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  • Miners Must Control Costs To Improve Share Prices: Byron King

    Global unrest and inflation will play a role in improving fundamentals for gold and silver, Byron King, newsletter editor for Agora Financial, tells The Gold Report. But miners have to control costs and clean up their internal cash flow, too. Meanwhile, investors who have run up gains in traditional investments are looking for new asset classes. King shares the names of a few well-managed companies in the gold, graphite and rare earth space that are husbanding their assets and adding value, sometimes in unexpected ways.

    The Gold Report: Byron, gold is above $1,300/ounce [$1,300/oz]-although not by much-and silver topped $20/oz. What was holding their prices down, and what are the fundamentals that will move the prices going forward?

    Byron King: The short answer is that, for all its faults, the dollar has strengthened, which holds down gold and silver prices. The longer answer is that gold and silver are manipulated metals. That is, the world's central banks have an aversion to things they can't control, and one of the things that they can't control is elemental metals like gold and silver.

    Let's ask why the dollar has strengthened. The U.S. is probably in its weakest geopolitical situation in decades. The Wall Street Journal on July 17 had a front-page story about the confluence of crises across the world-Ukraine, Middle East, Southeast Asia-all of which are profound challenges to American power militarily, diplomatically and economically. But the dollar is still holding up. Why?

    I believe the dramatic recent increase in U.S. energy production is what's behind the stronger dollar. With more oil and natural gas from fracking, the U.S. is the world's largest energy producer. In addition, we're importing far less oil and exporting a lot more refined product. It helps the dollar.

    Still, when I look at the big picture for gold, I see a resource whose production is challenged on the best of days. Output is declining in the major traditional sources: South Africa is in decline; Australia is challenged; some of the big plays in Nevada are getting long in the tooth.

    The majors have their own challenges. Take for example, the on-again, off-again courtship between Barrick Gold Corp. [ABX] and Newmont Mining Corp. [NEM]. It's not that companies can't make money mining gold. But the Barrick-Newmont dance indicates how important it is to cut costs in this environment. This potentially massive gold merger is all about cutting costs, and it hasn't happened because of the corporate politics of whose costs get cut.

    TGR: Is there a cycle that builds on itself? As the gold price goes down, companies-especially the majors-spend less on exploration and development, which depletes their reserves, production declines and their costs increase. Are we in that part of the cycle where lower prices are setting the stage for less supply and the need for a higher gold price later?

    BK: Yes, exactly. Falling supply and static price makes a classic economic case. We are setting the stage for less supply and higher prices. The market is dancing around the reality, but it's still the reality. Consider that, in the last year or so, gold has been as cheap as $1,200/oz. In late March or early April, the price almost touched $1,400/oz. That's a 16-17% price swing in two months. Is this the sign of a well-balanced market?

    Now consider how macro-events drive things. In the first half of 2014, geopolitical events-Ukraine, Syria, Iraq-drove the gold price. And to me, these locales bring it back to that dollar-energy relationship.

    Iraq produces 2.5 million barrels [2.5 MMbbl]/day of exportable oil. In June, when it looked as if Iraq might not survive, the idea of those 2.5 MMbbl/day being taken out of the market helped drive the price of gold from $1,240/oz to over $1,300/oz.

    Or look at Ukraine. It straddles key gas export lines to Europe, and the situation involves Russia, which is one of the world's largest energy producers. Problems with Russia, let alone sanctions and such, affect perceptions of future energy supply, which tends to benefit the dollar.

    All in all, where is the gold price headed? Long-term, the answer is up. Inflation is not going away. I think that the central banks of the world, and the people who run university economic departments and train the leaders of the future, really do believe that we ought to have long-term inflation. If that is indeed where they're coming from, you need to own gold and silver.

    I think the long-term prospects for demand-the long-term prospects for gold as money and as backing for money-are much better than they used to be.

    TGR: Given the volatility that you discussed and the challenges of the U.S. dollar, is there significant retail and institutional cash on the sidelines waiting to find the confidence to jump back into precious metals, as commodities and mining equities?

    BK: There is an immense amount of money waiting for the next step. In the last few years, the big indexes have done incredibly well; everything has gone up, from airlines to consumer electronics, Silicon Valley, aerospace. A lot of people have made a lot of money in the big markets and in traditional investments.

    Now, where does it all go? All that recently minted money needs a new home. If you have balance sheet appreciation from the large caps and the big blue chips, you're looking for something else. My sense is that a lot of people are looking at the basic resource sector.

    We have already seen some of that money step back into the market in the first half of this year. Some of the highest-quality small and midsized mining plays have seen large moves.

    TGR: Which companies are getting the attention or which should get some attention?

    BK: I'll start with a large intermediate play that's about 18 months into developing the newest mine in Canada, Detour Gold Corp. (OTCPK:DRGDF) [DGC:TSX]. The company has more than 15 million ounces [15 Moz] of gold in reserves. It is ramping up to about 150,000 oz [150 Koz] a quarter. With guidance of 600 Koz/year, that gives the project a 21-year mine life.

    Toward the end of 2013, Detour's shares were mugged. They went down to near $4/share. In H1/14, the stock tripled to more than $12.

    Now you might ask, is there still any upside left? I believe there is. The up cycle is going to kick back in. A company like Detour-large, well capitalized, intermediate sized, big production, good life of mine, with its costs under control-has more upside left.

    TGR: Detour has focused on improving its operating performance. Did you see the impact of this effort in its recently released first quarter results?

    BK: Yes, because it keeps lowering its cost per ounce. In a world of, let's say, $1,300/oz gold, Detour is producing at $950/oz, all-in, with a target of $850/oz. If Detour keeps taking cost out of its equation faster than the market can drive down the price of gold, it will do all right. If the market takes the price of gold up, it's pure gravy for investors.

    TGR: What about a company that is just going into production?

    BK: I've been following GoGold Resources Inc. (OTC:GLGDF) [GGD:TSX.V]. I've met the management team and found them to be sharp people who know what they're doing. The company is working on a variety of projects in Mexico. One of its big plays is the Parral Tailings project, re-mining old tailings from the heart of the Mexican gold and silver belt in Chihuahua.

    Parral is one of its significant success stories: more than 35 Moz of silver equivalent, in a situation where it's very cheap to reprocess the tailings. Instead of building a new mine, GoGold just has to move the tailings as it reprocesses. GoGold keeps adding this kind of low-cost type production, which makes it a nice play in this market.

    TGR: Are there companies you think can make money regardless of whether the gold price is $1,400/oz or $1,300/oz?

    BK: Well, it takes time to build a mine and work out the operational economics. Every case is different. Still, I'm looking hard at companies that are positioning themselves to come out strong in the next two years.

    TGR: The last time we talked, you explained that, in the context of history, we've just entered the early stages of the materials revolution, using advanced forms of graphite and rare elements. Can you give us an update on that revolution?

    BK: When you get into the graphite space, you quickly realize that graphite is more of a technology play than a basic resource play. There is a materials revolution going on with carbon, certainly with graphite. It's extremely investable, but you have to have patience, and be willing to learn some complex new science. If an investor doesn't want to become educated on the high-end carbon chemistry that's happening out there, this could become an uncomfortable space in a hurry.

    Look at it this way. If I mine gold, silver or copper, I can sell it to pretty much anybody, from dentists to jewelers to wire makers to electronic makers. The end users will buy it as long as there is a basic spec or quality to it.

    Graphite is different. Once you mine it, what you do with the graphite depends on who your user is. The end user has a specific use in mind-battery anodes, fire suppression, heat dissipation, high-strength materials-that requires an entire industrial chain that has to happen between the mouth of the mine and the end user.

    TGR: Do you have any words of wisdom for investors who are trying to decide when to enter the market?

    BK: We've seen several strong investment points for gold and silver in the last six months. Right now, I think we might be due for a summer correction, although geopolitical events seem to be exploding all over the place. Sorry, but I just don't have a subscription to next week's Wall Street Journal. My issue only comes every morning.

    Still, we've got tremendous volatility. Just in the time we've been talking, JT, the price of gold dropped $33/oz, which is a bit of an eye-opener. It makes you want to look at the rest of the world and see what's going on, what might have prompted that drop.

    The question for the investor is, what are you going to do? Well, if there's a downdraft to gold and silver prices, then you want to be involved in companies that can get their costs down faster than the market can beat down the price. But whatever happens day to day, I think metal prices will go up over the long term, because of inflation.

    When it comes to picking companies in which to invest, you need to be willing to diversify across many ideas. While it's great to put a lot of money into a couple of plays and see one or two do really well, that's usually not the way life works. In the small-cap resource space in particular, you need to find 6 to 10 quality plays-or more-and spread your investments around.

    Then you need to watch carefully, and be willing to cut your losses. You also need to be ready for surprises on the upside. When a company gets a takeout offer or has a good piece of news from the drill rig, you can see fabulous gains flowing to patient investors. Just remember that, when good things happen, you need to sell some shares and take some of that gain off the table.

    TGR: Byron, it's always a pleasure. Thanks for your time and your insights.

    This interview was conducted by JT Long of The Gold Report and can be read in its entirety here.

    Byron King writes for Agora Financial. He edits three newsletters: Outstanding Investments, Real Wealth Trader and Military Technology Alert. He studied geology and graduated with honors from Harvard University, and holds advanced degrees from the University of Pittsburgh School of Law and the U.S. Naval War College. He has advised the U.S. Department of Defense on national energy policy.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Byron King: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

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    Jul 21 3:26 PM | Link | Comment!
  • Sean Rakhimov: Upward Trend A Silver Investor's Friend

    An upward trend is afoot in the silver space, says Sean Rakhimov, editor of SilversStrategies.com. Rakhimov believes that at $26/ounce the reversal of the downward trend in silver will be confirmed and silver investors should set their sights on the next resistance level-$32/ounce. And if that threshold is breached, silver will test $50/ounce and more. In this interview with The Gold Report, Rakhimov talks about a few silver miners that are well positioned to ride this trend perhaps several multiples higher.

    The Gold Report: The Washington D.C.-based Silver Institute reports that net silver demand has exceeded net silver supply each year since 2004, with a supply deficit of 113 million ounces [113 Moz] reported in 2013. Why hasn't that trend translated into dramatically higher silver prices?

    Sean Rakhimov: First, I don't put much faith in these numbers. For instance, CPM Group has somewhat different numbers. Either way, silver supply and demand have been roughly in equilibrium, in my opinion, over the past decade or so. Second, silver manifests itself as a precious metal in times of crisis or uncertainty. When it's business as usual, silver acts more like a base metal and trades more on supply and demand numbers. Silver prices will respond during a crisis as its perception changes from an industrial to precious metal. That's when you will see more of what we saw in 2011 when in the space of about six months silver went up three times. Another period like that is coming.

    TGR: In early June we started to see stronger precious metals prices and that has carried through. Is this a trend?

    SR: It is the beginning of a trend. Precious metals characteristically start going up after a prolonged decline, yet early in the reversal they rarely inspire any confidence because the last dozen or so similar moves fizzled after a 10-20% move. This could be one of those. Silver is at $21 per ounce [$21/oz] now, maybe next week it will test $18/oz again. It's anybody's guess but I believe that toward the end of the year we'll probably see higher numbers-maybe substantially higher.

    TGR: Is there a telltale sign that shows investors that this upturn is real?

    SR: There isn't one that I use. It's more of a gut feeling.

    TGR: The existing silver fix mechanism expires on Aug. 14, 2014, and methods to replace it are currently being reviewed by the London Bullion Market Authority. Is a new silver fix system likely to yield stronger silver prices?

    SR: It's likely. This new replacement for the silver fix would, at least for the next year or two, have less tinkering with it than had historically been going on with the fix. On that basis, the price should become more volatile. On balance it's probably going to be positive for the silver price.

    TGR: What are your thoughts on the silver space?

    SR: In this semi-stealthy firming up of silver instruments and investments, there is not much fanfare. Silver is certainly out of favor at the moment, which leads me to remember that it's always darkest before the dawn. And I believe that this is going to reverse itself in short order.

    Lately I've been thinking about some passages from the thinly disguised biography of Jesse Livermore, Reminiscences of a Stock Operator by Edwin Lefèvre He wrote, "There's a lot of early bulls in a bull market." I've been an early bull in a bull market for precious metals going back to the early 2000s. Many people exit along the way but Livermore's idea was that investors have to stick with it for the entire cycle. That's what I've been telling myself. Of course, convictions are tested along the way, such as during the last couple of years.

    Silver is a little like water in that if you tell people you should invest in water, the first thing people do is look at you like something is wrong with you! Yet fresh drinkable water is a scarce resource. Silver is so familiar that it lulls people into this idea that it's not important. Unsophisticated people align it with gold, yet the fundamentals for the two metals could not be more different.

    TGR: What makes silver special?

    SR: If there is one adjective to describe silver, it's "indispensable." There are no adequate replacements. It is an extremely versatile metal, perhaps the most versatile in the periodic table. Silver can do a lot of good, too. For instance, it is being used more and more in medical implements that come in contact with the human body because silver kills bacteria in single-cell organisms. Silver is also used in the food industry to preserve and process foods like meat and dairy products.

    But long before silver was improving our health and food safety, it was the world's currency. The word for silver is synonymous with money in 52 languages.

    TGR: In April 2011 silver almost reached $50/oz before undergoing a dramatic correction. Investors' knees would surely start to wobble if we saw those prices again. How would you play those kinds of price gains?

    SR: It all depends on the character of the move. Investors have to look at the volume, speed and market sentiment in order to determine the direction at that point.

    TGR: What does the next leg up in the silver price look like?

    SR: My outlook for silver for the next two or three years is somewhere between $50 and $100/oz. It could be shorter; it could be longer, but that's not critical. I'm going to stay with it for the cycle; it could be another 10 years to the end of the cycle. I do not expect this next leg to be final but I expect it to be a substantial run comparable to 2010-2011 when silver went from roughly $10 to $49.50/oz. The next move could go from about $20 to roughly $100/oz, but that will take time. Am I going to take money off the table along the way? Maybe in some stocks that got ahead of themselves or that are not responding to the price move. But I would not touch any of my physical silver.

    TGR: What are the next three key resistance levels for silver?

    SR: I think $26/oz will confirm that the trend has reversed. If we exceed $26/oz on good volume and strength, then we're off to the races. From there, the next resistance level would be $30-32/oz. If we reach beyond that level, it becomes $50/oz. And if we take $50/oz convincingly, then there's a good chance that this move is going to have some serious legs.

    TGR: The Performance Report on SilverStrategies.com monitors 27 silver equities. Since early June, 26 of them are up, some more than 40%. June is typically a soft month for precious metals equities. What's supporting those bids?

    SR: One thing is a possible top in the mainstream market. Another is that precious metals are up roughly 15% in the last month or so and stocks usually have an exaggerated move versus the metal price. And most of these stocks are coming off depressed levels. There was something of a vacuum so stocks tend to jump even on low volumes. Most of the sellers who wanted to sell did. On the flip side, it doesn't take a lot of money to acquire a lot of stocks. Again, this behavior is typical for the beginning of a larger move.

    TGR: Others?

    SR: Avino Silver & Gold Mines Ltd. (NYSEMKT:ASM) [GV6:FSE] is producing around 1+ Moz silver equivalent a year. I have visited the operation and it looks good. The share price has reflected that, even in a poor environment for resource stocks. Avino recently acquired Bralorne Gold Mines Ltd, which owns a high-grade gold project in Canada. It is a bit of a departure from producing silver in Mexico. Can the company translate its success in Mexico to Canada? Time will tell.

    The other reason I like Avino is that it's bringing the past-producing Avino silver mine back into production. That mine is in Mexico and is a stone's throw from its current operation. That should basically boost production to about 2.5 Moz annually.

    TGR: What are some other silver equities with discoveries that could ultimately become company makers?

    SR: The last discovery of that nature would be the Navidad deposit in Argentina that was discovered by IMA Exploration and ended up with Aquiline Resources. Pan American Silver Corp. (NASDAQ:PAAS) [PAA:TSX] later bought Aquiline but mothballed Navidad due to the political situation in Argentina.

    In this cycle the best performers have not been the companies that made good discoveries but rather companies that have properly managed their resources and finances. Those companies have done well. Silver Wheaton Corp. (NYSE:SLW) is on that list. First Majestic Silver Corp. (NYSE:AG) [FR:TSX;FMV:FSE], Endeavour Silver Corp. (NYSE:EXK) [EDR:TSX;EJD:FSE], are on it, too. Most of those companies acquired their flagship mines. They were not discovery stories, though as part of good management most assets were expanded and their respective mine lives were extended through drilling success.

    TGR: Let's go back to your list of the best performers in this cycle. Names like First Majestic and Endeavour.

    SR: First Majestic is perhaps the best silver miner at this time. It is a classic mining story. It started with one mine, built it up and bought another one. And then built that up. Along the way the company made some discoveries or acquired other projects and built those up-that model seems to work well in the mining space. That's been the path for many of the major gold producers. Yamana Gold Inc. (NYSE:AUY) [YRI:TSX; YAU:LSE] used the same model to achieve similar success, albeit on a smaller scale. In the silver space that company is First Majestic. I expect it to get even bigger and better, much like Yamana. Bigger production means your bottom-line gets so much bigger so much faster in a rising metal price environment.

    TGR: Is it a similar narrative for Endeavour?

    SR: In a word, yes. All these companies acquired producing or past-producing mines and revived/improved/enhanced them over time.

    Endeavour Silver is a company that quietly built-up its production profile toward 11 Moz of silver equivalent, albeit the latter part of growth came from gold. Still at that rate of production Endeavour should respond well to rising gold/silver prices.

    TGR: If silver rises in excess of $50/oz, many boats will float. How do investors sort out the pretenders?

    SR: You look back and see which companies were profitable at sub-$20/oz silver. If they are in the black, that's an indication of how they run their operations. In the short term it is not a given that the "best" company will be the best performer. But overall, that would be a good problem to have.

    TGR: Parting thoughts?

    SR: If silver were oil, people would have some definite ideas about why it is important. I don't think silver has that characteristic due to its recent history. That fools people into thinking that silver is not a good option, even when it is. Silver's stigma as gold's poor cousin may well morph into gold's "better" cousin over time due to its vastly superior industrial utility.

    TGR: Thank you for talking with us today, Sean.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Sean Rakhimov's writing has appeared on such Internet portals as Le Metropole Café, 24hGold, 321gold, Kitco, Gold Seek, Gold Seiten and The Gold Report. He previously designed financial systems for the investment banking business, learning about options trading, securities lending, payments processing, clearing and settlement, fixed income securities and margin transactions. He launched his website, SilverStrategies.com, in 2004 and has been focusing exclusively on the silver sector since 2001.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Sean Rakhimov: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: First Majestic Silver Corp. sponsors banner ads on the website. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Jul 16 3:45 PM | Link | Comment!
  • Tom Hayes' Worldwide Rare Earth Wonderland

    It's not the size of a rare earth elements project resource that determines its success, declares Tom Hayes of Edison Investment Research. In this interview with The Mining Report, he explains that companies will win based on their holdings of heavy and strategic rare earths and their ability to secure funding. With the race on to develop non-Chinese REE sources, he suggests projects likely to end up on the podium.

    The Mining Report: It is now known that China's State Reserve Bureau intends to begin stockpiling medium-to-heavy rare earth elements [REEs], and that China will also strengthen REE export quotas. Will these actions lead to a race to get non-Chinese REE projects into production?

    Tom Hayes: It will. One shouldn't view the general tightening of heavy rare earth elements [HREE] export quotas in isolation, however. It's more relevant to look at actual demand for particular REEs. About 30-40% of Chinese supply is subject to an export quota, but Western demand does not currently meet the amount of REEs approved for export. Reduced export quotas will probably result in Western demand meeting Chinese supply. This, along with China's reform of its REE industry, will probably aid rare earth prices in the long run.

    TMR: What is the nature of this reform?

    TH: China's central government aims to exert control. Lack of central control has resulted in large, illegal REE operations, which have had a widespread negative effect on the environment.

    TMR: Does the scale of these illegal operations suggest some level of political support?

    TH: This support is likely local and not national. It is local corruption that has allowed illegal mining of REEs to expand to its present level.

    TMR: What's your forecast for REE demand for the rest of the decade? And how will changes in demand and supply affect prices?

    TH: Edison doesn't have specific growth forecasts for REEs, but the industry consensus is annual growth anywhere from 3-8% until 2020. What will that mean for the supply and demand of particular REEs? This is an industry that is plagued by misnomers. When REEs were first in the limelight in 2011, when the bubble was forming, there was a complete lack of understanding of what "rare earths" meant.

    Since then, people have begun to understand the difference between light rare earth oxides [LREOs] and heavy rare earth oxides [HREOs]. The industry has now become an even more granular and complex story about the actual supply and demand drivers with regard to particular REEs. When we talk about REE demand growth, we must consider specific minerals among the 16 REEs. To comment on where REE prices are going is not particularly useful.

    TMR: What is it about the heavy and strategic REEs that make them particularly valuable?

    TH: It's really their use in particular applications such as green technologies. Wind turbines are a case in point. Political support for renewable energy sources drives further development of wind farms and, by extension, boosts actual demand for the metals used in those applications.

    TMR: If the average initial capital expenditure [capex] of an REE project is $700 million [$700M], how much of that is the optimum amount companies should have to raise themselves, outside of offtakes and other deals?

    TH: There's a burgeoning strategy behind financing these projects, considering that the equity markets are pretty much dry. Companies are looking for funding from governments, from offtake loans and from strategic partnership loans. From the figures that I've seen, REE projects might expect to get one-quarter to one-third of capex from government agencies and export quota agencies, and maybe another one-quarter to one-half through strategic partner loan agreements.

    This still leaves a considerable shortage, and this is a real challenge for REE projects. It could mean they will remain unfunded until the equity markets pick up and/or investor interest in mining picks up.

    TMR: What's the most interesting American REE project?

    TH: There is a particularly interesting one from the point of view of its mineralogy: The HREO Round Top project in Texas. It's completely different from other REE projects, in that the geology is rhyolitic.

    TMR: What is the significance of that?

    TH: It could lead to a much lower capital intensity. In fact, the very preliminary project work suggests that it could be developed as a heap-leach project, whereby acid is used to drain off the REEs for further refinement. That would be quite a significant alternative to the traditional REE model, whereby large amounts of money are needed to crack and refine these REE metals.

    TMR: How advanced is Round Top?

    TH: It is still in the early stages of metallurgical and mineralogical investigations and drilling.

    TMR: What other American projects to you want to discuss?

    TH: Rare Element Resources Ltd.'s (NYSEMKT:REE) [RES:TSX] Bear Lodge project in Wyoming is another interesting one. The company is working toward a DFS this year. Rare Element has proprietary technology that might allow it to reduce its capital requirements. However, it will take a little bit more work to firm up its ability to create concentrates at an economically viable level.

    TMR: Greenland has been described as the planet's last frontier for metals.

    TH: It could also be considered one of the last frontiers for conservation. Greenland has a political situation that could be quite tricky for the development of a mining industry.

    TMR: Tom, thank you for your time and your insights.

    This interview was conducted by Kevin Michael Grace of The Mining Report and can be read in its entirety here.

    Tom Hayes has been a mining analyst at Edison Investment Research in London since 2010. He worked previously for the consulting firm Mouchel and has been a lead production geologist and resource definition geologist for mines in Australia and Saudi Arabia. He holds a Bachelor of Science from the University of Plymouth and a Master of Science in mining geology from the Camborne School of Mines.

    Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Tom Hayes: I own, or my family owns, shares of the following companies mentioned in this interview: None. Edison Investment Research's disclosures are available here. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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