Under-the-Radar Rare Earth Elements: James
Source: Zig Lambo of
The Critical Metals Report
Sometimes the most exciting investment opportunities fly under
the radar. James Passin of Firebird Management LLC combs the
world for emerging opportunities in often overlooked areas. In
this exclusive interview with
The Critical Metals Report
he discusses companies producing critical materials that could
revolutionize defense and aviation technology and make nuclear
power safer and more efficient. He also shares some commodities
growth stories currently unfolding in Mongolia and East
The Critical Metals Report:
It's been over two years since you last spoke with us. How have
macroeconomic events affected your investment strategy?
I am not going to discuss specific investment strategies. But
it's interesting to take a careful look at the current
environment, in which there remains a huge amount of fear
regarding the solvency of the world financial system. At the same
time, there's clear evidence of growth returning to the USA and
certain other regions, although interest rates are near zero and
central banks continue to print money. So, I see a situation in
which powerful opposing forces at are work, a situation which may
continue to manifest itself in violent, short-term fluctuations
in asset prices.
I think that the global risk appetite is in a recovery process
and that this will gradually lead to more stable capital markets,
which should, generally, be positive for equity valuations. But
the fear of black swans has kept a lot of cash in the sidelines.
There is a danger in remaining out of the market in the current
negative interest rate environment.
What are you expecting with commodity prices in the next year or
so? Will China's growth continue, or is the country in a
China has attempted to engineer what the media is calling a "soft
landing," to try to weaken real estate prices and restrain
inflation. To some extent, it seems that its policies have been
successful. If inflationary pressures in China continue to
moderate, then the central bank should have room to loosen credit
conditions. This should help to offset economic weakness.
When you look at the strength in copper, the Australian dollar
and other leading or coincident indicators of Chinese economic
activity, it's very hard to take a bearish outlook on China.
Major Chinese stock indexes have held at support levels and are
starting to bounce. So, overall, I expect China's economy to be
somewhat constructive for commodity prices.
Do you anticipate any significant potential disruptions to the
I think we are going to see mergers and acquisitions in the
commodity space following the recent high-profile merger of two
very large affiliated companies,
Glencore International plc (
Xstrata PLC (
. Companies that work closely with governments are in a position
to implement strategic industrial policy, which may trigger a
wave of consolidation in the commodity space and a struggle for
control of a limited universe of valuable mineral assets. That
environment would create a very positive scenario for the prices
of mining companies' securities in general.
Would you say the giant majors and governments of developing
nations are competing for assets at the lower end of the food
There's a lot of evidence to support this view. Indian companies
now seem to be on the hunt and there are a lot of buyers for
world-class resources. A number of companies that control
world-class resource projects seem to have very compelling
valuations, following the horrendous equity market in fourth
quarter of 2011. I suspect we are going to see a huge number of
merger deals, hostile takeovers and various forms of
consolidation, reducing the supply of commodity shares.
You are invested in critical and strategic metals. What looks
attractive to you in those investment areas?
One area we're focused on is fluorspar, which is an important
mineral used in a number of metallurgical processes, such as
aluminum production. It's also the raw material necessary for the
production of hydrofluoric acid, which is the precursor to all
hydrofluoric chemicals and a number of products containing
fluorine or made through the process of fluorination. It's an
obscure commodity, but it is critical to modern life and to the
world economy. In fact, it's so strategic that the EU put it on
the list of critical commodities. There has been a lot of
government angst about the availability of fluorspar because
China controls approximately 50% of world fluorspar production.
China was once a fluorspar exporter, but the country is moving
more toward exporting value-added chemicals and consuming the raw
chemicals itself. That means the rest of the world has to look
for non-Chinese sources for fluorspar. There are very few sources
of fluorspar from operating mines and not many deposits can be
brought into production in the near future either.
What are some companies focusing on fluorspar production?
I would suggest taking a look at
Fluormin Plc (
, listed on the AIM Market of the London Stock Exchange. Fluormin
owns the producing Witkop fluorspar mine in South Africa as well
as 20% of a producing Kenyan fluorspar company. It has other
fluorspar exploration projects in various African countries and a
joint venture with a fluorspar trading company. Fluormin is a
significant producer and trader in the global fluorspar industry.
The company is controlled by Firebird and I serve with another
colleague on the board of directors.
Last time we met, you discussed
IBC Advanced Alloys Corp. (IB:TSX.V; AALF:OTCQX)
. What's going on with that company?
The stock has been somewhat stagnant, but IBC Advanced Alloys has
been growing its revenue. We're intrigued by the company's
Beralcast business, which involves an aluminum-beryllium
composite material with unique characteristics that make it
attractive in defense aviation platforms and, potentially, in
various commercial aviation applications. It could be a
game-changer when you look at the market for beryllium-aluminum
composite materials. The company is also exploring for beryllium
in Utah, with some promising recent results. I should note that
IBC was co-founded by Firebird and Firebird remains a significant
shareholder in the company.
You cover a wide range of investment arenas both geographically
and in terms of commodity type. What looks promising in the
Since we started following East African oil in 2003, there have
been a number of very large, important discoveries, the most
famous of which was
Heritage Oil Corp. (HOC:TSX; HOIL:LSE)
discovery in Uganda, which proved the existence of world-class
oil basins in the Great Rift Valley, precipitating a wave of
strategic interest in East Africa. At the same time, evolving
geopolitical dynamics are now supportive to East African oil
development. For example, South Sudan's independence created
momentum for a new pipeline that can potentially link offshore
East African oil fields to export markets, creating a platform
for monetization of otherwise stranded oil deposits.
What companies in this space are you considering?
I am the Chairman and Interim CEO of
Vanoil Energy Ltd. (VEL:TSX.V)
, which has two blocks in Kenya. Given the amount of interest in
Kenya now and the number of deals that we can point to in East
Africa, I think it's worth considering independent companies with
acreage in Kenya and the surrounding countries. Vanoil has had
some encouraging results from its seismic program and we look
forward to advancing further work on our Kenyan properties under
the terms of our Production Sharing Contracts. Firebird's East
African holdings include
Africa Oil Corp. (AOI:TSX.V)
, a Lundin company. It has a number of interesting oil
exploration projects in East Africa, and the company is currently
drilling on two properties, one in Kenya and one in the Puntland
Province of Somalia. I've been to the Somalian oil concession-it
has the potential to prove the existence of Yemen-size oil basins
in the Horn of East Africa.
You also mentioned Mongolian coal. What's going on there?
Mongolia has a host of remnants of the sea that vanished when the
Indian and Asian subcontinents collided a long time ago. Those
remnants formed a vast sedimentary basin that has been
transformed into one of the world's largest undeveloped coal
provinces, with both thermal and coking coal. Mongolia's thermal
coal story is quite interesting. China is now the world's largest
importer of thermal coal, while India has very limited supplies
of thermal coal. Mongolia will inevitably emerge, in my view, as
an important regional thermal coal supplier.
Also, Mongolia is the world's fastest-growing economy. This is
creating a growing need for new electricity generation capacity.
The country's large thermal coal deposits have an important role
to play in providing domestic energy. There's a wave of new
interest in Mongolia from strategic and financial investors. We
think that the country's real 2011 gross domestic product (
) is probably going to end up 18% higher than the prior year. We
believe this GDP is going to keep compounding at a very high rate
over the next 10-20 years.
How can investors participate in the market in Mongolia? There is
a stock exchange there, but not many companies, and liquidity is
low. What's the story there?
We're very active investors in the Mongolian Stock Exchange
(MSE). Certainly the market is not liquid, but there are no
restrictions on foreign ownership of shares, and the currency is
freely exchangeable. It is very easy to open and fund a brokerage
account. The hard part is sourcing shares. The London Stock
) is now managing the MSE under a three-year contract. We're
quite optimistic about the potential for liquidity on the MSE to
increase in the future. Some thermal coal stocks are listed on
the MSE, such as
Sharyn Gol JSC (SHG:MSE)
, a coal producer controlled by Firebird. There are other coal
companies with assets in Mongolia that are listed on other major
exchanges, although we don't have a particular view on those
Let's switch to nuclear. The U.S. Nuclear Regulatory Commission (
) granted some licenses in the last few weeks-the first ones in
nearly 35 years. What effect is that going to have on the nuclear
fuels and related industries and equipment suppliers?
Although I've generally reduced my focus on the nuclear industry
following our broad exit from the space during the uranium bubble
in 2006, we remain long-term bulls on nuclear power. It is the
only economic means of producing electricity without producing
vast amounts of carbon. Many government policies will most likely
continue to provide at least some economic inducement for nuclear
power generation. China will continue to build new nuclear
reactors irrespective of the changing political sentiment in some
countries following the Fukushima disaster. My focus is mainly in
companies that are providing essential services to the nuclear
industry and are positioned to benefit from the continued
long-term growth in nuclear power generation capacity.
What service companies appeal to you?
A U.S. company,
International Isotopes Inc. (INIS:OTCBB)
, is seeking a Nuclear Regulatory Commission (
) permit to build the first and only uranium de-conversion and
fluorine extraction plant in the world. This plant will take
depleted uranium hexafluoride, the toxic waste byproduct of
uranium enrichment, and convert it into a stable form of depleted
uranium, while extracting the commercially valuable fluorine
content. The resulting waste material is far safer and cheaper to
store and transport than depleted uranium hexafluoride. If this
plant is financed and built and operates successfully, it should
significantly reduce the environmental impact of the nuclear fuel
How much commercial value is there in the fluorine? Will the
company see substantial profits from producing safer uranium?
I expect the company to have two major revenue streams. The first
would be the payment it receives for de-converting uranium
hexafluoride, as this provides a direct benefit to the producers
of depleted uranium hexafluoride. The second revenue stream will
come from extracting the fluorine content and producing fluorine
gases and other fluorine products, which it can sell
How large is the fluorine gas market and what kind of sales could
International Isotopes expect?
I don't want to get into financial projections, but the fluorine
market is quite large. If you look at all of the fluoride
chemical products, especially fluorine gases and products made
through the process of fluorination, it is an immense market. I
would note that Firebird is a significant shareholder in
We appreciate your time and thoughts today.
joined Firebird in 1999. James is a graduate of St. John's
College, where he majored in philosophy and classical
literature. James serves on the board of directors of several
Mongolian and Canadian companies, including Sharyn Gol JSC,
Baganuur JSC, BDSec JSC, National Investment Bank of Mongolia,
Vanoil Energy Ltd., Undur Tolgoi Minerals Inc. and Fluormin
PLC, a UK fluorspar mining company.
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1) Zig Lambo 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:
IBC Advanced Alloy Corporation. Streetwise Reports does not
accept stock in exchange for services.
3) James Passin: I personally and/or my family own shares of the
following the following companies, either directly or through
indirect ownership through funds and related business entities,
mentioned in this interview: Vanoil Energy, Ltd., Fluormin PLC,
Sharyn Gol JSC, International Isotopes Inc., IBC Advanced Alloy
Corporation and Africa Oil Inc. 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
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