Rare Element Resources is an early pioneer in their sector. The company has a 100% interest in the Bear Lodge property in Wyoming, which, according to the US Geological Survey, is one of the largest disseminated rare earth deposits in North America. Along with high grade light rare earth elements the deposit contains lesser amounts of heavy rare earths and the occurrence of gold. On June 14th Rare Element Resources reported a resource update and provided an indicated mineral resource of 4.9 million tons at 3.77% REO and an inferred mineral resources of 17.81 million tons at 3.03% REO; setting the stage for the company’s upcoming summer drill program.
In May, U.S. investment bank Dahlman Rose initiated coverage on Rare Element Resources with a buy rating and $21 price target. “We like the straightforward metallurgy that is present at the company’s Bear Lodge deposit and access to infrastructure that is present at this deposit. In fact, we believe that these aspects make the company an attractive candidate to be acquired by a producing rare earth company over the medium-term.”
But not everyone agrees with Dahlman Rose research analysts Anthony Young and Anthony Rizzuto. On June 23 it was reported that the short interest in three U.S. quoted rare earth miners, including Rare Element Resources, has continued to build since April and stands just off record highs. Will Duff Gordon, research director for Data Explorers, noted “despite the recent substantial share-price correction in all three stocks, it seems that short sellers still believe them to be overvalued.”
Whether you’re bearish or bullish on the sector expect the debate on rare earth elements to rage on and, in the meantime, the one thing that both bulls and bears can be assured of is share price volatility across the board. We connected with the company’s President Donald Ranta to get his take on the price sustainability of rare earth elements and to learn more about the Bear Lodge deposit.
Rare earth elements have really come on to the scene since after the market crash in 2008 and over the past 10 months the sector has really exploded. To what do you attribute this monumental paradigm shift?
The shift is primarily due to China and its restriction of rare-earths exports and to an insatiable and growing worldwide demand for rare-earth products. China produces approximately 96% of the rare earths worldwide, and it has been annually reducing its exports of rare-earth concentrates, oxides (REO), and metals every year since 2004. This has been a clear message to the rest of the world, that China cannot continue expanding its production to match rising world consumption of the metals. The recognition among the rare-earth consuming companies and countries is that there is currently a real shortage of rare earths outside China and that shortage will be exacerbated as China continues to restrict its exports of the raw materials. Reports out of China since the winter of 2008-09 have been hinting that a decreasing supply of the metals will be coming from the country. A Chinese announcement in July 2010 of a drastic reduction of rare-earth exports (70% reduction in the second half of 2010) kicked off the current frenzy. Rare-earth prices have been rising steadily ever since then.
Do you believe the price levels for rare earth elements are sustainable?
The answer is “yes” and “no”.
Yes for some elements that will continue to be in short supply, and no for other elements that will be in oversupply. With all fifteen elements occurring in every rare-earth deposit, mining for a few critical elements will lead to oversupply of others. The rare-earth elements that are forecast to be in continuous shortage outside of China from now through 2020 include neodymium, europium, terbium, dysprosium, erbium, and possibly praseodymium and gadolinium. Nd, Pr, Dy, and Tb are used in rare-earth magnets that constitute the most valuable end-market and the fastest growing market with a growth rate of 10-15% per year. Prices of these elements are expected to remain at a high level for the foreseeable future.
On the other hand, the rare-earth elements forecast to be in oversupply beginning in about 2015 include cerium, lanthanum, samarium, yttrium, and the other four minor rare earths. Prices of these four elements are expected to begin coming down in late 2013 or 2014 when both Lynas and Molycorp are expected to be in full production.
Everyone is very swept-up in the fervor around rare earth elements but you were an early mover in the sector. Please tell us about the history of the company and some of the challenges you faced focusing on a niche sector, and also about your current plans.
Rare Element’s subsidiary acquired the Bear Lodge rare-earth property in 1999-2000 and explored it slowly with a few drill holes per year beginning in 2004. The Company was drilling step-off holes from four high-grade holes drilled previously by Hecla Mining Company in the later 1980s, before the prices collapsed due to Chinese over-production of rare earths. Raising funds to conduct these programs in the 2004 through 2008 period was a challenge because the value proposition of rare-earth exploration companies and the industry was not widely known. Every meeting with potential investors required an education in what they are, how they are used, and where they are found. By 2009, there was sufficient drill-hole data to conduct an inferred mineral resource estimate of 9.8 million tons averaging 4.07% REO, which was both much larger and higher grade than we expected. The size and quality of this resource caught the attention of the rare-earth industry and its followers at a time when awareness of the rare-earth shortage was rising. At about the same time, metallurgical testing produced a break-through in the mineral processing of the oxide resource of the deposit, which consists of roughly the upper half of the resource. Further drilling expanded the resource to 17.5 million tons in 2010, and now there is an indicated resource of 4.9 million tons @ 3.77% REO plus an inferred resource of 17.8 million tons @ 3.03% REO. The total tonnage of oxide zone mineralization amenable to open pit mining and a simple mineral processing method is now at 16.5 million tons. A Scoping Study (Preliminary Economic Assessment) was completed in late 2010 indicating robust economics with a 40% IRR based on conservative inputs and three-year historic average prices, before the prices soared. The current prices are nearly 700% higher than the prices used in the Scoping Study. More drilling with a goal to double the resources, planning for pilot plant testing, and conducting a preliminary feasibility study are all in progress.
On May 27th, 2011 seventeen U.S. Senators introduced the Critical Minerals Policy Act, which seeks to “revitalize the United States critical minerals supply chain and reduce the nation’s growing dependence on foreign suppliers.” What are the implications of this Act on Rare Element Resources?
The Critical Minerals Policy Act and other similar bills could be very positive for the Bear Lodge project and Rare Element Resources. We have briefed many members of Congress and administration officials that the Company has a substantial deposit of rare-earth resources located in Wyoming. Recent communications from them demonstrate their high interest in having the next rare earths mine in the western hemisphere coming from the Bear Lodge Mountains. The Company does not need financial help or guarantees, but we believe the environmental permitting for rare-earth mine development needs to be streamlined without shortcutting any environmental analysis to ensure that the critical need for rare earths can be alleviated from domestic sources soon. If that provision of the law is passed and implemented, then a Bear Lodge Mine should begin producing in a few years.
What other strategic or macroeconomic focuses are on the horizon that might shape your industry?
With the current emphasis on green energy technologies, rare-earth consumption could grow much more rapidly than it has in the past. Over the past five decades, rare-earth consumption has approximately doubled every ten years. There is a possibility that this could accelerate with the widespread adoption of hybrid cars, electric cars, advanced wind turbines, and other rare-earth consuming applications. Rare earths are used in nearly all high technology applications and are essential for the proper functioning of most. At this time there are few or no substitutes for the rare earths in many applications. Further, expansion of research in many fields is producing an accelerating number of uses for products containing rare earths. In addition, there are reports that China may become a rare-earth importer by 2015 or 2016.
Rare earth elements are a broad category – can you talk about your deposits and highlight the key value propositions for our readers?
Not only do we have one of the largest deposits within our peer group but Rare Element Resources has the second highest grade rare-earth deposit in North America, and, one of the highest value-per-ton deposits in the world. The Company uses four parameters to evaluate rare-earth deposits: grade of ore, distribution of rare-earth elements, complexity of metallurgy, and status of infrastructure. The Bear Lodge project ranks very high with every parameter. Bear Lodge ranks second in North America in the grades of Ce, La, Nd, and Pr, and first in Sm, Eu, and Gd. And it has very competitive grades of Dy, Tb and Er. These eleven rare-earth elements are the most widely used. The mineral characteristics of the resource allow a very simple, low-cost metallurgical processing method to create a rare-earth carbonate concentrate that would be the first saleable product. By producing a concentrate for sale, Rare Element will be able to limit its initial capital costs, estimated at approximately $100 million (which is much less than other competitors), begin construction more quickly, and reduce the potential financial risk of the project. Approximately 26,000 tons of concentrate containing 11,400 tons of rare-earth oxides would be produced each year during the life of the mine. This would represent approximately 5% of the world rare-earths supply.
Infrastructure in northeastern Wyoming is outstanding with excellent project access roads, an Interstate highway 12 miles away, a railroad, an industrial park and towns nearby, inexpensive power (~3 cents per kwh), and a trained labor force in the region.
A few years after production begins and capital costs are paid back, plans are in place to construct a refinery for the extraction and separation of individual rare-earth oxides, which are value-added products. Processing of rare earths is often accomplished in a region where there is low-cost power and a source of reagents for processing the ores; both are readily available in Wyoming.
Off-take agreements and partnerships are typical in the resource business for junior companies focusing on niche markets. Is the company focused on developing these types of relationships in the near term?
Rare Element has been approached by a number of major companies and is considering a variety of strategic alliances and off-take agreements. More active negotiations this coming fall will be conducted upon completion of a pilot plant test that will produce samples of the first commercial product being contemplated (rare-earth carbonate concentrate).
This interview appeared in 5 Most Interesting Rare Earth Stocks – Part 2 – CLICK HERE for the article.