Rare earth revival
Charlotte Mathews | Thursday, 3 May 2012
Ramp-up of the old Steenkampskraal rare earths mine near Vanrhynsdorp in the Western Cape took another step forward this month, when controlling shareholder Great Western Minerals Group (GWMG) successfully raised US$90m in a bond issue.
Ten years ago reviving the mine, the main asset of JSE-listed Rareco, seemed a pipe dream. Plans were repeatedly postponed due to a dispute among Rareco shareholders, followed by a collapse in the prices of rare earth minerals. The term refers to about 10 different elements used in aerospace and magnets.
What has changed is new ownership of the mine by an international corporation and a better outlook for the minerals.
Steenkampskraal will not be a huge mine but it will generate jobs in an extremely poor and barren part of SA. The project and the nearby Zandkopsdrift mine planned by Frontier Rare Earths will together make SA one of the world’s biggest producers of rare earths.
Prices for these minerals have been volatile. China, the biggest producer by far, has had significant market power for many years but this is weakening as its resources are depleting and deposits are developed elsewhere.
Despite the name, rare earths are not rare, but extraction requires a high degree of investment and technical skill. Only three non-Chinese producers — GWMG, Lynas Corp and Molycorp — will be producing next year, but by 2020 there should be about 14 operators, which will curb prices.
GWMG, with operations in SA, North America and the UK, is listed on Toronto’s Venture Capital exchange. The shares, at about C
,45, are about half of last year’s C$1 , when all rare earths companies’ share prices spiked on speculative buying because of fears of a shortage of the minerals.
Euro Pacific Canada analyst Nick Agostino, in a January note to clients on GWMG, said demand for rare earths is likely to continue growing at about 8% compounded a year to 2020. China will become a net importer of certain of them during this decade.
Some of the minerals will be in surplus and others in deficit by 2020. The key for investors, Agostino says, is to focus on low-cost producers with minimal capex requirements and a strong management team. They need to be surrounded by good infrastructure and have resolved radioactivity issues. The most desirable have deposits with neodymium and other minerals needed by the magnet industry.
GWMG meets all these criteria. It will use the funds it has raised to continue rehabilitating the mine and build mixed chloride and solvent extraction plants at the site. Ganzhou Qiandong of China has a 25% stake in the solvent extraction plant and is providing technical input.
GWMG has 74% of Steenkampskraal and has created a trust for the community to hold the other 26%. David Kennedy, the CEO of Rareco, says there is good support from the Matzikama municipality, and ongoing communication with local residents about the mine, including issues around radioactivity.
Local concern over radioactivity is creating problems for Lynas at the processing plant it is building in Kuantan, Malaysia.
Steenkampskraal is an old thorium mine built by Anglo American in the 1950s. Thorium is radioactive, but Rareco is cleaning up the site and storing the residual thorium underground, mixed with concrete, for which it has a licence from SA’s National Nuclear Regulator. Kennedy says GWMG has received expressions of interests for it and it could be recovered through acid digestion, if and when it is required.
“What we would be most delighted by would be a strong SA interest in using home-produced thorium for civilian power generation, if that is of interest in future,” he says.
Agostino recommends GWMG as a “strong buy” with a one-year price target of C$1,60/ share after the capital raising.
