Molycorp’s SEC Filing For Its Proposed IPO Answers Some Longstanding Questions

by Jack Lifton on April 18, 2010 · 31 comments

in News Analysis, Rare Earths

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Last Friday (04/16/10), privately held Molycorp, the owner/operator of America’s largest and most recently mined deposits of light rare earths, filed the legally required notice that it will have an initial public offering of its shares within the allowed statutory period after such a public announcement.

The filing, as I read it, answers one question that has been out there for nearly three years: How much did the buying group, Goldman-Sachs, Resource Capital, Pegasus Capital, Traxys, and a small management contingent pay for what they bought from Chevron? The answer seems to be $80 million, which I was told by a bidder in the 2007 auction for the company, was less than that particular bidder had offered at that time.

I believe the losing bidder who told me the story, and I think I understand what happened. It is likely that Chevron decided to take cash from a buyer rather than accept bids from other buyers, who would then most likely have had to go to the markets to raise the money. This, I am told by a friend who had a similar experience with the auction of an oil and gas property by Chevron, is fairly routine with Chevron in these situations.

In any case a further reading of the SEC filing caused a very savvy securities lawyer I know to say:

“At this stage it’s real difficult to tell what the post-money valuation will be for Molycorp. We know they want to raise $350 million, unless the offering size is increased, and we know that IPOs typically sell 20% to 30% of a company. So depending on their final structure the market capitalization could easily start out in the $1.5 billion range. With proven and probable reserves in the 2 billion pound range and average values of a few bucks per pound, it may be fairly easy to maintain a market capitalization ….”

My friend further pointed out:

“To date, [the original buyout group’s] investments at Mountain Pass are less than $200 million, but they’re likely to sell about 25% to 35% of the company to the street for $350 million which would value the original buyer’s residual interest at something on the order of $500 to $600 million when the dust settles.”

It is my opinion that the interest in the rare earths sector by the investing public is still “hot,” so that this is a good time for a Molycorp IPO.

I think that institutional investors are holding back on long term investments in the rare earth sector until someone outside of China starts producing rare earth metals and alloys, or at least, separated rare earth oxides. Molycorp, by going public to raise capital, is doing the whole sector a favor in regard to others getting longer term investments.

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1 Dr. Dietmar Siebholz April 18, 2010 at 8:54 pm

Beware of Go(l)dman Sachs…

I think, they had never brought gifts. It is like the Greek Ilias “pay attention to the Greeks,even if they bring you gifts…”

You surely know what had happended to Troja (Troy).

Regards

Dr. D. Siebholz

2 jor blow April 18, 2010 at 9:12 pm

why is ther no print button on this otherwise nice website??

3 loquacite April 18, 2010 at 9:22 pm

I wonder how long it will take the prospective investors in this IPO to get to the part of the S1 that quantifies how phenomenally enriched the Mountain Pass ore is in light REE.

The ore is:

– 82.8% La+Ce
– 94.5% La+Ce+Nd
– 98.7% La+Ce+Pr+Nd

In other words, 99% of the material contains 4 of the lightest and lowest value REEs.

Unless I am mistaken, this strikes me as being a terrible deposit.

I don’t think this was ever a secret. The only difference now is that it is in print, in a required public disclosure.

4 Jack Lifton April 18, 2010 at 10:07 pm

Loquacite,

The following information has never been a secret:

Molycorp
Mountain Pass
Rare Earth Oxide Distribution

Cerium 49.10
Dysprosium 0.00
Erbium 0.00
Europium 0.10
Gadolinium 0.20
Holmium 0.00
Lanthanum 33.20
Lutetium 0.00
Neodymium 12.00
Praseodymium 4.34
Samarium 0.80
Terbium 0.00
Thulium 0.00
Ytterbium 0.00
Yttrium 0.10

99.84

Source: Asian Metal

You’re right that the massive bastnaesite deposit at Mountain Pass is really only a lower atomic numbered (light) rare earth deposit. The key metric is that when a cutoff grade of 7.6% (i.e., taking into account only ore analyzing at 7.6% and above) is taken into consideration the deposit is a 2,000,000 MT resource. I don’t think that it’s a terrible deposit; rather it is one that needs to be paired with a companion deposit with high grades (relatively) of the heavy rare earths in order to be able to resolve our lack of self-sufficiency in total rare earths in the USA. Even though Mountain Pass presents “only” 17.14% of its total rare earths as permanent magnet metals (neodymium, praseodymium and samarium) you need to realize that this is still a resourceof 348,000 MT of permanent magnet metals. Additonally Mountain Pass’ lanthanum resource is 660,000 MT, which is enough of that metal to produce 220,000,000 NiMH batteries for a Ford Fusion Hybrid power train. It’s, of course, true that the “heavy” rare earths, dysprosium and terbium, will still need to be found in the USA to make us self-sufficient, but that is do-able.

Mountain Pass is “not” a “terrible deposit.” It is necessary but not suffcient in and of itself for our perceived needs if the USA and indeed the west is to become independent of China for rare earths.

Jack Lifton

5 loquacite April 18, 2010 at 10:51 pm

It seems as though the mine will have to produce a LOT of La and Ce just to produce the level of magnet metals required to make this project economic and/or strategic. What will happen to the La and Ce markets when all this supply is dumped onto it?

6 Jesse Carlton April 19, 2010 at 12:19 pm

Jack, I read your reports quite often and I would ask that you please answer the following questions to help me clarify my thoughts on REEs.

1. Molycorp’s current mill and tailings are above roughly 75% of their resource, correct? Who will invest in a mine of such poor design?

2. When is the last time a company in California recieved a mining licence?

3. Is the problem of supply not one of self sufficiency, but secured availability? If a major REE source were made available outside of China (Vietnam, Central Asia, Australia, or Russia), then economics says the problem of secure supply would be solved, and the product goes to the highest bidder. The US military could easily outbid anyone. Why are lobbiests and companies preaching that North America needs its own supply of REEs, and not just diversification of REEs outside of China?

4. China will remain the lowest cost producer of REEs. Their LREE resource in inner mongolia is massive (no shortage whatsoever), and its capacity can be expanded. If demand doesn’t ramp up exponentially, is a LREE producer such as Molycorp not subject to becoming a victim of Chinese business tactics and price surpression all over again? In a world of risk vs. reward, is that not too big a risk to justify the Molycorp valuation?

5. Why would it make sense to put a massive LREE mine into production followed by one with HREEs? You preach that HREEs are the elements that will be in dire need. Would it not make more sense to put the capital and resources into the more valuable properties first? It seems to me that if Lynas and Molycorp get back into production, LREE will be in oversupply and the real supply issue in HREEs will not be solved.

Thank you in advance for your answers.

7 Jack Lifton April 19, 2010 at 1:31 pm

Jesse,

I can answer your questions right away:

1. Molycorp still has concentrates from their previous operations during and before 2002 of around 20,000 mt in on-site storage. This has been in the process of being worked off since 2007 in order to restart the separation plant, which was also shut down in or around 2002. Molycorp’s proven resource is of 30,000,000 MT of basnaesite with a cut-off grade of 7.6%, so that Molycorp has more than 2,000,000 MT of LREEs.

2. I do not know; I suggest that you look at the web site of California’s DEQ, Department of Environmental Quality. If you do find an answer please let me know what it is.

3. I disagree with the choices of Vietnam, Central Asia, and Russia as secure sources; I also disagree with the idea that the US military can outbid anyone. That is simply not true. The US military does not participate in auctions. The DSA, its purchasing arm, gives out requirements and specifications. Then “qaulified” parties bid, and then a winner is selected on a variety of criteria not the least of which is credibility. It is a slow process believe me.

4. A lot of people agree with you on this one with regard to the risk.

5. I tend to agree with you on this one, as I have said many times, but in order to galvanize private equity someone has to kick start the process. In the USA that most likely be Molycorp.

Jack

8 Mike S April 19, 2010 at 5:03 pm

I’ve read somewhere – I think – that Molycorp had (has?) a substantial stake in CBMM, the Brazilian miner that has a Rare Earths project at Araxa, Pitinga mine in Brazil. Is this correct and might this offer some heavy REE?

Otherwise, like other posters intimate, this IPO seems opportunistic – at the valuations mooted.

9 Mike S April 19, 2010 at 6:33 pm

Thank you. I suspect I have mixed up my niobium (which CBMM produce from a mine in Araxa) with my REE’s.

10 Jack Lifton April 19, 2010 at 7:17 pm

The Pitinga mine in the Brazilian state of Amazonia is currently under investigation not by Molycorp but by NEO Materials, the listed Toronto firm, as a resource of heavy rare earths in its existing tailings as well as from future production. You can read about the project at http://www.tradingmarkets.com/.site/news/Stock%20News/2272227/

11 loquacite April 19, 2010 at 7:24 pm

The old Molycorp, which doesn’t have much to do with the existing Molycorp, except for Mountain Pass, owned many projects around the world, including a big piece of Araxa. But that was back in the 70s/80s.

12 Jack Lifton April 19, 2010 at 7:39 pm

Loquacite,

You are right. The old “Molycorp,” which had no executive management in common with today’s company had a very active and aggressive exploration operation. I have had many conversations with geologists who worked at Molycorp in the 80s, for example, who can tell you of many “recent’ discoveries that were actually rediscoveries of abandoned Molycorp claims in Canada, Brazil, Africa, and Australia among others. Obviously in the past when only the light rare earths were of interest Molycorp was very selective in what it chose to pursue. The Mountain Pass deposit is a hard one to surpass in grade, tonnage, and accessibility if your goal is only the rare earths that were first desirable in the 1980s. Accessibility was a big issue in the 1980s. Why, it was thought then, should one undertake to develop a Mt. Weld hundreds of miles from Perth when you could produce all of the light rare earths you would ever need, it seemed, 9 miles from Henderson, Nevada just off a main road between Las Vegas and Los Angeles?

13 loquacite April 19, 2010 at 8:13 pm

Thank you.

As most of us know, this ain’t the 80s any more.

And I fear Mountain Pass is a diseased elephant from a bygone era.

14 Prescient11 April 19, 2010 at 10:29 pm

Why oh why is no one talking about the amazing resource estimate from QUC this past April 7th. As John Kaiser intimated, it potentially can solve the rare earth supply issue in North America for the next 100 years, with 50% of the deposit HREE.

I would think that it is a relevant part of any discussion. With Moly getting valued at $1.5B with all LREEs, I would think QUC is deserving of at least a $1B market cap, especially since it can provide almost all of the critical HREEs.

All that is left is the metallurgy, and then we shall see.

15 Jack Lifton April 19, 2010 at 10:59 pm

Prescient11,

“All that’s left is the metallurgy,” you say.

Then there’s the infrastructure: Highways, railroads, power, process water, regulatory issues, a skilled labor pool, etc.

These aspects of the development of a resource take large amounts of time, money, and luck, and the outcome is never certain.

This is a risk best described to ma by an institutional investor as one on the highway near Henderson, Nevada trumps two in the Labrador bush.

The issue is always who can produce soon, not who can produce ever.

16 Prescient11 April 19, 2010 at 11:33 pm

Mr. Lifton,

I am a subscriber to your website and a big fan of your work.

I, however, would respond to that institutional investor by stating that you can’t find the HREEs near Henderson, NV. Simple as that. It doesn’t matter if a moving walkway is taking you there, let alone a highway.

I fully acknowledge the infrastructure issues you raise, and they likely won’t be in production until 2015. AVL will be first HREE of quality/% in production around 2012-2013, maybe… With all that said, this high grade, world class deposit is in Quebec, the #1 mining friendly jurisdiction in the developed world, involves HREEs which have 15-20 years left of lifespan in China, has no overburden – thus no underground mining scenario unlike AVL (at least initially), etc., etc. Kaiser also has mentioned that his sources have indicated that the politicos in Quebec have definitely perked up to the idea of Montreal becoming a huge REE processing capital and my bet is that it may happen (fits perfectly into the green technology theme). They already are running a road through the Otish mountains this summer, extending it won’t be too out of the question I think.

If metallurgy comes back favorable, the rest will come, I think that’s the last step. China has stopped accepting mine permits for REEs until 2011. Further, they have applied for more than 10 stockpile productions of REEs so far.

I think the pendulum is swinging the other way and hard, at least in the near term. Further, put aside the LREE and undersupply/oversupply issues, there will definitely be a crunch in the HREEs and that is the beauty of the QUC deposit. The market cap of this company is ridiculously low as compared to its value in the ground. The final results from Hazen Research are all that are needed to confirm this. If the metallurgy comes back at all favorable, then it looks very good for this company indeed.

17 Jack Lifton April 20, 2010 at 12:09 am

Avalon probably won’t be in commercial production until 2014, according to a conversation I had with its CEO in Cape Town at Indaba in February of this year.

The problem with HREEs as with LREEs is going to be oversupply.

As I said in December of last year it, the supply of HREEs, has become a horse race.

In this world, end users like to have a primary supplier and an alternate that can take over if necessary.

I don’ think however that only Avalon and QUC are running in the race. For North America at the moment the day trading, short term, market thinks that the USA is the demand driver. This belief is driving the share prices of North American companies and influencing decisions on IPOs.

I think that the demand driver for HREEs and LREES today is China and Japan. This fact seems to have been mostly overlooked even on Bay Street, but it certainly has not been overlooked in the Tokyo, Hong Kong, Shanghai, and Sydney markets. I won’t even mention Wall Street, because it is fast asleep as far as rare earths go. If Bay Street, Vancouver, and Sydney hadn’t been ignited this last summer, first by Dines and then by Kaiser, Molycorp still would be waiting to come to the market. I’m eager to see just which underwriter or underwriters do the Molycorp IPO.

In any case there simply is not enough demand in the near term, the next decade, for more than two major HREE producers. I really question whether the market will be able to support both Lynas and Molycorp after the Chinese re-ignite their mines at the end of this decade, when they have finished with their remediation, consolidation, and production efficiency programs.

It’s not clear who’s in the race to stay, but its clear that at some point soon, no more entrants will be needed.

18 loquacite April 20, 2010 at 1:11 am

“Molycorp still would be waiting to come to the market.”

Uuh, Molycorp is still waiting to come to market.

The prospectus they have filed is merely an intent to IPO. There is no guarantee whatsoever that they will be successful in raising the funds described in the S1.

Furthermore, I don’t know for sure, but I don’t believe $350 million is sufficient capital to fund all the necessary capital expenditures for Mountain Pass. I believe it’s closer to $1 billion.

Only after Molycorp is FULLY funded to commercial production can one suggest that they are no longer waiting for the market.

19 Prescient11 April 20, 2010 at 1:18 am

That is interesting about AVL going into 2014, I don’t think I had heard that before as far as going out that far.

I like GWG and NEO because they do have some downstream capabilities, which have been largely overlooked and will be crucial.

You are damn correct as to the oversight by Wall Street in this regards. Even with Lynas and Molycorp in production though, that is not going to solve the HREE issue. The Chinese just informed the Shanghai Stock Exchange that Inner Mongolia is creating repositories for 200k+ tons of REEs, Japan is increasing stockpiles and it is likely that the USA FINALLY will follow suit. I don’t care how much they “reignite” their mines, they are going to run out of HREEs and fast. Will the “Saudia Arabia of REEs” really like to be dependent on foreign sources for critical HREE inputs. Because unless they drastically reduce exports that happens in 12 years. I’m looking to see these reduced, rather than production/exports ramped up.

I further agree with your demand drivers being Japan and China, although I think USA will finally get its act together and be another significant source of demand. Our intellectual property capabilities to experiment with these elements should not be overlooked. The Asian countries still only have one world class university, and that’s in Tokyo. Research is done here for the most part, although that is obviously changing too.

I also agree with your thought that two more HREE producers will probably be enough in the next decade. That’s pretty much in line with my thinking. However, this is more strategic than anything else. The old strategic logic versus economic logic argument, although if the metallurgy comes back positive it makes sense from a strategic perspective as well. I simply am not aware of any other source with a demonstrated HREE profile like QUC. And demand can increase and likely will exponentially as more research are done on these elements.

In other words, would China or Japan be willing to throw $1B + at a mine that has a proven resource of $30-40B of REEs in the ground (at a minimum), with half of them the very valuable HREEs. I respectfully submit that answer is a resounding yes. Lynas and Molycorp don’t have such a resource at all. No HREEs. Another wildcard is Cliffs owns 10% of QUC and they have been making “strategic” purchases in the past year or so. I think they may view this as one more asset to put in the portfolio and now the whole project is going for a stinking $135M, completely laughable in my book.

I would agree that the race is not limited to AVL and QUC, but for pure in the ground value plays, QUC is at the top in my book (as well as for economic logic). I like AVL, GWG, RES, UCU, and TSM otherwise, as TSM may plug Europe’s hole “strategically”. It will get interesting in the near future, that’s for sure, and hopefully capital flows as well as strategic resources will be brought to bear to make sure that we not only have a stable supply, but that we will be able to benefit from the amazing technological potential of REEs possess and applications that we have not even realized yet.

QUC is not done exploring yet, but what they have already demonstrated is that they potentially have the biggest, world-class deposit of all REEs in the entire globe. That deserves a much bigger market cap than a mere $135M in my opinion and I am a bit surprised that the market has not yet responded. I guess we will see what happens when the results are back from Hazen, knock on wood on that point. If that comes back ok, then QUC will be very far ahead in the race to demonstrate the potential of its in situ value.

All the best.

20 Jack Lifton April 20, 2010 at 9:26 am

I note that the underwriters for the Molycorp IPO will be J.P. Morgan and Morgan-Stanley, as reported last Friday by Reuters. I did not see that announcement until this morning when I saw it on the Rare Metal Blog, http://www.raremetalblog.com, edited by the esteemed Dr. Gareth Hatch.

Note that this is the same underwriter that raised $450 million for Lynas last Fall after Lynas’ deal with China Nonferrous Mining fell through.

Clealry the Morgan mining finance group are true believers in the future of the rare earrh sector’s development. However everyone should take note that they seem to prefer projects that are very far along in development to those of startup juniors.

21 loquacite April 20, 2010 at 10:31 am

Let me offer some clues as to why QUC is so deeply discounted. As far as I can tell, it has the deepest discount of any public REE company with an estimated resource. About 6 cents of market cap per pound of resource.

i) Location. It’s in the middle of nowhere. Have you checked the map lately? With quality projects like Bear Lodge out there, in the middle of mining-friendly Wyoming, an investment banker may develop acute macular degeneration while squinting at his map of central Quebec/Labrador. Strange Lake is further north than Moscow.

ii) Team. The QUC team may be great at finding gold and copper mines, and they have acquired a nice resource with Strange Lake — though they certainly didn’t discover it; it was discovered decades ago; Mariano wrote about it in 83 — REE development and mining takes very specialized expertise, and QUC has made no effort to engage such experts.

iii) Grade. At 1%, it’s not the lowest grade of any resource out there. But when you compare it to Bear Lodge 4%, to name one example, once again, investment bankers will shift their attention elsewhere pretty quickly.

By the way, I wouldn’t agree that Wall Street is ignoring REE. Morgan lead the Lynas funding — way over in Australia — to the tune of $450 million; Goldman participated privately in Molycorp, though they have since dropped out. And now Morgan is the lead on the Molycorp IPO. How are they ignoring the sector? I’ll tell you what they are doing: they’re sticking to projects that are large enough to justify their fees. That’s what Wall Street and Bay Street banks do.

22 prescient11 April 20, 2010 at 10:49 am

Loquacite,

I grant you each point. However, the discount is ridiculous compared to the known resources, let alone the project’s potential.

They are building roads up that way and more will come. They’ve got 4-5 years to get the infrastructure up there.

They have crack geologists, I would suggest you read Mickey Fulp’s latest musing on Quest. As far as who discovered it first, who cares?

Grade is an issue, but that is solved by the actual value/critical mass of the deposit.

I am a shareholder in RES and believe in it big time, but RES is not the answer. And “mining friendly” Wyoming does not hold a candle to the friendliness of Quebec.

Imo, QUC has 30% more HREEs than AVL, does not have to underground mine, and does not have to worry about natives.

Thus, such a crazy discount to value in the ground is not warranted. At least that’s where I’ve staked my $.

23 Edmund Brooke April 20, 2010 at 11:11 am

‘Avalon probably won’t be in commercial production until 2014, according to a conversation I had with its CEO in Cape Town at Indaba in February of this year. ‘

Jack, did you get any intimation; from your chat; whether AVL had made any progress towards defining a viable metallurgical process for the recovery of REE mineralization from their Lake zone deposit at Thor Lake?

24 Anon April 20, 2010 at 12:20 pm

It’s interesting to see everyone bashing the Mt. Pass deposit on this blog, considering it is one of the largest and highest grade rare earth deposits on earth. It average grade of >8% is around double that of Bear Lodge (which is also a bastnasite, i.e. “light” rare earth deposit) and more than 5 times the grade of Thor Lake and Strange Lake, both of which are “heavy” rare earth deposits, but in reality still contain a significant majority of the lower value rare earths. For example, Thor Lake contains around ~52% Ce + La, ~84% Ce + La + Nd + Pr, and ~92% Ce + La + Nd + Pr +Y (which sells for less than Nd and Pr, but is still counted as a “heavy” rare earth). Strange Lake contains around ~41% Ce + La, ~54% Ce + La + Nd + Pr, and ~82% Ce + La + Nd + Pr +Y.

The light rare earths (primarily neodymium, praseodymium and lanthanum), by the way, are the only rare earth products that have a large enough market to ever support big new mines. The markets for the heavies are very small and any new big production (eg Strange Lake and Thor Lake) would have an immediate, significant negative impact on prices. Neodymium and praseodymium are the two primary components in the rare earth magnets that are necessary for the “green revolution” in hybrid cars, electric cars, wind turbines and just about any other product manufactured that requires light, high power electric motors or generators.

Combine this with the fact that Mountain Pass is an easily mineable open pit deposit sitting next to an interstate highway (approximately an hour from Henderson and Las Vegas), very close to a rail line with access to grid power and already has a developed site. This can be compared to Thor and Strange Lake which are remote, undeveloped northern sites without any infrastructure at all with Thor Lake a high cost underground mine (as far as I know, the mining method at Strange Lake has not been determined). Most other heavy rare earth deposits that are currently being pushed by junior mining companies (such as Bokan Ridge and Lemhi Pass) run into even larger problems with mining costs as they are very small dispersed deposits that would be extraordinarily expensive to mine (at least Thor Lake and Strange Lake have size as an advantage).

Of course the above points haven’t even started into the separation of the rare earth products, which is by far the most complicated and expensive part of producing rare earths. Mountain Pass has a well known, well established process to separate its rare earths from bastnasite which has been in use at Mt. Pass for decades and is well known to the company and its employees (everyone else has to hire all new employees while Molycorp carried over approximately 100 employees from the “old Molycorp” – in the S-1). The dominant rare earth minerals at Strange Lake and Thor Lake both do not have established separation processes which means those projects have years of testing and pilot work ahead of them before the processes can be optimized (if they end up working at all) and the cost of separations is as yet unknown. Avalon has only just had its first public release of the method of separation it intends to use and Quest is just getting started.

The reason that Mt. Pass was developed more than 50 years ago while none of these other projects were developed (even though none of them are even remotely new discoveries) is that it was (and still is for that matter) the most economically viable rare earth deposit out there. From someone that has been around mining their entire life, I can guarantee you that the mine with the biggest size, highest grades, cheapest mining and processing and best infrastructure is always going to be one of the lowest cost producers out there.

A few additional comments to correct some misstatements in earlier posts (all of this data is available in the S-1, which folks might want to read before making themselves look foolish by posting incorrect data):

The majority of executive management at Molycorp (including CEO, Chief Technology Officer and General Counsel) is intact from as far back as Molycorp’s days under Unocal (which purchased Molycorp in 1977 although management is from the 90’s and early 2000 era). The only member that did not come from the “old Molycorp” is the CFO.

Molycorp’s tailings do not overly any of its reserve (otherwise it would not be a reserve) and a 1,500 tpd mill (the size proposed in the S-1) costs around $30 million to build from scratch (not very much compared to an overall project capital required of $511 million – also in the S-1), the tailings in fact are a resource in themselves if you figure the historic mined grade at Molycorp is similar to its current average grade (around 8.25%) and historic mill recovery is similar to that reported in the S-1 (63%), then the average grade in Molycorp’s tailings would be around 3% TREO (not too far off from Bear Lodge’s resource grade).

Molycorp already has a permit for a 30 year mine plan and an approved Environmental Impact Report.

Molycorp will separate its rare earths into oxides onsite and has entered into a letter of intent to purchase an existing metal and alloy producer in the US for further processing – (i.e. its products are not being sent to China).

Molycorp does not have high concentrations of heavies, but they do have them and intend to produce them: “Upon completion of the modernization and expansion of the Mountain Pass facility and the full implementation of our “mine-to-magnets” strategy, we expect expect to produce cerium, lanthanum, neodymium, praseodymium, samarium, dysprosium and terbium oxide and metal products, europium and gadolinium oxide products and NdFeB and samarium cobalt alloys”.

25 prescient11 April 20, 2010 at 1:02 pm

Anon,

Great thoughts thanks. But you are sorely mistaken on your heavies, big time. They are the market of the future – price alone dictates it.

With regard to the LREEs, did you see in Moly’s filing that they think they will run out of Ce due to the new water filtration system they were advancing.

I also think you underestimate the permit process for Moly quite a bit. Moly is the leader here, but they have several drawbacks that you do not appear to discuss.

I am not bashing Moly, quite the contrary. I am simply pointing out that it is not the be all and end all of mines and even if they’re up and running smoothly by 2012 this problem is not going to go away. Imo, in North America you have two contenders for HREEs and that is QUC and AVL. I like QUC much more for the reasons stated above.

This is going to be critical, supply of HREEs going forward. Prices of all REEs are about to skyrocket and are now in the process of doing so. John Kaiser has released an excellent piece this morning which should detail for the world that these prices are headed in one direction.

26 loquacite April 20, 2010 at 1:07 pm

Fair enough, Anon.

I guess my biggest problem with Mountain Pass is that, although they do have the HREE, they will have to produce so much La and Ce in order to get the level of HREE that they need to be economic, that the world market will be swamped with La and Ce.

I guess I’m not too worried about Molycorp succeeding. But what I am worried about is what will become of everyone else if Molycorp does succeed. No other mine in the world could be economic if Mountain Pass is.

27 prescient11 April 20, 2010 at 1:29 pm

loquacite,

read Moly’s new filing. If their technology works, they will be short of Ce very soon. Exactly showing the upward demand curve potential for REEs both LREE and HREEs. At least that should help you ease your concerns somewhat, as that is my concern too on the LREE front.

And they do not have a lot of critical HREEs such as Terbium, that’s a fact.

28 Anon April 20, 2010 at 2:19 pm

My point on light rare earths versus heavy rare earths (when I talk about heavy rare earths, I only mean dysprosium, terbium and europium – the only three of the heavies with high values and established markets) is that although the heavy rare earths sell for a significant market premium, they are small, niche markets without any real room for significant money to be made and the real market for rare earths is in the light elements (primarily neodymium, praseodymium and lanthanum)

Any future producer that has aspirations to turn into a major company with a big market cap will need the earnings to justify that valuation. Mining companies like these that are already in production typically trade at a multiple of somewhere around 5 times their annual EBITDA. That means for a $1 billion market cap, the company will need to have $200 million in EBITDA per year. If you take a company that produces dysprosium ($100/lb), terbium ($500/lb) or europium ($450/lb) as it’s primary product and assume a 50% margin (this is pretty generous), those companies would need to produce 1,800 tonnes/yr of dysprosium, 360 tonnes/yr of terbium or 400 tonnes/yr of europium to justify a $1bn market cap. Contrast this with the current total global demand for dysprosium, terbium and europium; 1,500, 420 and 600 tonnes/year, respectively and I think you’ll see my point on what would happen to prices if anybody came into these markets with any sort of significant production.

This example of course does not take into account that any producer of one of the heavy rare earths will also produce significant amounts of all other rare earths, especially the light rare earths. However, it does demonstrate that although the value of the heavies is nice, and there is a looming shortage of them which will need to be filled, the reality of it is that a major mine cannot be justified on heavies alone. There may be one or two very small mines that can be supported on just heavies, but any big mine is going to have to derive most of its value from the light rare earths and in reality, the really big money in the sector is in more downstream products such as alloys and magnets (which require lots of neodymium and praseodymium).

29 loquacite April 20, 2010 at 4:11 pm

I’ll go one step further than that, anon.

There is certainly no consensus in the market place on which future mines will be successful, and which ones won’t.

But there is no question that the only successful mines in the world today are in China.

Why do those mines succeed? Three reasons:

i) REEs are mined as a small by-product of a much larger iron ore operation;

ii) The Chinese government heavily subsidizes every step of the value chain for REE; Governments can afford to do crazy un-business-like things, such as, purposely create economic losses on production, in order to satisfy other strategic objectives, such as, create a monopoly;

iii) The Chinese have an enormous competitive advantage by their astronomic lead in technical expertise in all steps in the value chain over any other country or operator in the world.

Is there is any REE project anywhere in the world that purports to engage in one or more of these strategies?

When there is, then we will have our first successful REE play.

30 reganbaha April 20, 2010 at 5:11 pm

loquacite,

Whilst not maybe to the same extent of Baotou and their IO production for your first strategy, but Arafura’s Nolan Bore project and the range of by-products will very heavily reduce the cost of production of their REEs.

I’m surprised ARU hasn’t been mentioned yet, since although it is behind Molycorp and Lynas, it is far ahead in the path to production than any of North America’s other offerings.

Regards.

31 Tek April 23, 2010 at 12:48 pm

And now that the Alaskan legislature has addressed Ucore’s Bokan deposit and subsequently endorsed a ramped up permit schedule, this deposit, with a partial metallurgy complete for Yttrium via conventional acid leeching at 98% + , (which MAY suggest similar recovery rates for other REEs), must also be considered a strong candidate for high quality ORE production. Furthermore, with no onsite processing, it could come into production very rapidly, to whatever customers are interested.

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