Rare Earth Investing… Read The Fine Print!
There is a fundamental truth that some analysts, advisors and investors in the Rare Earths space don’t yet fully appreciate. Simple, tried and true methods for valuing resources in the ground won’t apply to many of the Rare Earth companies they favour. Although they might not fully appreciate the significance of it now, they sure will soon when they watch many of their favoured companies attempt the difficult transition to the next phase of their development. This phase entails setting out to master the extremely complex process of separating the individual REEs from their ore.
The simple fact of the matter is having Rare Earth Elements in a property is one thing, but having the capability, knowhow, facilities and expertise to separate them is altogether another. Companies that can do this will add significant value for their shareholders. But doing so is definitely not an easy or fast process. For example, it took 10 years for the Soviet scientists to crack the geological code to separate all 15 elements at the Kyrgyz Metallurgical Plant (KCMP) facilities that Stans Energy just purchased.
The significance of what Stans Energy has accomplished through their purchase of the Heavy Rare Earth processing facilities, equipment and rail terminal has been lost on many pundits in the market. Not only did Stans buy the HREE facilities and equipment for a fraction of the purchase price that other companies have budgeted to build their processing facilities for, but in this purchase Stans has acquired an extensive and extremely detailed records room of files that describes in meticulous detail the separation processes that are proven to work – for all 15 REEs. Stans will not only be able to rely on this blue print, but they also have the distinct advantage of having many of the people who operated and worked in their open pit mine and the processing facility still living in the communities nearby.
These detailed processing records were the result of the Soviet practice of having two assistants for each scientist who worked at the facilities. Stans has also secured a very solid relationship with the Leading Russian Chemical and Metallurgical Institute in Moscow (VNIIHT) who will assist the company in developing their enhanced metallurgical processes. This institute and the former workers in the plant know what they are doing and unlike many other companies in this space, they will not be starting from scratch. Stans Energy has “known and proven” hydro metallurgical processes for all 15 REEs whereas some other companies in this space could very well be looking through the Yellow Pages directories to try to figure it out. Stans has stated that they will be focusing their attention on the processing of the more valuable and scarcer Heavy Rare Earths.
Investors in the Rare Earth space cannot discount the significance of what Stans Energy’s management team has accomplished with their purchase of the HREE processing facilities. They would be well served to take a hard look at whether other REE companies they may be interested in have their own metallurgy figured out and whether they have the team of experts in place to make this happen.
Rob Mackay, President and CEO of Stans Energy recently stated “What most analysts in this space neglect to advise their investors to do is to ask what I consider to be the most important question when investing in HREE stocks. That question is . . . Does the company have an industrial scale Hydro metallurgical process that works? From my research so far, the answer for this is no!”
Mackay went on to say . . . “We have spent a lot of time over the past 6 months learning how difficult it is to separate HREE’s from a hard rock deposit. I remember back to one of my first conversations with one of our company’s advisors (Jim Allen) who spent most of his geological career in REE’s. Jim said that you can have 5% grades but unless you can separate them they are worthless. I also recently asked Jim Hedrick – a retired REE expert with the USGS who also is an advisor to Stans – to comment on separation of HREE’s in hard rock. He confirmed that without proven hydro metallurgy they are all just rocks.”
In an excerpt from a Dec 9th, 2010 paper written by Karl A. Gschneidener, Jr., from Ames Laboratory at the Iowa State University, entitled The Rare Earth Crisis – The Lack of an Intellectual Infrastructure, Mr. Gschniedener states that:
“. . . today there is a serious lack of technically trained personnel with the appropriate expertise and experience to bring the entire rare earth industry from mining to original equipment manufacturers (OEMs) up to full speed in the next five years.”
This topic was discussed in more detail in an October 2010 Kidela Capital Group Blog – Mining is the easy bit: Separating rare earth elements is where the complexity comes in. This blog was written a few months before Stans Energy announced their purchase of the HREE processing facilities.
Given the attention the Rare Earth space has garnered lately, this will no doubt prove to be a pivotal year in the HREE market and investors will need to be on the watch for terminology in company reports that state . . . “more metallurgical testing is required.”
Those five words are extremely important and should spur investors to investigate further. Having a significant grade and tonnage deposit of Rare Earths – and – also having the hydro metallurgy to actually extract the REEs in viable quantities are two completely different components of success. And investors shouldn’t let anyone – no matter who they are and how many subscribers they have – tell you otherwise.
