Rare earths mania among investors has hit extraordinary new heights over the last eight months or so, and I’ve written about almost all of the rare earth miners of any size at one point or another during that time. Most recently, the promotion that caught a lot of attention from my readers was from Byron King, and I wrote about it for the Irregulars in one of their Friday File articles four weeks ago. Since the excitement has worn off a bit and the price has moderated with the passage of time from those initial heady days of enthusiastic promo mailings, I thought now would be a good time to republish my comments here on the free site in case some of you are curious.
What follows is an excerpt from the Friday File from January 21, it has been lightly edited but not updated, though the share price of the stock in question is back down to near where it was then and I don’t believe we’ve seen any substantial news from the company in the interim. For updated full disclosure, I continue to have no exposure to any stock mentioned below
Man oh man, I’ve been using completely the wrong strategy. Clearly, since last Summer when the rare earth element mining (or let’s be honest, “exploring for”) stocks started taking off like gangbusters whenever the Chinese flexed their muscles, the newsletter copywriters started wetting their pants in excitement.
And what I should have done was look around for all the rare earth companies that hadn’t gone crazy yet, and bought ’em all up — after all, it’s only a matter of time before one of the great newsletter punditocracy climbs on board that last “undiscovered” rare earths stock and sends it into the stratosphere by aggressively hyping it to the biggest mailing list he can find … right?
Well, that certainly would have worked last Fall — when we were all gaga over Greenland and the two rare earths dream companies there back in October, I also mentioned a few of the other rare earth stocks (OK, pretty much all of them that I could think of offhand). One of those with a high proportion of heavy rare earths (the most valuable variety right now) was Stans Energy, and whaddya know but it looks like Byron King, he with the massive Agora mailing lists to promote to, started hyping it yesterday in yet another video “presentation.” From the lows to the highs yesterday it was up about 30%, which seems to be par for the course in major league rare earth teaser-land. Heck, we’ve finally even seen Robert Hsu’s favorite rare earth company prosper since the Fall (that’s China Rare Earth Holdings, I wrote about them almost a year ago), and they’re really just a refiner, not even a super-sexy potential miner — though they do have the advantage of being in China, which still (and will for a long time) does almost all of the globe’s rare earths mining and refining. Of course, since they’re in China they can’t brag about being the strategic player that will break the China monopoly … but I think we all know that if it’s actual money you’re trying to make, it’s probably better to be a monopoly than to try to break one.
So … you’ve probably seen Byron King’s new teaser video, yes? Unfortunately, it’s one of those sneaky ones that doesn’t give you the handy-dandy text version when you try to exit … so plenty of time wasted, perhaps that makes folks more likely to subscribe if they’ve already committed 20 minutes of their life? I don’t know. But the pitch is all about “Stalin’s Atomic Secret” and how someone found rare earths in an old soviet uranium mine. Here’s the first part of the pitch:
“Stalin’s Atomic Secret: Massive Rare Earths Discovery at a Former Soviet Nuke Plant
“And in Just Days, ONE Penny Stock That Secured The Rights to This $13.8 Billion Discovery Is Set to Soar 8,577%…
“Here’s How You Could Turn A Tiny $25,000 Into $2,142,500…”
And believe it or not, King and his copywriters aren’t just content to throw around a spiel about recommissioning an old Soviet resource — no, they’ve got to go all out and tell the entire story of the arms race, starting with the Soviets testing their first nuclear bomb 60+ years ago.
So we get this long tale about the buildup of the Soviet nuclear facilities. And finally we’re told that ‘one of the most important plants” fell out of Russian control when the Soviet Union split up and this “strategic plant” fell into the new country of Kyrgyzstan … one of the only “fully built ‘rare earths’ refineries” in the world. And apparently it’s completely intact, and is right next to a big ol’ mine that’s still rich in rare earth metals.
And, you guessed it, the Kyrgz’s (or however you say that) have given the rights to the plant and the mine to … drum roll please … one tiny Canadian company. And yes, I know you were about to mention this but Byron King also notes that this is one of the most extraordinary opportunities he’s ever come across in his life as a natural resources expert.
Funny, we never get teased about ho-hum gold mines or oil discoveries or rare earth mines, do we? They’re all the most incredible story I’ve ever heard of.
There’s plenty more to the spiel, believe me, but since it’s a fairly easy one to answer I couldn’t bear to sit through the whole thing — I had it on in the background, all the yada yada yada about how rare earths are key to the “green energy future”, how they make modern miracles like the ipod and hybrid care possible, how you use them every day in your DVD player and cell phone and — I know, you’ve heard it before — all of the military’s super-advanced weapons depend on rare earths, particularly for cool stuff like precision guided missiles. And it’s true, certainly, that rare earth metals are vital to many industries, and highly strategic, particularly if China continues to flex its muscle with export controls or to cut production for environmental reasons. I’m just sick of hearing it, personally.
And yes, we get a few clues in the mix — market cap about $150 million, rights to a $14 billion cache, 20 million tons of “technology metals,” and a stock that King speculates has a “present value” of $30 per share. But it’s under $2 now! Woohoo!
OK, so it’s not under $2 anymore. This stock, which indeed must be Stans Energy (RUU in Canada, STZYF on the pink sheets), briefly got up to about $2.25 this morning, and it’s right at $2 now, but that’s all due to Byron King’s “endorsement” since this is, as you might expect, not one of the super-difficult teasers to sniff out on your own — I imagine he got quite a few subscribers yesterday, but probably even more folks who found the stock on their own and drove the shares straight up. There are, after all, not many old rare earth processing plants and mines in Kyrgyzstan … really, just the one as far as I can tell.
Stans Energy does have a 20 year deal with the Kyrgyzstanians to reopen this mine and processing plant (some of the plant has been decommissioned and sold off, but a large chunk of the refinery is still there and the equipment, though it looks like a mad scientists laboratory, is still available for them). They’re trying to work on a feasibility study now after having done some preliminary checks to see if the ore body matches up with the historical data from Soviet days, and they seem pleased so far. They’re also trying to figure out how to recommission the refinery and whether they can get it back up to speed and start producing their own rare earth metals and oxides once the mine gets reopened (there’s also a big stockpile of ore on site, so perhaps they don’t need to start mining first — though starting mining would probably be easier than recommissioning a mothballed rare earth refinery (that’s just my guess).
Stans also has access to some other nearby areas, including a potential Beryllium mine, and another potential rare earths ore body that’s right next to the Kutessay II mine that they hope to open first (that’s the past producing rare earth mine). And like all rare earth companies, they know that getting investors excited is half the battle at this point, so they’ve got a pretty good website with lots of detail — and to their credit they have little quotes scattered throughout to clarify that though they did one drill re-sample of the mine, they are otherwise talking about very old historical data and it shouldn’t be relied on for reserves estimates.
So that’s about all I know about Stans Energy — I don’t know what a feasible timeline is for their production, the timeline they provide on their website is very limited and basically just says that they’re working on the metallurgical process and the feasibility study now. For some reason they use the Australian JORC mineral estimate process rather than the Canadian NI 43-101 stuff even though they’re a Canada-listed company, but I don’t know if that means anything or not. Just last week they actually moved to buy the facility that they had optioned a year ago, so they do give a pretty good quick rundown on what they own in this recent press release. According to that the old metallurgical plant and infrastructure there (including the rail line) is worth $5.5 million — so most of the value that investors are seeing here is not in the plant, but in the mine.
There’s a pretty good interview with the CEO from last fall on Stans’ site, in which he says the “best case” would be production in late 2012, but that they are fully permitted to restart the mine so the challenge is largely financial at this point (so again, someone who was probably very happy to welcome Byron King and the attention of his investor-subscribers with open arms).
So that appears to be King’s new idea — as with pretty much all Rare Earths projects it’s almost impossible to value it based on anything rational, though they are far closer to potential production than many of the pie-in-the-sky projects (like both of the Greenland ones, which have absolutely no infrastructure and little data), and the fact that they have an established metallurgical process and most of a refining plant available to be refurbished could end up to be a really big help — after all, the Chinese have even more of a headlock on rare earth processing and refining than they do on rare earth mining. And who knows — if you’ve looked at a map you’ll note that Kyrgyzstan is right on the Chinese border, though it’s way off in the Western hinterlands where there isn’t much transportation infrastructure on the China side, so if China starts having to import rare earths for its industry, as some speculate could happen, Stans might be in a good spot for that.
I see a lot to like in the “story” of Stans Energy, particularly the “heavy” concentration of heavy rare earths (the only other rare earth project I hear about often that’s strong in “heavies” is Avalon in Canada, AVL), but that doesn’t mean I can tell you with any rational basis whether I think the shares should be worth 40 cents, $2, or $20 — at this point, the value is very likely to be driven by Byron King’s ad for a few days and by investor and media chatter for quite a while after that, so if it dries up the price will fall and if the push continues hard the price might rise.
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Indeed, even without the rise and fall of teaser ad campaigns and newsletter mania the prices for these stocks make huge moves both up and down. Just over the last few days we saw a lot of the rare earths stocks take a big haircut because China “pledged” to reconsider their export quotas and is back on the “good cop” side of the good cop/bad cop game they’ve played with rare earths for years, and also because Toyota basically announced that if they can’t have the toys they want, they’re going home (or, more clearly, that they’re trying to figure out how to cut their need for rare earths by finding new technologies or materials, particularly for their hybrid engines — sounds like a longer-term thing to me). So as with all things rare earths, don’t think about it too much or your head will hurt — but these stocks sure have looked like a fun ride for nimble traders (which I ain’t) over the past six months, and it looks like that’ll probably continue in this new year.
I do not, to be clear, own Stans Energy shares or any of the other rare earth miners at this moment, and will not trade in any stock mentioned for at least three days.