2012 was in some ways a watershed year for rare earth elements (REEs) and the companies that mine and explore for them. The sector experienced a significant fall off in rare earth oxide (REO) prices, which enjoyed huge gains in 2011. Companies that hunt for these critical metals have suffered as a consequence, with most experiencing significant valuation declines.
The most obvious example is Molycorp (NYSE:MCP), the US REE producer that in February restarted its rare earths processing facility in California. In the past year, Molycorp has shed 60 percent of its market cap and on Friday was trading at $9.55, not far above its 52-week low of $5.75. The company’s sickly stock price was at least partially responsible for the departure earlier this month of Molycorp’s CEO, Mark Smith.
What is behind the dramatic fall in rare earths prices, which in 2011 had a record year, surging some 537 percent from 2010? The simple answer? Chronic overproduction in China — from which 95 percent of the world’s rare earths are sourced.
Despite the Chinese government’s attempts to crack down on companies that flout export quotas and ignore environmental standards — the rare earth business in China is notoriously polluting — rare earth miners in Sichuan and Mongolia, specifically, continued to overproduce, and that has led to an across-the-board fall in prices.
For example, the price of cerium oxide, which is used in glass and catalytic converters, was running at around $55 per kilogram in April, but has been cut in half and now fetches between $25 and $28/kg, according to Metal-Pages. It’s a similar story for praseodymium, which is used in jet engines and studio lighting, europium, which is found in television sets and lasers, lanthanum, which is used to make nickel-metal hydride batteries and most of the other oxides derived from the 17 rare earth elements.
Not surprisingly, the value of most rare earth companies has fallen in lock step with the drop in REE prices. There have, however, been exceptions. The list below identifies seven year-to-date gainers sourced from 41 rare earth companies that trade on the Toronto, London or Australian stock exchanges. If there is a stock that we missed, let us know at: [email protected].
1. Critical Elements (TSXV:CRE); current price: $0.22; year-to-date gain: 60.71 percent; 52-week high: $0.28; 52-week low: $0.09.
Critical Elements is a Canadian exploration company that concentrates on rare earths and rare metals, particularly tantalum. Its flagship property is the Rose tantalum-lithium project, currently at the advanced exploration stage with a bankable feasibility study in the works. Critical Elements has a rare earths property in the Rocky Mountains of British Columbia and a rare earths and tantalum-niobium project in Quebec. A recent company press release notes that once in production, the Rose mine will be “the first new significant producer of tantalum in over 20 years.”
2. Ucore Rare Metals (TSXV:UCU); current price: $0.52; year-to-date gain: 50.72 percent; 52-week high: $0.64; 52-week low: $0.22.
Ucore Rare Metals explores for rare earth deposits in North America, and is primarily focused on the Bokan-Dotson Ridge REE property in Alaska. The company maintains that the Bokan deposit is the largest heavy rare earth project in the United States and is targeting production within the next three years. In November, Ucore released a preliminary economic assessment for Bokan; it shows a net present value of $577 million and an internal rate of return of 43 percent.
3. Tsodilo Resources (TSXV:TSD); current price: $1.16; year-to-date gain: 28.89 percent; 52-week high: $0.72; 52-week low: $0.16.
Tsodilo Resources is prospecting for diamonds, base metals, precious metals and rare earths in Botswana. The prospecting licenses are held under three subsidiaries, including Gcwihaba Resources, which is exploring for base and precious metals, platinum group metals and rare earths. Tsodilo announced the adoption of a shareholder rights plan in October, presumably clearing the way for a takeover to occur.
Vancouver-based Medallion Resources is different from other rare earth juniors in that it is seeking to extract rare earths from monazite found in mineral sands. The company recently acquired the Red Wine heavy rare earth element prospect northeast of Churchill Falls, Labrador. In November, Medallion announced the completion of technical plans for a rare earth processing facility in the Middle East.
5. TNR Gold (TSXV:TNR); current price: $0.07; year-to-date gain: 16.67 percent; 52-week high: $0.19; 52-week low: $0.04.
TNR Gold is developing the Shotgun gold property in Alaska, the TNR iron ore and REE projects in Soules Bay, Canada and an advanced-stage copper porphyry project in Argentina — which the company claims is the sixth-largest undeveloped copper deposit in the world. TNR recently settled a lawsuit with McEwen Mining (NYSE:MUX), which was disputing ownership of the Los Azules copper project.
Orbite’s technologies enable the extraction of smelter-grade alumina, high-purity alumina (HPA) and other elements, including rare earths and rare metals from sources such as aluminous clay and bauxite. In December, Orbite announced the commissioning of an HPA plant in Quebec, Canada. HPA is used to manufacture the industrial sapphires used in LED lights and screens.
7. Rare Element Resources (TSX:RES); current price: $3.45; year-to-date gain: 1.82 percent; 52-week high: $8.02; 52-week low: $3.03.
Rare Element Resources owns the Bear Lake property in Wyoming, which the company claims is one of the largest disseminated REE deposits in North America. A prefeasibility study released March 1 for the potential open-pit mine shows a net present value of $1.7 billion with an internal rate of return of 44.9 percent. An updated NI 43-101 report released in May outlines 7.5 million tons (measured and indicated) of REOs grading 3.79 percent, up from the earlier estimate of 6.8 million tons averaging 3.75 percent REO.
* Prices and other stock data are as of Friday’s close.
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.
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