The Rare Earth Market Moving Forward: U.S. Rare Earth, Ucore Rare Metals

Although China’s announcement of rare earth stockpiling for strategic reserves has yet to have an immediate effect on REE prices, many non-Chinese based companies and investors viewed the move as confirmation of the need for a REE supply chain independent of China.

Rare Earth Investing News sat down with two US-focused rare earth company executives in hopes of gauging the current feel in the market, and also how developments in China might affect business strategies moving forward.

REIN spoke with Daniel McGroarty, President of U.S. Rare Earths, Inc. (OTCBB:UREE) — a mineral exploration, mining and claims acquisition company that holds claims for REEs in Colorado, Idaho and Montana — and Jim McKenzie, President and CEO of Ucore Rare Metals Inc. (TSXV:UCU), a development-phase mining company with multiple projects across North America.

REIN: Considering the complexities and long timelines of bringing an REE project to production, how well placed is your company in achieving this and what sorts of distributions (i.e. heavy vs. light REOs) do you feel your properties are capable of producing?

UREE: As we’ve seen in the past year, investors and analysts have begun to understand that some rare earths are rarer than others, and that the so-called heavy rare earths are likely to show supply shortages that will drive prices. U.S. Rare Earths is fortunate to have properties that suggest a strong presence of heavy REEs. Advancing these projects is our primary goal in 2012.

UCU: REE production is indeed complex. However, Ucore has the benefit of a substantial amount of historical research conducted during the 1990’s. That research established that the Bokan deposit in Alaska was amenable to traditional leach processing, and we have built extensively on that research legacy. The Bokan deposit has an approximate skew of 40 percent heavy REEs, making it inordinately “heavy” in its make-up compared to the majority of REE deposits worldwide. Our headline products will be dysprosium and terbium, now ranked as two of the most critically important strategic metals to the United States.

REIN: What sets your project apart from your competitors?

UREE: Our advantages are the strong showing we’re seeing especially on the heavy rare earths end of the spectrum, added to the low political risk attached to properties in the US – in states that have a strong mining history. When you’re reading in the press about mining miles deep in the open ocean, or in nations with serious instability, a US-based project with strong indications of key REEs is a big advantage. In preparation for the coming drill season, we’re already beginning to see validations of our properties. A recent independent analysis of historic data suggests a $1.2 billion inferred REE resource – and that’s just a portion of our claims.

UCU: Bokan Mountain is the largest NI 43-101 compliant heavy rare earth resource on US soil. As such, it has enormous strategic implications for America, especially given that heavy REEs are the backbone of some of the most advanced and important technologies to America’s economic future (i.e. transportation, clean energy, defense systems, medical science, etc). To many, heavy REEs are now considered the “fuel” of the 21^st century economy; as important to US viability as oil was in the 20^th century. Beyond this, Bokan is one of only a handful of non-Chinese HREE deposits worldwide capable of attaining production within the next 3-4 years. It is also the only REE deposit in the world (heavy or light) situated on immediate deep water access (an important logistical advantage, given that ocean going vessels are the least expensive means of bulk transport).

REIN: What do you feel the Chinese strategic reserve announcement will have on the market? Do you feel prices will rise as a result and if so how will this affect consumers and the REE sector moving forward?

UREE: It’s just one more reminder of the dangers of dependency – and the power China has over pricing, supply and access. China is going to leverage their status to maximum advantage. That will continue until non-Chinese projects come into production and diversify supply.

UCU: The Chinese announcement of a strategic reserve is considered by many experts to be the next most logical step for a country that has already made clear that it is rapidly depleting some of its most important strategic minerals (namely, HREEs). In turn, the reserve is also consistent with the needs of an emerging super power that may well become a net importer of these minerals within the next ten years. When a national consumer runs low on critical resources, it will logically martial those assets for fear of supply disconnection or interruption. In truth, China is only doing what many believe that the U.S. would do in identical circumstances. In our opinion, the Chinese announcement of a reserve, inasmuch as it is an indicator of the dwindling supply of HREEs in the world trade arena, can only mean that prices will progressively rise over time.

REIN: With comments such as that made by the U.S. Magnetic Materials Association (USMMA) calling for a stronger domestic REE supply chain, do you feel that U.S-based projects such as yours will receive increased investor focus?

UREE: Yes. These macro issues – the need for a predictable, stable domestic supply of REEs for national security, for industry, for green tech and high-tech – underscore why our company’s properties are going to get increased attention. We’re at the place where public policy and private enterprise connect. If we want to see America’s manufacturing base revived – if we want to see Apple making iPhones here in the U.S. – we’ve got to have a stable supply of domestic REEs.

UCU: In a word, yes. Ucore is an active member of the USMMA, and supports its call to action. Washington is increasingly acknowledging this position – that a viable domestic supply chain is the only realistic and sustainable plan for uninterrupted access to materials that are the lifeblood of today’s most advanced technologies. To cede this supply chain to foreign sources on an ongoing basis would be, in our opinion, foolhardy if not irresponsible. Regarding investor focus, this will be a function of how quickly China withdraws these materials from American access, and how perceptive the U.S. financial media is in acknowledging that the implications of that withdrawal to U.S. industry are enormous.

REIN: How, if at all, have the falling prices of REEs across the first half of 2012 affected your business strategies moving forward?

UREE: When you read the next story on how REE prices have fallen, look at prices back in 2009 compared to today. Current prices are still double, triple, quadruple or more than what they were just a few years ago. This reflects the explosion of technologies requiring rare earths. It’s the new normal. At present, we don’t think our current valuation fully reflects the potential value of our properties, especially when you factor in so-called “critical REEs.” As we develop our properties and report that progress, we are confident the market will take note.

UCU: The run up of prices over the past few years has been dramatic. Many observers had called for a correction prior to the fact, and the reset of 2012 has not been entirely unexpected. That said, it‘s our opinion that the laws of supply side economics are immutable in the long run, and diminishing access to irreplaceable materials can only mean higher prices in the mid term. In turn, Ucore’s strategies remain unchanged, and we intend to bring the Bokan facility into production within a 3-4 year horizon.

REIN: Molycorp (NYSE:MCP) recently restarted its Mountain Pass REE processing plant, and inked a $1.3 billion deal with Neo Materials, which is expected to give it a toehold in China. It is generally acknowledged that even with Molycorp in production, and Lynas ready to produce a good portion of REEs, there is still going to be more demand for minerals than are currently being mined. At what point do you see your project adding to another supply of US domestically-sourced rare earths? Do you see it as potentially attracting interest from a major who might either partner with you, or buy you out?

UREE: Over the past year, U.S. Rare Earths has attracted considerable interest from several major multinationals, and we have had a geologist from a major defense contractor spend significant time at our properties. We will continue to advance our projects and demonstrate value. If that puts us on the radar screen of a larger company, all well and good – if your project is progressing, you will have a positive outcome.

UCU: As mentioned, we intend to add to the HREE supply chain in the near term, prospectively by 2015-16. With that in mind, we feel it’s important to acknowledge that Bokan is a counterpoint to Mountain Pass and Mt. Weld. Those deposits are predominantly light REE in their composition, and distinctly lacking in the materials that Bokan brings to the table; dysprosium (Dy), terbium (Tb) and yttrium (Y). So, our product line is therefore a complement to the assets of both Molycorp and Lynas and fills a void that remains largely unsatisfied by those companies. Regarding interest in Bokan by majors, our intent is to see our project to production independently, and we have the wherewithal to do so without a co-venture party.

REIN: Do you feel that this is a good time for investors to enter the REE market and why?

UREE: I do. I think investors with a deep view are going to see that key macro trends affecting REE remain in place, in spite of month-to-month fluctuations in REE pricing. Focus on the heavy REEs in particular, and I think you’ll see real concerns of shortages ahead. China and India are still working to bring 1 billion-plus people out of subsistence living into middle-class existence over the next decade, which will create tremendous demand. Technology continues to operate by Moore’s Law, as we learn more and more about the properties of various metals including REEs. Knowledge of Rare Earths’ properties is only going to grow, and knowledge will drive need. So yes, if the trend-chasers have come and gone from the REE market, there’s now an opportunity for value investors to come in and claim a stake in a suite of critical metals where there’s dramatic demand.

UCU: For anyone who is a contrarian, the current REE market is an opportunity that has not been surpassed (short of investing in the REE space prior to 2009). For fundamentalists, we have materials that are largely irreplaceable in their respective applications (particularly HREE’s such as Dy and Tb), demand that continues to grow unabated, and share prices that are a minute fraction of prospective net present value. So, yes, accumulation would appear to be advisable, to say the least.

REIN: Thank you gentleman. We appreciate you taking the time to inform our readers.

Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.