Jason Burack and Kevin Kerr: Six REE Metals to Watch
Source: Brian Sylvester of
The Critical Metals Report
Rare earth elements have made possible improvements in
everything from smart phones and plasma televisions to clean
energy technology. In this exclusive interview with
The Critical Metals Report,
Jason Burack, independent investor and cofounder of Wall St. for
Main St., and Kevin Kerr, commodities trader and president of
Kerr Trading, share the names of the rare earth element companies
to watch as the market grows.
The Critical Metals Report:
The rare earth element (
) space is the most complicated space in the mining and metals
sector. Mining these elements is complex, often involving
permitting and infrastructure issues. Once mined, separating REEs
to high manufacturer purity levels is even more complex. Then
selling the isolated REEs often involves highly specialized
marketing. Why should an investor place money in the REE
REEs have an amazing amount of innovation upside right now.
Because of the innovations coming down the pipeline, the market
has the potential to exhibit an annual double-digit growth rate,
which offers far more upside than most other commodity sectors.
It's an amazing growth opportunity for investors because the REEs
are going to play an important role in making high-end
technologies efficient and also in supporting new innovations. In
new high-end technologies, REEs are the secret sauce.
These are the metals of the future. There are applications with
these metals that we can't even conceive of yet. It's very
exciting to be involved in these elements. I think part of the
benefit of REE mines is that they are limited. There are few
players out there that really have all those elements and are
innovating. The ones that do have all the pieces in place offer
good opportunities for investors. There's always risk with
anything new, but the risk/reward balance is very good in this
Can you comment on some of the recent innovations?
For years, REEs were just wasting away; they were not really
considered a good investment until engineers realized they were
vital to some of the things we use every day-everything from
specialized glass to green energy technologies and special
batteries to super magnets. The list goes on, including
developing technologies like water purification systems, which I
Molycorp Minerals (
is exploring. Prices have exploded.
The primary use for REEs for a long time was the europium in
color TV sets. Molycorp, which was supplying much of this demand,
had decades' worth of used tailings sitting around doing nothing.
The Chinese saw the potential of this market and spent a lot of
time and money to build out uses for the other REEs mined
alongside the europium.
The United States and Mexico have filed a Memorandum of
Understanding with the World Trade Organization over China's
protectionism regarding REEs. China controls about 95% of the
world's REE supply today. The Chinese government increased
tariffs and reduced exports, while cracking down on illegal
miners. This will further limit the supply and tighten their grip
on prices. Do you think the U.S. and Mexico are going to get
anywhere by filing complaints against China? Or are we just going
to have to wait for another supply of REEs to come to market?
I would prefer a free market solution to government intervention,
but REEs are not a free market right now. China has a monopoly on
supply and processing, but the government seems to be willing to
reduce control. What China cares most about is the high-end value
chain products because they saw what oil processing and related
innovations did for the U.S. economy. China cares most about the
higher value-added product jobs. That is why they are limiting
export. They want the manufacturers to come to them.
As a result, you are going to see these other deposits, like
Mountain Pass, coming back online. You are going to see
Lynas Corporation's (ASX:LYC)
Mount Weld and
Great Western Minerals Group Ltd. (TSX.V:GWG; OTCQX:GWMGF)
come online. The supply problems, at least in the light rare
earth elements (LREEs), will start to resolve themselves over the
next couple years. The problem with the heavy rare earth elements
(HREEs) is in supply. China is going to guard their higher-end
jobs because they want that value-added industry.
China certainly has a monopoly on HREEs. The question is how long
will it take to build the next HREE processing facility outside
of China? The answer is a long time, mainly because of
environmental and regional problems. Also, who's going to partner
up to build this facility? The red tape, whether it's in the EU
or the U.S. or Mexico, is far more extensive than it is in China.
They are years and years ahead of us in the game of producing
Kevin, you've spent 23 years as a commodity trader. What does
that experience tell you about the REE space? And what's the path
for investors to make money here?
This is one of the opportunities that a trader will see only once
in a lifetime. A lot of people say, "This is just a bubble." I
don't agree. I've seen many contracts and future markets come and
go, but with REEs, it's different. These are vital commodities
that we are all using every day. We don't want to lose our
ultra-light cell phones and go back to the Gordon Gekko-style
phones with the big battery. These things are only going to be
more in demand, especially as the world population grows.
Investors can see it as a monumental opportunity. There's
certainly risk, and that's important to stress. Anytime you're
trading in something new, you have to look out for those risks.
But ultimately these markets are going to be some of the leaders
in the 21st century.
Because of the innovation upside as more people switch to newer
smart phones and to alternative energy technologies, as the
military becomes more efficient with less manpower and more
unmanned vehicles, REEs play an important role. And the REEs
market can grow a lot per year as the pie gets bigger with new
You suggest in your
Dragon Metals Report
that three metals reign supreme among REEs. What are those and
what are their primary uses?
Well, if I was rewriting the
Dragon Metals Report
today I would actually expand the three to six: three lights and
three heavies. The number-one LREE is neodymium, which is used in
the neodymium-iron-boron magnet, a permanent magnet technology.
Neodymium-iron-boron magnet technology has allowed for
miniaturization of a lot of high-end electronics. It has
literally made everything smaller, thinner and lighter. Consumers
just love the fact that their iPad is so thin now. People talk
about the operating systems and the processing speeds and all
their applications, and they love them. They wouldn't have any of
this without the neodymium-iron-boron magnets.
The next two are lanthanum and cerium. Lanthanum will have a
humongous industrial demand increase in petroleum refining. Oil
and REEs are linked in this aspect. You will see a humongous
increase as lanthanum is used very heavily in the refining
process to crack heavy sour crude oil. The other one is cerium,
which is used in car catalytic converters. Also, you're going to
see Molycorp bring on this XSORBX water filter, which combines
cerium and nanotechnology. It's the only filter that's capable of
removing pathogens and pharmaceuticals that the modern municipal
water filtration systems cannot remove.
The heavies tend to be more prevalent on the Department of
Energy's Critical Metals Strategy list, so they have even better
supply/demand fundamentals than the lights. Dysprosium is used in
a trace amount in the neodymium-iron-boron magnet, but the magnet
wouldn't be as good as it is without the dysprosium in it.
Dysprosium is not very common in terms of the percentage amounts
in most REE deposits. It's the most critical on the entire
Department of Energy's Critical Metals Strategy list because it's
rare and it's very important to clean energy. The other couple of
heavies that people should learn the names of are terbium and
europium. Terbium is used in compact fluorescent light bulbs as
well as in smart phones. Europium is going into smart phones
In many cases REE production in China has caused vast
environmental degradation. Some Chinese farmers can't safely
plant crops near the mine sites, and drinking water in these
areas can sometimes be deadly. Nonetheless, Molycorp plans to
mine 20,000 tons per year of REEs in California, which is not
considered a "mine friendly" state. What makes you think Mountain
Pass will be permitted?
Molycorp is using innovative technologies in their processing
facilities now. Yes, California does have environmental concerns,
but California wants to transition to clean energy and the state
has been subsidizing that. Molycorp has to demonstrate that it
can operate in an environmentally responsible way and that they
can do it at scale. The company has the capital and the know-how
to be able to do it. It's already a previously mined ore body
with decades of data, so that's an advantage. The infrastructure
There is new technology to process the REEs safely and do all
the refining. It's going to cost a little bit more money up
front, but Molycorp management is saying their production costs
are going to be even lower than China's costs. It'll be an
impressive feat if Molycorp management actually delivers on these
It's possible that these companies spending hundreds of millions
of dollars to bring their mines into production and build the
facilities to properly separate those metals from one another
could be jeopardized if China opens the tap, floods the market
with heavies. How are companies going to deal with that?
We don't have a free REE market. Governments will probably buy
REEs for a secure supply to protect REE miners bringing
production online. In fact, Japan, the U.S. and the EU have all
recommended that their governments start stockpiling a safe and
secure REE supply to protect themselves from the Chinese
monopolizing the industry.
This is a real concern. China could dump pretty much anything on
the market, and they do once in a while. They're shrewd traders.
No one can say for sure what they will do, but the stockpiling
that's gone on will have some effect as well.
In early August, we witnessed a massive selloff of REE names. On
August 8, names like
Quest Rare Minerals Ltd. (TSX.V:QRM; NYSE.A:QRM)
Avalon Rare Metals Inc. (TSX:AVL; NYSE.A:AVL; OTCQX:AVARF)
fell at more than 10% and 13% respectively. Are these so cheap
now that it's time to fill your boots?
If I was building a model REE portfolio and I had to concentrate
the majority of my money into three companies, they would be
Neo Material Technologies (
, Molycorp and Great Western Minerals. Then I would sprinkle some
of the other top juniors like Quest, Avalon,
Tasman Metals Ltd. (TSX.V:TSM; OTCPK:TASXF; Fkft:T61)
Stans Energy Corp. (TSX.V:HRE)
Ucore Rare Metals Inc. (TSX.V:UCU; OTCQX:UURAF)
. Lynas and
Rare Element Resources Ltd. (TSX:RES; NYSE.A:REE)
, which might have some more heavies in the deposit, are wait and
Investors really need to be discriminatory with their capital.
If they are going to put a model REEs portfolio together, I think
the heavy concentration should be in Neo Material Technologies,
which is already profitable. They don't have to worry about the
prices of the supply, and they make a value-added product so
their profit margins are safer. Molycorp has the funding in place
already, and it already knows its ore body. I think Molycorp and
Great Western Minerals Group Ltd. are going to end up
consolidating the sector with some of these other juniors.
You've said "for this industry to flourish over the longer term
it will have to consolidate." What are consolidators going to be
looking for in companies that are just below them on the food
The race is on to figure out who's going to team up and create
the next HREE processing facility outside of China. Everyone is
looking for who has the cash, who has the supplies and the
infrastructure. We've already seen some consolidation in the last
nine months, and we're going to see a lot more.
If I was looking to consolidate the industry, I'd stick with my
vertical integration strategy, focus on those making the higher
value-added products. There aren't a lot of people around that
have the technical know-how to do it. And there aren't a lot of
these facilities in the world. Only a handful of facilities exist
outside of China. I think one of them in France just sold for a
big amount of money. Great Western Minerals has a couple of them
and so does Neo Materials Technologies.
So, if I was looking to acquire and consolidate the space, I
think Molycorp is going to end up being the control stock here,
like PotashCorp (TSX:POT; NYSE:POT) has become in the fertilizer
industry. I think Molycorp will go after Ucore for some of the
heavy deposits and then the processing facilities like Stans
Energy. Then maybe they'll go after some other processing
companies or do a joint venture with Neo Material Technologies
further up the value chain.
Ucore was just given "priority permitting assistance" from the
U.S. Department of Agriculture. What does that mean for the
Ucore is going to be a big winner. I project the supply crisis in
LREEs will be solved by the 2014-2015 timeframe depending on what
true demand turns out to be. Then only the heavies will be in
true supply deficit/crisis mode. For a company like Molycorp,
which is going to be a lower cost producer, that's going to be
fine. Some of these other juniors that are planning on bringing
production online from 2015 to 2017, primarily with light and
very little heavies, are going to see a lot of trouble. Ucore has
an infrastructure advantage, so they can be online and producing
probably before 2015, probably the end of 2013 if everything goes
according to plan.
What about Ucore's Bokan Mountain in terms of its HREE versus
LREE content? Is this the kind of play that might suit a
Yes, Bokan has higher heavies than lights compared to some of the
other deposits. The infrastructure advantage is so good that the
capital expenditure (capex) to get Bokan Mountain back into
production is going to be minimal compared to some of these other
Molycorp, Lynas and Great Western are projected to be the first
REE miners to reach production. But what are some companies that
you think could surprise you and our readers?
Commerce Resources Corp. (TSX.V:CCE; Fkft:D7H; OTCQX:CMRZF)
Medallion Resources Ltd. (TSX.V:MDL; OTCQX:MLLOF)
could surprise along with
Greenland Minerals & Energy Ltd. (
Greenland is a developing country. Most of the country's
revenue is coming from fishing and it is just starting to develop
natural resource plays. If it is done environmentally
responsibly, I think there will be less red tape in Greenland.
And the deposit in Greenland is absolutely massive. The question
is about the infrastructure because it's a developing
In general, though, I wouldn't risk putting a lot of capital
into the plays below the cuff, the top two tiers of companies I
suggested in my model REE portfolio, because the supply issues
are going to solve themselves, especially in the lights, by 2014
Kevin, what are you hearing about Stans Energy in Estonia and
about the feasibility study on the Kutessay II project in the
It depends on who you talk to and when you talk to them about
Stans. The concerns are legitimate about how much control Russia
has over Stans and what they want, what the facility's condition
is, et cetera. I'm holding my judgment until I see it for myself.
They are certainly one to be watched.
The positives include a tremendous infrastructure advantage.
Stans has the processing facility there; it just needs to be
renovated, so the capex is not going to be absolutely massive.
The company can probably keep the capex below a couple hundred
million bucks. That's a big advantage. And, it also has a
technical advantage because the people who used to work at the
facility still live around there. The company also has an
innovation deal with a renowned Russian laboratory that
specializes in REEs to separate them and innovate with them.
On the negative side, the company's total grade of the ore
body is low. That means the margin for error is very low on the
mining side. Stans will have to make up for it on the processing
side. And then you have the geopolitical risk on top of that.
Investors are going to have to weigh these risks and rewards to
determine if they are comfortable with Stans.
Are you following any other companies that you think investors
should be interested in?
I think the most undervalued one right now is Great Western
Minerals. It just announced a breakthrough deal with an already
established and successful Chinese REE processor to team up to
build another REE processing facility in South Africa closer to
its Steenkampskraal Mine. Great Western Minerals is the only
non-Chinese future REE miner to announce such a deal. It adds a
lot of credibility to the company.
How can people get your
Dragon Metals Report
and find out more about you both?
We actually have our own website, dragonmetalsreport.com, where
people can pick up the report and watch a video interview.
They'll be able to see samples of the report before they purchase
Do you have some parting thoughts on the REE space before we let
I really believe this is a once-in-a-lifetime trader's
opportunity. I've never seen a market that has so much innovation
potential that we can't even conceive of yet. I probably won't
see a market like it again in my lifetime.
Thank you for your insights.
has had over two decades of intensive industry and trading
experience as a floor trader and broker as well as an OTC
derivatives broker in New York and London. He travels the globe
in search of resource opportunities and is the author of
A Maniac Commodity Trader's Guide to Making a Fortune: A Not-So
Crazy Road Map to Riches,
which was published by John Wiley and Sons. Kevin has
appeared on Cavuto on Fox, Kudlow & Co. on CNBC, The Daily
Show on the Comedy Channel, Fox Business News, NBC, ABC, CNN, and
many more. He has acted as an analyst and trading advisor for
publications at prestigious publishers like Weiss Research, Dow
Jones Newswire, and Agora Financial. Kevin's website,
, offers visitors his blog and video blog, media page and events
schedule, and political and economic commentary.
is an investor, entrepreneur, financial historian, Austrian
School economist, and contrarian. Jason co-founded the startup
financial education company Wall St for Main St, LLC, to try to
help the people of Main Street by teaching them the knowledge,
skills, research methods, and investing expertise of Wall
Street. You can also find Jason's work at his blog website at
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1) Brian Sylvester of
The Critical Metals Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Critical Metals Report:
Commerce Resources Corp., Medallion Resources Ltd., Tasman Metals
Ltd., Stans Energy Corp., Ucore Rare Metals Inc., Rare Element
Resources Ltd., Quest Rare Minerals Ltd.
3) Jason Burack: I personally and/or my family own shares of the
following companies mentioned in this interview: Molycorp, Great
Western Minerals, Ucore. I personally and/or my family am paid by
the following companies mentioned in this interview: None.
4) Kevin Kerr: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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