American Rare Earths - How Not To Sell A Scandium Project

Summary

• American Rare Earths is a real tiddler, a very early stage rare earths mining company. We'd not normally look at something on this scale.
• My interest was drawn by their claim to have a scandium project that might be worth looking at. It isn't, at least not on the information they're giving as yet.
• In fact, the information they're giving seems to have scandium concentrations of less than normal, not more as we would hope for an ore.

American Rare Earths (BPLNF)

The company is so small (around $25 million capitalisation) that Seeking Alpha doesn't really cover it as yet. This is therefore more of a little note than it is a deep dive into the company and its financing.

I do not buy their story. There are two reasons for this, one about rare earths and the other scandium - my specific specialty.

The company background

The company is looking to develop the La Paz project in Arizona. They say they've the correct permits, they've done some very light drilling, there are rare earths on the property. I don't doubt all of that is true.

Rare earths

The first little flag that doesn't quite make sense is that they say this:

La Paz is a large tonnage, bulk deposit comprising high value, light rare earth (LREE) assemblage with the potential to be the largest rare earth project in North America.

That doesn't really work. The light rare earths are the ones that aren't valuable. In fact, cerium and lanthanum, the two lightest, one normally loses money on processing them out of the concentrate. You put up with that because that's necessary to do in order to gain access to the heavier and more valuable parts of the rare earth spectrum.

Having a light rare earth deposit isn't, therefore, the valuable part of rare earths. With the current mixture of uses for rare earths it's in fact a contradiction in terms to say so.

Scandium

They also refer to the La Paz project, repeatedly, as being to do with scandium.

Western Rare Earths (Company) is pleased to announce that it has received approval of all necessary permits to begin its 2021 Core Drilling campaign at the La Paz Scandium and Rare Earth Project.

Western is the local operating company for the listed company, American Rare Earths.

There's a problem with calling this a scandium project. There will undoubtedly be scandium there, there are traces of most things in everything. But:

Additionally, in the Recommendations section of the 2020 JORC 2012 compliant technical report, Mr Guilinger states that "Scandium values tend to be high also in areas of high ppm TREE so the drilling will also likely identify a scandium resource greater than 11ppm."

Well, yes, we'd hope so, because 11 ppm isn't a resource it's more like an anti-resource.

Clarke numbers

There's a concept called the Clarke number. It's, roughly enough, what is the concentration of one particular element in the Earth. There are varied ways of calculating this, which bits of the Earth do we mean? But it's a good little guide to the abundance of an element.

This can then be taken to be a guide to whether something's an interesting source. If, say, - as is about right - aluminium is 8% of the Earth's crust then something that is 1% aluminium probably isn't a good source of it. We should be able to find much higher concentrations elsewhere.

The Clarke number, or that abundance, for scandium is between 16 and 20. 16 and 20 ppm that is, parts per million. So, if we've got something in Arizona that is 11 ppm scandium then this is not a concentration of ore of scandium. This is a lower scandium content than the average of the Earth's crust.

We could also go on to point out that red mud, the waste from alumina processing, generally grades 50 to 100 ppm scandium. Quite why we'd want to dig up a field in Arizona to get something with one fifth to once tenth the Sc concentration of an industrial waste we can get for nothing is unknown.

My view

This is a note, not a deep investigation. But from what I see in those two statements this is not a company to invest in.

The investor view

Unless and until they've much more interesting news this is something to sit on the sidelines of.