Great Western Minerals Group Brings Non-Chinese Rare-Earths Sector To A Turning Point

by Jack Lifton on July 25, 2011 · 107 comments

in News Analysis, Permanent Magnets, Rare Earths

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The “horse race” theme that I devised two years ago, with the winner to be the first to produce heavy rare-earth oxides (HREOs) outside of China, is now in the final lap. The smart money is on the smart management of Great Western Minerals Group (GWMG).

GWMG has brought the entire rare-earth junior mining sector outside of China to a turning point, as evidenced by its recent press release. Today is the last day of the hype-based, rare-earth-junior-mining-stock promotional “boomlet”.

In November 2009 at the Hard Assets Conference in San Francisco, I predicted that there was a “horse race” underway to be the first company outside of China to produce HREOs commercially. I also predicted that the winner would be GWMG, because they were the only one at that time, to have taken the first steps to vertical integration, which I think is critical for REO wannabes in the REO business world, as I see and understand it, and have understood it for nearly 5 decades.

At the time I was immediately threatened with no less than three independent legal actions, due to my selections for entrants in the “horse race.” One of the presumptive litigants apparently had a board member present when I made the prediction, and he asked his CEO to sue me for not mentioning their company. The other two were mentioned in the “horse race” but not to win, place, or show. All three had in common that they did not have significant, commercial levels of HREOs in their ore bodies under development, which are critical for the production of, among other things, high-performance  rare-earth permanent magnets. I was threatened by the CEOs of the two that I said would place out of the money, with lawsuits for defamation, for “disparaging their companies.”

I myself attended the University of Detroit School of Law some 40 years ago, so I informed the men who called to threaten me, that I welcomed their actions. I said that I would of course be calling the chairman of a certain well-known investment bank as a witness, to explain why his company dropped out of both of the ventures that were threatening to sue me. “Let’s add that bank to the defamation suit as a party defendant,” I told them.

Unsurprisingly I didn’t hear further from either one.

The proximate cause of the lawsuit threats I just mentioned was that the “horse race” talk was filmed illegally by an attendee, and it went out over the Internet (the rights to the presentation were actually owned jointly by me and Summit Media, the sponsor of the Hard Assets Conferences). One of the aforementioned CEOs told me that this publication of the video was a slander to a third party, or a libel.

Those who threatened to sue me were rather unprofessional. They thought that they could frighten me into silence, or into retracting my prediction from fear, but obviously they were wrong.

The race to be the first to produce commercial quantities of REOs outside of China has entered a new phase today.

I predict again that GWMG will be the first ever junior rare-earth miner outside of China, to become a profitable producer of commercial quantities of heavy rare earth forms, beyond separated purified HREOs.

I note that GWMG’s new partner is an experienced processor, which has been providing GWMG’s Less Common Metals (LCM) subsidiary with pure rare-earth metals, for manufacturing into rare-earth permanent magnet alloys, and other compounds, for LCM’s customers. I further note that among those customers is now to be Japan’s Aichi Steel, a manufacturer of rare-earth permanent magnets so large, as to be able to take all of GWMG’s projected production of relevant rare earths from Steenkampskraal.

Therefore I predict that GWMG will be the target for discussion of a joint venture or even an acquisition, by many good juniors with HREOs in their ore bodies. They will all basically propose that the GWMG rare-earth separation plant be expanded, to accommodate their ores on a partnership basis. This is because the most added values available to rare earths that can be added by a mining company, are done by moving downstream towards the production of pure metals. Up to that point in the value chain, we are speaking of mining engineering and chemical metallurgical engineering. When one reaches the next stage, that of producing magnet alloys and magnets, one has reached the provenance of skilled specialists in materials and physics. Such skill sets are not bought; they are earned with Darwinian ruthlessness, in the real world of high-tech product development and manufacturing.

GW’s primary skill set within its core competency, has now been stated or shown to encompass:

  • Mining;
  • Ore concentration (mechanically);
  • Extraction of metal values;
  • Separation of the rare earths from each other and from the radioactive constituents of the ore body;
  • The legal and safe disposition of the radioactive residues;
  • The production of pure rare-earth metals from the purified chemical forms; and
  • The production of specialty alloys of neodymium (Nd), samarium (Sm) and dysprosium (Dy) for use in the production of high quality rare-earth permanent magnets.

I sincerely congratulate Gary Billingsley, the Executive Chairman of GWMG and Jim Engdahl, GWMG’s CEO, for their perseverance in the face of great odds. The first time I ever heard of the “mine-to-market” strategy was when Gary Billingsley told me about it perhaps 2 – 3 years ago. I thought it was a winner then, and I think it’s a winner now. After that time though, GWMG struggled to navigate in the flood of hype and promotion, aided and abetted by pundits and self-appointed experts, who believed that bigger was better, and that since, in their alternate universe, the demand for the rare earths would grow infinitely, then rare-earth mining would be most profitable to those who could mine the most material.

In fact there is no rare-earths market at all; there are markets for some of the rare earths individually, but the cost structure for any rare earth is a function of what it costs to separate and purify it from all of the other rare earths and associated metals. This is a uniquely different problem from that of any other metal.

Few outside of China, have mastered the skills required to produce an entity such as pure Nd or pure Dy chemical compounds. Fewer still, anywhere, have the ability to make pure metals from these compounds, and only a very few have the education, experience, and time-proven skills to produce rare-earth magnet alloys. Although all of this expertise was originated in the West, it is today almost all resident in China or Japan.

If the West wishes to inure its supplies of rare earth metals and alloys independently of production from China, then it can encourage through private-equity business models, such as that of GWMG, or national governments can subsidize such models.

Now that the fog of hype and promotion is clearing a little I urge investors to take note of these facts:

  • There is not now, nor will there ever be an open (unlimited) demand for rare earths. Current speculation on this demand is just that, speculation. Ignore it unless it references hard data-in particular data about Chinese and Japanese demand!
  • Any planned or projected production levels must be capable of being made profitably, at whatever point in the supply and value chains the mine intends to sell its product. This means that there must be a buyer (or buyers) for all of the production at the lowest profitable selling price.
  • At that point the mine must be the low-cost producer if it is operating in the free market, and if it is to be competitive in that market.
  • Each step in the supply chain requires a different skill set from managers and engineers than the one preceding it. Such skill sets get rarer as one goes further along the value chain towards the end product. College degrees are nice, successful experience is necessary. In particular, there is today no private jobbing of rare-earth separation outside of China, so no one is going to be able to restart the rare-earth supply chain anywhere, until there comes into existence a rare-earth separation and refining industry with proven capability and demonstrated capacity.
  • Marketing is a skill that must be present from the beginning. It is one of the first steps not the last.
  • Rare-earth ore concentrates can be produced as byproducts of otherwise profitable operations, such as iron-ore and uranium mining.
  • In the above cases it is possible for a miner to be a low-cost producer of rare-earth ore concentrates, and to match much larger, dedicated rare-earth mines in the costs at that point on a per kg basis.
  • Rare-earth separation plants can be built with a flow-through capacity of 2,500 tpa year for under $25 million. The scale up is not linear. A 10 ktpa plant cannot automatically be assumed to cost $100 million; it may be much more due to increased process control requirements. Note well, that the largest rare-earth solvent-exchange facility ever built, is in China, and has a yearly flow-through capacity of less than 10 ktpa. Scaling up to this level and beyond has never yet been done, and the impediments are so far unknown and are thought to be challenging.
  • Thus it is possible that a relatively small, light-rare-earth mine with predominantly weathered, or easily accessible ores for which the metallurgy is well-known, such as bastnaesite, could make a profit at a much lower level of production than a larger mine, even at the separated REO stage, because of its lower startup and overhead costs.
  • It is also possible that a small mine with significant HREOs could be profitable, even if it can only sell the HREOs, and perhaps Nd oxide.
  • The market will buy what it needs at the lowest not the highest price.
  • Boutique-metals mines based on niobium, tantalum, zirconium, and titanium, for example, individually or in combination, may be able to become profitable because of the now-higher and sustained prices of any or all of certain rare earths that are critical, such as Nd, Dy, terbium, europium and yttrium.

When future bond-rating agencies rate the producing rare-earth mines from the middle of this decade forward, for the purpose of fixing the interest rate on that corporations bonds, they will look at profitability and the ability of management to sustain profitability. Those are their only metrics.

I’m sure that GWMG will be highly rated.

Once again I congratulate the management of GWMG for a job well done. I hope that GWMG is producing metals and alloys vertically within 18 months from now.

Disclosure: At the time of writing, Jack Lifton is long on Great Western Minerals Group (TSX.V:GWG).

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1 Isaac July 25, 2011 at 9:01 pm

Jack,
Why do you only address only this one company (do you own stock in it), rather than pointing out in such an article that a company such as Lynas Corp is far ahead of GWM? For example, Lynas already has a concentration plant built, and separation plant under late stage construction.
I own stock in neither at the moment, but am seeking unbiased information.
Thank you.

2 Jim Burke July 25, 2011 at 9:09 pm

Not sure the Mercenary Geologist would agree with your assessment. He’s pretty high on Avalon, Quest, REE.
Your view is very persuasive and perhaps worth a strong look.
Thanks for the information.

3 Gareth Hatch July 25, 2011 at 9:59 pm

Jack is of course perfectly capable of answering these questions, but I’m going to wade in here:

@Isaac: per the disclaimer at the bottom of the article, Jack is presently a shareholder in GWMG. Note also that Jack is referring to companies that will produce commercially significant quantities of heavy rare-earth oxides, not just rare-earth oxides in general.

@Jim Burke: Avalon Rare Metals, Quest Rare Minerals and Rare Element Resources each have fine projects, with as good a chance of success as anyone in this sector – but by their OWN estimates, none of them will be on-stream BEFORE GWMG’s estimated “production-ready” date for the Steenkampskraal project…

Remember folks, no-one is saying that this is a “winner takes all” situation. Clearly it isn’t, and there is room for several mining companies in this sector.

4 Jack Lifton July 25, 2011 at 10:05 pm

Isaac,

I own stock in Great Western and am a long term holder. I first bought it at 0.17. I am trying to point out that Great Western’s management is doing exactly the right thing for their company and its shareholders. There are just two ways to create a profitable rare earth based venture, the right way and the wrong way. The right way is to follow the steps already taken by Great Western in order to vertically integrate to the point where your specific venture can be most profitable.

Lynas has built so-far only a mechanical concentration plant. I am not aware that it has a cracking plant in operation nor, if it does, what efficiency that plant may have achieved. Lynas does not have a separation plant up or running. Its construction of such a plant is now stopped until Lynas shows that it will meet the standards imposed by the UN study commissioned by Malaysia. I assume that Lynas will meet that standard ultimately.

However I note that no one has ever constructed a separation facility of the size being constructed by Lynas, so that I suspect that Great Western may well be producing separated rare earth chemicals commercially before Lynas does and that GW will produce purified rare earth metals before Lynas does, if Lynas plans to do that at all, and GW will produce magnet alloys before Lynas does, if it ever does that. Note that this last statement is a no-brainer since GW’s subsidiary, Less Common Metals, already produces rare earth permanent magnet alloys and has done so for some 15 years.

Note that, in volumes of potential production, Great Western cannot possibly match Lynas ultimate production targets. However I predict that end-users who need material will buy whatever is first in the market that meets their quality specifications and price offer.
There is room in the rare earth market for several producers, but in the end only the lowest cost, highest quality, most reliable ones will survive regardless of size!

Great Western is not only vertically integrated well into a profitable point in the value chain. ITS PRODUCTION OF ITS CHOSEN MARKET ENTRY PRODUCT, RARE EARTH MAGNET ALLOYS, IS NOW PRE-SOLD AND SOLD OUT to the capacity of its current magnet alloy plant!
Lynas is not a competitor of Great Western. It is a competitor of Molycorp and every other light rare earth potential or actual supplier. In order to be able to produce commercially useful quantities of heavy rare earths Lynas will have to co-produce enormous volumes of light rare earths. If these can’t be sold at a profit then it will fail as a business.

There are several well managed junior rare earth ventures and poly-metallic boutique operations now in development. The survivors of the current cull of rare earth juniors will be only in this small group.

5 constantinos July 25, 2011 at 10:05 pm

Mr jack what is your opinion on stand energy corp

6 jack cummins July 25, 2011 at 10:07 pm

I’m betting on Stans Energy to be the first hree producer outside of China. I would appreciate some comments from Mr Lifton about Stans Energy.

7 constantinos July 25, 2011 at 10:07 pm

Stand energy corp

8 Brian July 25, 2011 at 10:09 pm

Gareth and Jack,

I get the GWMG story; however, what about the consideration of mine nationalization that is gaining some traction in SA? In addition, it would also be interesting to get your take on how far Stans is behind GWMG considering they have to restart their entire processing infrastructure and not just a mine.

Much thanks,
Brian

9 Jack Lifton July 25, 2011 at 10:19 pm

Brian,

I for one have never visited STANS ENERGY’S proposed operations in Kyrgyzstan, nor have I interviewed its financial or technical management , and until I do both I cannot comment.

I will however say that I worked in East Europe on behalf of the global OEM automotive industry and also as a metals and minerals trader for some 25 years. I assisted in the privatization of companies in the rubber, chemicals, and automotive parts industries. Never once did I see a Soviet-Era facility that could be easily modernized or a labor situation that could be easily resolved.

10 Brian July 25, 2011 at 10:31 pm

Thanks for your reply on Stans. I have seen a few current pictures of the Stans processing plant and it did have that Sputnik era look to it. Time to rebalance my REE stocks tomorrow. Appreciate you and Gareth’s insights on the industry.

11 Bob M July 25, 2011 at 10:34 pm

Hey, Jack, congrats on your fabulous entry point for GWG. You’re the Warren Buffett of the RE field.

12 jack cummins July 25, 2011 at 10:44 pm

Jack : Byron King has visited the Stans Energy location and he says Stans Energy is by far the leader in the race to become the first HREE producer outside of China.

13 wwwater July 25, 2011 at 10:47 pm

Mr. Lifton I had the pleasure of personally meeting Gary Billingsley I believe it was in 2004 in Kelowna, B.C. and it was at that time I was introduced to the term “Mine to Market” and Gary in very detail outlined his intention in having a part of the action that he envisioned was being exported to China. At that time he detailed plans on how he was developing plans to acquire GWTI (which he did) and how he was introduced to other facilities which he could not mention (LCM) which he acquired and how he would develop a Rare Earth Industry in the West and compete with the Chinese. Gary had a vision and that vision today with the announcement is almost a reality.

14 Isaac July 25, 2011 at 11:07 pm

Jack,
Thanks for your reply, and info.
Isaac

15 wwwater July 25, 2011 at 11:15 pm

I apologize Mr. Lifton for not recognizing you on the excellent article. Thank you very much and as you know I am a very strong supporter of Great Western Minerals Group and their vision in becoming one of the leaders in the Rare Earth Sector.

16 Paul Cohen July 25, 2011 at 11:17 pm

Where do you place UURAF (Ucore) in the hree race? I know they cannot become vertically integrated on their own. More likely they will be acquired (by MCP?). They need deep pockets, and processing expertise that MCP could provide. They do seem to be getting political support in the US. My long position is based on takeover possibility not on their becoming an end product supplier on their own. Your thoughts?

17 Jack Lifton July 25, 2011 at 11:26 pm

Paul,

I like Ucore very much, because it is a necessary part of any American attempt to regain DOMESTIC self-sufficiency in the production, processing, and use of the rare earths as soon as possible. I think that the US national government and the government of Alaska have recognized this truth.

I believe that Ucore can proceed without any technical or other “help’ from MCP. I doubt that MCP will aquire Ucore or control of Ucore.

I have visited Ucore’s Alaska sites more than once and will shortly do so again with a group of analysts and political figures. I think that Ucore will soon be making some important announcements that will significantly impact America’s future self-sufficiency in heavy rare earths.

18 Harold Clifford July 26, 2011 at 12:16 am

Jack: A great article on GWMG!

I’ve read all of the articles published by yourself and Gareth for several months now since I discovered TMR and I’m sure impressed by how you both manage to distil the data – and the hype – down to the essentials required for ahead-of-the-crowd investing. Goes to show that knowledge is still king … Bravo!
I appreciate that GWM is focused on its exciting Steenkampskraal project for the time being, Jack, but I’m intrigued by the down-the-road potential of their Canadian REE properties. Do you expect news on this front in the next year or two?
Do you think Pele Mountain (“GEM”) has a chance to finish the horserace in the money with its Eco Ridge REE/Uranium project?

Thanks ever so much and keep up the excellent work!

Highest regards,

Harold

19 prescient11 July 26, 2011 at 12:37 am

I must say Mr. Lifton’s opinions (or at least stock picks) seem to change with the ever present blowing wind and the condescending mention of “boomlets,” etc., is unbecoming to say the least. GWG’s sub LCM does a paltry $15MM in revenues annually. The SKK plan is for 3,000 tpa. No PEA has been done.

With regard to GWG’s other projects, such as the ghost of Hoidas Lake (when are those metallurgy results going to be published btw? Another decade to go?) would lend one to believe that GWG does not know how to accomplish the very basic part of MINING the damn ore. So I would strongly disagree with the first couple of “skills” that GWG apparently has.

In any event, one does wish the GWG team well as they have been at this for a long long time and it seems like they do have a good group of people running the company. If they are able to get the mine up and going, and if they are able to handle the very many issues that have not even begun to be addressed by competent mine engineers, then they have great reason to celebrate as LCM will not be driven out of business. And hopefully they can do very well as a fully integrated mine to market company.

If Mr. Lifton is correct in his assumptions, then perhaps he should inform Messrs. Wong and Hatch that the Innovation Metals venture is doomed from the start as no one could possibly create a 20k tpa separation facility.

GWG will serve its own needs and perhaps a small additional niche, nothing more. Currently, it is getting very close to being priced for perfection. With well over 400MM shares fully diluted (and how many more each month go to Hykawy and co. for the never ending pump job they do while trashing the rest of the sector?) one should really analyze the financials of GWG and demand some actual technical data from the company before cheerleading so loud.

But the defamation threats are funny, those are always a joke.

here endeth the lesson.

20 Mariangolf33 July 26, 2011 at 12:51 am

Prescient11,

I can understand where you are coming from but my take is that by the time those questions are fully answered, 1.00 will be a thing of the past. You can’t get ahead of yourself but GWMGF is making big strides and that has not even been fully reflected, IMO. Management hasn’t led us astray yet, why believe they do so down the road. I don’t think Mr. Lifton would be so confident in it if he didn’t believe this mine had some great value.

The value of the company is created by the different chains. Once linked, it could be a thing of beauty.

Yes, I drank the kook-aid

GL

21 Mariangolf33 July 26, 2011 at 12:53 am

And Jack has consistently mentioned this stock as a long position for a long while now, if I am not mistaking.

22 prescient11 July 26, 2011 at 1:01 am

Mariango,

I will just close with this, I wish you and all GWG investors good luck. If you have a cost basis near .50-.60, you already have and probably will do pretty well. But over $1 and I would not touch GWG, just my personal opinion at this point. There are just too many unknowns imho.

And Jack did buy at .17, I was there real time when he posted that comment on Seeking Alpha, but he neglects to mention that he sold in the .30s or .40s. Not sure if he has reestablished a position. I actually followed him in that investment for a good sized profit.

So I have a soft spot for GWG. But cheerleading needs to also be faced head on with hard questions, and GWG’s cheerleaders have made me sick with their absolute ridiculous analysis of the numbers and constant trashing of the rest of the sector.

Same with Ucore and Stans. Ucore is due for a PEA in what, 2 years?? So barring the DOD just taking it out as a strategic deposit, I think that Ucore can get mined, with a burro and a pickaxe. Otherwise, not in the cards. Stans, I do not have the energy to give a discussion on that company, but many questions/concerns remain. But what do I know?

Good luck with GWG.

23 Michael Corden July 26, 2011 at 1:10 am

Jack,

Reading your 11/2008 “horserace” article was a bit of deja vu. I will explain. Nine months ago in a card shop in NYC I bought a couple packages containing a few hundred sphrical rare earth magnets — to play with, of course. A few days later wanting more of these magnets but a cheaper price I googled rare earth. That’s when I stumbled upon your website and read whatever was then your latest post. Wow, I thought, this was fascinating material and quite an eye opener. So I clicked back several pages and couple hundred articles to the first article you posted, which I believe was “When Will The Chinese Economic Agenda Be Noticed In Washington?”, posted November 15, 2008. (http://www.barnswood.com/tmr/wp/category/articles/page/29/). From there I read every article going forward.

So on this day of looking back, I want to thank you for the education and the perspective you’ve provided me, and which has considerably helped me as an investor in this REE space. But more than for any profits I’ve made, I sincerely thank you for your clear and focused and passionately articulated analysis of the greater context around all this. Typical, for example, in the above referenced link is your comment on a strategy offered by the European Commission:

“Astoundingly, the Europeans have figured out what has eluded the American governmental and Wall Street elites: that we are on the cusp of a transition to a world where other nations, or groups of them, also set economic agendas for the entire world. These agendas do not include the United States remaining as the leader forever.
“Europe has recognized the urgency of one of the most dangerous current global trends, one which is almost totally ignored by the U.S. The E.U. is moving towards avoiding the consequences for itself, of a foreign hegemony over natural resources. Europe is acting in its own self interest to preserve its diversity of its industry. The U.S. has acted against its own self interest in the same matter and has already lost its industrial diversification.”

I encourage others to follow the link provided and read, as well, this collection of commentary on our current period of industrial evolution, or de-evolution as the case may be. Perhaps some who do will pass this link along to a few teachers of history or economics or geo-politics so our young students can closely follow along in this exceptional case study that will indeed affect their lives going forward. As starting points go, places are few where they might get such a good handle as they might need to grasp the continuity of events that with growing certainty will affect them all.

24 Toly July 26, 2011 at 1:22 am

Jack, I am looking at the latest (consolidated) financial statements filed by Great Western / Less Common Metals… Cash on hand appears to be around $15m… With A/R, inventories and other assets, the current assets are around $25m… Going one step further, I see that mineral properties add another $34m in assets with little in plant, property and equipment… This is giving GWM total assets of ~ $65m…

Liabilities are very low @ ~ $3.5m but the filing indicates a good deal of dilution in the form of warrants and options…

In terms of cash flow, for the 3 month period ending March 31, 2011, cash flow was negative @ ~ $3m which annualized would be negative ~ $12m…

It appears that income from operating, investing and financing activities was ~ $5.5m with the majority coming from financing activities (issuance of shares for warrants/options)…

Specifically, operating income was negative ~ $3.2m and was offset (positively) by ~ $8.7m Financing activities (warrants, options etc.)…

I am wondering how GWM plans to continue operations without raising additional cash to finance it’s activities… The company appears to be spread out with it’s exploration efforts and it would appear that positive cash flow (from operating activities) may be several years in the future (assuming it meets capital needs)…

(Just to note these are quarterly figures with the exception of balance sheet metrics)…

Comments?

http://www.gwmg.ca/images/file/2011-Q1-GMWG.pdf

25 PONCHO 462 July 26, 2011 at 3:02 am

Prescient11-

If GW, Ucore and Stans are dogs, could you please tell us who you think will rule the future of the REE sector? If you are here, it must be because you favor at least some REE companies. They can’t all be bad? How about letting us regular folks in on your favorites? Also, if you remember Jack’s initial purchase of GW, did you do so also? I did. Thank you, Jack.

26 Walter Matthau July 26, 2011 at 4:51 am

He Prescient11, you are stupid like Faxenclown

Insiders know the truth!

27 James T. Kirk July 26, 2011 at 5:05 am

Hello Mr. Spock,

we need more Warp and GWG will rule the world.

Buy GWG and feel free

28 blackjack July 26, 2011 at 5:20 am

well first let me say good luck to all

second the references to LYNAS need some clarification and frankly I am sick of correcting news reports and other falsehoods about them

Lynas is on track to start producing this year.

Lynas as proof that its plant was safe in conjunction with the Malaysian Government brought in the IAEA.

The IAEA approved the plant and made recommendations largely about communicating with the locals as they were used by a local politician to gain points. Scare tactics about Thorium were used. IAEA said it was safe and to educate the locals etc.
ALL IS ON TRACK and the Malaysian Government is completely onside.

ALSO Lynas has signed agreements with SIEMENS to provide the REE’s to them for wind turbines and they are planning to build their magnet factory in Malaysia.

ALSO Malaysia makes cars, electronics, light bulbs, etc etc and has a ready need for REE”S

PLUS Lynas has a back up of NTU mine company in Australia to further supply HREE’s
or they may even process Alkanes REE”S for them

LYNAS has the best source of REE’s ready to go

DYOR but i think the little wonder from down under is going to wipe the floor with REE’s

OH i nearly forgot
the red tape and environmental issues will slow up by years many of these late starters or startup companies. Just getting licenses is one issue that all investors should put in their pipe dreams.

29 Positroll July 26, 2011 at 7:43 am

Since everybody here seems to be pumping his favorite stock I’ll join the party and add Alkane Resources to the list … ;-)

They won’t be first to sell HREEs but their zirconium/niobium/Y-HREE/LREE mix combined with gold projects (close to construction, too) and very good management makes sure that they will make a nice profit anyway.
As Jack said: “Boutique-metals mines based on niobium, tantalum, zirconium, and titanium, for example, individually or in combination, may be able to become profitable because of the now-higher and sustained prices of any or all of certain rare earths that are critical, such as Nd, Dy, terbium, europium and yttrium.”

Alkane just signed their second MoU for DZP Zirconium, this time with Mintech: http://www.alkane.com.au/reports/asx/pdf/20110726.pdf
My favorite lines: “Strong zircon demand, combined with a flat to falling supply outlook, has fuelled a dramatic increase in zircon prices … This has resulted in ZOC prices increasing by over 285% in the past year to approximately US$4,000/t …
P.S. Re Stans: their last report (from early July, available on their homepage) didn’t even mention a timeline (just a long to do list), so anyone claiming they’ll be first to market must be dreaming …

30 blueloop July 26, 2011 at 9:48 am

Jack, what about the South African mine nationalization problem? This is being proposed by ANCYL leader Julius Malema. I am long on GWG but this is a worry. Thanks

31 prescient11 July 26, 2011 at 9:57 am

Poncho,

I like MCP, QRM, REE, TSM and perhaps AVL dependent on their metallurgy. (ALK also appears to be a wildcard/real deal, just tough to try and get a grip on true cost structures).

As far as those reading these comments, Toly’s comment should definitely be addressed.

32 Toly July 26, 2011 at 11:21 am

While I wait for discussion for my financial based question above, I am pondering this statement that also appeared in your article…

Rare-earth separation plants can be built with a flow-through capacity of 2,500 tpa year for under $25 million. The scale up is not linear. A 10 ktpa plant cannot automatically be assumed to cost $100 million…

OK, if I want to build 10 individual separation plants in different locations, you are saying that it will only cost $25m to construct each plant… As you suggest here these plants will be built independent of each other and if I am reading this right the total cost will be $250m…

Do you feel the basic business premise of “economies of scale” do not apply here? Also I really would like to hear your take on my financials question… Thanks!

33 Positroll July 26, 2011 at 11:23 am

Prescient: re: Alk
That’s what the DFS in August is for … ;-)

34 maxkil July 26, 2011 at 11:31 am

I begin with the premise that the US goverment will support Ucore and becomes independant of HREE from the world. Jack appears to elude to this.

With Lynas and Molycorp having enough to cover LREE and Ucore and GWMG covering HREE, is there room for another rare earth JV? Is Quest Rare, Avalon, etc. a good short position? (timing in consideration).

35 Jack Lifton July 26, 2011 at 11:46 am

Toly,

I want to address “economy of scale” in the construction of rare earth separation solvent exchange plants:

I do not believe that anyone on earth has ever built a S/X plant to separate the rare earths, which plant is or was larger than 10,000 metric tons per year flow through capacity. The one plant of this size that I have heard of is in China and was built in China by Chinese engineers using technology and process controls designed and built in China. I believe it is a mistake to assume “economies of scale” just naturally fall out from increasing the size of anything. The idea of building at the very beginning of a project the largest plant of its type ever constructed and expecting it to work is to me either hubris or sheer ignorance of the realities of chemical engineering. If someone comes to you and says that NEVER HAVING CONSTRUCTED A PLANT OF THIS TYPE BEFORE I AM GOING TO CONSTRUCT THE LARGEST ONE EVER BUILT (AND SEE IF IT WORKS) is simply too risky for private equity. I understand trial and error, and i hope that my readers understand that you CANNOT build a plant or a complex of plants to process either 22,000 or 40,000 or 50,000 tons a year of anything without first building and operating smaller plants and then determining IF you can scale up or if you need to build multiple plants of a size that you know can be made to work efficiently. The timetable set out by those claiming to be building these GIANT facilities are ludicrous. Those timetables are based on the market’s boredom factor not on reality.

Please someone next week ask Molycorp for their exact timetable for the construction of their S/X facilities. When precisely will they produce the first ton, what will it consist of, and what exactly will be the scale up time to full production, and what will be full production??? Then ask Lynas and all of the smaller projects beyond that the exact same questions. Then you will have a way to measure their progress.

36 prescient11 July 26, 2011 at 11:54 am

Toly, what a fantastic follow up question, as that is EXACTLY my thought as well. Just build a bunch of 2,500 tpa plants near each other then and continue to “scale up”!

Excellent point.

37 prescient11 July 26, 2011 at 11:55 am

Positroll, I will wait for that in earnest and perhaps get on the ALK bandwagon! thanks

38 vodka July 26, 2011 at 12:22 pm

What is GW going to do with the 8-8.8% thorium by weight from this mine. Are they just going to leave it on site until they can sell it to someone.

I am sure you know the ref http://econgeol.geoscienceworld.org/cgi/content/abstract/89/5/994

39 Jack Lifton July 26, 2011 at 12:37 pm

Vodka,

It is my understanding from the public record that GW has a permit from the South African Nuclear Regulatory Commission to immobilize the separated thorium in a concrete like matrix and return it to the mine. I know of not one single other rare earth junior that today has such a closed solution to the problem of dealing with thorium residues. It is one of the positive aspects of GW that I like, among many others.

Jack

40 Positroll July 26, 2011 at 12:51 pm

Prescient: re Alk
The problem with that plan is that imO lots of people have the very same one – so you’ll need to be damn fast. Because if the DFS is as good as I think it will be.after listening to the latest Ellis Martin interview of 11 July ( http://www.youtube.com/watch?v=hxxEn9ESFeU ), then the shareprice could skyrocket, especially if more MoUs have been announced before or are announced the same day …

41 Grim July 26, 2011 at 1:03 pm

John Kaiser = Prescient11

Congrats Jack Lifton and company.

42 prescient11 July 26, 2011 at 1:11 pm

Grim, yes, I am a Kaiser subscriber.

Yet Toly’s questions still go unanswered – and yet they are the most simple questions posed. As do most hard questions on GWG. It is just, trust us, we’ve got the “plan” and yet more dilution happens. Failure to address the hard issues is very annoying especially with their SP so high. But carry on, because after all pure logic never prevails with GWG pumpers.

Positroll, ok, you might have me, I’ll take a little dip with ALK…

43 Gordon Clarke July 26, 2011 at 1:30 pm

Vodka; To answer your question – in concrete and on site in the mine. And wait for the coming LFTR’s.

44 Grim July 26, 2011 at 2:13 pm

Hello John

Why so worried about GWG, Jack Lifton, and the good Dr. Jon Hykawy. If anyone has questions just call or email the office.
GWG will answer any question you have.
Address concerns to Jim or Gary
(306) 659-4500 or http://www.gwmg.ca/index.cfm

John one more thing
What do you think about the Chinese and Toyota in our corner?

45 blueloop July 26, 2011 at 2:15 pm

I notice everyone ignores the ANCYL question(nationalization). This would be a game stopper. This is why the sp is where it’s at, and why it will not reach it’s potential till this uncertainty is answered.

46 4now July 26, 2011 at 3:12 pm

blueloop Steenkampskraal is already nationalized 26% of the mine are BEE. You are just one of this stupid bashers.

47 blueloop July 26, 2011 at 3:16 pm

If they nationalize, they are talking no less than 51%, and whites can’t own more than 1mil. of any company in S.A. The 26% you are talking about is the black workers union I believe.

48 Wolfgang July 26, 2011 at 3:24 pm

Jack,

are you implying, prices for HRE don’t have to rise in general over the next years, because GWM has demonstrated how to sell its production in advance for cheaper rates?
I bought shares of Dacha Capital; their price quotes keep going up so far.

Regards

Wolfgang

49 Steeplechase July 26, 2011 at 3:54 pm

I love the GWG story, but this is the type of statement from Malema that makes me wary of any South African mining stock:

Johannesburg – Minerals Minister Susan Shabangu should start preparing the mining sector “psychologically” for nationalisation, ANC Youth League president Julius Malema said on Thursday.

50 wwwater July 26, 2011 at 7:55 pm

zukini, I remind you of your post when Mr. Lifton first introduced the Horse Race (HRED) Heavy Rare Earth Derby

zukini April 15, 2011 at 5:35 am

The first will be XXX. All mining business that has been mentioned is promising something in a long future. XXX will become vertically integrated much sooner then has been thought, and will give results on spot . GWG has the potential but not right people on the case that could actually do the business. At the end you still need someone who actually can do it. we know it is not easy to put the mine in operation especially to set up the processing facility. Whoever is predicting that this is possible within 1 year, is talking fairy tales. Birkenhead plant refining the metals means not doing the homework properly, they can produce alloys. continue sinking hundreds of millions into what will return money in X years time, …..ifff. As Jack wrote time will tell and will soon be evident who can put new evidence forward and present a new product on the market….remember it is only those people who actually know the process…. the team of people that i am aware of, can do it ….

51 CuriousCat1 July 26, 2011 at 9:30 pm

Toly,

For your question on the company’s finances: in 2 to 4 years GWG is expected to make between: 187 to 792 Millions per year in EBITDA ($0.41 to $1.76 per share). So who cares that they need a few millions for operations to get there. It will be a mere fraction of investment cost. And this investment cost will be much smaller than what is needed for most other companies in this sector.

Ref: page 16-17 on this document:
http://www.gwmg.ca/images/file/Corporate_presentation/gwmg_corporate_presentation_050211.pdf

Brian , blueloop,

I believe a worst case scenario for nationalization would be in 2020. The next South African election is in April 1014 so if Julius Malema (the Chavez of South Africa) is elected by then any nationalization won’t probably be applied until 1015 due to government inertia. But Julius Malema is now only 30 years old and hardly anyone gets elected before they are 40. Lets assume he and his supporters could win in the second next election in 2019 (South African elections are held at fix dates every 5 years) when he is 38, then our worst case scenario would be nationalization in 2020. In 2020 Steenkampskraal could be empty of REE if GWG takes fully advantage of the situation.

Ref:

http://en.wikipedia.org/wiki/Elections_in_South_Africa
http://en.wikipedia.org/wiki/Julius_Malema

52 HTB July 27, 2011 at 12:02 am

Jack,

I must admit that I am constantly amused, and amazed, at your description of Steenkampskraal as a Heavy Rare Earth Deposit and that because of this deposit GWMG will win the heavy rare earth horse race. In all your writings one thing you have constantly failed to highlight is the actual quantity of heavy rare earths that Steenkampskraal will produce. From the GWMG website, the TOTAL contained tonnage of HREO is as follows:
* Dysprosium – 196t
* Terbium – 24t
* Europium – 24t

Therefore, assuming a 10 year mine life, this means that GWMG will be producing approx (assuming a 75% processing recovery, which equates to 2,250 t/y REO) 15t/y Dy, 2t/y Tb and 2t/y Eu. I am sorry but this is barely above the production output from the Alkane pilot plant.

Now if we compare these numbers to Mt Weld, a deposit that you dismiss on the basis that it is a light rare earth deposit, we get the following annual production of the same materials, based on their initial 11,000 t/y production rate and the quoted distribution on the LYC website:
* Dysprosium – 13t/y
* Terbium – 7 t/y
* Europium – 48 t/y

Therefore based on the above numbers Mt Weld will be producing more heavy rare earths than Steenkampskraal, and this doesn’t take into consideration the doubling of plant capacity. While I haven’t done the numbers I am sure that Mountain Pass would also compare favourably.

Now before you dismiss the above by saying that it all comes down to the percentage of HREO compared to Lights, and this is where Lynas falls down, lets consider the revenue received from heavies from both deposits. Based on the current prices quoted on the Lynas website these three metals will generate $63M/y in revenue for GWMG. Lynas’ revenue from the same metals will be $350M/y. What is really interesting is that if you calculate the LYC revenue from heavies on the same total production as GWMG (2,250t/y) we get a revenue of $71M/y from heavies for Lynas.

Therefore, the value of Lynas’ heavies per tonne of REO produced is higher than GWMG.

Now Jack, I don’t mind you pushing your favourite stock, but surely as somebody who is generally considered an expert in the field, and whose comments have the potential to influence a person’s investment decisions, shouldn’t you try to give people the full picture……

53 robit July 27, 2011 at 1:04 am

HTB > Where do you factor in the market caps? My take on your calcs is that GWG’s pps should currently be north of $5.

prescient11 > I have a little Bob Marley for you: “Red, red wine… Stay close to me… Don’t let me be alone… It’s tearin’ apart… My blue, blue heart”

54 HTB July 27, 2011 at 1:35 am

robit,

I am not making any comment on market cap, nor the potential investment opportunities either company represents. The purpose of my post was simply to question Jack’s assertion that Steenkampskraal is a heavy rare earth deposit. As this is a key metric upon which he recommends GWMG and dismisses Lynas and Molycorp I believe this assumption should be challenged.

55 kris vd cruyce July 27, 2011 at 4:43 am

The interesting part of Jack articles is beside in the article itself, the discussion that follows.

The least one can say is that Jack teached most of us what REE are, what the future of it is and what to look at. And this for free, not everyone can say that.

I learned about REE and GWG from Jack a year ago and bought the company at 0,19. For me it was a new world that opened and after the financial breakdown it was re-start for me as an investor in shares. But his being said.

The discussion above is double and I have the impression not everybody is listening very well to what the other one says. The 2 discussions are:

1/ financial discussion very well exposed by Toly. I must say I have the same questions and from this perspective I must agree: sell. What I did 2 weeks ago with a part of my port. Unfortunately, 20 cent to early.
On the other hand, looking at he work wwwater did in his spare time, I would rather say: keep. In other words Toly looks at the AS IS, and wwwater to the future.

2/ the point Jack is making. The believe and effort/skills it takes to bring a company to the market as a E2E company. I have no knowledge of chemicals as I’am in the software development business, but from here I know that writing simple programs is not a gift, writing large software requires specific skills and never works from the start – look at Windows. Although it is simple, it works or not (0 or 1) and thought so little things work. So assuming chemicals is more complex I understand the reasoning that doing something like Lynas does: building and making its Malysian plant running smootly with the required qualilty is not done with a fingerknip. Certainly when it is the first time. Building something and having it work properly are 2 seperate things. Does Lynas have expierenced people in house in this domain, how many, do these people have expierence in this business, … I don’t know but Jack questions to Moly are correct. Therefore GWGs strategy by bringing in the Chinese is a wise decission to fill in the knowledge gap. And therefore I believe Jack could be wright, that GWG is going to be the first with and E2E – from dust to LCM.
I don’t think is going to comment on any financial aspect. I’am happy we have a teacher in the operational domain of REE.

Conclusion: I own GWG and Stans right now, and will buy Lynas back at lower numbers.

I would say, keep up the interesting discussions. I’am learining a lot.

56 Jack Lifton July 27, 2011 at 6:11 am

HTB,

I am NOT saying that GW’s Steenkampskraal is a “heavy rare earths” deposit, nor can I ever remember doing so. I am saying that I believe that GW by putting Steenkampskraal into operation along with a S/X facility, on site, matched in size to the output of the mine and the potential availability of additional feedstock, will be the first to bring commercial forms of the critical heavy rare earths to market in commercial quantity.I am further saying that when the S/X output of high purity chlorides is further processed either in Africa or in the UK to pure rare earth metals, this will be the first time that high purity dysprosium, terbium, and yttrium METALS have ever been made by a vertically integrated company and done-so outside of China. When those metals, including neodymium and samarium, are alloyed in the UK to produce rare earth permanent magnet alloys this will be another first ever event for a vertically integrated entity.

The sale of those alloys, which is the downstream point at which GW plans for its Steenkampskraal output to reach the market will be profitable with, in my opinion, a 30% margin at least. THIS MARGIN AND THE VOLUMES GW HAS ALREADY CONTRACTED TO SELL MAKE THE COMPANY THE PARADIGM CASE OF HOW TO MAKE THE BUSINESS MODEL IT DEVELOPED, “MINE TO MARKET,” WORK.

As far as I can tell GW’s LCM will increase its output of rare earth permanent magnet alloys by continuing to source rare earth metals on the open market and ADDING the output of its Steenkampskraal operations to that supply.

I have a very high confidence that GW will be able to:

1. Find additional resources of high grade ore on its own concessions,
2. Buy high grade ore concentrates with high HREE/LREE ratios from nearby operations such as Frontier Rare Earths, Namibia Rare Earths, or TRE (Madagascar)-Note well that such deals with other mining ventures may involve strategic alliances such as the ones touted by MCP and Lynas with, respectively, Hitach, and Sumitomo as well as more complex arrangements with KORES (through Frontier) or through China Non Ferrous, for example, with TRE..
3. Perhaps do a private contract refining operation with AMR, the polymetallic boutique in Turkey that is rapidly advancing and already in production of its core product, which production is throwing off mixed technology metal concentrates including titanium, zirconium, tantalum and commercial sized concentrates of the rare earths. This type of arrangement may also be attractive to Swdish situated TASMAN, perhaps the best rare earth deposit containing commercially recoverable quantities of heavy rare earths in Europe.

I could go on, but I’d only be second guessing a management that knows what it is doing.

Rare earth ventures do not exist in isolation. They do not have to be the biggest to succeed. They need, in fact, to be right sized so as to become profitable as rapidly as possible

End users do not want to create a monopoly of MCP and Lynas to replace that of China; they want a competitive environment to keep prices under control.End users will always support alternate suppliers no matter who is in the space.

The fact is that the procurement offciers of both civilian and military operations outside of China and Japan DID NOT KNOW they were dealing with a monopoly supplier that the market had created. They thought that the situation was geographic/geological destiney when they thought about it at all.

Great Western is NOT going to solve the problem of the reliance of all non-Chinese end users of REEs on Chinese supply. GW IS GOING TO SOLVE ITS PROBLEM of replacing such a single sourced reliance.

GW is a magnet alloy producer that is a miner.Steenkampskraal is not a heavy rare earths mine; it will however be a commercial producer of heavy rare earths. I believe it will be the first one outside of China.

GW has now closed in to striking distance to proof that its business model, mine to market, works. Its model is “the model” for how to do the job of vertically integrating forward or backward until you have reached the point where your end product is the most profitable you can make.

Some of the large ventures would do well to stop promoting the locker room theme of “mine (sorry for the double entendre) is bigger than yours” and replace it with “I’m the right size to do the job intended”.

57 wwwater July 27, 2011 at 10:50 am
58 Paul San Antonio July 27, 2011 at 10:56 am

Toly,
I think you have hit the key issue here. Any investor view should always start with the balance sheet IMO. GW has lost money on an annual basis for twenty straight years. That is the root cause for the balance sheet problems you describe clearly. Regardless of the infomercial here, that will limit earnings in the future. It also will make the continued issuance of shares very likely. Also note the deal is a “point of terms” practicing lawyers would call this a draft without due diligence being completed.

Jack, since you now want to fancy your law background, I would suggest the failure to mention this “point of terms” issue was weak lawyering. But honestly, you are no lawyer Jack. This is not a persuasive case because it lacks real content and it is essentially off on a tangent. Investors do not care if GW makes HREE metal. They care about earnings. The Lynas (and even down the road) Molycorp earnings are foreseeable and impressive. Looking at the size of Steen and the balance sheet of GW, the same cannot be said for Great Western IMO.

59 wwwater July 27, 2011 at 11:44 am

Paul San Antonio, Toly & prescient11
Your concerns about the Balance Sheet seem to carry no water as one of the largest firms in the Resource Industry does not have a problem into entering into a Contract with GWMG which in the long term could mean millions in their coffers. I am sure they have done their due diligence more thoroughly than what you are expressing

GREAT WESTERN MINERALS GROUP SELECTS STEENKAMPSKRAAL RARE EARTH PROCESSING PLANT DETAILED DESIGN TEAM

Great Western Minerals Group Ltd. has contracted DRA Mineral Projects (Pty) Ltd. (“DRA”) of South Africa, a company with a strong track record of utilizing world class standards, for the detailed design of the Steenkampskraal processing plant.

DRA is a multi-disciplinary, multi-national organization that specializes in the mining, infrastructure and mineral processing industries. As one of the largest project management enterprises in Africa, the South African-founded group of companies has constructed plants on five continents.

DRA is highly regarded for managing projects with a “zero harm” focus, as evidenced by its excellent safety record. All of DRA’s world class quality standards, systems and procedures are based on ISO standards.

The processing plant, as the first step in the production process in which Rare Earth ore is converted into Rare Earth chlorides, will be located at the Steenkampskraal mine site. The plant detailed design project is expected to be completed by December 2011.

The processing plant will “crack” the monazite ore through a caustic leaching process, removing copper and gold by flotation. Tri-sodium phosphate will also be produced as a by-product with the potential for onward sales. The thorium contained in the Rare Earth ore will be removed at the processing stage, and be readied for licensed storage, leaving a clean rare earth chloride ready for the solvent extraction separation phase as at the recently announced Rare Earth materials facility (see GWMG Media Release: July 25, 2011: Great Western Minerals Group Signs Groundbreaking Head of Terms to Build Rare Earth Separation Plant in South Africa).

GWMG President and Chief Executive Officer Jim Engdahl said, “Awarding the contract for the detailed design of the processing plant at our Steenkampskraal operation is yet another significant step forward in the execution of our plan to become a fully integrated Rare Earth producer by early 2013.”

“Contracting DRA, with its strong track record of superior performance, ensures we can achieve world class design and construction standards within the processing plant, combined with cutting edge technology,” Engdahl added.

We seek Safe Harbor.

60 Jack Lifton July 27, 2011 at 12:23 pm

Paul,

Your reading comprehension leaves something to be desired.

I am not a practicing lawyer, and I certainly hope you are not.

From the very beginning of my public writing on these issues in 2005 I have said that my interest is in getting new production of rare metals in jurisdictions politically friendly to the USA. I do not give investment advice. I estimater, based on metrics I have clearly stated, what i think is the probability that a mining or refining venture will produce commercial quantities of metals This is what i do for a living following a career as among other things a metals sourcing specialist for the OEM automotive industry. I today advise mining and refining companies on the actual mechanics, and business model necessary, for marketing their end products to Global 1000 end-users.

I repeat for the nth time. Great Western will be producing materials at Steenkampskraal in the ratios it needs to feed its own internal demand for manufacturing rare earth permanent magnet alloys in the United Kingdom. I believe that this will involve a number of “firsts” in an industry which is today long on announcements and short on results.

Great Western’s output is limited by its access to ore containing the magnet ratios of neodymium and dysprosium. It chose Steenkampskraal as the best resource available to it with the quickest development time to meet its needs to supply its key market, rare earth permanent magnet alloys.

If you’re looking for investment advice please go to the web site of someone who offers that. I am describing for my readers the probability that a mining or refining company will get the job done. That job is becoming a low cost producer of its commodity and making a profit by doing it. I am a long term investor in GW, and I think it still has room to grow. You can do as you please.

61 Jake Robertson July 27, 2011 at 2:33 pm

Perhaps you ought to close the comments section, Jack. People just want to whine, I guess.

GWMGF has out performed LYSCF on a 5 day chart. AND on a 1 month chart. AND a 3 month chart. AND year to date. AND a one YEAR chart.

‘Nuff said, huh?

ps. If you reply and say that’s not the point then I don’t know why you are invested in the stock market at all. I thought the point is to make money. And clearly- CLEARLY- the stock to own is GWMGF.

62 veryrare30 July 27, 2011 at 3:30 pm

Jack,

I hold you in very high esteem. You write from years of expertise and having seen it all, you share a wealth of information here for us to THINK and be EDUCATED about this industry.
I am really grateful to you for all this and more.

There are certain elements in this sector who are motivated by newsletters and the income they bring; folks who rub it into sheeples who pay hundreds of dollars for info that is nothing more than ‘bigger is better’. After reading comments from the likes of Prescient11, Paul San Antonio, Toly and HTB, I will say this:
Jack, you can’t fix stupid.
So let them be. Please do not waste time in responding to the ‘can’t be fixed’ types.

Please close the comments section.

By the way Jack, with this article, in the Kingdom of Rare Earths, you Sir, have delivered the Emperor’s Speech.
My best wishes to you Jack. Godspeed.

63 Kris July 27, 2011 at 4:31 pm

I like to be challenged so I have no problems with critical questions regarding GWG by certain people. But those same people then compare GWG with companies that haven’t got any serious clients or RECENT history in the REE-sector at all. They want GWG to prove everything rigth here right now and at the same time they recommend stocks that haven’t developed any serious longterm relationships with Japanese or Chinese REE business at all in the past decade.

In other words: those ‘critical’ people think they know better than Aichi Steel or GQD, which are in this REE business for decades now. Basically they are saying that you shouldn’t take the longterm business srategy of Aichi Steel or GQD serious.

You’ve got to be kidding me…
It’s hilarious. That’s what it is.

Kris

64 Jake Robertson July 27, 2011 at 4:59 pm

Exactly Kris! GWMGF sucks so bad and will never build anything yet Aichi wants a long term contract and GQD is ready to be partner after a long term relationship. :)

I say the proof is in the chart comparisons and until that changes I don’t know what the fuss is all about.

65 Bob M July 27, 2011 at 6:50 pm

I was going to chime in, but Jake made my point — that established companies want to get together with GWG.

Perhaps some of the commenters could make serious money as consultants by contacting Aichi and GQD to warn them off such horrible decisions. And LCM should be warned not to put in new furnaces, too. :-)

Seriously, for an investor, it is not a risky approach to follow the money. And the money seems to be going to GWG (and hopefully your choices as well).

66 Anon July 27, 2011 at 6:53 pm

I bought GWMGF about 14 months ago. I’m up more than 200%. So it seems good to me, and I don’t see too much downside for the moment.
That’s not to say that I believe GWMGF is the only company worth investing in. I also have shares in Neo, Alkane, Lynas, Molycorp, Quest, Tasman, Ucore, Northern Graphite, and Arafura Resources.

The thing is, being first doesn’t mean that you’ve won the race. Perhaps you’ve won the day, but not the long-term race, and there’s room for more than one leader in this emerging space. I believe the real winner among all of these companies will be: Arafura Resources.

Arafura Resources is the only company in the space that’s emerging as a chemical company — not positioning themselves as an REE mining company. As per Jacks visit, they’re on track to build a plant in Australia (No foreign issues to deal with, and the Australian government supports the project). All of the infrastructure is already there (power, rail, roads,and ports). Once the BFS is complete I expect that this company will really take off by this time next year. This is a good time to start accumulating shares while it’s cheap. A year from now you might be sorry that you missed the opportunity.

PS: Jack and Gareth did an excellent job covering Arafura on their recent visit. If you have not read the story, it’s well worth your time:

http://www.barnswood.com/tmr/wp/2011/07/a-visit-to-arafura-resources-nolans-bore-rare-earth-project/

67 veryrare30 July 27, 2011 at 8:26 pm

@Kris
@Jake Robertson
Besides Aichi Steel and GQD, let’s not forget Electron Energy Corporation and the US DARPA. :-)

To the naysayers who believe “Bigger is Better”, I say “The bigger you are, the harder you will fall”. Its coming.

It was Jack Lifton, if I recall correctly, that said that the culling of the herd is about to happen. There are a lot of 3-legged donkeys in this race and Great Western is THE thoroughbred.

68 Tim Ainsworth July 27, 2011 at 9:54 pm

Dear Jack,
Strongly suggest you have a read of the Lynas last quarter report released today: http://wotnews.com.au/announcements/Lynas_Corporation/
Basically fully funded, Lamp 60% complete, construction ongoing and on schedule for year end start up, concentrator recovery on schedule and a CLEAR summary of the 11 IAEA recommendations and the 3 points LYC has to address for pre-op license.
I would also point out that the LAMP is designed in 11KTPA modules with Rhodia’s full support (LYC COO ex Rhodia) and they have a team of their Chinese engineers on site.
Stage 1 production targets (and signed sales contracts) are not aiming at complete separation of all individual REO, this is not scheduled until S2 2013. Slide 27 http://www.lynascorp.com/content/upload/files/Presentations/Investor_Presentation_May_2011.pdf
The report strongly suggests that Lynas is well on track to achieve exactly what they set out to do and that would put them well ahead of any Western competitors.
Could I also suggest you have a look at the Dy and other HREE grades at Mt Weld in the Southern zone (now Duncan) and Crown deposits: Slide 8 http://www.lynascorp.com/content/upload/files/Presentations/HK_Conference_presentation_181109_MPJ_789385.pdf
Look forward to your comments on the above.

69 Toly July 27, 2011 at 10:33 pm

wwwater writes:

“Your concerns about the Balance Sheet seem to carry no water as one of the largest firms in the Resource Industry does not have a problem into entering into a Contract with GWMG which in the long term could mean millions in their coffers. I am sure they have done their due diligence more thoroughly than what you are expressing”

I have reviewed the actual financial statements filed by GWM… Do you honestly feel $25m will enable GWM to realize its dreams? Do you even realize that Lynas, in this next quarter will cash flow $107m (money spent to develop LAMP and Mt. Weld)… You state “I’m sure they have done their DD more thoroughly than what you are expressing”… Really?… Their DD? What about your DD?… Are you really going to invest in something yo don’t understand…

Where is any book value other than RESOURCES (not Proven RESERVES) that have been assessed by who knows… $25m cash on hand is nothing and investors need to know that… How much can be accomplished by an annual cash flow of $12m? Lynas has 450m available to complete LAMP and this is a facility that is going to produce 11mt initially with upgrades to 22mt…

Come on you guys! A flow-through capacity of 2,500 tpa year for under $25 million… Are you Houdini or the Rare Earth Fairy?… Don’t mislead the beginning investor with star dust and icon star dust… These guys work hard for their money and deserve more than that…

BTW, quit throwing the “vertical integration” term around… It too is a basic business term like “economies of scale” and means little other than GWM has acquired a company that supposedly will make GWM a mining giant… Really? I read the CONSOLIDATED financial filings and nowhere could I find that LCM will have any earnings accretive to the bottom line… These filings are somewhat nebulous but they are clear enough… Is this a smart acquisition for a company that is not even close to substantial REE production to acquire another struggling company? IMO this was done to create noise, attract nascent investors, and P&D the stock to the benefit of the VC investors… Once again, to be perfectly clear, this is my opinion and my opinion alone…

70 Toly July 27, 2011 at 10:54 pm

One other thing wwater, were you talking about the NON-BINDING agreement with Ganzhou Qiandong Rare Earther Group Co.,Ltd?

From their website…

Ganzhou Qiandong Rare Earther Group Co.,Ltd, were one of the earliest to produce instructure ceramics in mainland China.Company founded in 1988 and after more than 20 years’ development, by now, we have grown into one of the largest ceramic knife manufacturers by export volume in domestic market. Every month, we ship more than 150,000 units to overseas buyers. Our clients are mainly from North America, Europe and Japan.

Are you serious? A knife manufacturer… Correct me if I am wrong…

71 Jack Lifton July 27, 2011 at 11:18 pm

Toly,

Do you laugh at or disparage General Electric because they produce compact fluorescent lamps yet because they do not not have the in-house capability to produce terbium doped yttrium oxysulfide phosphors used in those lamps they subcontract their manufacturing in China?

I sat next to the CEO of Ganzhou Qiandong Rare Earths during the plenary session of the 6th Annual Chinese Society for Rare Earths Summit in Beijing last August. He manufactures zirconium ceramic knives, among other products and services. I do not know of any American company that can produce cheap durable zirconium ceramic blades. Do you think that processing zirconia and using it to manufacture household items is a barrier to having the know-how for processing rare earths?

72 Toly July 28, 2011 at 1:33 am

Jack, consider the following analysis…

“The joint venture will be 75 percent owned by Great Western and 25 percent owned by Ganzhou Qiandong, and will process concentrate from Steenkampskraal.”

“The mine, which produced thorium from 1951 to 1963, is expected to start production in January 2013 at 2,700 tonnes of rare earths a year, ramping up to 5,000 tonnes a year.”

“We’re also in discussions with several other companies in South Africa and area, for working with their tailings,” said Engdahl. “We could easily see us getting to 10,000 tonnes a year, around there, within the next two to three years.”

While I admire Mr. Engdahl’s enthusiasm I think his goals may be set a little high…

For example, 10,000 tonnes within 2 or 3 years required Lynas well in excess of a half a billion dollars, extensive exploration, engineering, and IP to develop a plant that will process 11k tonnes on initial commissioning…

It appears Mr. Engdahl feels he can accomplish these same achievements at a tenth of that cost…

While Engdahl would not give a price for the separation plant, he said it “was in line with earlier estimates of around $30 million.”

OK, lets assume a 2.7k tonnes plant can be built for $30m (a preposterous assumption)…

Now, apparently DRA Mineral Engineering is going to do the “detailed planning” for this separation plant by December 2011. While the company has developed some significant mining projects, according to it’s web site, it has yet to develop a rare earth separation facility… Let’s put that aside, and also assume they will do all of the planning for free…

Given GWM owns the property there will be no mining acquisition costs… There will be significant explorations and mine development costs… the concentration process DRA describes a floatation process to extract “gold and copper”… This concentration process will require significant capital to develop… Then there is the storage of the Thorium and the rest of the process described on their website… It is substantial…

This project is not realistic without significant infusions of capital… As I discussed yesterday GWM liberally has a net worth of $60m… They have $25m cash on hand with the rest is assessed property… The current annualized cash burn is $12m-$15m… It appears that LCM is not accretive to the bottom line and in fact may be loosing money…

So we are assuming that GWM will still own 75% of this entity… We are also assuming that the engineering and planning will be “in gratis” ;~) … We are also assuming that a 2.7k tonne separation facility can be built for ~$30m (ridiculous)… This does not include the concentration but we will throw that in…

Jack, these numbers don’t add up… The bottom line is that GWM has little net worth… Without a significant secondary or debenture offering the capital is not there… Even with a secondary pricing at $1 (probably significantly less) 1m shares would bring $1m… There are currently 350m shares outstanding (quite a few more when options, and warrants are considered)… To raise significant capital, let’s say $350m, the outstanding shares will be diluted by a factor of 1/2… It makes no sense financially…

With all due respect, GWM may have great plans, but unless it’s zirconia producing partner is willing to give away significant sums of capital, and DRA is willing to work for free you really will need the Rare Earth Fairy to pull it off… Remember, this is my opinion only…

73 JJL2U July 28, 2011 at 1:39 am

Mr. Lifton,

Like many here, I appreciate your input, relative to virtually all aspects of potential REE companies, especially those aiming for complete future vertical integration, from mine to market. I think that you are seeing things 20/20 with regards to GWM’s vision, management, achievements, overall experience, and expertise.

One negative that I see naysayers voice about the company, due to their exposure to South Africa, is the possibility (remote as it may be), that political factions within the country (namely the ANC at the prompting of Julius Malema), have called for the nationalization of the countries mines. I’m sure we can agree that sort of move be detrimental to any business, but would have more far reaching, catastrophic economic results for the country as a whole. So, do you view that assertion as something to be concerned about when investing in GWM, or, is it merely noise, as a ridiculous “what if” scenario, expressed by the ignorant? Or, is GWM’s agreement/arrangement with the Black Economic Empowerment (BEE), enough to quell any concerns on this issue? Again, thank you for your time.

74 Boris July 28, 2011 at 2:57 am

A little something on GQD (first met them 1998, last 2008, did a couple of visits in their plants and in between bought RE Metals and alloys from them (like LCM of GWMG).
GQD Group does (product wise):

Rare Earth Oxides in Mingda Function Material Co., Ltd Jiangxi Province?Anyuan County, Ganzhou City, Changding Qiandong Rare Earth Co., Ltd (Changding, Fujian Province and holds stock in Guangzhou Zhujiang Rare Earth Co., Ltd (Huangpu, Guangzhou)

Rare Earth Metals ( La Metal, Pr Metal, Nd Metal, Gd Metal, Sm Metal, Y Metal, Dy Metal, Tb Metal, Ho Metal, Er Metal, PrNd Metal, DyFe Alloy, GdFe Alloy, HoFe Alloy) in Ganzhou Rare Earth Metals Co., Ltd ( Sino-USA Joint Venture)

Phospors ( YEu phosphor powder, high purity Y Oxide) in Ganzhou Dongli HI-TECH Co., Ltd (Sino-Japan Joint Venture)

Alloys and magtnetic materials ( NdFeB alloy(strip cast), SmCo Alloys, SmCo Permanent magnets) in Precision Magnetics Ganzhou Co., Ltd (Sino-Switzerland Joint Venture) and Alloy department of GQD

Rare Earths based Ceramics ( Superfine YZr Powder, Superfine CeZr powder ) in Zr Ceramic Department of Group Company

Structural Ceramics (abrasives, grinding wheel parts, parts for ceramic tools – like ceramic knives) in Ganzhou Koin Structure Ceramics Co.Ltd

Maschines assembly (energetics, production and maintenance of various maschines) in Ganzhou Lizhong Machinery Co., Ltd

MAy well be that something changed since 2008, but for 10 years of my experience were capable and reliable supplier.

(Discl: I do not hold any stock and do not advise to any company involved in this discussion)

75 Boris July 28, 2011 at 6:44 am

A bit updated QGD activities:

So GQD is existing supplier to GWMG (well, it’s subsidiary LCM – http://www.marketwatch.com/story/great-western-minerals-group-signs-groundbreaking-heads-of-terms-to-build-rare-earth-separation-plant-in-south-africa-2011-07-25-71220?reflink=MW_news_stmp).
And LCM is existing supplier to AICHI (www.raremetalblog.com/2011/04/great-western-minerals-group-signs-long-term-co-operation-agreement-with-aichi-steel-to-supply-rare-.html)

So it is reasonable to assume that QGD’s Nd metal ends up in a Toyota motorcar, quite possibly as a part of some small motor (www.aichi-steel.co.jp/ENGLISH/pro_info/pro_intro/elect_2.html) made in one or another plant (for example in Czech republic: http://www.amagfine.cz/)

GQD seems to have another JV with Japan, a company Ganzhou Zhaori Rare Earth New Materials Co., Ltd., in Ganzhou, Jiangxi Province, “Showa Denkos’s joint venture with Tokai Trade Co., Ltd. and two Chinese rare-earth mineral (preciselly RE metals) producers, namely, Ganzhou Qiandong Industrial (Group) = GQD, and Ganxian HongJin Rare Earths Co” (www.marketwatch.com/story/showa-denko-sdk-to-up-rare-earth-magnetic-alloy-production-capacity-in-china-2011-07-06 ). Not a large share, but anyway.

And seems quite capable of venturing into manufacturing processing equipment needed in NdFeB production (www.nb-nke.com/NKE-en/product-new.htm ) with a company which has obviously Germany based design and is listed on Anold Magnetic Technologies Corporation consultancy list (www.arnoldmagnetics.com/Consultants.aspx ).

Well, from technical competences, quite suitable partner in » RE mine-to-market«, no?

76 lastchance July 28, 2011 at 8:11 am

When seeing Toly continue to argue after an expert has explained the picture to him reminds me of a statement I once heard.
“Do not argue with an idiot. He will drag you down to his level and beat you with experience.”

77 Toly July 28, 2011 at 9:04 am

I agree last chance… What I hoped would be a healthy financial discussion has led me to realize that there are those who refuse to consider the facts… The bottom line is that I have not , nor probably will ever invest in GWM…

I’ll admit I got off track when discussing this article, my intentions were to provide a true picture of Lynas Corporation which IMO contradicts the author’s…

Consider comments made by the author in this article…

“Lynas has built so-far only a mechanical concentration plant. I am not aware that it has a cracking plant in operation nor, if it does, what efficiency that plant may have achieved. Lynas does not have a separation plant up or running…”

“I suspect that Great Western may well be producing separated rare earth chemicals commercially before Lynas does and that GW will produce purified rare earth metals before Lynas does…”

“Lynas will have to co-produce enormous volumes of light rare earths. If these can’t be sold at a profit then it will fail as a business.”

“Its (Lynas) construction of such a plant is now stopped until Lynas shows that it will meet the standards…”

These comments are misleading or in the case of this last one, downright wrong. Lynas has not nor ever has stopped construction of LAMP in Malaysia…

The author shows a tendency to “downramp” Lynas while venerating GWM as a solid investment… IMO Mr. Lifton is a “person in a position of trust” and his comments need to be factual and unbiased…

I would encourage you to read the Lynas recent quarterly financial update and management discussion (released yesterday)… This is not new information, only facts that substantiate the significant progress of Lynas, in contrast to the author’s reporting… I may be an “idiot” lastchance but at least I know how to read the tea leaves..

78 Jack Lifton July 28, 2011 at 10:29 am

To everyone,

I am looking at the market for rare earth “metals” as one that can ONLY be supplied by rare earth metals producers; these are not stand alone miners, or even those with separation plants ultimately vertically integrated into their operations. The metals producers are specialized chemical/metallurgical engineering firms that in the world of global commodity “metals” production are individually just niche players or sometimes, in the case of the Chinese, small parts of very large operations.

The market seems to be suddenly suspending the law of supply and demand and at the same time the uniformed are, as usual, saying that “they” will overcome the problems of ramping up the scales of separation plants, metal production plants, alloy plants, and magnet manufacturing plants. I was a small part of “they,” and I still advise others. It seems to me that with the exception of Great Western’s initial goals of 2,500 and then 5,000 tpa, the other ventures claiming an in-house mine to market strategy have set their goals too high. They cannot achieve profitability in the near term, if ever, because the engineering problems and their associated costs (actually unknown) are daunting.

I am absolutely amazed by anyone relying on public company handouts to “prove” that those companies have solved problems. Mickey Fulp, the Mercenary Geologist, actually went to look at Silmet, and I ran into him just as he arrived at the Cambridge House Conference in June in Vancouver, from Estonia. He told me that in his opinion there was no point in anyone else trying to compete mine to market with Molycorp based on what he said he had seen at Silmet. But as i said to Mickey I disagree.

I have just received an email from a reader asking me to read Lynas’ latest information release, and I will. I note that if Lynas achieves its production goals as does Molycorp in their stated time-frames then lanthanum and cerium will be in significant oversupply. I also note that although a 2,500 tpa separation plant can be built for less than $30,000,000, Lynas states that each of its world-class 11,000 tpa per annum plants will cost more than 4 times that. So much for economy of scale.

No one has ever built at one time a rare earths separation complex with as much capacity as LAMP, and I think Lynas timetable is ambitious and probably not conservative enough.

I do not have to tell you what i think the timetable will be for someone who is building 2 1/2 times Lynas’ capacity. If the technology apparently doesn’t scale, as Lynas figures indicate, then the competitor is looking at a cost of more than 500 million dollars for its separation plant alone. Add the world’s largest ever rare earth metals production complex, the world’s largest ever magnet alloy production operation, and the largest rare earth permanent magnet manufacturing plant ever built and you have at least one to two billion dollars of costs if everything goes right. Did I mention that unless every aspect of that plan comes in so as to be able to deliver rare earth permanent magnets at a lower cost than its competitors then it cannot be profitable.

Time will tell how much and which of this speculation on my part and on the part of the nascent western rare earth industry is correct.

In the meantime the first to the market gets the first business. I’m still betting that GW will be selling rare earth permanent magnet alloys to its customers from its own mine production before anyone else. One caveat for GW. It will have to remain a lowest cost provider after anyone else enters the market with the SAME advantage, a captive supply of the critical materials and the in-house ability to process and fabricate them into commercial forms. Note that the overheads of both Molycorp and Lynas prevent them from being competitive at low volume production in my opinion.

Now, where is everyone going to get enough dysprosium? Do you see why dysprosium production is the real choke point of this whole discussion?

Stay tuned.

79 lastchance July 28, 2011 at 11:32 am

Toly I hope that Lynas is a huge success. I did own both Lynas and GWMG until I read a post many months ago by Nelli, a poster on GWMGF.PK, who had just returned from a business trip in Malaysia and said associates there said the Lynas was in doubt of ever getting open. This was all before the problems with their plant were known. I sold my Lynas and increased my GWM and have no regrets. I still feel Mr Lifton is someone that has studied many companies and has much more knowledge than the average in the REE field and even though he owns shares of GWMG they were bought with his funds and he is not paid by GWMG. I wish you the best with Lynas and you are still welcome to GWMG.

80 robit July 28, 2011 at 12:29 pm

Boris > Thanks very much for the info on GQD. It is difficult to dig that kind of background out of the web.

to all > I would like to provide my recollection of two of Jack’s positions that he has repeated so many times that they have surely become mantras for him.
“RIGHT SIZED” and “DYSPROSIUM IS KEY”

You may resume your lambastation, but please don’t forget those two points as you try to make yours.

81 Boris July 29, 2011 at 7:29 am

@robit
Don’t mention it. What I would really love to dig out of the web is this: (and please excuse my ignorance on the details of RE metals production and correct me if I am way way out):
If you do have your »mine to magnet« integrated production chain you: mine, separate minerals from tailings, roast the minerals to get your oxides, dissolve those in some acid or caustic solution, extract your metals from your solution, add to them some Fe, FeB, etc, melt these, crush, mill, press, sinter, anneal, cut, grind, plate and ship off your magnets.
Material yields that I have seen in sintered Neo magnets production were anything between 50 and 85 % depending mostly on the shape and size of a magnet and pressing technology used. So somewhere between 15 and 50% was material loss, mostly in form of a grinding slurry (some 25% of water, 35% of SiC or Al2O3 grinding wheel material and 35% of your NdFeB in fine wet, probably oxidised, powder form).
Let’s say for estimation that material loss is 30% by weight. If (according to many references found , Hocquard, USGS,…) 18 000 t Nd, 6000 t Pr and 1500 t Dy end in magnets per year, 30 % loss means 5400 t Nd, 1800 t Pr and 450 t Dy. At 400 USD/kg Nd, 280 USD/kg Pr and 3000 USD/kg Dy, this sums up to 4014000000 USD/year (4.014 bn USD/year).
Well, If you do have your integrated production, why wouldn’t you just chunk your grinding slurry (or your 4 bn USD worth) somewhere at the stage of roasting your minerals into furnace (cracking kiln – http://www.lynascorp.com/page.asp?category_id=2&page_id=41) and get your Nd, Pr and Dy back? They started as wet oxides in first run. For that much of money? Even if your material losses are some 4 times lower than assumed 30%?

82 wwwater July 29, 2011 at 11:49 am

Boris, your question I believe should be directed to the magnet manufacturers not to the alloy producers for GWMG’s processes end at the alloy production and do not continue up the chain into magnet production. The links in GWMG chain are 1. mining and crushing, 2. benefication, 3. separation and extraction into oxides and metal and 4. the final GWMG link in the chain, alloy production for the battery and magnet industry. The is the “MINE TO MARKET” strategy developed so far..

83 Lou Pearson July 29, 2011 at 3:35 pm

Jack,

Thank you for your very informative articles and clarifications.

If there is likely to be a scarcity of dysprosium going forward, would it not be logical to assume that the price would be set by what an end user can afford to pay for available product and still have a saleable product and still make a profit. What end product manufacturers (by industry) are in the best position to pay up for what dysprosium is available on the market? The autos? The wind turbine manufacturers? The defense industry?

84 Paul San Antonio July 29, 2011 at 3:50 pm

wwwater,
Thank you for laying out the divisions of GWMG’s “Mine to Market” strategy. Obviously since GW has failed to make an annual profit for over 20 years straight, the next question is which divisions are making money? Are any?

And my understanding is mine to magnet as a business approach is designed to capture the higher margins downstream on the manufacturing side. GW already owns and operates this downstream portion but cannot make a profit. Is the problem the strategy or execution and how it become profitable? Or is GW a miner just pulling along a manufacturing business.

I know Jack considers this irrelevant (thus making Jack irrelevant IMO). But I think many reading this thread care about whether GW makes money in the future.

85 Jack Lifton July 29, 2011 at 4:10 pm

Lou,

You have posed a very good question. The answer is that price is least important to the automotive and defense industries.

If, for example, a car uses a total of a KG of neodymium-iron-boron magnets then it will use in the most extreme case 100 KG of dysprosium. Should dysprosium become $2000/KG, which some observers have predicted, this will mean an added cost per car of $200 just for the raw material. This, the high price, is not a driver for reduced use in the OEM automotive industry. The driver to be concerned with is security of supply. If you cannot get something or if the probability of getting it is too low to be acceptable then you will engineer it out.

For Defense the consideration is only availability. Price is a secondary concern.

The Wind Turbine Industry may be affected by price. If it takes 1 ton of neodymium-iron-boron magnet to produce 1.5 megawatts and you use eveb 5% dysprosium then this could add $100,000 per generator to the cost of raw materials. It is a significant added cost, and can be avoided by using other technologies, as is done today and has been done so far. I personally think that the value in durability added to wind turbine electricity generation by REPMs used in PMGs is well worth it.

Jack

86 Jack Lifton July 29, 2011 at 4:14 pm

Paul,

Can you please tell me when you think Molycorp last made money selling rare earth products produced and processed at Mountain Pass? Then please tell me in what form and purity were those products?

Please limit your answer to the time period 1947 to 1Q2011.

Jack

87 Lou Pearson July 29, 2011 at 5:48 pm

Paul,

GW’s wholly owned alloy manufacturing subsidiaries, LCM and GWTI, are profitable and have been for years. GW is not profitable because it continues to burn cash to execute its mine-to-market plan. Most of the cash burn has been focused on acquiring and developing the Steenkampskraal mine. If you look at the segment of GW’s enterprise involved in exploration and mine development, it is useful to compare it to the junior base metal minors in several respects. Just about all junior explorers burn cash. Most would love to have subsidiaries that generate revenues and profits. GW believes it is sufficiently cashed up to bring Steenkampskraal into production.

Wwwater is far more knowledgable than I in projecting the revenues and profit potential of the various segments of GW’s mine-to-market model. Most analysts formulate a target price for a miner by projecting the future revenues and profits that the project will produce, assessing the value of the resource in the ground, and discounting the revenue projection by the time to production and the risks associated with the project.

Byron Capital Markets has a target price for GW at $3.50. Euro-Pacific Canada has a price target of $3.15. Their methodology is available on their respective websites. These target prices are likely to rise if the historical resource estimate is affirmed and expanded, if GW strikes a deal with titanium producers on the Western Cape to process their tailings, and as GW moves closer to production at Steenkampskraal.

88 Paul San Antonio July 29, 2011 at 6:37 pm

Jack,
I will assume your point is that China has made it impossible for non-Chinese rare earth companies to make money for a long period of time. I recognize that China has suppressed rare earth prices around the world in a cartel like fashion for quite a while.

But from an investor perspective (and that is my perspective) I have to look at the companies and decide where best to place my investment. It seems choosing a company with a damaged balance sheet, still not making money on the manufacturing side even since the meteoric rise in REE prices is a questionable choice.

Molycorp while far from completing Project Phoenix, does have a better balance sheet due to the IPO in 2011 and Silmet itself is profitable. This creates a business model that will likely be profitable in the future without the drag of a poor balance sheet and apparently less efficient manufacturing.
But Molycorp is very high at this time.

Clearly the superior company and investment is the Lynas Corporation. Judging from their recent Quarterly report they will be in production at the end of the year. The timetable and breakdown they provide regarding the Thorium waste issues and the implementation of the IAEA recommendations suggests this issue is under control.

Jack, I have read your critique of the Lynas business model above and was struck by how well it applies to Great Western and how poorly it applies to Lynas. If Cerium and Lanthanum prices fall in the future Lynas would still benefit from the JV with Siemens. I think this JV is vastly superior to the mine to magnet approach based on prior performance. Siemens has proven itself as a successful and profitable manufacturer for many years. A joint venture with such a sophisticated manufacturer for such high tech products seems like the smartest approach. The approach allows Lynas earnings whether on the mining or manufacturing side. So if the oxide prices fall the margin transfer to the high tech manufacturing side would still be within the Lynas/Siemens Joint Venture. And the fact that Siemens would tie itself to Lynas also confirms the Lynas approach described in their Quarterly Report. This is the dominant company in the space with some of the lowest valuations.

But for Great Western, if Ceriun and Lanthanum prices fall in the future the whole Great Western picture becomes bleak. They are not making money in the rest of their businesses, the balance sheet is bad, and they are on the hook for the safe storage and decommissioning of Steen. No doubt the South African government will follow the IAEA/Malaysia lead and require an earnings set aside from Great Western before allowing further mining. This could eliminate Steen’s path to profitability and would push Great Western nce again towards bankruptcy. That is a risk based on your view of falling LREE prices down the road that you have not addressed in your earlier post. Suggesting Great Western’s integration would save them seems weak since to date it is still not profitable even at the current high prices.

89 Paul San Antonio July 29, 2011 at 6:47 pm

Lou,
I do not see in the SEDAR filings any indication of the profitability of Less Common Metals or any Great Western manufacturing component. Can you direct me or do you have a link to this information?

90 Lou Pearson July 29, 2011 at 7:19 pm

Paul,

This from GW’s 2010 financials:

For the year ended December 31, 2010, GWMG’s financial highlights include:

Manufacturing / processing revenues from GWMG’s wholly owned subsidiaries Less Common Metals and Great Western Technologies Inc. were $15.1 million for 2010 representing a 26% revenue increase over 2009.
Gross margins on manufacturing / processing operations were $4.5 million for 2010, representing a 48% increase over 2009.

91 wwwater July 29, 2011 at 7:30 pm

Below taken from the Q1 -2011 FINANCIAL FILLING
http://www.gwmg.ca/html/media/news/index.cfm?ReportID=203400
Less Common Metals Limited results for Q1 of 2011 include the following highlights:

Three months ended Three Months ended
March 31/1 March 31/10
Revenue $4,077,247 $3,601,655
Gross Margins $1,411,736 $1,176,471
EBITDA $616,198 $471,017
Earnings $382,539 $335,422

Gross margins increased 20.0% compared to the first quarter of 2010 and EBITDA increased 30.8% compared to the first quarter of 2010.
Revenues were significantly higher than budgeted figures for the first quarter of 2011.

92 wwwater July 29, 2011 at 7:59 pm

Below is a table of Forecasted Earnings for GWMG using the current pricing of Rare Earths up to year three where after the Rare Earth pricing has been discounted for the anticipated price reduction in some of light rare earths and heavy rare earths.
Current Pricing is on the top row, discounted pricing on the bottom
Ce………La……..Nd………Pr……..Sm……….Dy…….Er………Eu…….Gd…….Ho…..Lu……..Tb……..Tm……..Yb…….Y
$160…$150…..$320……$250….$130….$2,850..$130..$5,900..$225….$200….$0….$4,250….$790….$155….$170
$15…….$15…..$200……$150….$100…$1,500…$130..$3,000..$225….$200….$0…$2,500…..$790….$155….$100

http://pmem.ws/files/users/a/535D64716E912048E040A8C0AC002D4E/GWMG%20FIVE%20YEAR%20FORECASTED%20EARNINGS%20-%20DISCOUNTED%20PRICING%20FOR%202015%20ONWARD%20-%20JULY%2025TH.%2C%202011x.pdf

93 wwwater July 29, 2011 at 8:19 pm
94 Paul San Antonio July 29, 2011 at 8:21 pm

wwwater and Lou,
I said profit not revenues.
And Gross margins increased EBITDA increased but, first quarter loss tripled to C$3.2-million?
http://www.miningweekly.com/article/great-western-widens-q1-loss-shares-up-2011-06-30
That’s not good guys.

But out of $4 million dollars in revenue LCM eeked out $382,539 in earnings that were overwhelmed by the compensation paid to the directors. Even if we pro rate the compensation by division LCM still had earnings below director compensation with record rare earth prices. If those earnings in a vacuum (separate from reoccurring company expenses) are the earnings you are hoping will carry Great Western to survival I’d say things are worse than I thought. I also am concerned you used the website table instead of the actual balance sheet that includes the costs. That is not due diligence.

I further disagree with the Engdahl claim that he will not issue more shares. No investor doing their due diligence could believe such a claim. The project costs and balance sheet show a gap that will require a considerable number of shares to be issued. The problem is so immediate I expect the issuance within the quarter.

95 Lou Pearson July 29, 2011 at 9:17 pm

Paul,

Time will tell if GW becomes profitable. I suspect that you are set in your conclusion that GW is doomed. I think your response to any assertions to the contrary can be summed up as follows:

http://www.youtube.com/watch?v=DtMV44yoXZ0&feature=related

96 Paul San Antonio July 29, 2011 at 9:29 pm

No Lou,
I have owned Great Western in the past and felt the turnaround story was failing so I left. If Less Common Metals were profitable to an impressive level (say $0.10/ share) and by a true balance sheet measure, the facts would have changed and I would change with them. But I must admit as impressed as I am with Lynas. And diversification makes it hard to own both.

97 4now July 30, 2011 at 4:25 pm

Lynas and Siemens making Magnets ? What a choke. Non of them has the know How to do so. Siemens buys the magnets from china and lynas is a stupid miner with no downstream know how.
So there has to be one that shows them how to make magnets. This will need up to 10 years and non of the 3 will make money with it.
LCM has the know how to make magnet alloys of highest level and aichi has signed to buy everything they can produce. Sold out in difference to big big dreams with no know how at Lynas and molycorp.

98 Toly July 30, 2011 at 5:59 pm

4now or wwater, can you tell me LCM’s production quantity for 2010 or even q1, 2011 in tonnes? Also can you tell me the total number employed at GWM and LCM…

It appears total regular wages for all divisions included in the filings (including benefits) is ~ $800… Can you confirm this?

TIA…

99 wwwater July 31, 2011 at 2:47 pm

BYRON CAPITAL UPGRADES GWG TARGET PRICE WITH STRONG BUY

Based on our existing, admittedly conservative rare earth price deck, we maintain a STRONG BUY rating on GWG, but we are raising our target price to $3.80 from $3.50.

100 Boris August 1, 2011 at 2:42 am

@wwwater
Just a small comment – most of magnet producers would love to have reprocessing facilities of any kind of material scrap in house, with exception from what I think Shin Etsu has (www.rare-earth.jp/e/products/pro_shokai.shtml).
Most of magnet producers now buy either RE metals or RE based alloys ro make magnets, and wory how to get rid of scrap produced by grinding and cutting.
Now, you mentioned processing step No.3 – separation and extraction….. which would fit nicely into mine to magnet – gives you rather constant feedstock to extraction plant (some 6000 tpa Nd+Dy, gives you some 18000 tpa grindings, which would feed nicely some 10 separation plants of 2500 tpa capacity, yield included) and you get substantial proportion of Nd+Dy back. Think it fits into “right size” and “Dy is the key”. Just a thought anyway.

@Jack&Gareth
Thanks for running this place. One of the livelinest discussions for a long time.

101 Boris August 1, 2011 at 3:52 am

v
@ 4now
Well, Siemens used to own Vacuumschmelze.
And Vacuumschmelze people know really well how to make magnets.
Not long ago Vacuumschmelze was bought by OM Group
(www.finanznachrichten.de/nachrichten-2011-07/20701097-one-equity-partners-sells-vaccumschmelze-hanau-to-om-group-inc-usa-015.htm)
which specialises in chemicals. And Vacuumschmelze has a plant in Malaysia ??? Well, this may be a long shot….

102 Boris August 1, 2011 at 4:10 am

@ Toly

Well if this can help – LCM acquisition anouncement in 2008 says 27 people
(www.miningtopnews.com/great-western-minerals-group-signs-letter-of-intent-to-acquire-less-common-metals-ltd.html)
and current group photo (assuming that not all work first shift) shows 23 people
(www.gwmg.ca/images/GalleryImages/LCMgallery/fullsize/lcm-group-photo-DSC_0534.JPG_720.jpg). So one would think arround 30?

103 robit August 1, 2011 at 9:18 am

Boris > Thanks for another nice bit of info. Vacuumschmelz itself and it being sold to a US based group are both VERY interesting. The Malaysia facility would seem to be quite an incentive for the government to give Lynas the approvals they need.

http://www.omgi.com/product-Vacuumschmelze.html

104 Philip Mergenthaler August 2, 2011 at 4:20 pm

I have read all these discussion comments. Get the picture straight. SELL ALL STOCKS AND RAISE CASH. Maybe alot of silver $ gold miners. Especially those in North & South America where nationalization is NOT AN ISSUE. Governments will try to secure revenue in alot of countries around the world. WE ARE NOT IN A DOUBLE DIP because we never got out of a recession. ALL STOCKS ARE OVERPRICED BY AT LEAST 50% in USA. Whoa now Wilber!!

105 wwwater August 3, 2011 at 12:54 pm

I want to bring up the issue of Capex (Capital Expenditure) . The current Capex for the refurbishment of the SKK monazite mine along with the installation of the benefication facility and the construction of the SX plant with an output of 5,000 tpa in South Africa is at $60 million whereas the LAMP in Malaysia along with the Mt Weld development with a projected output of 20.000 tpa is in the $1 billion dollar mark equaling that of MCP’s Capex for the Phoenix project with an output of 40,000 tpa.
It is very obvious that SX techniques being implemented into the GWMG installation are much more simplified and more economical in fabrication which in turn will result in a more cost effect operation. Because of the modular design aspect of entire facility expansion to higher output is much more economical and cost effective. That is the expertise that GQD brings with it as those techiques have been applied in China and are in addition incorporating the environmental requirements of the South Africa government.

106 fran August 4, 2011 at 6:22 pm

i’ll take the candidate with large institutional investment in it . what are those top five and their ownershp quantities?

if institutions lack interest, i do also.

107 Jack Lifton August 5, 2011 at 8:58 pm

wwwater,

I’m going to try and end this thread by pointing out that I have come to the conclusion, as I think you have, that Molycorp and Lynas, neither of which has ever before engineered an SX, a high purity metals, a specialty alloys, or a rare earth permanent magnet manufacturing facility (Please don’t tell me about Molycorp having done this. Their current SX plant is decades old, and even they admit it has to be replaced or “re-engineered.”) is unlikely to get any of their operations done on time or within budget. You and I have noted the disconnect between the CAPEX planned by Molycorp and Lynas and that planned by GWMG/GQD. I think that of the three ventures, since only one has done it before, therefore only one knows what’s its doing. Isn’t it interesting that the one that knows what it’s doing is building the smallest plant?

By the way it is not obvious that the GW/GQD facility will be more simplified. It is obvious as I said above that only the GW/GQD plant is being built by those who know what they’re doing.

Let the rending of garments and the personal insults begin by those who buy into expertise from the inexperienced.

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