Opportunities in Clean Rare Earth Mining: Dallas
Source: Brian Sylvester of
The Critical Metals Report
Cleantech companies are exploring-and exploiting-the
connections between many sectors of the energy, infrastructure
and other industrial markets. Dallas Kachan, principal of
cleantech research and consulting firm Kachan & Co. in
Vancouver, points to the emergence of "clean" mining as an
important investment theme for 2012. In this exclusive interview
The Critical Metals Report
Kachan shares some companies using green techniques to improve
their bottom lines.
The Critical Metals Report:
Dallas, can retail investors make money in the near-term in
cleantech companies or should they be more focused on the
If you had asked this question three months ago, my answer would
have been different. Recently, cleantech stocks have outperformed
the broad indexes and investors have made money in cleantech
investments in the short-term.
Three indexes in particular, theAustralian Cleatech Index
(ACT) , theClean Edge Indexes (CLES) and theCleantech Index
(CTIUS) are all outperforming the NASDAQ and other benchmarks,
largely because cleantech did not have much farther to fall.
Companies have taken a battering in recent months. With the
recent rise in oil prices, investors have started to remember the
alternative energy sector.
What's more, the cleantech umbrella is much wider than
renewable energy. Transportation, air, water, waste and heavy
industry also contribute to the increase in the cleantech
Roughly how much was invested in cleantech in 2011? And how does
that compare with previous years?
We have followed the flow of venture capital in cleantech since
2006. The data show that while 2011 was a difficult year for
cleantech company valuations, it was a great year for cleantech
venture capital investment. A total of $9 billion (
) was put to work in 2011, up 13% from the previous year and
higher than any other year in history with the exception of 2008,
back in the heyday of solar and biofuels. Cleantech mergers and
acquisitions (M&A) reached record highs in 2011, with 391
transactions worth $41.2B and 153% growth over 2010.
With that amount of venture capital coming into the sector, does
the U.S. government need to continue to subsidize the sector
while it finds its feet?
Neither the U.S. nor any other government needs to pass more
subsides to encourage cleantech innovation. Governments shouldn't
be in the business of using taxpayer money to make technology
bets. Instead, governments really need to pass aggressive
mandates and standards, like renewable portfolio standards, that
mandate a certain percentage of power from renewable sources by
certain dates, and then step back and let the private sector
figure out how to achieve them. Or, mandate efficiency or
emission standards for coal-powered plants and let the private
sector figure out how.
If you could make that recommendation, what portfolio percentage
would you recommend?
I would take a cue from a jurisdiction like California, which is
pursuing 33% of its power from renewable sources by 2020. That's
an aggressive number. Anything over 40% does not feel achievable
in the short term, because renewable sources are not ready for
baseload power at this time. Arguably nuclear and natural gas are
can play that role, but those quickly become political
What role does China play in these cleantech venture capital
China is receiving a small but growing percentage of global
cleantech venture capital. Starting in 2009, China accounted for
almost three-quarters of all cleantech IPO proceeds worldwide,
and that still roughly remains the case today.
Asia is the top region for cleantech M&A activity,
averaging around 30% of the total. Europe is also around 30% and
North America has about 26%. So China has become an important
global cleantech powerhouse, already dominating manufacturing in
many important cleantech subsectors such as solar and wind.
Nonetheless, China produces more power from coal-fired plants
than any other country.
It is fashionable to point to China as the world's largest
polluter. At the same time, China has put more money and more
brainpower into solving the pollution problem than any other
country. For instance, the amount of stimulus funding China has
allocated to clean technologies, including water, waste and other
non-energy cleantech infrastructure, is four times that of the
U.S. ($221B vs. ~$60B). China has also taken a very aggressive
stance in pursuing next-generation nuclear technology. That is
What other encouraging signs do you see coming out of China?
The "Rising Tigers, Sleeping Giant" report from the Breakthrough
Institute claims China, South Korea and Japan have already
collectively passed the U.S. in the production of virtually all
clean energy technologies. Over the next few years these
countries will out-invest the U.S.
In addition, China makes decisions quickly, unencumbered by a
democratic process. Last January, China announced intentions to
build a 2 GW $5B concentrating solar thermal plant. Bill Gross,
CEO of eSolar-the company whose technology was selected-recounts
that, in the time it took the U.S. Department of Energy to
complete the first stage of an application review, China
approved, signed and started construction on a project that is 20
times bigger. Things happen fast in China.
We watched oil rise about $106 a barrel (bbl) recently. What
would a sustained run above $110/bbl mean to the cleantech
Cleantech falls in and out of favor with retail and institutional
investors as oil prices ebb and flow. When oil prices drop,
cleantech falls out of fashion. As they creep back up, cleantech
becomes in demand again.
The biggest single issue has been the high upfront capital
costs of renewable energy. It is hard to raise the magnitude of
money needed when finances are scarce and investors are
short-sighted and risk-averse.
In addition, a number of these plays have not proven profitable
even with verbal power purchase agreements.
Most solar and wind firms have struggled to stay profitable.
Overcapacity in the renewable sector has resulted in massive
pricing pressure. While that pressure is driving a more rapid
move to grid parity, it erodes margins. In the long term, these
price drops are good for the economy, the environment and the
uptake of the product. But they are a significant negative for
near-term corporate profitability.
What advice would you give retail investors looking to add
cleantech exposure to their portfolios?
Although competing interests may be delaying investor's financial
returns in cleantech, the sector's three fundamental drivers are
First, the world is running out of the materials we need to
sustain modern life. The supply-and-demand issues related to
water, food, energy and resources are only going to get worse.
Plus, the infrastructure to deliver them is under stress.
Second, countries are increasingly seeking resource
independence, and as the supply-and-demand deltas get bigger,
you'll see more nationalism and protectionism.
Finally, even though it's taken a backseat of late, climate
change is a very real issue.
How would retail investors get exposure to each of those
A good strategy might be to take a long position in any of the
cleantech indexes: the ACT, CLES or CTIUS. They are broad indexes
that attract an array of companies that will offer investors a
certain amount of insurance. Buying exchange traded funds that
track these indexes would be a safe way to enjoy returns in the
cleantech space without having to do in-depth due diligence on
Looking at small-cap equities in cleantech, what are your
Each December, our company issues annual predictions for the year
ahead, and for 2012 our first theme is betting against energy
storage. Energy storage made headlines as the subsector that
received the most global cleantech venture investment in Q311.
That was driven by large investments in stationary cell fuel
makers Bloom Energy and ClearEdge Power. We do not see any more
investments of that size on the horizon. Of the 60 or so
companies vying for this tiny market, many are selling at zero or
negative gross margins.
The main reason we are not bullish on the storage sector is
that smoothing the intermittency of renewable, solar and wind
power might soon lose importance. We believe that utility-scale
renewable power storage might be less necessary if utilities
embraced other ways to generate clean, base-load power. We
believe base-load power options will start to include new, safer
forms of nuclear power or natural gas turbines powered by
renewable natural gas. All of these promise to be less expensive
than solar and wind when you factor in the expense of storage
OK, that is one theme. What is another?
A second favorite theme we're watching for 2012 is increased
venture investment, M&A and public exits in the water and
agriculture space, specifically what is called "'solutions to
Until recently, only cleantech industry insiders were talking
about water as an investment category, and it remains a small
percentage of the $9B dollars we talked about in cleantech
venture investment. However, industrial wastewater is driving
growth in today's water investment. Two of the top VC deals of
Q411 focused on oil-and-gas water solutions.
Regulations aimed at making hydraulic fracturing, or fracking,
less environmentally destructive will spur innovation and
water-related investments in 2012.
How does this technology work?
Produced water is created by most hydraulic fracturing. There are
more companies than ever bringing new remediation technologies to
bear to try to clean up this produced water. In some cases, they
are trying to remove and recycle metals and other dissolved
solids and repurpose them as revenue streams.
So, instead of just pumping produced water into a basin, it would
be recycled and reused, for example in oil sand plants where
steam is used to separate the oil from bitumen. Is that the gist
Yes. And in the case of fracking, the goal is returning clean
water back to the ground water. Many companies are chasing what
they believe are commercial opportunities.
And what is your third theme?
We expect to see more clean mining companies in 2012. After
centuries of environmental effects ranging from toxic emissions
to tailings ponds, mining is slowly cleaning up its act.
Why? Because new, clean technologies can increase industrial
efficiency and lower mining companies' power needs. They can even
help reduce water requirements and remediate the mines of years
past. That can translate into cost savings for mining
Companies to watch here includeAmerican Manganese Inc.
(AMY:TSX.V; AMYZ:OTCPK; 2AM:FSE) , which has developed a lower
power process intended to use only about 6% of the energy
required by the high-temperature roasting process of conventional
manganese production. It also intends to reduce its water
requirements by using nanofiltration and precipitation to remove
Are those processes the primary reason to invest in American
We recently published an in-depth report looking at American
Manganese and its process developed for its Artillery Peak
resource in Arizona. We looked at the company's probability for
success based on a technology assessment and market
supply-and-demand perspective. Our findings were cautiously
optimistic that the company stands to have an impact in the
global market for manganese given its net opportunity.
How much does the price of manganese affect the share price of
Well, we need to remember that the company is not yet in
production. Its target for production is 2014.
Our investigation suggested that prices for manganese could be
heading up given global supply-and-demand issues and what China,
the world's leading producer of electrolytic manganese, is
expected to do in terms of consolidation of its production.
Rising prices for electrolytic manganese spells better and better
things for American Manganese, as long as the company can keep
its production costs as low as currently planned.
As far as its position as the only manganese project in America,
what does that mean for the company?
If American Manganese becomes a significant North American
producer of electrolytic manganese and electrolytic manganese
dioxide, it could potentially also do so at much lower costs for
North American-based customers, which could make it very
attractive for North American companies to do a lot of business
with American Manganese.
What are some other companies in this subsector?
In toxin remediation and resource recovery, I would watchBacTech
Environmental Corp. (BAC:CNSX; A1H4TY:WKN) andREBgold Corp.
(RBG:TSX.V) , which are using bacteria that the companies claim
is harmless to humans and the environment to liberate precious
and base metals from difficult to treat ores and tailings.
The process provides the bacteria with optimal conditions in
closed reactors, according to the companies. Bactech and REBgold
say they can oxidize sulfides in as few as five or six days, a
process that normally takes many years in nature. The recovery of
these materials allows Bactech to offer mine tailing remediation
services at no charge to governments and for REBgold to pursue
interests in gold mines and operations in Australia, Tasmania and
BioteQ Environmental Technologies Inc. (BQE:TSX) of Vancouver,
Canada, is one of the handful of companies specializing in acid
mine discharge. The company has built 14 industrial water
treatment plants ranging in size up to 23,000 cubic meters a day.
It has sites in Canada, the U.S., Mexico, Australia and
Basically, BioteQ collects the water runoff at existing mining
operations or past producing mining operations, and separates the
water from the various heavy metals. Is that right?
With its 14 water processing facilities around the world, what is
its growth plan?
The last time we spoke with the company, we were told it was
focused on execution and keeping its head down.
Do you have some parting thoughts on the cleantech space?
I would restate the three drivers of cleantech I mentioned
earlier. First, we are running out of materials we need to
sustain life as we live in on earth. Second, countries are
pursuing resource independence now more than ever. Third, climate
change is not going away. Those three points are a great reminder
that the demand for cleantech products and services is not going
away anytime soon, short-term economic issues
Dallas, thank you for your time and your insights.
For more clean energy investment ideas, go to
The Energy Report
, managing partner of Kachan & Co. is former managing
director and executive editor of the Cleantech Group, credited
with coining the term cleantech and founding the cleantech
investment class. He is author of 400+ cleantech articles and
reports, a regular speaker at cleantech events worldwide and is
cited widely as a cleantech market dynamics and technology
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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:
American Manganese Inc. Streetwise Reports does not accept stock
in exchange for services.
3) Dallas Kachan: 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: American Manganese. I was not paid
by Streetwise Reports for participating in this story.
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