Stuart Roberts - Pitt Street ResearchWith rising demand and a dropping supply it appears rare earth companies are getting their time in the spotlight.

Star Investing asked Pitt Street Research’s Stuart Roberts why the rising demand is creating exciting investment opportunities.

He also tells us more about one rare earth opportunity that is in a rare position and why people should be taking a look at it.

 

 

Why is the demand for rare earth so strong at the moment?

Inevitably if you’re making a component for a product such as a battery or propeller for a wind turbine, it requires some kind of a rare earth element.

And the world is going to need a lot more in the future and there are relatively limited supplies or new supplies coming on.

Interestingly, the reason rare earths are called rare is not actually because they are rare in a physical sense.

They are rare as it’s difficult to extract the rare earth element from the deposits in which they are found.

And this difficulty makes them challenging to mine effectively, cost efficiently and productively – which is one of the causes of the limited supply.

Greenland Minerals (ASX:GGG) have the largest undeveloped rare earth deposit in the world. And what is special about this deposit is that it is much easier to extract the rare earths out from the deposit.

The reason for this is because the mineral that the rare earth sits in is a non-refractory mineral called Steenstrupine.

Usually there are a lot of other processes to split the rare earths out but Steenstrupine doesn’t pose this problem and the process to extract the rare earth out can be far more efficient.

What are the estimates on the size and worth of the GGG’s rare earth deposit?

GGG have a JORC resource of 1.01 billion tonnes graded at 1.1 percent rare earth oxides.

There have been a couple of feasibility studies. A study in April 2016 came back to say GGG could be producing USD376 million in annual free cash flow when the mine is up and running for that particular deposit.

It also announced a net present value of $1.59 billion and an internal rate of return of greater than 40 percent.

That’s a very valuable project given the current market capitalisation is less than $60 million.

How did GGG get hold of the rare earth deposit?

The deposit is also a uranium rich deposit and at the time they were looking for uranium.

The prospects vended it into an ASX listed company and subsequently the price of uranium has decreased but the rare earth potential has become much more attractive.

In the event of an uplift in the uranium price they are well positioned to take advantage of production in this area.

How are GGG looking to compete with China – the largest producer of rare earth elements?

GGG has a partnership with its largest shareholder Shenghe Resources.

Shenghe are well placed in the China rare earth space as the second largest player in China.

This partnership more or less plugs GGG into the downstream processing centre of the rare earth industry in China.

This partnership also gives GGG access to the valuable expertise that the Chinese have of how to process rare earths.

Note: Shenghe Resources is a multi-billion-dollar company listed on the Shanghai stock exchange -it is engaged in the mining, smelting and separation, and deep processing of rare earths

Why should people be looking at GGG now?

China is closing down some of the rare earth mines that are seen to be ‘dirty’ – in that they have more unrefined minerals in the deposit compared to others.So, the supply is being decreased, but the demand is quite high due to a number of 21st century industries that require rare earths – such as battery manufacturing.

GGG are completing permitting of the project at the moment. Once that completes, they can then go and build the definitive feasibility study (DFS) before seeking to get the project funded.

We believe they could get to the DFS this year. It’s more a paperwork exercise than anything else. And it is possible they could be producing in maybe two or three years after that.

As GGG and Shenghe discover more about the capability of the deposit they can lower the operational and capital expenditure of the project over time.

And if they play their cards right, they will come back with an attractive DFS to get the project funded.

Furthermore, GGG and Shenghe also have heads of agreement in place for an off-take agreement. This was announced late last year and is for a substantial amount.

Note: The off-take agreement is for 32,000 tonnes per annum of contained rare earth in chemical concentrate, or 34,000 tonnes per annum of contained rare earth in mineral concentrate.

 

Stuart Roberts is the co-founder of Pitt Street Research – a specialist provider of equity research, focused on companies that are publicly traded on the Australian Securities Exchange (ASX).
Stuart has covered stocks for stockbroking firms Southern Cross Equities, Bell Potter and Baillieu Holst and has also held senior positions within a number of ASX listed biotechnology companies.
You can read Pitt Street Research’s note on Greenfield Minerals at pittstreetresearch.com

 

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