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This is the board for Quest Rare Minerals Ltd. listed on the Canadian TSX Venture Exchange as QRM.
AFTER LISING ON THE AMEX EXCHANGE, IF THE COMPANY USES THE SYMBOL QRM ON THE AMEX, THIS WILL BECOME THE US HOME BOARD FOR THE COMPANY!
QUEST RARE MINERALS Ltd. (IBOX UNDER CONSTRUCTION AND SUBJECT TO CORRECTION)
IHUB QRM BOARD EDITORIAL (OPINION) NOTE:
This company, Quest, is essentially about HEAVY rare earth element demand. If you do not fully appreciate this most profitable side of the rare earth play, please read the "Seeking Alpha" article posted at the bottom of this IBOX. Light rare earth demand will be met within about two to three years by the "seniors", Molycorp and Lynas, making the other light rare earth junior miners too late to the party when and if they come on-line in 4 or 5 years. But the big and unmet future demand will be for the most profitable rare earths: HEAVY rare earth elements (HREE). The senior mining companies will produce relatively little HREE. And National Security uses for HREE, among other commercial applications, make Quest a very serious HREE investment option out of the various potential "junior" miners.
For example, the Strange Lake prospect is estimated by the company to have a 20 year of cash flow of over $7.9 billion dollars and would cost just over $500 million to develop and operate over that period:
7
Do your own due diligence. You can start with the articles attached to the very bottom of this IBOX. Good luck!
"OBJECTIVE" INFORMATION FROM COMPANY WEBSITE:
Quest Rare Minerals Ltd. is a Canadian-based, exploration company focused on the identification and discovery of new world-class Rare Earth deposit opportunities. The Company is publicly-listed on the TSX Venture Exchange as “QRM” and is led by a highly-respected management and technical team with a proven mine-finding track record. Quest is currently advancing several high-potential rare earth projects in Canada’s premier rare earth exploration areas: the Strange Lake area of northeastern Québec, the Kenora area of northwestern Ontario and the Plaster Rock area of northwestern New Brunswick. Quest continues to pursue high-value project rare earth opportunities throughout North America.
The company trades in the United States on the Pinksheets under the symbol QSURF. Pinksheets.com rates the company as a "Current Information" company. www.otcmarkets.com/stock/QSURF/company-info
Corporate Essentials from corporate website:
Quest Rare Minerals Ltd. is incorporated under the laws of Canada. There is no individual who directly or indirectly beneficially holds a controlling interest in or who otherwise controls or directs Quest based on their shareholdings.
Quest Rare Minerals Ltd.
65 Queen Street West,
Suite 2010, P.O Box 68
Toronto, Ontario
M5H 2M5
Tel: (416) 916-0777
Toll Free: 1 (877) 916-0777
Fax: (416) 916-0779
Email: info@questrareminerals.com
Website: www.questrareminerals.com
Exchange & Symbol
TSX-V: QRM
Pinksheets: QSURF
Delayed TSX Quote: click here
Shares Issued and Outstanding (as of October 21, 2010)
Issued: 56.6 million
Fully Diluted: 67.1 million
Filings
More details regarding Quest Rare Minerals Ltd. can be found by reviewing the documents currently on file with: SEDAR [System for Electronic Document Analysis and Retrieval] here.
Ernst & Young audit reports for 2009 & 2010, dated 2-21-11:
www.questrareminerals.com/pdfs/QRM%20Financial%20Statements%202010.pdf
Reporting Jurisdiction
British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland & Labrador
CUSIP Number
#74837D105
Auditors
Ernst & Young LLP
Ernst & Young Tower
P.O. Box 251, 222 Bay Street
Toronto-Dominion Centre
Toronto, Ontario
M5K 1J7
Transfer Agent and Registrar
Computershare Investor Services Inc.
1800 McGill College Avenue, 7th Floor
Montréal, QC H3A 3K9
Legal Counsel
Heenan Blaikie LLP
200 Bay Street, South Tower, Suite 2600
Toronto, ON M5J 2J4
Newswire Service
Market Wire
8th Floor 48 Yonge Street
Toronto, Ontario
M5E 1G6
Investor Relations
Quest Rare Minerals Ltd.
Peter J. Cashin, P. Geo
President, CEO and Director
Tel: (416) 916-0777
Email: info@questrareminerals.com
Corporate Communications
RM Communications Inc.
275 Richmond Street West
Toronto, Ontario
M5V 1X1
Reports and Presentations:
New Orleans Investment Conference - October 25-31, 2010
Download PDF (4.2 MB)
Quest Corporate Presentation - October 8th, 2010
Download PDF (5.2 MB)
Quest Corporate Presentation - July 27th, 2010
Download PDF (8.19 MB)
Quest Corporate Presentation – AGM Presentation - April 20th, 2010
Download PDF (5.7megs)
Quest Strange Lake Presentation – April 20th, 2010
Download PDF (3.4megs)
Quest Misery Lake Presentation – April 20th, 2010
Download PDF (2.3megs)
Quest Corporate Presentation - REE Presentation March 3, 2010
Download PDF (4.7megs)
Quest 2009 Annual Report - Feb 27-10
Download PDF (6.4megs)
Quest Corporate Presentation - REE Presentation - Jan 17-10
Download PDF (6megs)
Management Team
Peter J. Cashin, President & CEO
Over 30 years of experience in all facets of the mines and minerals industry. Peter graduated from McGill University with a Masters of Science degree in 1985. Mr. Cashin has worked for Major and Junior mining exploration companies in Québec, Ontario, the Maritimes, the United States and overseas. Peter also worked for a period with the Ontario Ministry of Northern Development and Mines in the area of mineral resource promotion and marketing.
Robert L. Leclerc, Chairman of the Board
Robert L. Leclerc, Q.C., is a business and legal advisor and current Chairman of Minefinders Corporation Ltd. Bob holds a Bachelor of Arts degree (Honours) from the Université de Montreal and a Bachelor of Civil Law degree from McGill University. Mr. Leclerc was formerly Chairman and Chief Executive Officer of Echo Bay Mines Ltd., and prior thereto was its Chairman. Before joining Echo Bay, Mr. Leclerc practiced law in Montréal (from 1968 to 1978) and in Edmonton (from 1978 to 1996).
Mackenzie I. Watson, Honorary Chairman
Mackenzie I. Watson has over 45 years of exploration experience and has been involved in the discovery of numerous mineral deposits throughout in Canada. He was awarded Canada's Prospector of the Year Award in 1991 and 2009 and the Québec Prospector of the Year Award in 1992 for his participation in the discovery of numerous mineral deposits. His discoveries include the Icon Sullivan copper mine, the Ellison gold deposit, the Hébercourt copper deposit and the Pusticamica and Verneuil gold deposits in Québec. His team also discovered the Harker Holloway gold mine and recently, the Black Thor chromite deposit in Ontario.
Ronald Kay, B Eng (Geo), M.B.A. - Chief Financial Officer and Director
Ronald Kay is a metallurgical engineer with 40 years experience in the financial industry. Mr. Kay holds an MBA degree from McGill University. Mr. Kay’s positions in the industry include senior mining analyst as well as consultant to several major brokerage companies. He is the author of major reports on the uranium industry. Mr. Kay was the president of the general partner of six limited partnerships that raised more than $50 million for mining companies, including Aur Resources Inc., and the chairman of a general partner of a limited partnership that raised approximately $5 million for exploration and development for oil and gas companies. Mr. Kay is an officer and director of Freewest and a director of Murgor Resources Inc.
Neil Wiener, B.C.L., LL.B. - Corporate Secretary and Director
Neil Wiener is a partner in the Montréal office of Heenan Blaikie LLP, where he has practiced since 1981. He was called to the Québec Bar in 1981 after obtaining his B.C.L. and LL.B. degrees from McGill University in 1980. He was called to the Ontario Bar in 1989. Mr. Wiener practices exclusively in the area of securities law, with emphasis on public financings. He has been involved in numerous public offerings, for both issuers and underwriters. Mr. Wiener has also been involved in private placements, take-over bids, going-private transactions, stock exchange listings and a broad range of other securities matters. Mr. Wiener was a lecturer in Business Law at McGill University from 1989 to 2000 and speaks frequently at conferences relating to corporate finance and securities matters.
Daniel B. Larkin, P. Geo. - Director
Daniel Larkin holds a B.Sc. degree in geology from the University of Ottawa and an MBA degree from the Schulich School of Business of York University, Toronto. From 1970 to 1992, Mr. Larkin worked for Imperial Oil Ltd. in mineral exploration, and as a manager, oil sands economist and researcher, government affairs manager, and a senior executive in minerals. In 1993, Mr. Larkin joined the National Research Council of Canada, where until 2002 he identified technologies ready for commercialization in the resources industries, and assisted in their spin-out. He is the founder and a director of PharmaGap Inc., a biotech company listed on the TSX Venture Exchange which is developing new cancer compounds.
Mr. Larkin is a past president of the Geological Society of the Canadian Institute of Mining, and of the Calgary Mineral Exploration Group. He is a member of numerous geological and mining organizations, a “Qualified Person” as defined by NI 43-101, and a Certified Professional Geologist of the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA). Mr. Larkin has participated in creating several capital pool companies listed on the TSX Venture Exchange, including two as President.
Michael Pesner, BCA, BA - Director
Michael Pesner has been President of Hermitage Canada Finance Inc. since 2002, a firm specializing in financial advisory services. He was previously a senior partner in financial advisory services at KPMG LLP, Chartered Accountants, in Montreal, specializing in corporate finance, mergers and acquisitions, divestitures, restructuring and corporate recovery in Canada. Mr. Pesner holds a Bachelor of Commerce degree in Finance and Administration from McGill University as well as a Bachelor of Arts degree from Sir George Williams University. Mr. Pesner is also a Chartered Accountant, a licensed Trustee in Bankruptcy and a Certified Insolvency and Restructuring Professional. Mr. Pesner is a director of Prestige Telecom Inc., a company listed on the TSX Venture Exchange, Bitumen Capital Inc., a capital pool company listed on the TSX Venture Exchange, and San Anton Capital Inc., a capital pool company.
Mark Schneiderman - Treasurer
Mr. Schneiderman is a Chartered Accountant and a Certified Fraud Examiner. He has over 26 years of financial administration experience including partnership in an accounting practice and senior audit position at Via Rail Canada Inc. He has been with the Group of Companies since 1996.
Jeff Phillips - Member of Management Advisory Board
Mr. Phillips is currently President of Global Market Development in San Diego, California. Mr. Phillips brings extensive experience in the areas of finance, business development, and corporate communications for publicly traded companies. His past natural resource clients have included: Metallica Resources, Ultra Petroleum, Silver Standard Resources, Strathmore Uranium, Penaco Energy, Guyana Goldfields, and Boron Chemicals. Mr. Phillips currently sits on the advisory boards for Animas Resources and Rare Element Resources.
Dr. Steve Zajac, M. Sc., P. Geo. - Member of Management Advisory Board
Dr. Zajac has had an illustrious 45-year career in the Canadian and International mineral industry which included the discovery and subsequent evaluation of the Strange Lake REE deposit when he was the Chief Geologist of the Iron Ore Company of Canada (IOC). Dr. Zajac obtained his BA and MSc degree from the University of British Columbia and a PhD from the University of Michigan. Steve has worked in progressively ascending roles while with IOC, Hanna Mining and its affiliates and currently has an active international mining consultancy. He is a member of the Society of Economic Geologists.
Amy McQuade - Member of Management Advisory Board
Mrs. McQuade is Vice President of Global Market Development (GMD) in San Diego, California. Prior to joining GMD, Amy was Vice President of Business Development for the Western U.S. and Asia for the American Stock Exchange (AMEX) for twelve years. She worked with IPO's, reverse mergers, and transfers from other exchanges. Prior to joining the Amex, she spent seven years at Lehman Brothers in Fixed Income Trading and Global Asset Management. She graduated from Lafayette College with a degree in Finance and pursued graduate studies at Columbia University.
EXPLORATION TEAM
Pierre Guay, B. Eng (Geo) - Manager of Exploration
Mr. Guay is a geologist with 22 years experience in mine development and production. He was previously an Area Geologist with Vale Inco Exploration and has worked for Vale (formerly Inco Limited) for the past 19 years. Pierre received his Bachelor of Geological Engineering from the University of Quebec at Chicoutimi in 1987 and has had a broad-ranging international mineral exploration career. He is a member of the Prospectors and Developers Association of Canada and the Ontario Prospector Association.
Patrick Collins, M. Sc. - Senior Project Geologist
Mr. Collins is a geologist with four years experience in mine exploration and development. He was previously a geologist with Vale Inco Exploration and with Crosshair Exploration and Mining. Patrick received his Honours Bachelor of Science from Dalhousie University in 2003, and his Master of Science from Memorial University in St. John’s Newfoundland and Labrador in 2006. He is a member of the Prospectors and Developers Association of Canada.
Rare Earth Element Primer: theinvestar.com/articles/2011_01_12.htm
"Seeking Alpha" Article Published 01/03/11:
"After Molycorp (MCP) and Lynas (LYSCF.PK) go into production in the next two years as the only major rare earth miners outside of China, there remains a slew of junior rare earth mining stocks with projects in the pipeline. Many of these junior miners have seen price appreciation far greater than that seen by Molycorp and Lynas in the second half of 2010.
When we look at junior mining companies, a major milestone is the 43-101 filing in Canada or the equivalent filing in Australia. The 43-101 filing is a Canadian filing where the firms present the data on the deposit in question and other data establishing whether a resource qualifies as indicated, inferred, and also comment on the economics of the deposit. Mining projects need this filing in order to move forward in the development process to scoping studies, pre-feasibility, feasibility, permitting, etc. We are not geologists so we will not pretend to be experts, but we have figured out that any deposit that is anywhere but at the beginning of the mine development process (a process that takes 10 years usually) has a 43-101 filing.
The following junior rare earth mining companies have a 43-101 compliant deposit (not including Molycorp and Lynas as they are already on path to production in next two years so they are not considered junior miners by us):
By now with the media attention in last three months, we will spare you an explanation of the great economics of rare earth miners over the next five years due to the growing demand and the restricted supply resulting in a massive deficit that needs to be fulfilled. We also won’t go into the fact that 97% of current development comes from China. We know at this point that barring a major event Molycorp and Lynas will be going into production in the next two years as the only two non-Chinese producers.
We believe in the rare earth fundamental story and profited handsomely off it in 2010. We think further upside remains and the eventual outcome will be a panic bubble that will offer outstanding returns. But as we pointed out in our article about the general commodities bubble on Seeking Alpha, the mania of the bubble will bring more supply online and that will pop the bubble. So with those thoughts in mind, there are three questions we must ask when going and looking at which rare earth companies to invest in besides Molycorp and Lynas.
1) When will the mine be in production?
2) What will be the cost of production?
3) What is the metallurgy of the deposit?
We have done an analysis of the rare earth junior mining sector based on these three questions. We gave value to companies further along in the development process on the basis that they will be able to profit from the positive economics over the next five years and will not be as susceptible when a supply glut occurs. Companies also were given value for low cost production as once supply catches up with demand the low cost producers will be the ones that survive the bubble burst. Regarding the third question, miners with a high percentage of heavy rare earths (HREE’s) were given value since HREE’s are not heavily concentrated in the Molycorp or Lynas mines coming into production in the next two years.
With respect to the first question of production date, we eliminated the majority of projects that are not at the midway point or at least close to the midway point in the mine development process. Based on the production coming online schedule starting in 2013, we think that any deposit that arrives post-2016 is going to be either late to the party or will only reach production after being bought out by a current producer.
That eliminated some miners such as Tasman Metals which has the only 43-101 compliant rare earth deposit in Europe. But with the development of Lynas and Molycorp in nations friendly to European interests we do not buy the “European supply security” argument as anything more than a trade on a takeover possibility.
We also excluded companies with geopolitical risk such as Stan Energy which has a mine in Kyrgyzstan. A major part of the rare earth thesis is the reconstruction of a western world supply chain. We have also eliminated the two junior miners in South Africa (Great Western and Frontier) due to the higher political risk associated with South Africa.
We also eliminated Greenland Minerals because its deposit contains a substantial amount of uranium and the government of Greenland currently has a zero tolerance policy toward mining assets involving uranium. While the deposit is very compelling, there are many junior uranium mining companies in Australia that couldn’t outlast the bans on uranium mining in that country. We also are not inclined to wait for politicians.
We eliminated Alkane Resources because based on its corporate presentation the project is minimal in rare earths with expected production of less than 5,000 tons per annum with other mineral products the primary focus of the project. We also noted that while the deposit is not classified as radioactive there is enough uranium in the deposit that Alkane put a note in its presentation that the New South Wales province in Australia bans uranium mining.
That leaves us with the following junior mining companies as remaining investment candidates: Arafura Resources, Avalon Rare Metals, Quest Rare Minerals, Rare Element Resources, and Matamec Explorations.
The production schedule profile is as follows:
From the outset we can divide these five companies into two groups: The light rare earth element producers (Arafura and Rare Element) and the heavy rare earth producers (Avalon, Quest, Matamec). Based on the drill results highlighted in the Matamec corporate presentation on its Kipawa deposit, we removed them from our list of potential investments because the drill results indicate concentrations inferior to those at Avalon and Quest. Combined with being earlier on in the development process, it makes Matamec an unlikely winner.
First of all we need to consider the light rare earth element companies in terms of the economics, cost of production, and time of production. In a recent corporate presentation, Lynas forecasted that in 2014 demand for rare earths would exceed supply by 20,000 tons which did not include any production from the Nolans deposit owned by Arafura. The annual production from Arafura would fill that supply gap.
We also would like to note as a sidebar that all the data we have seen in the corporate presentations of these companies talk about the positive economics through 2014, but most of them do not have production set to come online prior to 2014 so it’s not relevant to their deposits.
The one potential issue we see with Arafura is that Molycorp has adjusted its CAPEX budget on the Mountain Pass mine so that they can double production if they so desire. If Molycorp doubles production, it would fill that supply gap at a lower cost of production than Arafura. Molycorp can produce Rare Earth Oxides at a cost of $1.27/lb. which is a low cost for the entire world including China due to improved technologies that have been tested.
For this reason we see risk in Arafura, however we do note that the Chinese have a substantial stake in Arafura which we think means that it has been earmarked as a potential outside source for rare earths once Chinese demand outpaces Chinese supply. But we are not about to suggest a company on that premise alone.
In this context, we do not see Rare Element Resources as a good investment. Between Arafura being further along in the development process plus Molycorp having the potential to double production, we do not see necessarily the supply deficit for Rare Element Resources to fill when Bear Lodge comes online in 2015 (if there are no delays).
We do think that it is a likely takeover target for Molycorp in four or five years. Molycorp is not just developing a mine, but they are developing products from their rare earth oxides. They are building a rare earth product supply chain vertically “mine to magnets." Once Mountain Pass is exhausted after 30 years (or 15 years if they double production rates as we expect them to do), Molycorp will need a second mine and the logical light rare earth successor to Mountain Pass in the United States is Bear Lodge. But it is quite likely that Bear Lodge will sit doormat for a long time before Molycorp swoops in to take it over. We do not think at this time and at these valuations that Rare Element is compelling when we consider the likelihood of a 2015 production start date to be very minimal due to regulation hurdles, environmental permitting and our respect of Murphy’s Law.
We are being very conservative in our rare earth global demand growth projections post-2014. We are basing our assumptions for the supply/demand dynamics on the very positive forecasts we have seen from sell side analysts, newsletters and the companies themselves. However, since these are high risk investments and since these are development stage companies, we are not about to add further risk by assuming that demand will grow above and beyond expectations.
We have seen one corporate presentation from a junior miner where they projected a surplus of light rare earth oxides such as cerium in 2014 while there is a deficit in heavy rare earths. With Molycorp’s ability to double production at the lowest cost of production worldwide, we are inclined to stay on the sidelines going into 2011 with respect to light rare earth junior miners such as Arafura and Rare Element Resources.
Global demand will be 180-200 thousand tons of rare earths depending on the forecast you read for 2014. It is a 10% spread, but on the margin it is the equivalent of one new mine in annual production based on some of the projections we have seen from junior miners in terms of annual production. If we take the optimistic 200,000 tons of Rare Earth Oxides for 2014, and assume a 5% growth rate going forward, then we can accommodate Molycorp doubling production and Arafura’s production. We cannot however accommodate Rare Element’s production without going into surplus because of the heavy rare earth mines scheduled to go into production in 2015.
Avalon Rare Metal’s Nechalacho deposit is scheduled to go into production in 2015 currently. It is - according to the company - the second largest rare earth deposit in the world, and the most advanced heavy rare earth deposit. As a producer of heavy rare earth oxides, it will have first mover advantage in the specific rare earths where the metallurgy of Mountain Pass and Mt. Weld are deficient. The one drawback on the deposit is that it is not capable of being mined via the cheap open pit method, so it will not be the low cost producer once Quest’s Strange Lake deposit goes into production (Open pit mining is a third the cost of underground).
Quest Rare Mineral’s Strange Lake deposit is projected to go into production in 2016 with an open pit style mine. The heavy rare earth concentrations in the deposit are superior to Avalon’s deposit according to the companies' corporate presentation.
With the heavy rare earth oxide component of the deposits, we have come to the conclusion that Quest Rare Minerals and Avalon Rare Metals are two junior miners that are good speculative high risk investments as a way to invest in the rare earth space at this time, in addition to positions in Molycorp and Lynas. Because of the low cost production status of Molycorp in addition to its efforts in building a vertical rare earth production chain, we are more bullish on Molycorp than Lynas.
Obviously in this analysis we have set aside many junior mining stocks for different reasons that could very well go into production and change the forecast entirely. The Greenland Minerals deposit for example has projected annual production of 40,000 tons, which would account for 20% of 2014 global demand and combined with Molycorp and Lynas production would remove any supply deficit. At the same time, not all these junior mining companies will be successful in bringing their deposits all the way to production.
With this in mind, we have come to the conclusion that the best risk/reward lies in the junior heavy rare earth miners and the first two to production are Avalon and Quest based on current development schedules. Both of their deposits also have substantial light rare earth components, but the primary value is in the heavy rare earths. But in addition to filling a supply deficit in the heavy rare earth space, they will be adding supply to a light rare earth market that we believe will go into a surplus state in the middle of this decade and keep other junior miners out of production.
We also think that Avalon and Quest are attractive takeover targets for Molycorp later this decade as they approach producer status. The heavy rare earth metallurgy would fill a gap in the Molycorp portfolio since heavy rare earths there are only 18,000 tons of heavy rare earths in the Mountain Pass deposit, according to the Avalon corporate presentation.
A major part of our long term view on the rare earth industry is that Molycorp as first mover, low cost producer, and developer of the “value added chain” in North America (see joint venture with Hitashi) will become the major rare earth company in the similar vein that Freeport McMoRan (FCX) is the major copper company or Barrick Gold (ABX) and Goldcorp (GG) are the gold mining majors.
Molycorp will look for additional mines post-Mountain Pass to feed its new domestic rare earth product production chain. If they double production as we expect they will from their projected 20,000 tons per annum, then the mine life by simple arithmetic reduces to 15 years. Fifteen years from 2012, suggests to us that the need to make a light rare earth deposit acquisition will not be a priority until the later part of this decade when the logical target will be Rare Element Resources’ Bear Lodge deposit in Wyoming.
The heavy rare earth acquisitions we could see occurring on a shorter time frame sometime in 2013 or 2014. With the proceeds from its August 2009 IPO plus the $100 million in common stock bought by Sumitomo, Molycorp has financed bringing Mountain Pass back into production primarily through equity so they can look at an acquisition very soon after production, in our opinion. Because we are not geologists, we would suggest buying both Quest and Avalon as we are not sure which one will be the target.
We would look to take the capital in your portfolio allocated to rare earths and divide it up as follows: Molycorp 35%, Lynas 30%, Avalon Rare Metals 15%, Quest Rare Minerals 20%. We think this offers a good balance of near term production with awesome economics, diversification in the event of an incident, and leverage to promising future producers.
With respect to entry points, we think Quest and Avalon are buys at current levels. As junior names they will be volatile and we think that trying to time them is not a good exercise as we are looking for one of these names to be one of our 10 bagger names. With respect to Lynas, we think current levels present a buying opportunity.
Molycorp has become very frothy this past week and our entry points would be in the areas of the Fibonacci retracement levels $41.26 and $37.97, which represent the 50% and 61.8% retracements of the move in Molycorp so far this month or in the event a new 52-week high. But despite last Tuesday being the one of the lowest market volume days of the year, Molycorp had its biggest volume day ever and had an intra-day reversal of over 15%. A similar day market the end to the last major move up in Molycorp, so we would anticipate additional weakness in Molycorp going into January.
It sounds a bit hypocritical to say this about the company ... we think it will be the big winner in the rare earth production race. But the reason is very simple. JP Morgan has a 2013 earnings estimate of $5.23, so Molycorp at the peak of its December rally was trading at greater than 10x its earnings power in 3 years. Part of the major move in Molycorp was due to the fact that there is a very limited supply of rare earth mining shares available to U.S. investors since many are not willing to buy Canadian listed names via the over the counter market.
With the listing of Rare Element Resources and Avalon on the AMEX this year and the bumps both companies got as a result, we expect more rare earth juniors will apply for listing on AMEX. The next obvious candidate for this transition is Quest Rare Minerals after completing a feasibility study, which should occur mid-2011.
One final note we would consider on the rare earth space is that for the shareholders that took Molycorp public, their lock up period that prevents them from selling shares ends in January. We think it is certainly a possibility that we see those shareholders sell a major portion of their shares in an overnight deal since they are pre-dominantly private equity funds. We read from second hand sources, but have not verified, that the cost basis for some of Molycorp’s existing shareholders is below $10/share, which sets up those private equity fund managers for a very attractive carry once the investment is fully realized. So with those incentives to consider, we think a share sale from Molycorp is possible in the January or February period if it is trading around $50/share.
Despite that bearish near term view on Molycorp, we expect rare earths to be a big winner again in 2011 and reiterate our view that they should be a part of readers’ portfolios.
Also see:
Good luck with your own research and due diligence on this up and coming heavy rare earth element company. QSURF retained Ernst & Young CPA's in December 2010 with the intention of preparing the company for uplisting the QSURD stock from Pinksheets to a higher stock exchange in the United States:
"The appointment of Ernst & Young LLP as our auditors reflects Quest's continued growth and will facilitate any future filings of our financial statements in the United States" said Peter J. Cashin, Quest's President & Chief Executive Officer. "We express our appreciation to Bratt Fremeth Star, who will continue to work with us and our new auditors on specific matters."
