Get in Early on These Rare Earth Players

by: Matthew Smith
During our years in the resource investing business, we have developed a diverse client base. Many of our clients are in North America, with a majority of them in our home country, the United States of America. In previous bull markets, we have introduced our American investors and readers to companies years before they had an American listing, allowing them to purchase shares and experience tremendous gains in the early days of some really terrific bull markets.
The first wave of rare earth element stocks has already hit America, and literally taken it by storm. The next wave will arrive shortly, and investors have the unique opportunity to buy these shares today ahead of the institutional money.
The rare earth bull market, which kicked off roughly two years ago, is beginning to grab the attention of Main Street. The key word is, of course, "beginning." From someone who has been there very near the start, covering these stocks and speaking to industry execs, we believe we have some interesting insights that many general market writers lack because they are unable to focus solely on the industry. Based on our experience -- and from what we hear from those on the ground -- it is our opinion that rare earths are still in the early stages of a bull market, rather than the later. Most importantly, Americans will shortly have even more rare earth plays to choose from on reputable and prestigious stock exchanges. The following two companies we believe offer American investors an excellent opportunity to gain exposure to heavy rare earths.
One of our favorite rare earth stocks has been Quest Rare Minerals (OTC:QSURF), one of our first recommendations in the space that has been a huge winner. The company owns the Strange Lake deposit, which as we predicted would become one of the largest in the world. Even more intriguing for investors is the array of rare earths found within the deposit, which includes a large portion that is composed of the HREEs (Heavy Rare Earth Elements). In previous articles, we have alluded to the fact Quest would be traded in the US in the first half of this year; it now appears that prediction will materialize sooner rather than later.
Avalon Rare Metals (NYSEMKT:AVL) has quickly become a darling of US retail and institutional investors alike. Part of this owes to the fact that it also possesses a deposit with a large portion composed of the HREEs.
Canadian investors had previously valued Quest shares at a higher multiple than Avalon’s, due in part to the deposit’s geology, the pace at which the company was able (and continues) to expand the resource estimate, and the long-term economics of the project. The premium Quest shares enjoyed over Avalon shares quickly dissipated after Avalon listed on the American Stock Exchange a few months ago.
It is our belief that as American investors begin to look at the merits of both projects, they will arrive at the same conclusion their Canadian counterparts did: That QRM’s Strange Lake Project will provide greater returns over its lifespan. Over the past few weeks, we have been buyers of Quest shares and have advised others to move in as well. Many Canadian investors, as well as sophisticated American investors, have been moving in in anticipation of the new valuation the stock should receive once it's listed on the AMEX.
Another company which should soon list on an American exchange, and one which US investors are probably not too familiar with, is Tasman Metals Ltd. (OTC:TASXF). This company has some of the best project generators in the junior resource sector, with an emphasis on Europe, running it. Some of the key players behind Tasman are also behind Mawson Resources (OTCPK:MWSNF), and both have been strong performers for those holding shares.
Tasman has the Norra Karr project located in Sweden, which has returned some significant drill intersections recently. Like Quest and a small group of other rare earth plays, Tasman has an NI 43-101 compliant resource within the Norra Karr Project, which puts it ahead of many others. This is also one of the few rare earth deposits within continental Europe of any scale that is being developed (there are a few projects of scale in Greenland which one can consider Europe, but not on the mainland).
The Norra Karr project is special for a few reasons, but most importantly the TREO (Total Rare Earth Oxides) grades are composed of over half HREEs; the radioactive elements associated with REE deposits are low and will not require extra permitting as many other projects will; and in many areas the deposit is suitable for shallow, open-pit mining. Each of those three points alone are significant; together it makes the project appear a homerun for the company in the long-term.
Many view Tasman as a one-trick pony; however, this is certainly not the case. When we first spoke to its CEO, Mark Saxon, about the portfolio of projects Tasman had accumulated, he was very clear that he believes that every REE deposit and/or project of significance on the European mainland was claimed by the company. Up until now, most news and investor attention has focused on Norra Karr; however, there is hidden value in Tasman’s other projects, and as more exploration work and information comes out regarding them, we expect that the shares should likewise appreciate.
Over the past year or more, there has been much speculation that Tasman could be what we will call the Continental Champion of the EU for rare earths, as it has this advanced REE project located in Sweden -- and many of the EU members are eager for a secure supply of all of the rare earths, especially the heavies. It is a thesis we cannot argue with, and in fact would have to agree that Tasman has just as many (if not more) financing avenues available to it than many other REE explorers.
Lynas (OTCPK:LYSCF) is in the catbird’s seat in Australia, Molycorp (MCP) in North America, and when it comes to Europe, one would have to believe that Tasman is leading the pack. Once its shares are listed in America, we suspect Wall Street will begin to connect the dots and provide some backing for what appears to be an excellent project being advanced by some of the best junior resource project generators in the industry. Although there are many keys required to succeed in the junior resource space, Tasman has some of the most important in its management team and in the project itself.
Molycorp, Rare Element Resources (NYSEMKT:REE) and Avalon have all enjoyed their listings on reputable American exchanges. In the case of Rare Element Resources and Avalon, the dual listings were very rewarding to investors, delivering gains in excess of 100%. We see no reason that with the strong Canadian dollar, rapidly rising rare earth prices, and institutional money waiting to invest in this industry that Quest and Tasman should behave any differently over time.
Sticking with the hard lessons we have learned over the years from investing in the junior resource sector, it is always wise to stick with the juniors that are quickly developing deposits to bring into production. Both Quest and Tasman have NI 43-101 reports for their projects, putting them in a very select group of REE companies. Quest has even completed a Pre-Economic Assessment on Strange Lake and has initiated a Prefeasibility Study recently.
Investors willing to buy shares before the uplistings could be rewarded not only because of the new exchange, but also because both companies are continuing to drill and expand their deposits and have a pipeline of good news that should begin to flow in short time.
Disclosure: I am long QSURF.PK.