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Summary

  • Great Western Minerals reported a 31% increase in sales for its Less Common Metals (LCM) unit: losses declined.
  • The company released a robust feasibility study for its Steenkampskraal Project.
  • While I didn't anticipate such strong figures from LCM, these figures show the strength in the company's downstream operation make the potential synergies with the upstream operation stronger.
  • I remain convinced that this is a good speculative stock for rare earth element investors.

Great Western Minerals (OTCQX:GWMGF) just reported its second quarter earnings, which turned out to be very impressive. There were two takeaways from the quarter. The first is one that I had already emphasized in my recent article, where I argue that the company's Steenkampskraal Project (aka its SKK Project) is extremely compelling given the company's current valuation. The company released a feasibility study that demonstrates that the project will have robust economics even with rare earth element prices as depressed as they are. The project also offers substantial leverage in the event that rare earth elements -- and in particular dysprosium, neodymium, praseodymium, terbium, and yttrium -- increase in value.

The second takeaway is from the company's downstream operation -- its Less Common Metals (LCM) magnet production operation. This business reported a 31% increase in revenues to $5.6 million and the company's net loss declined from $9.5 million to $6.3 million year over year. The strong growth in this segment reflects the strong demand for permanent magnets -- specifically neodymium iron boron magnets -- which are made with the materials mentioned above (except yttrium). Depending on the source of the statistic, demand for these magnets is rising between 7% and 10% per year, and the fact that Great Western Minerals is growing significantly faster speaks to the quality of its operation.

Once Great Western Minerals is manufacturing its own magnets, the downstream operation should be significantly more profitable as the SKK Project will be the source of LCM's raw materials.

Great Western Minerals remains risky given that its SKK Project is located in South Africa far away from most significant infrastructure. With this in mind, this remains a speculative stock. But the market is pricing in a pretty lousy scenario making the shares compelling at the current valuation.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Update: Great Western Minerals Reports Strong Q2 Earnings