Jack Lifton's Instablog Jack Lifton is an Independent consultant and commentator, focusing on the market fundamentals and future end use trends of the rare metals. He specializes in the sourcing of nonferrous strategic metals and on due diligence studies of businesses in that space. His work includes exploration, mining, refining and the recovery of metal values by the recycling of not only metals and their alloys but also of metal-based chemicals used as raw materials for component manufacturing. Mr. Lifton has more than 50 years of experience in the global OEM automotive, heavy equipment, electrical and electronic, mining, smelting, and refining industries. His background includes the sourcing, manufacturing, and sales of platinum group metal products, rare earth compounds, and ceramic specialties used to make catalytic converters, oxygen sensors, batteries, and fuel cells. He is knowledgeable in locating and analyzing new and recycled supplies of 'minor metals' including tellurium, selenium, indium, gallium, silicon, germanium, molybdenum, tungsten, manganese, chromium, and the rare earth metals. Today he primarily consults to institutional investors doing due diligence on metals related opportunities and to natural resource ventures on technologies and markets. Jack wrote a weekly column on minor metals for Resource Investor for three years until December 2008, during which he authored more than 125 original articles. He is also speaks on minor metals fundamentals and end-uses at private, public, and professional meetings. Since 2007 he has made presentations at conferences, seminars, and workshops all over the world more than 50 times. Jack Lifton http://seekingalpha.com/author/jack-lifton/instablog Molycorp Mired In The Mud: Perhaps A Domestic "American"Total Rare Earth Supply Chain Should Be A Collaborative Project. http://seekingalpha.com/instablog/65370-jack-lifton/1255621-molycorp-mired-in-the-mud-perhaps-a-domestic-american-total-rare-earth-supply-chain-should-be-a-collaborative-project?source=feed 1255621 I advise my natural resource production development clients that the best approach to being in the business of natural resource supply is always to plan and build to produce, profitably, less than the market segment available to you demands and to always produce at both the lowest cost per unit output and with the lowest breakeven revenue requirement. Those who fantasize that their particular resource has an endlessly growing market assume that the higher the production the better and that "economies of scale" will allow them to price their output at a lesser price than their equal size competitors. Invariably these "the bigger the better" ventures wind up with such high OPEX that they cannot compete in the real marketplace when prices or demand or both drop. Note that this is exactly what happened to the original Molycorp between 1998 when it shut down new mining and 2002 when it shut down separation of ore concentrates into marketable rare earth chemicals and their mixes. As recently as 1984, 14 years before their first shutdown, Molycorp had been the world's largest rare earth producer and certainly the only large primary rare earth mine on the planet. But by 1998 rare earths co-produced with iron in China's Bayanobo region (Inner Mongolia) had eliminated Molycorp's scale-based price advantage.

In 2007 Molycorp's assets were acquired by a new group that decided to compete with the by then almost complete Chinese dominance of the rare earth mined material sector by going head-to-head again on volume and hoping to cut costs way back to where they could be competitive. The original Molycorp business revival model (2007) also speculated (and heavily promoted the idea ) that there would be a significant degree of support from the US military both in terms of demand and to insure security of supply.

In 2011 the US Department of Defense finally admitted that it would only need 150 tons per year of rare earth permanent magnet alloys; this would be 0.2% of annual global rare earth permanent magnet production. By 2012 acquisitions had built a Molycorp that had 81% of its employees in the People's Republic of China and no credible company owned resource of the critical heavy rare earths required for military magnet production. Molycorp had rapidly become a company of little interest to the US DoD.

Yet the chest thumping promotion of we will be the biggest (EVER!) continues.

Unfortunately for the above mind-set the natural resource world is swinging back to politically aligned regional self-sufficiency as a goal and away from globalization of the natural resource supply chain. This is not just do to geopolitics; it is also due to the fact that the development to marketability of a natural resource-as an example think of crude oil marketed ultimately as gasoline or as fine chemicals-today is increasingly reliant on a region's technical skill base and its ABILITY to provide and maintain infrastructure, reliability of services, and low costs, and political stability.

Developing nations and nations with econimes wrecked by socialismor communism have now recognized that domestic engineering and scientific skills are best used in the service of their domestic economies. Nothing is better proof of this than the fact that the KGB's successor, the FSB, is suspected to now be the largest industrial espionage operation in history. China is on the way to technological self-sufficiency and there is no better proof of that than the fact that the Chinese are today OPENLY seeking to acquire engineering and productivity improvement technologies. Just two years ago Chinese official spokesmen vehemently denied that any such help would ever be necessary.

As a young operations manager/founder of a computer memory manufacturing operation in the early 1970s I worked with an engineer who told me that he had been a tank commander in World War II. To be precise he told me that he had commanded a German Tiger tank equipped unit at the battle of Kursk, the largest tank battle in history fought between Nazi Germany and Soviet Russia in the Ukraine.

He said that in their arrogance the German generals and military technocrats had decided that bigger and more complex was better. Their Tiger tanks had the now legendary 88 mm gun, which was the best of its type ever made, and "Doctor" Porsche (Yes the same one who designed the Volkswagen and whose son brought us the modern Porsche) had also designed a monster tank, as a sort of secret weapon, which the tankers called the Elephant. This beast weighed in at 80 tons and mounted the equivalent of a 6" naval rifle. It was supposed to simply sit in place and destroy the Russian tanks at a range that left the Russians helpless to reply.

Two unexpected but entirely discoverable, if anyone had cared to look or think, things happened: 1) The Russian tanks had a new armor, sloped armor, invented by a Ford engineer, and Stalin had literally moved the Soviet armor manufacturing capacity beyond the Urals and so beyond the range of the Luftwaffe. This resulted in swarms of Russian tanks whose sheer numbers and increased effective armor thickness overwhelmed the German superiority in firepower per tank, and 2) The Elephants were so heavy that in the muddy fields the Russians chose for the battle they simply bogged down and became unmovable becoming targets for swarms of smaller Russian tanks that "killed" them piecemeal.

I am an advocate of vertical integration in the rare earth sector, but it can only work up to a certain degree of manageable complexity, for the simple reason that chemical engineers and metallurgists need skilled and detailed managerial oversight and guidance in their own disciplines and the fact is that those who seek to combine and integrate mining, chemical, and metallurgical engineering management under one umbrella have so far proved unable to do so PROFITABLY.

The best plan for vertical integration in the rare earth arena outside of China today is that of Great Western Minerals Group, which has 1) A previously operated thorium mine in South Africa that it is converting over to a FREESTANDING rare earths focused mine, 2) An agreement with an experienced financially successful Chinese rare earth refiner to build a solvent extraction plant at the South African mine site to separate the particular rare earths mix found there from each other, 3) An established British sited and operated rare earth magnet alloy producer, which has traditionally operated using Chinese sourced rare earths for the last 20 years and 4) is constructing a new rare earth metals refinery in the UK to produce high purity rare earth metals from the separated high purity rare earth salts to be produced by the SX plant in Africa and which metals so produced will then enhance and ultimately replace Chinese material. The result will be a Western non-Chinese vertically integrated producer of rare earth permanent magnet alloys, which alloys will go to the current European and Japanese, highly experienced, rare earth permanent magnet makers that today already buy such Chinese metal based alloy materials from Great Western's Less Common Metals wholly owned subsidiary. The customers will not know when Chinese feed stocks cease to be used by LCM. In the GW model each technological unit is self-contained and internally managed technically. Only finance functions are directly controlled by the conglomerate's management.

By contrast I think the Molycorp model seems to have placed or hired less experienced technical management and engineers, who have not produced a profit except in an anomalous period of price spikes, with which they had nothing to do,over the seasoned engineers and managers of the only consistently profitable (majority) western owned, but sited mainly in China, rare earth separation and metal and alloy maker. Molycorp seems to have allocated neither time nor capital for the steep learning curves it would need to surmount and surpass to understand the businesses it decided to buy rather than develop.

If I were trying today to construct a domestic American total supply chain for producing rare earth based end-user components I would forge the total supply chain from some or all of the following links:

A. Light and Heavy Rare Earth Process Leach Solutions:

Rare Element Resources (REE), and

Ucore Rare Metals (UURAF.PK)

B. Deradioactivation of, Separation of, and purification of the total spectrum of the rare earths (atomic numbers 57-71) and their commonly associated elements (Scandium and Yttrium)

Intellimet (Private)

C. An American Rare Earth Metals' Metals Maker:

Great Western Technologies, Inc. (A wholly owned American subsidiary of Canada's GWMGF.PK)

D.An American magnet alloy maker,

Again this would be Great Western Technologies, Inc. as above,

E. An American magnet maker (One or all of the many members of the USMMA, the United States Magnet Materials Association), and

A rare earth metals recycling company.

I would organize this as Technology Metals Recycling Corporation (private).

I note that it is my belief that one broad spectrum rare earth separation and refining operation could provide enough capacity for all of America's domestic demand, and I note that the technology to do this with solvent extraction (SX) and Ion Exchange (IEX) already exists in the USA as does solid phase extraction (SPE), which is now in the process of proof of concept validation.

In order for the USA to become self-sufficient in rare earths it will be necessary for capitalists to make actual production at a profit a goal of equal importance with making quick money in the stock market.

The most capital needed for a domestic American total supply chain would be to construct the two mines above already in development. This would be around 500 million dollars. ALL of the rest of the supply chain could be put into operation with less than 125 million dollars.

America could not only be self sufficient in rare earths but be exporting rare earth products competitively for the above investment. America's investment community has already invested many times this amount in unrealistic get-rich-quick dreams.

The money wasted on Solyndra would have made America self sufficient in rare earths. Washington bureaucrats should stop talking to each other and to those who buy them dinner and a lot of drinks and start looking at the real markets and needs of the American industrial economy.

Disclosure: I am long [[GWMGF.PK]].

]]> Fri, 09 Nov 2012 21:58:20 -0500 I advise my natural resource production development clients that the best approach to being in the business of natural resource supply is always to plan and build to produce, profitably, less than the market segment available to you demands and to always produce at both the lowest cost per unit output and with the lowest breakeven revenue requirement. Those who fantasize that their particular resource has an endlessly growing market assume that the higher the production the better and that "economies of scale" will allow them to price their output at a lesser price than their equal size competitors. Invariably these "the bigger the better" ventures wind up with such high OPEX that they cannot compete in the real marketplace when prices or demand or both drop. Note that this is exactly what happened to the original Molycorp between 1998 when it shut down new mining and 2002 when it shut down separation of ore concentrates into marketable rare earth chemicals and their mixes. As recently as 1984, 14 years before their first shutdown, Molycorp had been the world's largest rare earth producer and certainly the only large primary rare earth mine on the planet. But by 1998 rare earths co-produced with iron in China's Bayanobo region (Inner Mongolia) had eliminated Molycorp's scale-based price advantage.

In 2007 Molycorp's assets were acquired by a new group that decided to compete with the by then almost complete Chinese dominance of the rare earth mined material sector by going head-to-head again on volume and hoping to cut costs way back to where they could be competitive. The original Molycorp business revival model (2007) also speculated (and heavily promoted the idea ) that there would be a significant degree of support from the US military both in terms of demand and to insure security of supply.

In 2011 the US Department of Defense finally admitted that it would only need 150 tons per year of rare earth permanent magnet alloys; this would be 0.2% of annual global rare earth permanent magnet production. By 2012 acquisitions had built a Molycorp that had 81% of its employees in the People's Republic of China and no credible company owned resource of the critical heavy rare earths required for military magnet production. Molycorp had rapidly become a company of little interest to the US DoD.

Yet the chest thumping promotion of we will be the biggest (EVER!) continues.

Unfortunately for the above mind-set the natural resource world is swinging back to politically aligned regional self-sufficiency as a goal and away from globalization of the natural resource supply chain. This is not just do to geopolitics; it is also due to the fact that the development to marketability of a natural resource-as an example think of crude oil marketed ultimately as gasoline or as fine chemicals-today is increasingly reliant on a region's technical skill base and its ABILITY to provide and maintain infrastructure, reliability of services, and low costs, and political stability.

Developing nations and nations with econimes wrecked by socialismor communism have now recognized that domestic engineering and scientific skills are best used in the service of their domestic economies. Nothing is better proof of this than the fact that the KGB's successor, the FSB, is suspected to now be the largest industrial espionage operation in history. China is on the way to technological self-sufficiency and there is no better proof of that than the fact that the Chinese are today OPENLY seeking to acquire engineering and productivity improvement technologies. Just two years ago Chinese official spokesmen vehemently denied that any such help would ever be necessary.

As a young operations manager/founder of a computer memory manufacturing operation in the early 1970s I worked with an engineer who told me that he had been a tank commander in World War II. To be precise he told me that he had commanded a German Tiger tank equipped unit at the battle of Kursk, the largest tank battle in history fought between Nazi Germany and Soviet Russia in the Ukraine.

He said that in their arrogance the German generals and military technocrats had decided that bigger and more complex was better. Their Tiger tanks had the now legendary 88 mm gun, which was the best of its type ever made, and "Doctor" Porsche (Yes the same one who designed the Volkswagen and whose son brought us the modern Porsche) had also designed a monster tank, as a sort of secret weapon, which the tankers called the Elephant. This beast weighed in at 80 tons and mounted the equivalent of a 6" naval rifle. It was supposed to simply sit in place and destroy the Russian tanks at a range that left the Russians helpless to reply.

Two unexpected but entirely discoverable, if anyone had cared to look or think, things happened: 1) The Russian tanks had a new armor, sloped armor, invented by a Ford engineer, and Stalin had literally moved the Soviet armor manufacturing capacity beyond the Urals and so beyond the range of the Luftwaffe. This resulted in swarms of Russian tanks whose sheer numbers and increased effective armor thickness overwhelmed the German superiority in firepower per tank, and 2) The Elephants were so heavy that in the muddy fields the Russians chose for the battle they simply bogged down and became unmovable becoming targets for swarms of smaller Russian tanks that "killed" them piecemeal.

I am an advocate of vertical integration in the rare earth sector, but it can only work up to a certain degree of manageable complexity, for the simple reason that chemical engineers and metallurgists need skilled and detailed managerial oversight and guidance in their own disciplines and the fact is that those who seek to combine and integrate mining, chemical, and metallurgical engineering management under one umbrella have so far proved unable to do so PROFITABLY.

The best plan for vertical integration in the rare earth arena outside of China today is that of Great Western Minerals Group, which has 1) A previously operated thorium mine in South Africa that it is converting over to a FREESTANDING rare earths focused mine, 2) An agreement with an experienced financially successful Chinese rare earth refiner to build a solvent extraction plant at the South African mine site to separate the particular rare earths mix found there from each other, 3) An established British sited and operated rare earth magnet alloy producer, which has traditionally operated using Chinese sourced rare earths for the last 20 years and 4) is constructing a new rare earth metals refinery in the UK to produce high purity rare earth metals from the separated high purity rare earth salts to be produced by the SX plant in Africa and which metals so produced will then enhance and ultimately replace Chinese material. The result will be a Western non-Chinese vertically integrated producer of rare earth permanent magnet alloys, which alloys will go to the current European and Japanese, highly experienced, rare earth permanent magnet makers that today already buy such Chinese metal based alloy materials from Great Western's Less Common Metals wholly owned subsidiary. The customers will not know when Chinese feed stocks cease to be used by LCM. In the GW model each technological unit is self-contained and internally managed technically. Only finance functions are directly controlled by the conglomerate's management.

By contrast I think the Molycorp model seems to have placed or hired less experienced technical management and engineers, who have not produced a profit except in an anomalous period of price spikes, with which they had nothing to do,over the seasoned engineers and managers of the only consistently profitable (majority) western owned, but sited mainly in China, rare earth separation and metal and alloy maker. Molycorp seems to have allocated neither time nor capital for the steep learning curves it would need to surmount and surpass to understand the businesses it decided to buy rather than develop.

If I were trying today to construct a domestic American total supply chain for producing rare earth based end-user components I would forge the total supply chain from some or all of the following links:

A. Light and Heavy Rare Earth Process Leach Solutions:

Rare Element Resources (REE), and

Ucore Rare Metals (UURAF.PK)

B. Deradioactivation of, Separation of, and purification of the total spectrum of the rare earths (atomic numbers 57-71) and their commonly associated elements (Scandium and Yttrium)

Intellimet (Private)

C. An American Rare Earth Metals' Metals Maker:

Great Western Technologies, Inc. (A wholly owned American subsidiary of Canada's GWMGF.PK)

D.An American magnet alloy maker,

Again this would be Great Western Technologies, Inc. as above,

E. An American magnet maker (One or all of the many members of the USMMA, the United States Magnet Materials Association), and

A rare earth metals recycling company.

I would organize this as Technology Metals Recycling Corporation (private).

I note that it is my belief that one broad spectrum rare earth separation and refining operation could provide enough capacity for all of America's domestic demand, and I note that the technology to do this with solvent extraction (SX) and Ion Exchange (IEX) already exists in the USA as does solid phase extraction (SPE), which is now in the process of proof of concept validation.

In order for the USA to become self-sufficient in rare earths it will be necessary for capitalists to make actual production at a profit a goal of equal importance with making quick money in the stock market.

The most capital needed for a domestic American total supply chain would be to construct the two mines above already in development. This would be around 500 million dollars. ALL of the rest of the supply chain could be put into operation with less than 125 million dollars.

America could not only be self sufficient in rare earths but be exporting rare earth products competitively for the above investment. America's investment community has already invested many times this amount in unrealistic get-rich-quick dreams.

The money wasted on Solyndra would have made America self sufficient in rare earths. Washington bureaucrats should stop talking to each other and to those who buy them dinner and a lot of drinks and start looking at the real markets and needs of the American industrial economy.

Disclosure: I am long [[GWMGF.PK]].

]]> mcp ree gwmgf.pk uuraf.pk total domestic supply chain Decoupling The Rare-Earth Junior-Mining Market From Emphasis On Molycorp And Lynas http://seekingalpha.com/instablog/65370-jack-lifton/241113-decoupling-the-rare-earth-junior-mining-market-from-emphasis-on-molycorp-and-lynas?source=feed 241113
There is not a global “rare-earths market.” There are local, regional, markets for individual rare earths in separated. highly refined forms such as chemicals for manufacturing fluid cracking catalysts, and metals for producing alloys to manufacture rare-earth permanent magnets, or nickel-metal-hydride battery electrodes.

Even if your thinking is that the markets are totally globalized, you will still have to reconcile your belief with the fact that rare-earth prices within China are substantially lower than they are outside of China. China solves the arbitrage problem (buying low and selling high) by strictly limiting export volumes (otherwise they would all flow to the region of higher price, right?). In addition, China strictly limits the imports of rare earths in any form. I have personally been involved with attempts to import both ore and scrap rare-earth permanent magnets into China for processing. Both projects were initiated by Chinese companies looking for supplies for the Chinese market. Both projects were denied licenses by the Chinese government. This experience is why I question those who say that their markets will include mainland China. I do not believe that Chinese companies will be allowed to pay above Chinese market prices. for natural resources that can be produced in China.

A small number of the total number of rare earths, perhaps five of the 16 naturally occurring rare earths, are critical in their uses. There are no economic substitutes for them giving the same or similar performance. Everyone reading this article will I hope, have previously gone through my colleague Gareth’s definitive Critical Rare Earths Report, available from the TMR web site.

I predict that very few of the specialty-metal junior miners that could produce the particular heavy rare earths demanded by the current- and near-term market, will ever get into actual production, and of those, only the ones developing deposits containing commercially recoverable heavy rare earths will survive. Commercial in this sense means that they will be able to produce heavy rare earths at the lowest cost and at less than the total market demand.  Keep in mind that ore concentrates are nearly the least valuable forms of the rare-earth supply chain (the raw un-concentrated ore being the least valuable).

The ore concentrate must be “cracked,” i.e., its metal values must be separated chemically from the minerals, and immediately within the cracking process or just after it the nuisance metals, such as radioactive thorium and uranium, must be removed or left in the tailings (residue). The resulting pregnant leach solution (PLS) must then be separated into the individual rare earths and these must be in as pure a form as possible.

The purified individual rare-earth chemicals so produced. must then be reduced electrochemically or metallothermically to pure individual metals.

The metals will then be made into alloys, and the alloys into products such as rare earth permanent magnets, and nickel metal hydride battery electrodes.

Some of the purified chemical forms will be processed directly into, for example, fluid-cracking catalysts, without going through the metallic form at all.

The ONLY WAY rare earths become of value, industrially, is by passing through the above supply chain until they have been transformed into a finished useful form. The exact makeup of these useful forms is dictated by the end user. The supplier at every level of the supply chain must conform to, and target, the end users’ requirement. This is why the stockpile discussion is so premature. The real question is: “What is to be stockpiled?” That question can only be answered by a close study of  individual companies and industries and their specific demands.

The rare-earth part of the junior-mining sector has been for at least the last four years viewed in isolation by mining and financial analysts wearing blinkers.  A myopic vision of this small sector of the natural-resources market, which has vastly overemphasized its importance, has thus been developed and continues to be maintained.  A fantasy of growing and infinite demand and inelastic prices (prices not driven by simple supply and demand) increasing without limit, has placed the most emphasis on those rare-earth juniors who say that they will produce in the near term, from single mines, as much material as the Chinese are now producing from a combination of dozens of mines and refineries constructed and put into operation over a thirty-year period. As one analyst has put it “only the grade and total weight matter” in non-Chinese rare-earth production. Nothing could be farther from the truth.

The decades and thousands of man-years it has taken the Chinese to achieve their current capacities and capabilities are simply ignored by “investor analysts” who wouldn’t and don’t know the difference between neodymium and salami to start with and think that “the” solvent exchange is on Bay Street in Toronto near the Toronto Stock Exchange.

One of the positive results of the recent apparent correction (i.e. drop) in rare-earth stated prices is that this has exposed just how foolish the stock market has been in valuing a tiny metals market.  There was never any rational way that the prices for anything could simply increase by a factor 10 in just a few months and hold there and then go up again.  Rare earths have been treated as if they are vaccines when there is a plague among us. No price was considered too high for these “critical” substances. In fact they are critical mostly to lifestyle not life itself, and certainly not to the strength of the US, or any other, military, but rather to the efficiency of its defense technologies.

I asked myself when the current mania began, that if rare earths are so important, then why did the financiers and industrialists in the USA, in particular, actively push the Chinese into the position of being the sole source of them when ALL of the major discoveries of and advances in the use of the rare earths over the last 30 years have been made in the USA?

The answer to this question is economics. Economics is also the reason that the prices of the rare earths are rapidly correcting as Chinese intentions become clearer.

China has grown into a world-class economic power through the extraordinary creation of a huge sustained rate of growth of its GDP, based on the marshaling of its national resources of people, resources, and capital into the largest single-goal-directed economic entity in mankind’s history. The single goal of the Chinese Communist Party, the sole political entity in China, is to raise the standard of living of all Chinese people as much as possible, by any means possible, in the shortest period of time. In China, the political system to achieve this is known as “socialism with Chinese characteristics” and the chosen economic system to achieve this goal as “capitalism with Chinese characteristics.”

I think that the misunderstanding of “capitalism with Chinese characteristics” by the socialist-capitalists of the West is manifested most clearly in the idea that the goal of Chinese state economic planning is and must be individual “profit”, in exactly the same sense as is the goal of private capitalism outside of China.  Individual profit is allowed at the moment so that wealth can be created rapidly in the service of the goal of the state.

China has been very lucky to have had a foundational  leader to unify the country, albeit ruthlessly and brutally, who was followed in short order  by a brilliant economic leader such as few countries have ever had.  In a way this is exactly the opposite of the experience of the former Soviet Union, which embarked under Stalin on a dead-end course to state bankruptcy with a goal of nineteenth-century empire building, almost completely overthrowing the ideas of  the Soviet Union’s foundational leader. The Western democracies without even so much as an industrial plan, such as the USA, look economically precarious to the central economic planners of China, who themselves are dismissed as nothing more than the latest iteration of Soviet central planning. China is not following the Soviet model of the path to communism, but China learned from the Soviet failure, and it learned well.

China, since the reforms of Deng Xiaoping,  has created and nurtured until now an export-driven economy, which has allowed the Chinese to rapidly accumulate large amounts of reserve currencies (principally US dollars and Euros) representing the surplus of the payments they have received from their largest trading partners. China’s currency has not been allowed to become “convertible” in the free market. Its value vis a vis the reserve currencies, is set only by the Chinese government and not by the market. The Chinese store of assets anchored by its hard-currency reserves is the most powerful weapon in the history of economic nationalism.

It now seems that the Chinese have become aware that the growth of their manufacturing economy is slowing, so that if a high “floor” rate of growth is to be maintained, then it is the time for some structural adjustments.  China has stated as official policy that it now wants to transform itself into a mixed economy, led ultimately by domestic consumption. This means that the types and amounts of resources now allocated to export, will have to be reviewed to see what amounts of them will have to be redirected to support the growth of the domestic consumer economy.

To bring its particular sub-sector of the domestic natural-resource market into conformity with the new program direction, rare-earth mining has had first of all a cap placed on output and then, just now, an output licensing system put in place so that supply could be accurately measures and prices accurately “discovered.” In this way,  the legal market could become the total market, with taxes calculated and collected on all production, as well as facilitating accurate measurement of supply for state-planning purposes. Just this week it was been announced that of 80 applications for rar-earth production operating licenses received since the reforms began earlier this decade, the Chinese government has selected just 15 that conform to the NEW environmental standards. Production from unlicensed sources will now be a serious felony and the total of the amounts purchased either for use internally or for export will be checked to make sure it matches LICENSED output.

This has resulted in a price correction that has been described as the deflation of a bubble. In fact the prices were earlier driven up by Chinese speculators and illegal miners trying to manipulate information even as they moved to offload inventory, before it became worthless or dangerous, because it wouldn’t have a necessary license to enable it to be sold in the legal market. The new regulation scheme will stabilize prices, since supply will be able to for the first time to be matched to demand.

We will also now see a clear differentiation in supply and demand between the light rare-earth elements (LREEs), and the heavy rare-earth elements (HREEs). HREE production is, at best, flat in China, currently the sole producer, even as demand proceeds to grow. This can only result in firm current pricing and a steady increase in prices over the years to come for the HREEs.  Since non-Chinee HREE production will, at best, grow slowly, if even at all, it is likely that HREE supply will not meet demand anytime in this decade.

This is a far cry from the situation in the LREEs where China is operating at less than one-half of mining capacity ,and possibly at even a lower level of utilization in refining capacity, and there is at the same time a strong possibility that Lynas (ASX:LYC, OTCQX:LYSDY) or Molycorp (NYSE:MCP) or both will come into large-scale production by 2014. This situation will simply maintain the probability of oversupply of the LREEs in the near to mid term. This should stabilize and hold down the prices of the LREEs, as speculation is discouraged internally by new Chinese moves.

Finally it is obvious that the overwhelming market for the rare earths as raw materials is Southeast Asia, primarily China (60%) and Japan (30%), totaling 90% of the world market. It is incredibly naïve to maintain that as large a production as is predicted for even just Molycorp, could be absorbed by the US market unless you assume the total collapse of the Chinese and Japanese export markets for REEs. The only way that Molycorp could sell its total planned production would be by marketing into China and Japan. This will place Molycorp, at least in China, in direct competition with a mature Chinese mining sector, with much lower costs across the board than have ever been previously achieved, in practice, outside of China. Lynas faces the same marketing problem, but its mix of REEs is perhaps better suited to the world market place. In order to sell anything into China, any supplier must conform to strict Chinese import rules, regarding radiation and other contamination levels. This makes a non-Chinese rare-earth supply chain even more important to potential large-scale and therefore lowest-cost producers, but it is not the mining costs that are determinative – it is the lowest overall cost to the sale point of your rare-earth product that is important.

First to pass the post is also going to be a very important benchmark for the success of a large LREE venture. If Lynas should succeed in getting the go-ahead from the Malaysian government soon, then it will rapidly thereafter begin producing large quantities of LREEs and some HREEs also from its Australian ores. This fact is a key reason why Molycorp is attempting to accelerate its target date for actual production, from newly mined material. Both Lynas and Molycorp have large fixed costs of operation. Any inability to sell all that they can produce may be fatal to their survival in the face of a market that is not as large as it is held out to be. In fact they are of course competitors with each other. If either is to survive, this will be if and only if, the Chinese do not choose to again ramp up LREE production, targeted for the export market.

Governments may well buy small quantities of critical metals for security purposes, but the government of Australia needs hardly any such material and the actual needs of the US military are small.  If there is a revival of the total REE supply chain in the USA then a stockpile to protect the INDUSTRIAL supply chain could be enough reason for private industry to fund a Molycorp or a Lynas.

The key stockpilers of the REEs as rare materials over the next decade are likely to be the nations and industries with the most pressing needs for them. Those would include China, Japan, Korea, India, the EU, and last, and presently least important, the USA.

Stockpiling may be used as a reason to capitalize security of supply. In other words stockpilers will pay more to ensure domestic supply.

With regard to HREEs, based on the information that I have about the deposits, management, markets and politics to be served by the potential rare-earth mines that can produce HREEs, I have reduced my interest in the space to the following. I may have missed a good one or included a bad one, but I think that the survivors in 2015 must be in my list today:

  • Avalon Rare Metals (TSX:AVL, AMEX:AVL)
  • Great Western Minerals Group (TSX.V:GWG, OTCBB:GWMGF)
  • Matamec Explorations (TSX.V:MAT, PK:MTCEF)
  • Quest Rare Minerals (TSX.V:QRM, AMEX:QRM)
  • Rare Element Resources (TSX.V:RES, AMEX:REE)
  • Tantalus Rare earths (TEFFF.Pk)
  • Tasman Metals (TSX.V:TSM, PK:TASXF, F:T61)
  • Ucore Rare Metals (TSX.V:UCU, OTCQX:UURAF)

I believe that REEs can be produced as secondary values / byproducts at the lowest costs, by:

  • AMR Minerals
  • Alkane Resources (ASX:ALK, OTCQX:ANLKY)
  • Orbite Aluminae (TSX.ORT.A)
  • Rare Earth Metals (TSX.V:RA)

Low-thorium deposits are highly desirable for LREEs and, of course, HREEs but they are few and far between. Owners of such deposits include:

  • Rare Earth Metals (TSX.V:RA)
  • Tasman Metals

Recycling from industrial process and end-of-life scrap plus REE containing slags and residues, can provide a limited but significant and immediate supply of products at the lowest cost. This is because the energy and cost of originALLY mining and separating them from each other in gross is built into the scrap as intrinsic value.

In 1976, China exported for the entire year the dollar value of its current (2011) daily exports! But, what exactly does China export? Two things: Labor content and the least quality to make a product competitive. What exactly does China import? Two things: Intellectual property (often as in the case of the American OEM automotive industry at NO COST) and raw materials.

Let’s focus on raw materials.

The best investment possible is to supply a growing demand for a material that is scarce to begin with. The LREEs are not rare nor even hard to get at; they are just currently too expensive to produce against the Chinese supply chain. On the other hand, the HREEs are scarce even in China, and also even in China their production costs are high due to the low grades that are worked.

Thus, it turns out that deposits containing the highest ratios of HREEs to total REEs, where they can be worked so as to produce a product that is saleable competitively with the Chinese production costs, can be sold into China itself as well as into Japan.

In the case of the HREEs, it is even possible to try to undercut Chinese prices to gain market share. If the production is price competitive, or even a little higher than that of China, then capitalizing the security of supply or national security issues can level the price differential at least for a critical quantity.

The idea that it is the highest-grade, largest-volume deposit that is most likely to have commercial success is I believe, confused and naïve in the extreme; it equates market capitalization & share-price maintenance, promotion and manipulation with the probability of actual commercial, competitive, production in the real world markets.

 


Disclosure: I am long GWMGF.PK.
]]> Sat, 03 Dec 2011 13:51:32 -0500
There is not a global “rare-earths market.” There are local, regional, markets for individual rare earths in separated. highly refined forms such as chemicals for manufacturing fluid cracking catalysts, and metals for producing alloys to manufacture rare-earth permanent magnets, or nickel-metal-hydride battery electrodes.

Even if your thinking is that the markets are totally globalized, you will still have to reconcile your belief with the fact that rare-earth prices within China are substantially lower than they are outside of China. China solves the arbitrage problem (buying low and selling high) by strictly limiting export volumes (otherwise they would all flow to the region of higher price, right?). In addition, China strictly limits the imports of rare earths in any form. I have personally been involved with attempts to import both ore and scrap rare-earth permanent magnets into China for processing. Both projects were initiated by Chinese companies looking for supplies for the Chinese market. Both projects were denied licenses by the Chinese government. This experience is why I question those who say that their markets will include mainland China. I do not believe that Chinese companies will be allowed to pay above Chinese market prices. for natural resources that can be produced in China.

A small number of the total number of rare earths, perhaps five of the 16 naturally occurring rare earths, are critical in their uses. There are no economic substitutes for them giving the same or similar performance. Everyone reading this article will I hope, have previously gone through my colleague Gareth’s definitive Critical Rare Earths Report, available from the TMR web site.

I predict that very few of the specialty-metal junior miners that could produce the particular heavy rare earths demanded by the current- and near-term market, will ever get into actual production, and of those, only the ones developing deposits containing commercially recoverable heavy rare earths will survive. Commercial in this sense means that they will be able to produce heavy rare earths at the lowest cost and at less than the total market demand.  Keep in mind that ore concentrates are nearly the least valuable forms of the rare-earth supply chain (the raw un-concentrated ore being the least valuable).

The ore concentrate must be “cracked,” i.e., its metal values must be separated chemically from the minerals, and immediately within the cracking process or just after it the nuisance metals, such as radioactive thorium and uranium, must be removed or left in the tailings (residue). The resulting pregnant leach solution (PLS) must then be separated into the individual rare earths and these must be in as pure a form as possible.

The purified individual rare-earth chemicals so produced. must then be reduced electrochemically or metallothermically to pure individual metals.

The metals will then be made into alloys, and the alloys into products such as rare earth permanent magnets, and nickel metal hydride battery electrodes.

Some of the purified chemical forms will be processed directly into, for example, fluid-cracking catalysts, without going through the metallic form at all.

The ONLY WAY rare earths become of value, industrially, is by passing through the above supply chain until they have been transformed into a finished useful form. The exact makeup of these useful forms is dictated by the end user. The supplier at every level of the supply chain must conform to, and target, the end users’ requirement. This is why the stockpile discussion is so premature. The real question is: “What is to be stockpiled?” That question can only be answered by a close study of  individual companies and industries and their specific demands.

The rare-earth part of the junior-mining sector has been for at least the last four years viewed in isolation by mining and financial analysts wearing blinkers.  A myopic vision of this small sector of the natural-resources market, which has vastly overemphasized its importance, has thus been developed and continues to be maintained.  A fantasy of growing and infinite demand and inelastic prices (prices not driven by simple supply and demand) increasing without limit, has placed the most emphasis on those rare-earth juniors who say that they will produce in the near term, from single mines, as much material as the Chinese are now producing from a combination of dozens of mines and refineries constructed and put into operation over a thirty-year period. As one analyst has put it “only the grade and total weight matter” in non-Chinese rare-earth production. Nothing could be farther from the truth.

The decades and thousands of man-years it has taken the Chinese to achieve their current capacities and capabilities are simply ignored by “investor analysts” who wouldn’t and don’t know the difference between neodymium and salami to start with and think that “the” solvent exchange is on Bay Street in Toronto near the Toronto Stock Exchange.

One of the positive results of the recent apparent correction (i.e. drop) in rare-earth stated prices is that this has exposed just how foolish the stock market has been in valuing a tiny metals market.  There was never any rational way that the prices for anything could simply increase by a factor 10 in just a few months and hold there and then go up again.  Rare earths have been treated as if they are vaccines when there is a plague among us. No price was considered too high for these “critical” substances. In fact they are critical mostly to lifestyle not life itself, and certainly not to the strength of the US, or any other, military, but rather to the efficiency of its defense technologies.

I asked myself when the current mania began, that if rare earths are so important, then why did the financiers and industrialists in the USA, in particular, actively push the Chinese into the position of being the sole source of them when ALL of the major discoveries of and advances in the use of the rare earths over the last 30 years have been made in the USA?

The answer to this question is economics. Economics is also the reason that the prices of the rare earths are rapidly correcting as Chinese intentions become clearer.

China has grown into a world-class economic power through the extraordinary creation of a huge sustained rate of growth of its GDP, based on the marshaling of its national resources of people, resources, and capital into the largest single-goal-directed economic entity in mankind’s history. The single goal of the Chinese Communist Party, the sole political entity in China, is to raise the standard of living of all Chinese people as much as possible, by any means possible, in the shortest period of time. In China, the political system to achieve this is known as “socialism with Chinese characteristics” and the chosen economic system to achieve this goal as “capitalism with Chinese characteristics.”

I think that the misunderstanding of “capitalism with Chinese characteristics” by the socialist-capitalists of the West is manifested most clearly in the idea that the goal of Chinese state economic planning is and must be individual “profit”, in exactly the same sense as is the goal of private capitalism outside of China.  Individual profit is allowed at the moment so that wealth can be created rapidly in the service of the goal of the state.

China has been very lucky to have had a foundational  leader to unify the country, albeit ruthlessly and brutally, who was followed in short order  by a brilliant economic leader such as few countries have ever had.  In a way this is exactly the opposite of the experience of the former Soviet Union, which embarked under Stalin on a dead-end course to state bankruptcy with a goal of nineteenth-century empire building, almost completely overthrowing the ideas of  the Soviet Union’s foundational leader. The Western democracies without even so much as an industrial plan, such as the USA, look economically precarious to the central economic planners of China, who themselves are dismissed as nothing more than the latest iteration of Soviet central planning. China is not following the Soviet model of the path to communism, but China learned from the Soviet failure, and it learned well.

China, since the reforms of Deng Xiaoping,  has created and nurtured until now an export-driven economy, which has allowed the Chinese to rapidly accumulate large amounts of reserve currencies (principally US dollars and Euros) representing the surplus of the payments they have received from their largest trading partners. China’s currency has not been allowed to become “convertible” in the free market. Its value vis a vis the reserve currencies, is set only by the Chinese government and not by the market. The Chinese store of assets anchored by its hard-currency reserves is the most powerful weapon in the history of economic nationalism.

It now seems that the Chinese have become aware that the growth of their manufacturing economy is slowing, so that if a high “floor” rate of growth is to be maintained, then it is the time for some structural adjustments.  China has stated as official policy that it now wants to transform itself into a mixed economy, led ultimately by domestic consumption. This means that the types and amounts of resources now allocated to export, will have to be reviewed to see what amounts of them will have to be redirected to support the growth of the domestic consumer economy.

To bring its particular sub-sector of the domestic natural-resource market into conformity with the new program direction, rare-earth mining has had first of all a cap placed on output and then, just now, an output licensing system put in place so that supply could be accurately measures and prices accurately “discovered.” In this way,  the legal market could become the total market, with taxes calculated and collected on all production, as well as facilitating accurate measurement of supply for state-planning purposes. Just this week it was been announced that of 80 applications for rar-earth production operating licenses received since the reforms began earlier this decade, the Chinese government has selected just 15 that conform to the NEW environmental standards. Production from unlicensed sources will now be a serious felony and the total of the amounts purchased either for use internally or for export will be checked to make sure it matches LICENSED output.

This has resulted in a price correction that has been described as the deflation of a bubble. In fact the prices were earlier driven up by Chinese speculators and illegal miners trying to manipulate information even as they moved to offload inventory, before it became worthless or dangerous, because it wouldn’t have a necessary license to enable it to be sold in the legal market. The new regulation scheme will stabilize prices, since supply will be able to for the first time to be matched to demand.

We will also now see a clear differentiation in supply and demand between the light rare-earth elements (LREEs), and the heavy rare-earth elements (HREEs). HREE production is, at best, flat in China, currently the sole producer, even as demand proceeds to grow. This can only result in firm current pricing and a steady increase in prices over the years to come for the HREEs.  Since non-Chinee HREE production will, at best, grow slowly, if even at all, it is likely that HREE supply will not meet demand anytime in this decade.

This is a far cry from the situation in the LREEs where China is operating at less than one-half of mining capacity ,and possibly at even a lower level of utilization in refining capacity, and there is at the same time a strong possibility that Lynas (ASX:LYC, OTCQX:LYSDY) or Molycorp (NYSE:MCP) or both will come into large-scale production by 2014. This situation will simply maintain the probability of oversupply of the LREEs in the near to mid term. This should stabilize and hold down the prices of the LREEs, as speculation is discouraged internally by new Chinese moves.

Finally it is obvious that the overwhelming market for the rare earths as raw materials is Southeast Asia, primarily China (60%) and Japan (30%), totaling 90% of the world market. It is incredibly naïve to maintain that as large a production as is predicted for even just Molycorp, could be absorbed by the US market unless you assume the total collapse of the Chinese and Japanese export markets for REEs. The only way that Molycorp could sell its total planned production would be by marketing into China and Japan. This will place Molycorp, at least in China, in direct competition with a mature Chinese mining sector, with much lower costs across the board than have ever been previously achieved, in practice, outside of China. Lynas faces the same marketing problem, but its mix of REEs is perhaps better suited to the world market place. In order to sell anything into China, any supplier must conform to strict Chinese import rules, regarding radiation and other contamination levels. This makes a non-Chinese rare-earth supply chain even more important to potential large-scale and therefore lowest-cost producers, but it is not the mining costs that are determinative – it is the lowest overall cost to the sale point of your rare-earth product that is important.

First to pass the post is also going to be a very important benchmark for the success of a large LREE venture. If Lynas should succeed in getting the go-ahead from the Malaysian government soon, then it will rapidly thereafter begin producing large quantities of LREEs and some HREEs also from its Australian ores. This fact is a key reason why Molycorp is attempting to accelerate its target date for actual production, from newly mined material. Both Lynas and Molycorp have large fixed costs of operation. Any inability to sell all that they can produce may be fatal to their survival in the face of a market that is not as large as it is held out to be. In fact they are of course competitors with each other. If either is to survive, this will be if and only if, the Chinese do not choose to again ramp up LREE production, targeted for the export market.

Governments may well buy small quantities of critical metals for security purposes, but the government of Australia needs hardly any such material and the actual needs of the US military are small.  If there is a revival of the total REE supply chain in the USA then a stockpile to protect the INDUSTRIAL supply chain could be enough reason for private industry to fund a Molycorp or a Lynas.

The key stockpilers of the REEs as rare materials over the next decade are likely to be the nations and industries with the most pressing needs for them. Those would include China, Japan, Korea, India, the EU, and last, and presently least important, the USA.

Stockpiling may be used as a reason to capitalize security of supply. In other words stockpilers will pay more to ensure domestic supply.

With regard to HREEs, based on the information that I have about the deposits, management, markets and politics to be served by the potential rare-earth mines that can produce HREEs, I have reduced my interest in the space to the following. I may have missed a good one or included a bad one, but I think that the survivors in 2015 must be in my list today:

  • Avalon Rare Metals (TSX:AVL, AMEX:AVL)
  • Great Western Minerals Group (TSX.V:GWG, OTCBB:GWMGF)
  • Matamec Explorations (TSX.V:MAT, PK:MTCEF)
  • Quest Rare Minerals (TSX.V:QRM, AMEX:QRM)
  • Rare Element Resources (TSX.V:RES, AMEX:REE)
  • Tantalus Rare earths (TEFFF.Pk)
  • Tasman Metals (TSX.V:TSM, PK:TASXF, F:T61)
  • Ucore Rare Metals (TSX.V:UCU, OTCQX:UURAF)

I believe that REEs can be produced as secondary values / byproducts at the lowest costs, by:

  • AMR Minerals
  • Alkane Resources (ASX:ALK, OTCQX:ANLKY)
  • Orbite Aluminae (TSX.ORT.A)
  • Rare Earth Metals (TSX.V:RA)

Low-thorium deposits are highly desirable for LREEs and, of course, HREEs but they are few and far between. Owners of such deposits include:

  • Rare Earth Metals (TSX.V:RA)
  • Tasman Metals

Recycling from industrial process and end-of-life scrap plus REE containing slags and residues, can provide a limited but significant and immediate supply of products at the lowest cost. This is because the energy and cost of originALLY mining and separating them from each other in gross is built into the scrap as intrinsic value.

In 1976, China exported for the entire year the dollar value of its current (2011) daily exports! But, what exactly does China export? Two things: Labor content and the least quality to make a product competitive. What exactly does China import? Two things: Intellectual property (often as in the case of the American OEM automotive industry at NO COST) and raw materials.

Let’s focus on raw materials.

The best investment possible is to supply a growing demand for a material that is scarce to begin with. The LREEs are not rare nor even hard to get at; they are just currently too expensive to produce against the Chinese supply chain. On the other hand, the HREEs are scarce even in China, and also even in China their production costs are high due to the low grades that are worked.

Thus, it turns out that deposits containing the highest ratios of HREEs to total REEs, where they can be worked so as to produce a product that is saleable competitively with the Chinese production costs, can be sold into China itself as well as into Japan.

In the case of the HREEs, it is even possible to try to undercut Chinese prices to gain market share. If the production is price competitive, or even a little higher than that of China, then capitalizing the security of supply or national security issues can level the price differential at least for a critical quantity.

The idea that it is the highest-grade, largest-volume deposit that is most likely to have commercial success is I believe, confused and naïve in the extreme; it equates market capitalization & share-price maintenance, promotion and manipulation with the probability of actual commercial, competitive, production in the real world markets.

 


Disclosure: I am long GWMGF.PK.
]]> mcp lyscf.pk avl gwmgf.pk uuraf.pk tasef.pk ree raref.pk mtcef.pk qrm tefff.pk rare earths critical metals strategic metals China JP Morgan and Decoupling the Molycorp (MCP)engine from the Rare Earth Sector http://seekingalpha.com/instablog/65370-jack-lifton/218657-jp-morgan-and-decoupling-the-molycorp-mcp-engine-from-the-rare-earth-sector?source=feed 218657  

JP Morgan today, Sept 20, 2011, downgraded Molycorp (MCP) from overweight to neutral. The market reacted by selling off one billion dollars of MCP’s market capitalization as the share price lost 20% of its value in just one day. The other two rare earth juniors listed along with MCP on the AMEX, Avalon Rare Metals (AVL) and Rare Element Resources (REE) each lost around 10% of their market capitalization in the same blood bath.

JP Morgan’s (JPM’s) analyst further pronounced that ”We continue to believe that most announced rare earth supply projects beyond Molycorp and Lynas (LYSCF) will not enter the market on schedule or if ever due to financing and permitting hurdles.”

JPM is wrong about “most announced rare earth supply projects beyond Molycorp and Lynas” not entering the market, if ever, on schedule due to financing and permitting hurdles. The right sized mines with proven metallurgies and the best mix of critical rare earths will enter the market on schedule. JPM has been using its client, Molycorp, as a benchmark all along and this has blinded the financial institution to the realities of the rare earth market and to the requirements for an ideal producer, which are the lowest costs, the best mix of critical rare earths, and the right size-a size small enough to be able to supply the market and remain profitable even with reduced production (It’s called having a low overhead and a low breakeven in case those who have never run a business don’t know).

JPM is basically saying that even though it has downgraded Molycorp to neutral it, Molycorp, is still the only game in town and you can still buy it but don’t expect it to go over $66/share. Thus sayeth the same JPM that was a major player in bringing both MCP and LYSCF to the market and reaping more than $50,000,000 in fees without any real risk to itself.

The great fear among the rare earth juniors was that Molycorp would crash and burn taking them down with it. This crashing and burning now seems underway but only to those rare earth juniors that sought out listings on the AMEX have really suffered anything that cannot be attributed to generally lousy overall market conditions.

I urge everyone to decouple Molycorp from the rare earth junior sector in their portfolios for the reasons that JPM and I give below.

I have been told that the JPM mining analyst who issued JPM’s coverage of MCP today is a nice guy. Be that as it may his job is to advise JPM’s trading clients not to spin for Molycorp. He is doing his job by pointing out that:

1.       JPM’s analysts and Molycorp’s planners overall have analyzed recent rare earth price increases poorly, or not at all, as to their root causes, which now seem to JPM to be primarily due to the hoarding for speculation of rare earth materials within China rather than the massive supply deficits spun by Molycorp from a widely used “chart” that supports the Molycorp story. This is correct; the prices of the rare earths in China are much lower than those quoted by Metal-Pages and used by JPM and Molycorp,

 

2.       Molycorp’s business model must now, as it always should have, be judged by performance to objective. This requires that not only consistent objectives but also a timeline and benchmarks for reaching those objectives be established and, if a benchmark is missed, it, the miss, must be clearly due only to a reasonably unforeseeable consequence and, at the same time, missing the benchmark must not place the company in a loss making position, which will continue even if it recovers adherence to the timeline.

Judged in this way, which is how lenders and corporate bond buyers judge any company seeking strategic or credit line financing, Solyndra, for example, never would have received taxpayer guarantees. Molycorp also doesn’t qualify by the performance to objective metric (as I discuss below), and

3.       MCP has key personnel the departure of any of which would derail MCP’s business model says JPM’s analysis.

What the JPM analyst has not pointed to are:

1.       MCP’s sharp recent deviations from its original business model, as delineated in its IPO filing with the SEC. These changes included most prominently taking on the ownership and management of a company with 550 employees in a foreign country that is running a business with an output that MCP had stated that it, Molycorp, could and would produce with less than 10% of that number of workers. Note that Molycorp has even announced that it will ship ore concentrates to Estonia for processing. Besides not asking why material must be shipped 7,000 miles from Mountain Pass to Tallinn, Estonia, for processing that we were assured was best understood by Molycorp from its direct experience with its own world class facility now being enlarged and improved to a planned enormous (largest in the world) capacity JPM also forgot to ask how that shipping could be done economically and legally without extracting the metal values from the ore concentrate and removing thorium and uranium from them until a level was reached that would allow intra-California shipping, export from the US, traversing of the Panama canal and import into Estonia. I might point out that Chinese processors who are short feed stock are just as close to Mountain Pass as is Estonia and that they are scouring the world for feedstock, but that feedstock cannot be imported into China unless it meets Chinese standards for radiation levels,

 

2.       JPM also didn’t touch on the repudiation by Hitachi, announced as a suspension of negotiations, of Molycorp’s spin on a Hitachi-Molycorp magnet producing joint venture, which from the very beginning was a low level supplier – manufacturer relationship from Hitachi’s perspective not a merger of equals as Molycorp and its backers such as JPM spun it, and

 

3.       JPM barely touched on the termination of an investment offer in Molycorp by Sumitomo, which Molycorp spun that it no longer needed anyway since high prices insured profitability and in any case it was fully funded! Yet the fully funded Molycorp continues to seek Dept. of Energy loan guarantees.

The JPM coverage today got one thing very wrong. There are rare earth junior mining companies that have very advanced projects with regard to financing and permitting and many of these are well into the completion of their metallurgies and of their marketing of their production to end users.

Additionally there are two new groups of rare earth juniors:

1.       Polymetallic deposits where rare earth concentrates can be produced at very low cost as byproducts of other profitable production, and

2.       Deposits resembling China’s absorption clays where rare earth values can be extracted very simply and in which like the Chinese deposits heavy rare earths are significant components of the deposits.

I wrote about most of the best of the juniors that are on time and on target last week in a piece published by The Gold report at www.theaureport.com/pub/na/10875 as “Jack Lifton; Profit From Really Critical Rare Earth Elements.” I stand by my selections in that article.

I do think that if Lynas can overcome the political issues in Malaysia it will come on line as the first large scale producer of high quality light rare earth forms, and I do think that Great Western will be producing a mix of critical rare earths for its own magnet alloy operations according to its published time table. However Great Western cannot with present resources provide enough dysprosium or terbium to the market to fuflfill current or projected demand.

Some of the juniors I mention in my Gold Report Interview will come into prodcution to fill the gaps in demand for neodymium, europium, terbium, dysprosium, and yttrium that exist already or will shortly.

The key missing component in the non-Chinese supply is the lack of separation and refining facilites for the rare earths outside of China. Until there are such facilities producers without them or without access to them  can only providing feed stock for Chinese refiners.

Molycorp could fool all of us and accelerate the construction of a separation and refining complex in California and easily construct it in a modular fashion in order to separate and refine rare earth ores as a jobber as well as a producer. That would have been a great and profitable business and would have been my choice for the property.

 

 



Disclosure: I am long GWMGF.PK.
]]> Wed, 21 Sep 2011 00:10:04 -0400  

JP Morgan today, Sept 20, 2011, downgraded Molycorp (MCP) from overweight to neutral. The market reacted by selling off one billion dollars of MCP’s market capitalization as the share price lost 20% of its value in just one day. The other two rare earth juniors listed along with MCP on the AMEX, Avalon Rare Metals (AVL) and Rare Element Resources (REE) each lost around 10% of their market capitalization in the same blood bath.

JP Morgan’s (JPM’s) analyst further pronounced that ”We continue to believe that most announced rare earth supply projects beyond Molycorp and Lynas (LYSCF) will not enter the market on schedule or if ever due to financing and permitting hurdles.”

JPM is wrong about “most announced rare earth supply projects beyond Molycorp and Lynas” not entering the market, if ever, on schedule due to financing and permitting hurdles. The right sized mines with proven metallurgies and the best mix of critical rare earths will enter the market on schedule. JPM has been using its client, Molycorp, as a benchmark all along and this has blinded the financial institution to the realities of the rare earth market and to the requirements for an ideal producer, which are the lowest costs, the best mix of critical rare earths, and the right size-a size small enough to be able to supply the market and remain profitable even with reduced production (It’s called having a low overhead and a low breakeven in case those who have never run a business don’t know).

JPM is basically saying that even though it has downgraded Molycorp to neutral it, Molycorp, is still the only game in town and you can still buy it but don’t expect it to go over $66/share. Thus sayeth the same JPM that was a major player in bringing both MCP and LYSCF to the market and reaping more than $50,000,000 in fees without any real risk to itself.

The great fear among the rare earth juniors was that Molycorp would crash and burn taking them down with it. This crashing and burning now seems underway but only to those rare earth juniors that sought out listings on the AMEX have really suffered anything that cannot be attributed to generally lousy overall market conditions.

I urge everyone to decouple Molycorp from the rare earth junior sector in their portfolios for the reasons that JPM and I give below.

I have been told that the JPM mining analyst who issued JPM’s coverage of MCP today is a nice guy. Be that as it may his job is to advise JPM’s trading clients not to spin for Molycorp. He is doing his job by pointing out that:

1.       JPM’s analysts and Molycorp’s planners overall have analyzed recent rare earth price increases poorly, or not at all, as to their root causes, which now seem to JPM to be primarily due to the hoarding for speculation of rare earth materials within China rather than the massive supply deficits spun by Molycorp from a widely used “chart” that supports the Molycorp story. This is correct; the prices of the rare earths in China are much lower than those quoted by Metal-Pages and used by JPM and Molycorp,

 

2.       Molycorp’s business model must now, as it always should have, be judged by performance to objective. This requires that not only consistent objectives but also a timeline and benchmarks for reaching those objectives be established and, if a benchmark is missed, it, the miss, must be clearly due only to a reasonably unforeseeable consequence and, at the same time, missing the benchmark must not place the company in a loss making position, which will continue even if it recovers adherence to the timeline.

Judged in this way, which is how lenders and corporate bond buyers judge any company seeking strategic or credit line financing, Solyndra, for example, never would have received taxpayer guarantees. Molycorp also doesn’t qualify by the performance to objective metric (as I discuss below), and

3.       MCP has key personnel the departure of any of which would derail MCP’s business model says JPM’s analysis.

What the JPM analyst has not pointed to are:

1.       MCP’s sharp recent deviations from its original business model, as delineated in its IPO filing with the SEC. These changes included most prominently taking on the ownership and management of a company with 550 employees in a foreign country that is running a business with an output that MCP had stated that it, Molycorp, could and would produce with less than 10% of that number of workers. Note that Molycorp has even announced that it will ship ore concentrates to Estonia for processing. Besides not asking why material must be shipped 7,000 miles from Mountain Pass to Tallinn, Estonia, for processing that we were assured was best understood by Molycorp from its direct experience with its own world class facility now being enlarged and improved to a planned enormous (largest in the world) capacity JPM also forgot to ask how that shipping could be done economically and legally without extracting the metal values from the ore concentrate and removing thorium and uranium from them until a level was reached that would allow intra-California shipping, export from the US, traversing of the Panama canal and import into Estonia. I might point out that Chinese processors who are short feed stock are just as close to Mountain Pass as is Estonia and that they are scouring the world for feedstock, but that feedstock cannot be imported into China unless it meets Chinese standards for radiation levels,

 

2.       JPM also didn’t touch on the repudiation by Hitachi, announced as a suspension of negotiations, of Molycorp’s spin on a Hitachi-Molycorp magnet producing joint venture, which from the very beginning was a low level supplier – manufacturer relationship from Hitachi’s perspective not a merger of equals as Molycorp and its backers such as JPM spun it, and

 

3.       JPM barely touched on the termination of an investment offer in Molycorp by Sumitomo, which Molycorp spun that it no longer needed anyway since high prices insured profitability and in any case it was fully funded! Yet the fully funded Molycorp continues to seek Dept. of Energy loan guarantees.

The JPM coverage today got one thing very wrong. There are rare earth junior mining companies that have very advanced projects with regard to financing and permitting and many of these are well into the completion of their metallurgies and of their marketing of their production to end users.

Additionally there are two new groups of rare earth juniors:

1.       Polymetallic deposits where rare earth concentrates can be produced at very low cost as byproducts of other profitable production, and

2.       Deposits resembling China’s absorption clays where rare earth values can be extracted very simply and in which like the Chinese deposits heavy rare earths are significant components of the deposits.

I wrote about most of the best of the juniors that are on time and on target last week in a piece published by The Gold report at www.theaureport.com/pub/na/10875 as “Jack Lifton; Profit From Really Critical Rare Earth Elements.” I stand by my selections in that article.

I do think that if Lynas can overcome the political issues in Malaysia it will come on line as the first large scale producer of high quality light rare earth forms, and I do think that Great Western will be producing a mix of critical rare earths for its own magnet alloy operations according to its published time table. However Great Western cannot with present resources provide enough dysprosium or terbium to the market to fuflfill current or projected demand.

Some of the juniors I mention in my Gold Report Interview will come into prodcution to fill the gaps in demand for neodymium, europium, terbium, dysprosium, and yttrium that exist already or will shortly.

The key missing component in the non-Chinese supply is the lack of separation and refining facilites for the rare earths outside of China. Until there are such facilities producers without them or without access to them  can only providing feed stock for Chinese refiners.

Molycorp could fool all of us and accelerate the construction of a separation and refining complex in California and easily construct it in a modular fashion in order to separate and refine rare earth ores as a jobber as well as a producer. That would have been a great and profitable business and would have been my choice for the property.

 

 



Disclosure: I am long GWMGF.PK.
]]> mcp lyscf.pk gwmgf.pk rare earths The Number of Nearest-in-Time Potential American Critical Heavy Rare Earths Producers is Increased by One: The Coming Rare Earth Junior Mining Cull, Crystal Balls and Brass Balls http://seekingalpha.com/instablog/65370-jack-lifton/201967-the-number-of-nearest-in-time-potential-american-critical-heavy-rare-earths-producers-is-increased-by-one-the-coming-rare-earth-junior-mining-cull-crystal-balls-and-brass-balls?source=feed 201967 Rare Element Resources Ltd (REE.AMEX) today issued a press release that makes very good reading for the American civilian and military industrial manufacturing sector. REE now joins Ucore as having a high potential for producing the critical rare earths, dysprosium, terbium, europium, and neodymium in commercial quantities. Additionally REE could produce samarium, gadolinium, and yttrium in notable and certainly commercial quantities thus joining Ucore (UURAF,PK) in that capacity.

So now there are two potential domestic American  HREE producers that I think are viable and have high probabilities of commercial success.

The sole free market criterion for measuring the value of a company is profitability. For "junior" mining companies, all of which are mineral exploration ventures organized to explore for and verify valuable deposits of minerals that can be either developed by the junior or sold by it to a mining company for development as a profitable venture, Profitability in the junior mining space almost always means the difefrence between the sale price for the deposit and the cost of getting to a saleable point..

Thus junior miners are speculative ventures, which, in a fair and balanced world, would be rated as much by their management experience and marketing skills as by the economic value of their deposits.

Unfortunately this is not the case.The measue of success (metric) used in the junior mining world is the previous experience of the particular promoters involved in successful past promotions especially in gold, the forever fad and, most recently, uranium.

Human nature is to create fads and measure the worth of individuals by their adherence to the particular "narrative" of the latest fad. For the last three years the promotional aspect of the stock markets based in Vancouver, Toronto, Sydney, Perth, Frankfort, London and New York have been suucessfully promoting a rare earth boomlet. Various pundits and money managers have spun stories of the importance of the rare earth metals beyond any recognizable common sense logic in order to lower the bar for entry to the rare earth junior mining corral.

Some rare earth metals are indeed very important for the maintenance of the mass production of the miniaturized electronic devices that the younger among us believe have always existed and have always been available cheaply and abundantly.

The total conversion of our technological society's electric motors and generators to smaller and more powerful types using rare earth permanent magnets is nearing completion. Rare earth permanent magnets, particularly of the neodymium-iron-boron metallurgy dominate the market for permanent magnets for all uses.

Interestingly enough, of the very small percentage of neodymium-iron-boron magnet powder and solid alloy imported into the USA for the production of rare earth permanent magnets most is used by high tech civilian industry such as that for medical imaging devices. Only a smaller amount of the total is used for significant military devices. For example, just a tiny amount of the rare earth metal, samarium, is imported into the USA for direct conversion here into samarium cobalt alloy for rare earth permanent magnets exclusively for the US military,

I doubt that more than 500 tons in total of magnet alloy as raw materials are imported into the USA each year for magnet fabrication, and of that amount I seriously doubt that more than 100 tons is used exclusively for military production.

At least 90% of the world's rare earth permanent magnets are made in China (60% and Japan, 30%). The alloys from which they are made are produced almost entirely (95%) in China from rare earth metals produced domestically there.

Anyone in the USA who is planning to manufacture rare earth permanent magnets from domestically (USA) produced rare earth metals is facing the situation that:

1. No rare earth ores have been mined in North America in the 21st century,

2. No American company using American developed technology has produced rare earth metals in the USA in the 21st century,

3. No American company has made neodymium-iron-boron magnets from the individual rare earth metals in the USA since, at least 2004. Electron Energy Inc in Lancaster, Pa. has however made smaraium-cobalt rare earth permanent magnet alloys and magnets. The company, I believe,  has entered into an off-take with Great Westernn Minerals Group (GWMGF.PK) for rare earth metals to be produced by that company's Less Common Metals subsidiary from its, GW's, mining and refining operations in South Africa.

4. Only a small overall tonnage of rare earth permanent magnets are currently produced in the USA from a rare earth metal base, and, critically,

5. All of the dysprosium used to modify the heat cycle sensitivity of rare earth permanent magnets, which is critical in their largest end-use, "under the hood" applications in the OEM automotive industry, as well as in their military use, is and always has been produced in China.

Just two of the US junior mining ventures currently in development, principally Ucore (UURAF.OTCF) in Alaska and Rare Element Resources (REE.ASE)  in Wyoming could produce dysprosium in commercial quantities in time for the American military and industrial complexes to free themselves of Chinese monopolizing of the rare earth space in general and of the heavy rare earths in particular, before the liklihood of the discontinuing of the export of dysprosium by China either in or before 2015.

America needs between 5,000 and 10,000 metric tons a year of lanthanum (90%) and cerium.(10%) in order for the fluid cracking catalyst manufacturing industry toremain based mainly in the USA. America also needs 4,000 tons, at most, of neodymium to manufacture all of the rare earth permanent magnets used in every application in the USA today rather than import most of them from China and Japan-this estimate may be too high-and America needs between a minimum of 400 and a maximum of  1200 tons of dysprosium to modify those magnets so that they can be repeatedly exposed to heating and cooling cycles (such as "under the hood") and retain their original properties. Also if America has 100 tons a year of domestically produced terbium it could dominate the world of non incandescent lighting if it so desired.

Some of the above high tonnage production is simply not possible in the USA. Particularly amounts of dysprosium of more than 300 tons per year and of less than 60 tons of terbium, at most.

For critical applications investors should look first to those who can in fact produce dysprosium and terbium and, of course lanthanum and neodymium.

All of the emphasis so far has been on lanthanum, cerium, and neodymium, but only one of those, neodymium, is really a critical metal that I believe is even now in short supply.

The important critical rare earth metals are now dysprosium and terbium because they are not produced in the USA but are necessary for the high tech devices of which America is the largest per capita consumer..

The smart play is clearly to support those who can produce the most critical of the rare earths by also buying all of the lanthanum, cerium, and neodymium that they can produce. Rare Element Resources and Ucore should be the choice for end users of magnet materials and of lighting materials and of fluid cracking catalyst materials, because by buying out the production of these two companies in total American companies can be assured of independence from Chinese decisions on allocation.

I also urge American civilian and military industry to support vertical integration the rare earth permanent magnet industry and the phosphor industry. America has all of the technology to transform rare earth ore conentrates, the first item in the rare earth end use product supply chain into finsihed magnets and CFLs. Yet we have simply abandoined these industrial steps, all of them, actually, for momentary cheaper prices.

Since neither Ucore nor RER could provide individually or even together enough lanthanum and neodymium for the American fcc industry or a revived domestic magnet manufactruing industry the smart play for end-user procurement is to form a buying group and to enter into off-take agreements for the entire outputs of RER and Ucore and to divide up the critical materials among themselves
 
Additional lanthanum, cerium, and neodymium needed by American industry can be purchased from Molycorp which can then dedicate the balance of its enormous production of light rare earths to rich overseas markets such as Japan, Korea, India and China itself. 

I urge the management of RER and Ucore to determine their actual cost of production of all of the rare earth metals individually and then offer them to a procurement operation at a known level of profit and a predictable cost for the buyer.

The two mining companies will be very profitable and the end users will continue to be able to utilize rare earths in their products and thus compete with Chinese industries that will continue to have easy access to raw materials the prices of which are now climbing within China along with labor, regulatory, health, and safety costs.

It is obvious that if Molycorp's projections are accurate then it will be producing at lower costs than the Chinese. At that point Molycorp can sell its output to the world's largest consumer of its products, China, as well as to Japan, which today sources from China exclusively.

If American self-sufficiency to insure that our civilian and military manufacturing industries retain their market share and can grow is important then those sectors of our economy must strike bargains with and  buy from Rare Element Resources and Ucore to ensure their own prosperity as well as that of you and me.

I urge industry, both civilian and military, to grow a pair, work together, and get the ball(s) rolling beofre America becomes an industrial backwater.







 
 
 
 
 



Disclosure: I am long GWMGF.PK.
]]> Thu, 04 Aug 2011 16:51:53 -0400 Rare Element Resources Ltd (REE.AMEX) today issued a press release that makes very good reading for the American civilian and military industrial manufacturing sector. REE now joins Ucore as having a high potential for producing the critical rare earths, dysprosium, terbium, europium, and neodymium in commercial quantities. Additionally REE could produce samarium, gadolinium, and yttrium in notable and certainly commercial quantities thus joining Ucore (UURAF,PK) in that capacity.

So now there are two potential domestic American  HREE producers that I think are viable and have high probabilities of commercial success.

The sole free market criterion for measuring the value of a company is profitability. For "junior" mining companies, all of which are mineral exploration ventures organized to explore for and verify valuable deposits of minerals that can be either developed by the junior or sold by it to a mining company for development as a profitable venture, Profitability in the junior mining space almost always means the difefrence between the sale price for the deposit and the cost of getting to a saleable point..

Thus junior miners are speculative ventures, which, in a fair and balanced world, would be rated as much by their management experience and marketing skills as by the economic value of their deposits.

Unfortunately this is not the case.The measue of success (metric) used in the junior mining world is the previous experience of the particular promoters involved in successful past promotions especially in gold, the forever fad and, most recently, uranium.

Human nature is to create fads and measure the worth of individuals by their adherence to the particular "narrative" of the latest fad. For the last three years the promotional aspect of the stock markets based in Vancouver, Toronto, Sydney, Perth, Frankfort, London and New York have been suucessfully promoting a rare earth boomlet. Various pundits and money managers have spun stories of the importance of the rare earth metals beyond any recognizable common sense logic in order to lower the bar for entry to the rare earth junior mining corral.

Some rare earth metals are indeed very important for the maintenance of the mass production of the miniaturized electronic devices that the younger among us believe have always existed and have always been available cheaply and abundantly.

The total conversion of our technological society's electric motors and generators to smaller and more powerful types using rare earth permanent magnets is nearing completion. Rare earth permanent magnets, particularly of the neodymium-iron-boron metallurgy dominate the market for permanent magnets for all uses.

Interestingly enough, of the very small percentage of neodymium-iron-boron magnet powder and solid alloy imported into the USA for the production of rare earth permanent magnets most is used by high tech civilian industry such as that for medical imaging devices. Only a smaller amount of the total is used for significant military devices. For example, just a tiny amount of the rare earth metal, samarium, is imported into the USA for direct conversion here into samarium cobalt alloy for rare earth permanent magnets exclusively for the US military,

I doubt that more than 500 tons in total of magnet alloy as raw materials are imported into the USA each year for magnet fabrication, and of that amount I seriously doubt that more than 100 tons is used exclusively for military production.

At least 90% of the world's rare earth permanent magnets are made in China (60% and Japan, 30%). The alloys from which they are made are produced almost entirely (95%) in China from rare earth metals produced domestically there.

Anyone in the USA who is planning to manufacture rare earth permanent magnets from domestically (USA) produced rare earth metals is facing the situation that:

1. No rare earth ores have been mined in North America in the 21st century,

2. No American company using American developed technology has produced rare earth metals in the USA in the 21st century,

3. No American company has made neodymium-iron-boron magnets from the individual rare earth metals in the USA since, at least 2004. Electron Energy Inc in Lancaster, Pa. has however made smaraium-cobalt rare earth permanent magnet alloys and magnets. The company, I believe,  has entered into an off-take with Great Westernn Minerals Group (GWMGF.PK) for rare earth metals to be produced by that company's Less Common Metals subsidiary from its, GW's, mining and refining operations in South Africa.

4. Only a small overall tonnage of rare earth permanent magnets are currently produced in the USA from a rare earth metal base, and, critically,

5. All of the dysprosium used to modify the heat cycle sensitivity of rare earth permanent magnets, which is critical in their largest end-use, "under the hood" applications in the OEM automotive industry, as well as in their military use, is and always has been produced in China.

Just two of the US junior mining ventures currently in development, principally Ucore (UURAF.OTCF) in Alaska and Rare Element Resources (REE.ASE)  in Wyoming could produce dysprosium in commercial quantities in time for the American military and industrial complexes to free themselves of Chinese monopolizing of the rare earth space in general and of the heavy rare earths in particular, before the liklihood of the discontinuing of the export of dysprosium by China either in or before 2015.

America needs between 5,000 and 10,000 metric tons a year of lanthanum (90%) and cerium.(10%) in order for the fluid cracking catalyst manufacturing industry toremain based mainly in the USA. America also needs 4,000 tons, at most, of neodymium to manufacture all of the rare earth permanent magnets used in every application in the USA today rather than import most of them from China and Japan-this estimate may be too high-and America needs between a minimum of 400 and a maximum of  1200 tons of dysprosium to modify those magnets so that they can be repeatedly exposed to heating and cooling cycles (such as "under the hood") and retain their original properties. Also if America has 100 tons a year of domestically produced terbium it could dominate the world of non incandescent lighting if it so desired.

Some of the above high tonnage production is simply not possible in the USA. Particularly amounts of dysprosium of more than 300 tons per year and of less than 60 tons of terbium, at most.

For critical applications investors should look first to those who can in fact produce dysprosium and terbium and, of course lanthanum and neodymium.

All of the emphasis so far has been on lanthanum, cerium, and neodymium, but only one of those, neodymium, is really a critical metal that I believe is even now in short supply.

The important critical rare earth metals are now dysprosium and terbium because they are not produced in the USA but are necessary for the high tech devices of which America is the largest per capita consumer..

The smart play is clearly to support those who can produce the most critical of the rare earths by also buying all of the lanthanum, cerium, and neodymium that they can produce. Rare Element Resources and Ucore should be the choice for end users of magnet materials and of lighting materials and of fluid cracking catalyst materials, because by buying out the production of these two companies in total American companies can be assured of independence from Chinese decisions on allocation.

I also urge American civilian and military industry to support vertical integration the rare earth permanent magnet industry and the phosphor industry. America has all of the technology to transform rare earth ore conentrates, the first item in the rare earth end use product supply chain into finsihed magnets and CFLs. Yet we have simply abandoined these industrial steps, all of them, actually, for momentary cheaper prices.

Since neither Ucore nor RER could provide individually or even together enough lanthanum and neodymium for the American fcc industry or a revived domestic magnet manufactruing industry the smart play for end-user procurement is to form a buying group and to enter into off-take agreements for the entire outputs of RER and Ucore and to divide up the critical materials among themselves
 
Additional lanthanum, cerium, and neodymium needed by American industry can be purchased from Molycorp which can then dedicate the balance of its enormous production of light rare earths to rich overseas markets such as Japan, Korea, India and China itself. 

I urge the management of RER and Ucore to determine their actual cost of production of all of the rare earth metals individually and then offer them to a procurement operation at a known level of profit and a predictable cost for the buyer.

The two mining companies will be very profitable and the end users will continue to be able to utilize rare earths in their products and thus compete with Chinese industries that will continue to have easy access to raw materials the prices of which are now climbing within China along with labor, regulatory, health, and safety costs.

It is obvious that if Molycorp's projections are accurate then it will be producing at lower costs than the Chinese. At that point Molycorp can sell its output to the world's largest consumer of its products, China, as well as to Japan, which today sources from China exclusively.

If American self-sufficiency to insure that our civilian and military manufacturing industries retain their market share and can grow is important then those sectors of our economy must strike bargains with and  buy from Rare Element Resources and Ucore to ensure their own prosperity as well as that of you and me.

I urge industry, both civilian and military, to grow a pair, work together, and get the ball(s) rolling beofre America becomes an industrial backwater.







 
 
 
 
 



Disclosure: I am long GWMGF.PK.
]]> uuraf.pk ree gwmgf.pk mcp rare earths rare earth permanent magnets Alaska wyoming Rare Earths, Reality, and High Finance http://seekingalpha.com/instablog/65370-jack-lifton/198748-rare-earths-reality-and-high-finance?source=feed 198748  

Mitsubishi(MSBHY) and Lynas(LYSCF), A Love Affair or a Divorce from the dollar?

 

This morning my Google filter caught the following story abstract from Industrial Minerals, which can be found at http://www.indmin.com/Article/2871816/Channel/19557/Mitsubishi-takes-stake-in-rare-earths-group-Lynas.html. I am not a subscriber to IM, so I have only the above abstract, but I am intrigued by what I believe it really implies, and I am really intrigued by the fact that the story abstract does not mention some very real implications here. It seems to me that:

1.       Mitsubishi would right now rather have a bundle of securities, 25% of which is in Lynas shares, than a claim on US Dollars, and

2.       Morgan Stanley (MS) would rather let go of a substantial stake in Lynas than give up cash

What I see here as a logical consequence of my view of these actions is that Morgan Stanley believes it can get no further added value from its Lynas sate, and that Mitsubishi would rather have securities than a right to a fixed amount of American currency.

Either the author of the IM article or I may be guilty of the logical fallacy called post hoc propter hoc, which is Latin for “After this, (therefore) on account of this.” It means that you cannot assume that an event that follows another event in time is necessarily caused by that prior event.

I think it just as likely that Mitsubishi and Morgan Stanley have the views I expressed above as it is that this transaction was driven by a desire for Mitsubishi to acquire shares in Lynas.

No matter what however I’d like to know why Morgan Stanley did what they did. Mitsubishi, it seems to me, got the best of the deal, unless Morgan Stanley knows something we don’t.

Please, if anyone has read the IM article fully tell me if I am off track here.

]]> Tue, 26 Jul 2011 12:58:06 -0400  

Mitsubishi(MSBHY) and Lynas(LYSCF), A Love Affair or a Divorce from the dollar?

 

This morning my Google filter caught the following story abstract from Industrial Minerals, which can be found at http://www.indmin.com/Article/2871816/Channel/19557/Mitsubishi-takes-stake-in-rare-earths-group-Lynas.html. I am not a subscriber to IM, so I have only the above abstract, but I am intrigued by what I believe it really implies, and I am really intrigued by the fact that the story abstract does not mention some very real implications here. It seems to me that:

1.       Mitsubishi would right now rather have a bundle of securities, 25% of which is in Lynas shares, than a claim on US Dollars, and

2.       Morgan Stanley (MS) would rather let go of a substantial stake in Lynas than give up cash

What I see here as a logical consequence of my view of these actions is that Morgan Stanley believes it can get no further added value from its Lynas sate, and that Mitsubishi would rather have securities than a right to a fixed amount of American currency.

Either the author of the IM article or I may be guilty of the logical fallacy called post hoc propter hoc, which is Latin for “After this, (therefore) on account of this.” It means that you cannot assume that an event that follows another event in time is necessarily caused by that prior event.

I think it just as likely that Mitsubishi and Morgan Stanley have the views I expressed above as it is that this transaction was driven by a desire for Mitsubishi to acquire shares in Lynas.

No matter what however I’d like to know why Morgan Stanley did what they did. Mitsubishi, it seems to me, got the best of the deal, unless Morgan Stanley knows something we don’t.

Please, if anyone has read the IM article fully tell me if I am off track here.

]]> msbhy ms lyscf.pk rare earths dollar Down Under Down Under: A Visit to Arafura Resources Nolan's Bore Rare Earth's Project in Australia's Northern Territories http://seekingalpha.com/instablog/65370-jack-lifton/190242-down-under-down-under-a-visit-to-arafura-resources-nolan-s-bore-rare-earth-s-project-in-australia-s-northern-territories?source=feed 190242
We were first both invited speakers at a Rare Earth & Strategic Metals Conference here, and then we both conducted a well-attended workshop on understanding and participating in the rare earth supply chain for junior miners, refiners, and end-users. The workshop attendees/participants included public companies such as Matamec(TSX Venture: MAT) as well as closely held ventures from Russia and Europe. The Australian government was represented as were Australian universities and a well regarded`Australian national laboratory that studies, develops, and validates metallurgies for miners and prospective miners.

On Thursday we flew to Alice Springs in the Northern Territory, and then drove for an hour and a half to the Aileron Roadhouse, which is just a few KM from Nolan's Bore, a water well originally dug to provide water for cattle grazing and now the center of the rare earth ore bodies being brought into production by Arafura Resources (ASX: ARU). In fact the company's mining will begin literally at Nolan's Bore, which Mr Nolan seems to have drilled many decades ago right through the center of a rich mineralization of rare earths.

Gareth and I visited`the drilling camp on the mining site where Arafura has already begun an impressive program to verify the extent of its deposits. 

Gareth will provide the technical details of what we observed and learned when he reports on the Arafura visit on TMR, techmetalsresearch.com, our web site.

Just for now I want to tell you the initial results of my observations of the operations and the managers and workers of Arafura Resources:

Arafura Resources has a first class operational management (I have never yet met its administrative managers), a skilled and dedicated workforce, and a first class operation. Arafura's business model is excellent. It's exactly what it should be and it is running smoothly.

I decided to draft this note this evening while I am still in Australia, because earlier this week before I ever met any of Arafura's staff I saw a story that Arafura had decided to postpone the completion of its bankability/feasibility study by 6 months to a year in order to assure that it wasn't prematurely rushed into operation.

This "slow down" is a very good idea. It seems to me that to closely study a complex undertaking, before committing to specific expensive undertakings, that are difficult once underway to modify is the soul of professional and well thought out business models and an indicia of good management.

Siting an extraction and S/X plant capable of producing 10-20 KT/year of separated rare earth oxides is not to be rushed or done except after studying the needs of such a facility thoroughly, with care for details, and the best possible estimate of the future of variable costs. 

Yet I see stories that "something is wrong" or that "there`are problems with the company" and other such punditry based on the fact that the pundits involved do not know how a good business should be run and have not looked at the hard data and plans of the company.

The rare earths' sector is rapidly separating itself into wannabes (want to be in operation) and gonnabes (going to be in operation).

The gonnabes are going to be because they have a good deposit, a metallurgy that works, a marketing plan, and management that efficiently manage both the mining and the financing operations.

The cold cruel world of capitalism also requires that the gonnabes are among the first to produce and, at the same time, can sell profitably at the lowest price and highest quality among their competitors.

I'm placing Arafura Resources in my list of the top 10 global rare earth projects I have seen.

My list will appear next month, July, on TMR's web site along with the overall reasons that I have decided to create it, and the reasons for my choices.

Be aware all ye pundits that I consider this week's announcement by Arafura Resources to be very positive, and that I am curious why anyone would come to any other conclusion.

I'm going from here to Singapore for further work on the rare earth's sector, and I'll be home on July 3. 

Please make wise choices in your investments and don't make investment decisions based on the analyses by those who don't understand how a profitable business must be built and operated.






 
]]> Sat, 25 Jun 2011 05:28:35 -0400
We were first both invited speakers at a Rare Earth & Strategic Metals Conference here, and then we both conducted a well-attended workshop on understanding and participating in the rare earth supply chain for junior miners, refiners, and end-users. The workshop attendees/participants included public companies such as Matamec(TSX Venture: MAT) as well as closely held ventures from Russia and Europe. The Australian government was represented as were Australian universities and a well regarded`Australian national laboratory that studies, develops, and validates metallurgies for miners and prospective miners.

On Thursday we flew to Alice Springs in the Northern Territory, and then drove for an hour and a half to the Aileron Roadhouse, which is just a few KM from Nolan's Bore, a water well originally dug to provide water for cattle grazing and now the center of the rare earth ore bodies being brought into production by Arafura Resources (ASX: ARU). In fact the company's mining will begin literally at Nolan's Bore, which Mr Nolan seems to have drilled many decades ago right through the center of a rich mineralization of rare earths.

Gareth and I visited`the drilling camp on the mining site where Arafura has already begun an impressive program to verify the extent of its deposits. 

Gareth will provide the technical details of what we observed and learned when he reports on the Arafura visit on TMR, techmetalsresearch.com, our web site.

Just for now I want to tell you the initial results of my observations of the operations and the managers and workers of Arafura Resources:

Arafura Resources has a first class operational management (I have never yet met its administrative managers), a skilled and dedicated workforce, and a first class operation. Arafura's business model is excellent. It's exactly what it should be and it is running smoothly.

I decided to draft this note this evening while I am still in Australia, because earlier this week before I ever met any of Arafura's staff I saw a story that Arafura had decided to postpone the completion of its bankability/feasibility study by 6 months to a year in order to assure that it wasn't prematurely rushed into operation.

This "slow down" is a very good idea. It seems to me that to closely study a complex undertaking, before committing to specific expensive undertakings, that are difficult once underway to modify is the soul of professional and well thought out business models and an indicia of good management.

Siting an extraction and S/X plant capable of producing 10-20 KT/year of separated rare earth oxides is not to be rushed or done except after studying the needs of such a facility thoroughly, with care for details, and the best possible estimate of the future of variable costs. 

Yet I see stories that "something is wrong" or that "there`are problems with the company" and other such punditry based on the fact that the pundits involved do not know how a good business should be run and have not looked at the hard data and plans of the company.

The rare earths' sector is rapidly separating itself into wannabes (want to be in operation) and gonnabes (going to be in operation).

The gonnabes are going to be because they have a good deposit, a metallurgy that works, a marketing plan, and management that efficiently manage both the mining and the financing operations.

The cold cruel world of capitalism also requires that the gonnabes are among the first to produce and, at the same time, can sell profitably at the lowest price and highest quality among their competitors.

I'm placing Arafura Resources in my list of the top 10 global rare earth projects I have seen.

My list will appear next month, July, on TMR's web site along with the overall reasons that I have decided to create it, and the reasons for my choices.

Be aware all ye pundits that I consider this week's announcement by Arafura Resources to be very positive, and that I am curious why anyone would come to any other conclusion.

I'm going from here to Singapore for further work on the rare earth's sector, and I'll be home on July 3. 

Please make wise choices in your investments and don't make investment decisions based on the analyses by those who don't understand how a profitable business must be built and operated.






 
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