Rare Earth Metals Demand Is Unstoppable: Jeb Handwerger
Source: Sally Lowder of
The Critical Metals Report
Not long after the New Year dawned,
Gold Stock Trades
Editor Jeb Handwerger noted certain rare earths emerging from
their 2011 slumber to produce impressive gains. It's not yet
March, but the good news keeps coming. Despite dire predictions
that demand is drying up, Handwerger tells
The Critical Metals Report
in this exclusive interview that the world remains at risk of
supply shortfalls. It's not strictly a rare earths story, either.
Read on to see what he has to say about the nascent niobium
The Critical Metals Report:
Jeb, as a student of the critical metals space who's been
watching precious metals stocks over the past 20 years, do you
believe we're seeing a renaissance in the industrial metals
It's interesting. We saw last week
The Wall Street Journal
headline, "After Xstrata, a Mining Merger Pileup." Of course, we
always try to look beyond the headlines and read between the
lines. The proposed merger between Glencore International plc (
) and Xstrata PLC (
) is old news for my readers because for some time we've said we
would see increased global hunger for natural resources. This
transaction goes much deeper and is implicit with words not
mentioned in the routine press release.
How is it more important than just that one deal?
Banks are aligning with resource seekers to create real
competitors to giants such as Vale S.A. (VALE:NYSE), BHP Billiton
Ltd. (BHP:NYSE; BHPLF:OTCPK) and Rio Tinto (RIO:NYSE/ASE) to
assimilate the resource stocks and claim resources such as
copper, iron ore and metallurgical/thermal coal. The
Xstrata-Glencore transaction is notable in that it confirms the
rising demand from emerging nations, especially in Asia.
There has been a lot of nervousness among investors regarding the
pace of growth of China, and the mainstream media has been
reporting softening GDP growth in many of the Asian nations,
particularly China. Are we not getting the straight story from
the mainstream media?
The way we see it, the gloom and doom that came out of Europe in
2011 and fears of recession and global contagion were overdone.
We've seen a flight out of equities into risk-off assets such as
the dollar and treasuries. But the Federal Reserve Bank has
extended low interest rates from mid-2013 to late-2014, and we're
seeing stimulus underway in Europe and China. In fact, we're now
seeing a return to the risk-on trade and a return to what we
consider one of the most important sectors-the rare earths
(REEs). Rare earths are intrinsic to the new technologies,
rapidly increasing demands and this ongoing, long-term global
So you believe in the long-term growth of BRIC nations (Brazil,
Russia, India and China), not just in traditional metals but also
in specialty metals and rare earths?
Exactly. Many analysts are overlooking a Department of Energy
report that came out at the end of 2011. Analysts claim that rare
earth demand is low, and that China can just open the floodgates
and drown the market with heavy rare earths (HREEs). Well, a U.S.
government think tank wrote a 200-page report-these are the top
professors, the top scientists, the top economists coming
together-anticipating a supply shortfall in certain basic
elements. Instead of only two elements that are most critical and
strategic, there are now five. They're saying that in the
short-term we could experience supply shortages of yttrium,
europium, neodymium, terbium and dysprosium.
Even with lack of Chinese transparency?
Right, even with the lack of Chinese transparency. This is what
I've seen and I'm studying. So very few projects with these
metals will really be able to come online outside of China, and
these elements are growing more and more in demand. We're not in
the 1970s anymore. These emerging countries are building new
automobiles, electric vehicles and fuel-efficient, lighter
vehicles. The rise in demand for smart phones in emerging nations
has been huge. Look at the Egyptian revolution. Look at the Arab
Spring. These events would not have occurred if not for the rise
of the smart phones.
And that doesn't even include all the green applications-for
photovoltaic cells and so forth.
Right. And wind turbines. General Electric Company (GE:NYSE) just
announced that it's launching a new generation of huge,
transformative wind turbines that require HREEs.
So let's talk about these HREEs.
Here's an interesting example of a company that has HREEs in its
deposit right here in the U.S.: Ucore Rare Metals Inc.
(UCU:TSX.V; UURAF:OTCQX) released an announcement that Alaska
Governor Sean Parnell has allocated $8.1 million (
) in the proposed state budget for 2013 to expedite Ucore's
development as a viable corporate entity. In other words, the
state government of Alaska is sponsoring explicit support for
Ucore's flagship Bokan Mountain project, which contains
strategically important HREE metals of dysprosium and terbium.
These metals have been highlighted by the U.S. Department of
Energy as being at risk of a supply shortfall in the near term.
With Ucore, Alaska has not only taken an active role in the
development of a rare earth company but in reviving the whole
rare earth and critical mineral industry from mining to
It certainly underscores the importance of geopolitical
support. Two other companies that have secured incredible
geopolitical support and have the best chances of coming into
production at the end of the day are Matamec Explorations Inc.
(MAT:TSX.V; MRHEF:OTCQX) and Tasman Metals Ltd. (TSM:TSX.V;
TAS:NYSE.A; TASXF:OTCPK; T61:FSE).
Are they involved in the heavies, the REEs that industry and
government seem most nervous about in terms of supply
Sweden actually has recognized Tasman Metals as a national asset,
a strategic asset. Its flagship project is called Norra Karr.
It's a large HREE project-the fourth-largest HREE element project
in the world and the only NI 43-101-compliant REE mineral
resource in mainland Europe. It's in a mining-friendly location
with great infrastructure. What's also interesting is that this
deposit has eudialyte mineralogy. Tasman has made significant
progress in developing the process flow sheet for Norra Karr,
which is critical for the Preliminary Economic Assessment (PEA)
that will be nearing completion in a few weeks. Not only has the
company shown impressive rare earth recoveries, but it is able to
physically separate nepheline/feldspar with low iron content.
This would be a great way to significantly reduce tailings.
Recoveries of the HREEs, including a high percentage of
dysprosium and terbium, exceeded 90%.
What about Matamec?
Interestingly, Matamec also seems to have that eudialyte
metallurgy I mentioned, and it's in mining-friendly Québec. In
December 2011, Matamec signed a memo of understanding (
) with Toyota Tsusho Group (TYHOF:OTCPK). The trading unit of
Asia's largest auto maker, Toyota Tsusho has agreed to buy
Matamec's output from its Kipawa mine deposit-which is in many
ways similar to Ucore's Bokan Mountain deposit-to fast-track
development of Kipawa's rare earth metals production. Kipawa
isn't a big deposit; it's quite compact. I think that's what the
end-users are looking for, not the projects with capital
expenditures approaching $1 billion (
). They like compact projects with excellent infrastructure,
favorable metallurgy and geopolitical support.
That was the lesson we learned with the Australian REE
company, Lynas Corp. (
). Look at the gray hairs Lynas has given shareholders for being
in a risky political jurisdiction. Alaska is extremely supportive
Aside from Ucore in Alaska, do any other U.S. assets have heavy
No. Not really. Ucore has the largest 43-101 HREE resources in
the United States, although we have heard Rare Element Resources
Ltd. (RES:TSX; REE:NYSE.A) and Molycorp Inc. (MCP:NYSE) are
beginning to explore for the heavies around their current light
rare earth (LREE) deposits. Those deposits have no historical
geological footprint of HREEs like Ucore's Bokan Mountain, which
has transitioned into the mine development stage. The company
recently announced Ken Collison as the new chief operating
officer. Ken is an experienced mine engineer with a long history
of designing mines in an efficient and economic manner.
A couple of the rare earth companies have end-user agreements in
place, which tend to verify the fact that manufacturing needs a
secure supply of these rare elements to produce the most
efficient, lightest, strongest, most powerful motors or magnets,
whatever they manufacture. Do you consider these end-user
agreements positive for the space?
They're hugely important. This is exactly what investors were
looking for to give some validity to the sector, because this is
a new, growing industry in its infancy.
At this point we know that Matamec has an end-user agreement with
Correct. In December, Frontier Rare Earths Ltd. (FRO:TSX) signed
a definitive agreement with Korea Resources Corporation (Kores),
a government-owned mining and natural resource investment
company, to form a strategic partnership designed to accelerate
the development of Frontier's Zandkopsdrift rare earth project in
South Africa. Kores also announced that it intends to form a
consortium to join the Frontier joint venture. It would include
such leading Korean companies as Samsung Group, Hyundai Motors
Group, GS Group, Daewoo Shipbuilding, Marine Engineering Group
and AJU Group.
Do you see end-user agreements on the horizon for Ucore and
I do. But they're going to have to be very careful because they
have to study what works to the benefit of the shareholders. Do
they wait to finalize these end-user agreements or do they take
the capital upfront? These are major decisions that CEOs are
thinking about. I'm surmising that not only Ucore and Tasman, but
others with high-quality projects have received offers. Some REE
companies may be reluctant to make deals because their shares are
trading at such bargain-basement prices.
These companies know they're really undervalued. I mean, we're
talking about potentially billion-dollar mines, and these
companies are trading at market caps of $40, $50, $60M. Imagine
you're the CEO of a company and you have shareholders you're
accountable to. Do you take the money and take security, and
limit your upside? Or do you wait, holding out until your
valuation improves? It's a tough call. They can't announce
anything until the deal is done. They can't say they are in
talks, but that's most likely what's going on behind the scenes.
As I understand it, the end-users are very interested in these
companies because they want to ensure their security of supply.
If they know they can be competitive and have access to a good
supply, they're happy.
We've talked a little about HREEs as they relate new
manufacturing applications. Are there other metals you'd like to
Yes. Let's transition into the ferroalloys. Earlier, we were
discussing the Glencore/Xstrata deal. Part of that story is the
need for ferroalloys. These are elements such as molybdenum,
vanadium or niobium that are added to steel to make it lighter
and stronger. Niobium is used to make super alloys, which are
important to the defense of the United States as well as in
How is niobium important to strategic defense?
Niobium-which is on the U.S. list of strategic metals-is used to
make aeronautics and defense weaponry, the newest generation of
helicopters, jets and jet thrusters, missiles, rockets and things
we're not even aware exist.
Where are the niobium mines located?
Two operating mines are in Brazil and one is in Québec, the
Niobec Mine, owned by IAMGOLD Corp. (IMG:TSX; IAG:NYSE). IAMGOLD
recently announced a $950M initiative to triple the niobium
production with plans to spend $90M in 2012, $320M in 2013 and
$540M in 2014.
That's pretty dramatic for what's primarily a gold mining
Exactly. That's one of the issues I brought to my readers-why a
gold producer would segue into expanding its niobium production.
The simple answer is that IAMGOLD foresees substantial profits
and a high rate of return on its investment in this strategic
metal. Some of the top gold miners see the same potential, due to
the growth in demand for these strategic metals for technology
and green energy applications. They understand that we're living
in an age of energy conservation. They smell profits. This is
what capitalism is about. Where can they get the most bang for
We're all going to be looking at how we can conserve energy,
and an intrinsic part of that conversation is that steel will
have to be made simultaneously lighter and stronger. It takes the
addition of niobium to do that, which is part of the reason why
it appears on the government's short list of essential strategic
The Obama Administration has put in a bill to increase
miles-per-gallon (mpg) requirements by 2015, all the way up to 54
mpg. The automotive industry has to make cars lighter to improve
fuel efficiency, but they can't sacrifice strength, which they
need to meet safety targets. That's what makes these ferroalloys,
or these alloying agents, so important. When added to steel, the
niobium increases the strength while at the same time reducing
its total weight. Those efficiencies trickle down into shipping,
into manufacturing-all the way down the supply chain.
With only three niobium mines in production, are there other
niobium deposits getting ready to meet supply requirements going
forward as government and consumer demands increase for lighter,
more fuel efficient and stronger steel products?
It's astonishing that the United States currently has to import
100% of the niobium it uses. It doesn't seem right when we're
looking at a global renaissance in energy conservation that will
require lighter, stronger steel. This is a much bigger market
than the rare earth market.
Enter center stage, Quantum Rare Earth Developments Corp.
(QRE:TSX.V; BR3:FSE; QREDF:OTCBB). It's the only company that has
an NI 43-101-complaint resource of niobium in the U.S. Its Elk
Creek Project in Nebraska is an ideal location for a mine. It's
smack in the middle of farmland through which major roads and
rail lines are available for expansion. Quantum has both state
and local support.
At one point, back in the 1970s and 1980s, this was a Molycorp
Inc. asset that was supposed to go into production, but then the
whole industry moved overseas. Now, Quantum is building upon the
research done by Molycorp. In fact, some of the original Molycorp
people are updating the findings, working on the metallurgy and
the development process for the same property they worked
approximately 40 years ago. Quantum has an experienced chemical
engineer on board and a strong metallurgical team with decades of
How does Elk Creek compare with Niobec?
Niobec has proven and probable reserves of 45.7M tons at .53%
niobium. Elk Creek has an inferred resource-a much earlier stage,
not reserves-of 80.1M tons at 0.62% niobium. It's an early stage
project but it's showing that it has the potential of becoming a
very large, high-grade mine. Results from its 2011 drill program
indicate that Quantum hit some high-grade niobium, and that's
being factored into a new resource estimate targeted for
publication within the upcoming few weeks. It could be huge.
What about permitting? Nebraska isn't a typical mining
The state and local government has been 100% supportive, so
initially it seems ideal for permitting. I've seen no opposition
in what I've researched-only support. There should be an
independent PEA published in the first half of 2012.
We still consider it a bargain price to the investment
community; the nine-month downtrend has been broken above its
200-day moving averages. The trajectory is upward at this point.
Volume is growing, too, which shows that Quantum is gaining
As I indicated, while the giant IAMGOLD is sinking $950M into
Niobec in Québec over the next three years, I conjecture that we
might see another mining giant out there willing to enter the
highly profitable niobium market at bargain basement prices.
It will be interesting to see what happens in terms of niobium
exploration going forward. This space seems to be in its infancy,
just as the rare earths sector was in 2007.
The trajectory is turning upward once again. Now that we've
completed a basing process, we're beginning to emerge into new
uptrends in these really critical industrial metals.
That said, it's a mistake to think that the West can rely on
lawyers, courts and international enforcers such as the World
Trade Organization (WTO) to secure rare earth supply. That's no
way to compete with China. In fact, the WTO's ruling against
China's export restrictions of critical raw materials may only
exacerbate the underlying issue and not resolve anything. Rare
earths independence is the answer. Competition is the lifeblood
The companies that can secure supply at a reasonable price by
crafting agreements with producers will be rewarded, but the
reality is the U.S. and most other countries around the world are
at risk of a supply shortfall in these critical elements. I want
to make sure people hear that because it's so important. They're
getting such misinformation and there aren't a lot of strong
voices in the sector.
You mentioned Lynas earlier, and all the gray hairs its problems
have given its shareholders. The company's Mount Weld project
contains the richest known rare earths deposit in the world, but
it's taken a while to get its refinery off the ground in
Malaysia. News just came out of Kuala Lumpur on Feb. 1 that Lynas
has been granted a temporary and conditional license for that
We are watching Lynas carefully because we think it may serve as
a bellwether for the whole rare earth sector. Since April 2011
and the delays with receiving that temporary operating license to
begin the commencement of refining rare earths, Lynas has had a
nice bounce. Last time it did this sort of reversal from a
downtrend, it made a very large gain.
So, are you saying you're long on Lynas?
Yes I am. But we have to remember that a temporary operating
license to refine rare earths under certain conditions doesn't
automatically mean the sky's the limit. There may be a response
through the sector. Other companies may realize that the rare
earths and Lynas can get to a state of eventual cash flow as a
pioneering model for the whole rare earth sector.
Is the elimination of some of the names in this space likely?
Certain companies have been highly promotional, so investors
should do their homework.
What would you have them watch out for, specifically?
Check out the management. Make sure they have competent mining
engineers and third-party consultants. Make sure they are staying
on track with timelines. Check out their NI 43-101s and
metallurgical results. Study the historical geological footprints
to understand if it is a heavy- or light-predominated asset.
Don't take claims for granted. Make sure they have good
infrastructure so their Capex does not become prohibitive.
Understand the geopolitics involved. These are just a few of the
important things that rare earth investors need to review. It's
not just geology, but also the metallurgy and potential
radiation-and how they're dealing with it. A whole mix goes well
beyond the tonnage and grade. It's so important to have an
open-minded, broad perspective; you want to avoid getting myopic
by focusing on one area and losing sight of the whole big
Bottom line, do you consider the rare earth space is a good place
for investors? Or is the space so complex that investors would be
better advised not to join the party?
The way I see it, demand is increasing for these elements, for
smart phones, for the smaller, more efficient and lighter
products, technologies and alternative clean energies. Demand is
The number of companies that will be able to get into
production is limited. Mining is a tough business, and especially
tough in rare earths, where you have so many moving parts.
Despite that-or perhaps because of that-the rewards will be great
for the high quality companies that get it done, the innovative,
visionary companies whose management thinks outside the box. I'm
confident that some of these companies will make a fortune. And
so will the people who invest in them
Thank you, Jeb. It's been a pleasure.
Gold Stock Trades
Editor Jeb Handwerger is a sought-after stock analyst and
best-selling writer who's syndicated internationally and known
throughout the financial industry for accurate, in depth and
timely analysis of the general markets, particularly as they
relate to the rare earths, precious metals and, nuclear sectors.
He studied engineering and mathematics and received his
undergraduate degree from University of Buffalo and a masters
degree at Nova Southeastern University in Fort Lauderdale.
Teaching technical analysis to professionals in South Florida for
some seven years, Handwerger began a daily newsletter that grew
Gold Stock Trades: Mining for Winners in any Market,
with thousands of readers from more than 40 nations who are
interested in the North American resource markets. Click Here to
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1) Sally Lowder of
The Critical Metals Report
conducted this interview. She personally and/or her family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Critical Metals Report:
Ucore Rare Metals Inc., Matamec Explorations Inc., Tasman Metals
Ltd., Rare Element Resources Ltd., Frontier Rare Earths Ltd and
Quantum Rare Earths Development Corp. Streetwise Reports does not
accept stock in exchange for services.
3) Jeb Handwerger: I personally and/or my family own shares of
the following companies mentioned in this interview: Ucore Rare
Metals Inc., Tasman Metals Ltd., Quantum Rare Earth Developments
Corp. and Lynas Corp. I personally and/or my family am paid by
the following companies mentioned in this interview: None. I was
not paid by Streetwise for participating in this story.
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