From Barrons this week. And they don't even explain the industry fundamentals and why REE won't mine anything, at least in the next 10 years.
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UNLESS YOU'VE BEEN IN A CAVE you know that rare earths have been a hot play since China temporarily banned their export to Japan last year and the world realized that China produces more than 95% of the world's supply.
Rare earths are widely used in an array of popular high-tech wares like the iPad and smartphones, as well as hybrids and electric cars. Consumption is expected to grow 6% to 10% a year. But China has been concerned about having an adequate supply of its own and cut quotas for overseas shipments and boosted export taxes. Hence the rage for rare-earth shares such as MolyCorp (MCP), the only U.S. rare earth oxide producer, and the Market Vectors Rare Earth/Strategic Metals ETF (REMX).
The rally lifted a number of small, speculative investments, including Vancouver, British Columbia-based Rare Element Resources (REE), which trades on the NYSE Amex and also on the TSX Venture Exchange. From $1.15 last July, the stock vaulted to a high of $17.92 in January. That's because of enthusiasm about the company's property in the Bear Lodge Mountains of Wyoming, which it believes contains "one of the largest deposits of disseminated [rare earth elements] in North America," with some 17.5 million tons of rare earth oxides.
The company pegs the net present value of the deposit at $213 million to $380 million. It's embarked on a $15 million preliminary feasibility study, and if all goes well, it will start a second $15 million study in 2013. The following year, it plans to spend about $90 million for mine development and mill construction. It expects to start producing the oxides in 2015.
On the same property, fans of Rare Elements Resources note, is the Sundance Project, a gold-exploration effort that the company describes as having "excellent potential in multiple targets."
So far this year, shares are down 20% to a recent $12.75, leaving a market value of $450 million. Part of that owes to an announcement by Toyota Motor (TM) that it's seeking to reduce its use of rare earths in building hybrids.
Skeptics have other reasons for concern, and they may be onto something.
The company reports that it has no revenues, much less earnings. All through last fall, according to a prospectus for a December offering, the company was busy issuing shares as people exercised options and warrants.
For its main office, it rents a 500-square-foot space in Vancouver, and shares it with other businesses, including Pacific Opportunity Capital. Pacific Opportunity is a firm that offers "financial solutions" and consulting services to small companies. Its Website details a number of client companies, including penny stocks like miners Animas Resources (ANI.Toronto) and Avrupa Minerals (AVU.Toronto). Pacific Opportunity's president, it turns out, is Mark T. Brown, who is also Rare Element Resources' chief financial officer.
Rare Element began life as a venture capital pool organized by Brown; it took its current form via a 2003 reverse merger. According to the company, Brown spends 75% of his time working for it, but he also serves as director, CFO, or CEO for 10 other companies. Rare Element's chief executive, Donald Ranta, is also a busy man, serving on a number of boards. Both he and Brown are directors of Animas Resources and Avrupa Minerals. Oh, and those companies also share Rare Element's office space.
Brown told us this of his multiple roles: "Working as a consultant for a few companies allows Rare Element to keep costs down by not paying people when they are not needed."
There are also questions about the company's targeted production start date of 2015; even the company's fans think it might be a tad optimistic. We checked in with Michael Richardson, an independent consultant employed by John T. Boyd Co., which did the preliminary assessment of the Bear Lodge prospects. In Richardson's opinion, the start date is "optimistic" and, in fact, "pretty aggressive," given obstacles such as permitting. "My guess is you're looking at a year or two delay."
As for the gold, it's worth noting that Newmont Mining gave up an option to buy 65% of the project last year, after spending $2.85 million over four years to assess the development; Rare Element now has 100% of the Sundance project. Newmont hasn't commented on the move.
CFO Brown seems unfazed. In an e-mail, he said he's sticking to the 2015 start date, saying there's plenty of time for permitting. "Others are saying we could fast track it," he says. "Our plan is set for now." He described stock-option exercises by him and Ranta as "pretty small." And he said the company has $66 million in the bank, which he declared ought to allay any doubts about the company's capital needs.
Hmmm. Something tells us that the shareholders of Rare Element Resources may find that stock-price gains soon join the ranks of the rare. |
