that oxide into a metal that's ready for use, when you need it.

TCMR: Do you have any idea why some of the bigger REE projects haven't announced agreements with offtake partners yet, whereas some smaller projects have?

GH: Perhaps you're referring to Matamec and its agreements with Toyotsu Rare Earths Canada and the Kipawa deposit. It is quite unusual for a company to have secured that kind of relationship so early in the development cycle.

There's no doubt that these companies-and the Australian companies I mentioned earlier are the same way-have been working hard to actively pursue those types of offtake arrangements.

Companies have to demonstrate that they can produce certain quantities and purity level of finished REE materials, through demonstration plants and similar facilities, before a customer will be willing to sign a binding supply agreement. There are very few companies that have reached that stage. That's a consequence of how long it takes to develop the chemistry, metallurgy, and the processing for REE deposits. Throw in the presence of multiple minerals and things can be even more challenging. We should also note that there are companies in the sector that actually do have agreements in place, but, for whatever reason, choose not to disclose the details. There's more going on under the surface here than people might imagine.

TCMR: Does the REE sector in the U.S. stand to benefit by having President Obama's administration around for another four years?

GH: Good question. I think it is a double-edged sword. On the one hand, the Obama Administration appears to be enthusiastic about the role of green and sustainable energy as a way of weaning the U.S. off foreign oil and fossil fuels in general, for the reduction of carbon emissions and so on. That means the technologies that can help make those things happen are sure to be looked on with favor. Wind turbines, electric vehicles, greater energy efficiency-all of that points toward potential increased REE demand.

On the other hand, trying to bring a new exploration and mining project along in the U.S., of any kind, not just REEs, can be a bit of a nightmare. The permitting processes are pretty arcane. They are unnecessarily long and laborious, and managed by myriad overlapping jurisdictions and agencies. There are even examples of certain agencies retroactively rolling back permits that were already issued. That's not exactly conducive to companies investing the money required to make such projects happen-it's a difficult climate. My colleagues at the American Resources Policy Network and the Strategic Materials Advisory Council have rightly been active in raising these issues at the national level. It should be possible in this day and age to have a permitting system in the U.S. that is streamlined, efficient, consistent and vigorous in terms of holding companies to acceptable environmental standards. It's time to walk and chew gum.

It's uncertain whether the current administration will support some of the initiatives that, for example, the likes of Sen. Lisa Murkowski of Alaska and Rep. Mike Coffman of Colorado and others have been spearheading. It'll be interesting to see if there's some movement on that side of things in the next session of Congress. Let's hope so.

TCMR: Thanks for sharing your expertise, Gareth.

GH: It's a pleasure.

Gareth Hatch is a founding principal of Technology Metals Research, LLC, a consulting and analytics firm that helps people understand the challenges and opportunities associated with the growing demand for REE and other critical and strategic materials. He is also a president and director of Innovation Metals Corp., a provider of downstream processing and marketing services to the rare earths industry. For several years, Hatch was director of technology at Dexter Magnetic Technologies. He holds five U.S. patents on a variety of magnetic devices. A two-time graduate of the University of Birmingham in the U.K., Hatch has a Bachelor of Engineering degree in materials science and technology and a Ph.D. in metallurgy and materials, focused on REE permanent-magnet alloys. He is a fellow of the Institute of Materials, Minerals & Mining, a fellow of the Institution of Engineering & Technology, a Chartered Engineer and a senior member of the Institute of Electrical and Electronics Engineers. Hatch is also a member of the Strategic Materials Advisory Council.

DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: None. Interviews are edited for clarity.
3) Gareth Hatch: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

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