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.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in GWMGF over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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.