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The Rare Earths Sector: Time For The Industry To Grow Up?

In the past few months I have noticed a couple of ongoing trends in the rare earths sector, that I think are worthy of attention and debate. Feel free to post your thoughts and perspective on what I'm about to say here, whether you agree with me or not...

The first trend is the continued commentary on the rare earth industry, produced by the mainstream media [MSM], a sector apparently populated by reporters from the OH MY GOD THE SKY IS FALLING school of journalism [oh wait - that's pretty much the entire MSM these days isn't it... "my bad"]. These pieces frequently avoid any semblance of thorough fact checking, with the end result being the successful "whipping up" of the generally ignorant masses into a frenzy. This is usually accomplished by accusing the Chinese of participating in some nefarious plot to bring down Western civilization, by "hoarding" the country's natural resources to "choke off" vital resources, or similar... you get the picture - you've read the stories; you know what I'm talking about.

In a nutshell: poor ol' Western consumers - GOOD; nasty Chinese meanies / barbarians at the gate - BAD. Don't forget the white and black hats, fellas.

As an aside, it is often what doesn't get reported in these superficial MSM pieces that leads me to wonder just who is really driving the agenda here. Certainly it helps that only a vanishingly small number of readers of these articles will have the enthusiasm or wherewithal to track down the primary sources for the claims made, often written in a language other than English, or with characters other than those you are looking at right now.

My second observation of change in the rare earths "space", which I think has definitely become worse in the last 3-6 months, is the growing trend among executives from some of the newer junior rare earth exploration and mining companies to build their business plans and to promote their deposits by publicly trashing the plans and philosophy of their fellow juniors. Don't get me wrong - I have no problem with a business owner promoting his own offering, via [fair] comparison with those of his competitors; that's free enterprise, and is as it should be. However, I've been to at least three conferences this year where executives have on occasion stood up and made some astonishingly strident claims, using superlative-laden, highly subjective definitions of what is required for success in this space [and it always just happens to be the approach that THEY are taking] while simultaneously bashing the competition, directly or otherwise. This increased hyperbole is creeping into the news releases and interviews too... with the shareholding acolytes of these juniors fervently copying and pasting the commentary onto the various message boards, in a frantic bid to help their fellow man "see the light" / bump up the share price.

[By the way - if I see one more news release claiming that a particular property has the richest mix / easiest REE metallurgy / biggest deposit / highest concentration of HREEs outside of China - subsequently wielded at or the like - I think I'll barf... you can't all be right, fellas...].

It doesn't take a rocket scientist to see that this latter trend - this increased grubbing around for the best spin, at the expense of the others in the field - is connected to the former - specifically, the increased rhetoric on the geopolitics of natural resources. There is a fear that the capital for the next stage of resource development for any of these projects, will become harder to acquire, and thus there is an element of "survival of the fittest" at work. Tracy Weslosky touched on this in a recent posting at RareMetalBlog on the reluctance of the markets to go all in. Dudley Kingsnorth has talked at recent conferences about the issue and potential danger of a finite amount of potential capital being spread too thinly across all the players currently seeking money.

The irony is that some of the junior players are becoming the architects of their own difficulties, without apparently realizing it. While many [though certainly not all] of the juniors are busy nipping at each other as they thrash around in the proverbial two inches of water, there remain on the table REAL problems of potential supply, visible beneath the rhetoric of the MSM, which need to be dealt with, via rational, civilized discussion. While the hordes are not actually at the gates just yet, clearly the technology supply chain is vulnerable to the geographic concentration of the source of supply for rare earths, in China. Doing something about it is just plain common sense -  but it needs for some of the players in this industry to "step up to the plate" and become the grown ups in the room. There is more at stake here than next month's share price.

One way to change the dynamic here, one way to actually have that discussion would be for the dozen or so most serious GLOBAL players in the rare earths space, to start working together to further the overall aims of the rare earths industry, to tell a coherent story, so that it can speak with a coordinated voice that is of benefit to all participants. We've seen the first attempt to create a forum of this type with the formation of the Rare Earth Industry and Technology Association [REITA], which does include important players from the sector, including a couple of serious junior exploration and mining companies. My understanding is that at least one or two additional junior miners will also be joining REITA soon. Assuming that there is an effective mechanism for discourse and discussion within REITA, these are in my mind, encouraging developments.

There are other organizations such as the US Magnet Materials Association [USMMA] to consider too - currently more specialized than REITA, but which are also looking to increase their ability to service the industry. Whether it is through active participation in these types of organizations, assuming a viable framework for discourse, or perhaps some as-yet unrealized new organization [a Canadian Rare Earth Industry Association, anybody?!], there is clearly a need for the junior rare earths sector to grow up a bit, to come together and to get some things thrashed out.

Of course, that's all well and good, but why is this REALLY so apparently difficult to do, in practice?

Perhaps there is a slightly philosophical answer to that question, inherent to the individuals working in the industry, which might explain why it isn't so easy for these guys to come together, other than the "every man for himself" mentality that is a natural element of any business venture. For obvious reasons, most of the junior exploration and mining companies in the rare earth sector are headed by geologists. Geologists, and field geologists in particular, have always struck me as the wandering ronin of the scientific community - and I say that in positive terms. It takes a certain, sturdy type of character to endure the long days and nights out in the middle of nowhere while prospecting and surveying - regardless of how much you like the outdoors [or don't like people...].

In the Fall of 2009, Mickey Fulp, the "Mercenary Geologist" wrote a thoughtful piece on his Web site, titled "The Trouble with Geologists: A Primer for the Lay Investor", which gives a really interesting insight into the mindset of the geologist, and his profession. On the subject of the "gregariousness" of geologists, Mr. Fulp says:
"We go to work in the great out-of-doors most every day but we are not your typical blue collar workers. Much of what we do is manual labor but we tend to be lone wolves and are fiercely independent. Can you imagine the concept of a geologists’ union? That would be like trying to herd cats!"

He goes on to say that
"The very best geologists are driven to find ore. Because geologists are faced with overwhelming odds of failure, they often develop an unrealistic optimism for the geological potential of their favorite prospects."

Perhaps this combination of the "geologist as lone wolf" and "geologist as single-minded optimist" is an element of the state of the rare earths sector at present. I don't know. I'm certainly not knocking geologists, nor former geologists now running exploration and mining companies; but perhaps the above might explain at least part of what's been going on recently - who knows... geologists and non-geologists, what do you think??!

Disclosure: No positions