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Rare earth wars?
An interesting article from the Sydney Morning Herald
regarding Hyundai. HY is the fifth largest producer of cars globally. A
solid Korean company. Of interest is that the company changed its
articles of incorporation last Friday in order to:
"secure resources for the development of eco-friendly vehicles."
This of course means rare earths, in particular neodymium. A spokesman had this to say about the company’s objectives:
“We will make efforts to vigorously secure rare earths and other rare resources used in cars."
Over the years I have done a fair bit of business with Korean companies.
A part of their success is their tenacity. They won’t quit. Someone
described it to me once:
“They
are like rhinos. When they decide to go in one direction, they put
their head down and just charge through the bush until they have arrived
at the destination. It isn’t pretty. Anything in the path is trampled;
the animal often suffers injuries in the process. But they will die
trying to get there”
When a Korean company with a $40b market cap decides it wants to “vigorously secure rare earths”, look out. It will happen.
If the 5th largest auto company is doing this, you can expect that some
of the bigger players are soon to follow suit. If you followed that
logic you would have to ask, “what’s GE doing in this?” Their wind business is booming. They must be one of the largest end users of REs as a result.
I don’t recommend individual stocks. That’s a good way to get egg on my
face. For what it is worth I do own some of the dozen or so names that
are connected to the RE story. I’m not buying more. It looks to me that
we have some mining stocks that are trading at internet type multiples.
Caveat emptor on this.
Big, big money is going to be made on REs. Hyundai’s move just tripped off round two of this story.
Note: I’m nutty enough to have walked around a “likely”
location looking for a meteor fragment. All you need is a stick and a
neodymium magnet or two. Tape it to the end and poke it around and hope
you get lucky.
There are dozens of sellers online. They don’t cost much. For $20 you get what you need. Beware.
These things are incredibly powerful. I have busted up a few fingers
and nails just prying them apart. And don’t even think of putting it
next to a cell phone. When you see just how strong these things are, you
will understand what all the fuss is about.
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Electric drag racing (an inspirational video): http://www.youtube.com/watch?v=BrHXdM9f13k
korean woman are very tenacious indeed, and taking all the LPGA prize lists and fame.
a little off topic but i found it interesting. an Italian company, bought and is going to start extraction of white marble in crystal, colorado. when it wasn't open and marble wasn't being taken out in the early 70's, me and my boys would go into that marble mine and swing on this big rope out over the big hole that had some water in it. it was so much fun to swing on that long rope.
Crystal, Colorado - Wikipedia, the free encyclopediaMy preferred potency on a personal note which is only my own is : impotency. The idea of a 400 lb magnet extracting for me the essence of rare existence is totally insupportable. I prefer a rubber ball that bounces in all directions but makes a woman laugh by its precarious pretention.
Rick Rule on REMs: http://www.gril.net/interview/rick-rule-riding-the-commodity-bull
RR: I think rare earth equity prices will probably do well for the next year or two. I don’t think as an industry that the industry will do very well in one year, two years, five years or ten years. The reason for that is really twofold; in the first instance, rare earths aren’t particularly rare. We haven’t been looking for them because they have been so cheap for the last 10–12 years. There was a global rare earths business 20 years ago, but discoveries by the Chinese in far Western China and very low Chinese operating costs decimated the rest of the rare earths industry. That doesn’t mean the rare earths went away; remember they aren’t rare. There are places like the Western U.S., like the Canadian Shield, like Brazil, like Australia, like central Africa—great big old Protozoic and Pre-Cambrian rock formations called pegmatites that have lots and lots of rare earths.
We haven’t been looking for them because it hasn’t paid us to do so. Suddenly, as a consequence of rare earths use in so-called technological applications and as a consequence of China’s flirtation with restricting exports of raw rare earths so that the materials that are made from rare earths could be produced in China, there is a rare earths panic.
Let’s observe the panic. In the first instance, the global market for rare earths at today’s rare earth prices is about $2.2 billion. That means the gross sales of all this stuff that ends in ium—all these unpronounceable materials—gallium, germanium, iridium, blah, blah, blah—is $2.2 billion. China produces most of that, and most of that was state-associated companies; so, perhaps 60% of those gross sales don’t matter to the market because the market will never see it. About half the rest or 20% of the market is controlled by major mining companies that produce all this stuff that ends with ium in the context of their exploration for things like nickel, copper, cobalt, things like that. So, about 20% of this $2.2 billion market is attributable to rare earths-focused companies.
So, if we look at gross lines as the top line in the $400 or $450 million range and we assume that because of very low Chinese production costs the rest of today’s margins at today’s prices are 20% or 25%, we are talking about EBITDA (earnings before interest, tax depreciation, amortization, blah, blah, blah) of around $100–$150 million a year. If you assigned a 10X multiple to that EBITDA, which is generous, by the way, in a business that depletes, you face an industry that should have a market cap in the $1.5 billion to $2 billion range. In fact, in the explosive market for Canadian rare earths wannabes, the market cap for non-producers exceeds $5 billion. This is very interesting—a market of non-producers exceeding $5 billion where a rational market for the world production accorded rare earths companies would be $1.5 billion.
Let’s not let facts get in the way of a good story—and this is s a tremendous story; it’s one of these few things where you can have a booth in an investment conference and not have to talk about your reserves because everybody acknowledges that you don’t have any but you get to talk about batteries. You get to have a car in the booth and have a pretty girl talking about things, always the makings of a good story.
I think the story is going to continue. For those of you who have confidence in your ability to do psychological analysis of markets, along the sort of Jim Dines’ lines, who talks about the mass psychologies, this will be a spectacular market to trade. Don’t try and do much by way of fundamental analysis because there is no fundamental analysis to do. The net present value of the cash flows of the producers are worth a third of the market cap of the consolidation of the companies that will never produce. So don’t confuse yourself too much with the facts.
If you’re going to play this game, understand the nature of the trade.
While I totally agree with this analysis on a today basis, and likely for the next 2 years, I disagree with it going beyond that. The reason all these large players are looking to secure supply is because of what is in the pipeline. They all know that the REE's are just beginning to be used, and will experience a tremendous growth in physical, tangible application from 2014 to 2020. I think thats when the real money will be made.
Good point, and well taken. I agree that RR's analysis is a bit too categorical (that's the way he communicates) but there is so much hype out there, James Dines's interviews on REMs have an almost religious fervor.
Bruce, as an aside, I've seen some 2" neodymium magnets with 410 pounds of pull force...what is your preferred "potency ?!"
You can separate pre-1982 pennies with those suckers!
Two ten-pounders is all I can handle. (1"X1"X1/8") Did not know they got to 400lb. Put that on a street and everyone walking by has their cell memory fried.
Gotta love how tenacious Asians are perfectly willing to slit throats, displace peoples and pillage landscapes so they can sell "eco-friendly" status symbols to Western consumers.
Why can't we incentivize the South Koreans to "vigorously secure" their northern boarder so we can get the fuck out of there?
I'm afraid this whole joke is very much on us.
Can't get away from oligarchy and hanky panky. Invisible hand of market...very left handed!
OK, once again, rare earths are not rare.
What is rare is the ability to process them from mining since they often come with a lot of radioactive nasties, among other things. Smelting is dirty, very dirty, and up to now only China has the processing capacity to manage this.
China has been our nasty stuff provider for a long time since we in the rest of the world want to keep the dust and grime of our prissy little white gloves and spats.
Those that are willing to get down and dirty in the world like China and the Arab Crescent are those that inherit the world. Korea of all nations has the ability to both deal with the dirty, and provide prosperity for its people. No wonder China maintains the puppet buffer state to protect itself from the influence of ROK.
Did you see how the ROK marines dealt with the Somali hijackers. They killed them. No BS, no trial. Dead. The only other country close is the Russians.
Seem to remember some U.S. Navy Seals taking out some pirates with 3 head shots from the deck of a ship. Rescured the Captain who'd negotiated the release of his crew.
The rare earth elements aren't really that rare, they're just very difficult to purify. Each element has subtle differences in chemical properties that make them extremely useful in specialized applications but their gross chemical and physical properties (the ones used in standard purification techniques) are so similar that it takes a lot of $$ and effort to bring them to the level of purity needed for their specialized applications. Short term you are looking for a company that has access to concentrated deposits, has the capability to do the purification and is not going to run into the environmental impact issues caused by digging and processing large amounts of material. I would shy away from California for that reason. Longer term look for companies with new purification techniques and watch for new uses. From a material science standpoint when someone comes up with that new market moving development such as cold fusion or high efficiency fuel cell it's likely to use rare earths. I've been watching and liking AVL but not enough to jump in yet. What also interests me on this report is the part about"and other rare resources used in cars." What are these other materials???
Well they may not be as rare as the name implies, there are not many minable ores. Similar to Pt and Au, while Pt has about the same crustal abundance as Au, the number of Pt mines can be counted on a few hands. I agree with your observation, the value is in the metallurgy, and there is a dearth of expertise out there.
Graphite(flake, not lump or amorphous) would be one to look into.
Thanks for the response. Graphite is interesting stuff. If ever someone finds a way to synthesize graphite in continuous filaments they're well on their way to creating a low cost super-conductor. Haven't seen anything yet but if anyone comes across info about that such a thing a post would be nice.
Molybdenite or Graphene?
http://www.ibtimes.com/articles/107483/20110201/molybdenum-could-make-smaller-faster-semiconductors.htm
Graphite is used in lithium-ion batteries now.
http://www.techmetalsresearch.com/2011/01/graphite-a-diamond-in-the-rough-for-investors/
producer.
ASX:SER
need 60mil plant.
CVE:FMS
I have a colleague based in Canada, that is very smart that told me...
-" AVALON " is the stock to follow.
small-mid cap with unique characteristics and features for Rare Earth Metals Play and M&A with Japanese/or Chinese Co.
Ticker: AVL US EQUITY
I made a quick 30% on AVL 2 months ago. Just so you know, no product will be coming from their mine until 2014 or so.
AVL is a long term play, I have traded in and out since it was 0.90. They are unique in that their reserves are primarily HREE, unlike Lynas and MCP. The company I really like is GWG, they have a vertical integration in progress along with world class deposits. The real money in REE is in the metallurgy, and the expertise is limitied (as are the investment options).
I agree.
Agree with ur comment...Till 2014 if nothing changes no product, they need infrastructures for drilling, but the Resources are there in AVL lands.¡
Of course its a long term play
in 5.50 has hold well
After Beginning quoting in AMEX first days at 4´s
In the next market retracement i will load some.
These comments highlight my concerns on these stocks. I said there was money to be made. Money will be lost too.
The better way to play Rare Earth, for Retailers and Institutionals, in my Humble opinion is using the ETF. REMX
Regards,
and thanks always Bruce for your commentaries.
Hugo
The big end users nerd rems for strategic reasons. Since a rem project can take 10 years to develop, they will end up buying the best companies outright to secure supply. Once one big co moves, you'll see a quick consolidation of the industry. The lights are not going to be in short supply once mcp and lynas are in production, so stick with the heavies. E.g dysprosium, yttrium, terbium. Avalon and quest are the cheapest heavy rem plays based on resource valuations. (Don't buy into Hykaway's bullshit, that's pure broker propaganda. John kaiser is the godfather of REM research, and although not completely objective, more knowledgable.) Dacha Capital owns the right metals and will be a good investment also, imho. I am long these 3 names, obviously. Be careful in this volatile sector....
If rare earths are on the up, why do u operate in the red? U should be as black as that man whose MVP on the NBA. I love black chocolate so don't get me wrong. Black is my favorite color for silky something.
This directly affects my day job; many contracts and factory setups revolve around the price of rare earth elements in my neck of the woods. After a certain threshold, domestic manufacturing WILL get shut down and moved overseas. No amount of union protesting or political finger pointing can change this fact: once we operate in the red, operations get shut down.
If we keep debasing out currency more than the rest of the world, manufacturing will return to the lowest priced serfs so we can begin taking up the work force over supply. The US will get people back to work but food and shelter will take up70% of our income. we will become one car families with one little black and white TV set. At least food won't take 90% of our income.
Be thankful for small gifts.
Batteries and turbines are a non-sequitur.
Ferrous magnets, FTW!
It might actually be nice if the US developed a mass transit system at least as advanced as Bulgaria's too.
koreans dig rhinos.
http://adsoftheworld.com/files/images/ssangyongrhino.jpg
they even use them as cool hood ornaments. if you've ever driven over there, you'd understand. "i'm bigger than you, get out of my way." lol.
Troll! indeed! when you have boobs to make a troll drool. It's like waving a red flag. Do you want a roll in the hay with a man who cares not for rare earths but loves hitting the dirt with a sow on heat for a rare thrill?... Just presuming with my poetic insolence, substitute for my investor's indolence.
Rare earths are used in numerous high tech weapons. Do you think the oligarchy is going to let the chinese tell them what to do. the defense department got the Molycorp restart going, because they need the RE's They run the USA. If they want it done, it shall be done.
Rare earths are completely unneccesary for transportation. If a company wants to waste inordinate amounts of resources chasing this fad, it will likely be to their detriment.
Troll!
Sounds like a game of jiggery pokery, but what else could a game of rare truffles be, when you're lost in the forest. Watch out for the wild boar from behind the thicket. Truffles have many amateurs.
. Lynas is the only short term real deal supplier outside of China.
http://www.lynascorp.com/content/upload/files/Presentations/Investor_Presentation_February_2011.pdf
False - there are both European and American suppliers.
Names, please
No names because no company except Lynas will produce REE in 2011 outside of China.
Get educated before you throw $$$$ into spec deals.
I will not give you for free what I have to pay for.
If you want the best source of info: subscribe to The Dines Letter.
Dines letter what a joke!
I attended last three Roskill REE conferences.
I recommend you attend if you want a real education in the REE space.
http://www.roskill.com/reports/minor-and-light-metals/news/6th-international-rare-earths-conference-2010
Life of Illusion:
Thank You!
Excellent link if somewhat dated.
Did you attend the recent Vancouver REE conference this January?
...........................................................
One major issue, antique oil pipeline infrastructure, 50-60 years old... a worldwide problem.
Niobium is used in a variety of forms, but by far the most important in tonnage terms is standard grade ferro-niobium, which has applications in HSLA and stainless steels. This market accounts for about 90% of niobium usage.
GAM just ramped up tantalum production.
http://globaladvancedmetals.com/news/2011/january/world%E2%80%99s-largest-tantalum-producer-resumes-operations.aspx
World’s largest tantalum producer resumes operationsMonday, 17 January 2011
Global Advanced Metals, formerly Talison Tantalum, today announced the reopening of its Wodgina and Greenbushes operations in Western Australia.
Placed on care and maintenance during the global financial crisis in 2008, the operations at Wodgina and Greenbushes contain the world's largest known resources of tantalum used in the production of a wide range of hi-tech products, particularly consumer electronics.
At full strength, the Wodgina operation is capable of producing 1.4 million lbs of tantalum pentoxide annually, almost a third of the world's supply. The initial restart involves 700,000 lbs per annum to be mined at Wodgina and processed at Greenbushes.
Yeah baby,... stronger than dirt. Buy it for a $1.40 and don't sell it. Do your homework, focus on 'heavy white metals' vs. 'lights', ignore the politics (cause they won't stand in the face of $$'s) and hang on tight.
The biggest rare earth mine in the world can be reopened. It's in california.
Plus since it's a FACT we don't need wind/solar, then the supply that we're *projecting* is ALL WRONG.
It is re-opening if not already open: http://mgx.com/blogs/2009/10/18/mountain-pass-rare-earth-mine-reopening-...
The largest supply ever found was recently discovered under a hail of bullets in Afghanistan: http://www.globenewswire.com/newsroom/news.html?d=199694
It's funny the rush to electric cars before the magnet part is sorted out. Air cars are already more efficient, even the air/internal combustion engine - hybrid is more efficient than the electric/ICE hybrids, if imports weren't stonewalled an air/diesel hybrid should have no problem reaching 100 mpg (they already have diesel electric hybrids in Europe and Japan). The internet is not the only non-evil thing produced by DARPA, they have developed fuel injectors that are supposed to be up to 70% more efficient than what's currently widely in use (for the same price too): http://nextbigfuture.com/2010/03/transonic-supercritical-fuel-injection....
The magnets need to catch up with the batteries, all of this tech is changing faster than any of us can write about it. We've probably never even heard of tomorrow's newest thing.
Oh, this is making more sense for electric cars, stronger electromagnets and ferrous if the neodymium supply gets low: http://www.greenoptimistic.com/2009/12/03/high-temperature-superconducti...
I was looking for the more current version of that magnet. USF just used the same tech' to create a 25 tesla magnet this week...
Air/diesel hybrids 2011: http://www.edn.com/article/512633-Air_hybrid_cars_could_halve_fuel_consu...