This pretty well sums up the pitch from Dave Forest in recent ads for Casey’s International Speculator ($1,995/yr, no refunds):
“I believe these three rare earth stocks are a “lock” to go up 60x over the next few months… turning $500 into $30,000… and $5,000 into $300,000.
“Demand is soaring…
“Supply is shrinking…
“President Trump needs this victory…
“The Pentagon is opening their checkbook…
“Not to mention, according to a study by Yale University, these elements are basically ‘irreplaceable.’
“Meaning, the odds are stacked in our favor to see massive profits.”
So yes, we’re seeing rare earths pitched again — though this time, the argument is not as much that they’ll be a pawn in the US-China trade war (though that’s always possible, of course, the trade war is still alive and well despite the fact that the governments might soon sign “Phase 1” of an agreement, which is really more of a “time out, let’s have a truce for a bit” deal), but that rare earths will be critical to 5G and will therefore be in high demand, driving up prices.
And, of course, there’s always the strategic imperative — ever since China effectively took over global rare earths processing 20 years ago by cutting prices and driving US and other producers out of the market, partially using those supplies as leverage to get high-tech manufacturers to move more of their higher-end work to China, US leaders have been worried about our reliance on an outside provider for these critical supermagnets and metals. Largely, at least on the surface, because of the fact that the high-tech US arsenal is really build on technologies that depend on rare earths.
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So that’s always the backdrop for rare earth metals pitches: China dominates the market, partly because they buy up all the suppliers they can and partly because processing rare earths is dirty and not all that profitable (especially if you have to compete with Chinese producers), so other companies and countries don’t really have a financial incentive to get into the business (which, naturally, is why all rare earth companies try to pitch themselves as “strategically important” and not so much as “high grade” or “low cost” like you’ll see in other mined commodity projects).
What, then is Dave Forest touting? Assuming you don’t want to pony up two grand to find out, without the hope of a refund (they’ll offer you a credit for some other Casey product if you don’t like International Speculator, but, like many publishers, they almost never let you get your money back for the higher-cost services), I thought we should figure out those names for you so you’re not throwing that kind of money after a daydream. If you feel like committing $1,995 after we tell you what the “secret” stocks are, well, I sure won’t stop you — it’s your money — just don’t ever spend that kind of nonrefundable money just to get into a “secret,” you’re likely to either be horribly disappointed or to overcompensate and bet big on those risky investments just to justify your expense (the brain does not like to admit it’s been fooled, and some of our biggest mistakes come when we fail to recognize we’ve made a small mistake, and throw more foolishness on the fire).
The ad starts with a theatrical “smash open this crate” moment as Forest reveals the “seeds of technology” elements, those 17 rare earth elements (like neodymium for super-magnets, europium for color displays, and lanthanum for optics)… and he emphasizes how valuable these commodities are:
“… there’s a reason they’re called RARE earth metals.
“Because they’re extremely difficult to extract from the earth.
“You have to shift through tons and tons of ore to produce a tiny amount.
“It’s a very expensive process.
“For instance, neodymium costs around $108,000 for a metric ton.
“While europium fetches $622,000 for a metric ton.
“Compare that to copper…
“Which costs around $5,700.
“Meaning europium is worth over 10,800% more.”
There are not many companies mining or processing these metals, and, yes, most of them are still inside China… but, of course, Forest sees a “super cycle” coming that will benefit some specific firms:
“I believe a handful of ‘made in America’ rare earth metals are going to enter a super cycle…
“And three little-known stocks will skyrocket, thanks to the 5G boom.
“Potentially turning every $500 into $30,000… and every $5000 into $300,000.”
That’s the basics, then, with the promise being that we’ll see another massive surge in rare earths pricing like we did about ten years ago, which presumably will bring another manic bubble in rare earths stocks… so what are the stocks?
Let’s check out our clues — here’s what Forest says about the first one:
“The first company I’m recommending is the #1 rare earths supplier outside of China.
“They own a true Tier 1 resource deposit with continuing exploration and development… estimated to ensure a 25-plus year reserve.
“Plus, they run one of the few integrated mining operations in the world. Meaning they can process and refine rare earth metals at their own facilities… completely outside of China.
“This alone gives them a massive competitive advantage.
“They are run by an accomplished leadership team that has held executive positions at British Petroleum, General Motors, Mt Isa Mines and BHP Billiton to name a few.
“And get this…
“At a May 2019 presentation, they announced an exciting market opportunity with a skilled U.S. based partner.
“Based on all my research, they are poised for tremendous growth… and their stock could shoot up 20x over the months to come.”
OK, so that’s an old friend — Lynas (LYC.AX, LYSCF), which has been teased a few times over the past year (and lots of times in the past) because it is, indeed, the one really meaningful producer that doesn’t have a connection to China. They mine rare earth oxides at Mt. Weld in Australia, and ship the ore to Malaysia to be processed at their refining plant. They’ve been through some ups and downs with their Malaysian hosts because of local fears of radioactive waste and threats that they might lose their license (most rare earths are found with uranium or other radioactive elements, and refining can be a dirty process).
I haven’t studies Lynas in the past few months, but they did surge early this year when some of their Malaysian disputes were settled, at least for now, and when the trade war started recirculating fears of a Chinese export ban. This is what I wrote in my “Quick Take” when Lynas was teased about a year ago by the Cabot folks (that ad still pops up now and again, I last posted our teaser solution in October):
“Lynas has been the only real survivor of the wild ups and downs of the rare earth minerals market, outside of China — production and refining is dominated by China, which uses it for strategic and political ends sometimes, so the pitch here is that China will throw its weight around again in this trade war and cause rare earths prices to skyrocket again, like they did in 2010 (the last time Lynas shares really soared). Lynas was a rare earths “story” stock a dozen years ago and has been producing for years now, but just barely got to profitability last year for the first time and has challenges with its Malaysian refining facility… but yes, if rare earths prices rise Lynas would be probably the safest clear beneficiary that has actual revenues and production and isn’t just a junior exploration story. If prices fall substantially again, they’ll have to rely on their “strategic” importance as the only real non-Chinese provider and hope customers want to pay up for that.”
The more recent news has been that the US Department of Defense is planning to actively fund construction of rare earths processing facilities in the US, to ensure that the military has the supplies its manufacturers need. That news really came in December, and the initial funding has not been made, but there are several groups applying for money to build pilot projects… and Lynas is among them, with its joint venture with Blue Line called Texas Mineral Resources Corp. Applications were due just a couple weeks ago for those projects, and I don’t know what the timeline will be or how much money we’re talking about (it’s all quite vague), but it stands to reason that whoever wins this military funding will get a lot of attention… and we know what attention does to stock prices.
Settling the trade war and a detente with China where everything goes back to “normal,” however, would be quite bad for rare earths companies. Nobody wants to pay up to build expensive mines and processing plants if China can produce the stuff cheaper or. Maybe the strategic dynamic has shifted permanently and large customers (like the military) will be willing to pay a big premium for domestic sourcing, but that’s been the dream for plenty of rare earths mining hopefuls in the past, too, and it hasn’t worked. Yet, at least.
How about the other two stocks?
“My next recommendation is a U.S. mineral resource company focusing on rare earth metals.
“According to the US Geological Survey, their main project site contains one of the largest rare earth deposits in North America…. this project has an estimated 45-year life span. So there is excellent potential for long term growth.
“Their leadership team boasts 86-years of combined experience in the mining industry… with individuals holding senior positions at Cameco, Rio Algom and Newmont in the past.”
And apparently they’ve got both a big mining project and some kind of proprietary technology….
“Beyond owning one the biggest rare earth deposits, this company is developing a proprietary technology to separate and produce Neodymium and Praseodymium.
“So far, the results have been impressive… with pilot testing producing a greater than 99.9% pure rare earth concentrate.”
So that’s Rare Element Resources (REEMF), which is a far more speculative name than Lynas (and far smaller, of course — Lynas is a billion-dollar company with real revenue, Rare Element Resources is an exploration-stage junior with a $50 million market cap). Rare Element Resources’ primary asset is the Bear Lodge Project, which has been basically on hold for three years after they suspended the permitting process in January 2016 to conserve capital… they have raised a little money since, most recently selling more shares to General Atomics/Synchron (which will now be a 49% shareholder, and is doing their metallurgical test work) for about $5 million in October. So unlike three months ago, they are not in a fiscal crisis right now.
There hasn’t been any real news from Bear Lodge, however, so it’s going to be a while — their past presentations have emphasized the fact that the government says they’ll speed up permitting for strategic projects, and that they believe their refining process will improve yields, but there haven’t been any movements toward firming up the timeline — we don’t know when they’ll go back into permitting, just that they were expecting to focus on Bear Lodge again once the processing technology was proven up (they’ve been talking up their proprietary technology for at least five years, but the latest test project was designed to run through the end of 2019… don’t know when any report or update might come out).
The last pre-feasibility study from 2014, if it still has any meaning, indicated that the project would have a net present value of about $300 million (at a 10% discount rate), and that it would also cost about $300 million to build and have potential resources for a 45-year mine life, so that provides some theoretical backing for the current $50 million market cap. They don’t have any of that money, of course, but who knows — maybe General Atomics will want to take over and try to get it built quickly for strategic reasons.
There won’t be any lanthanum coming out of northeastern Wyoming in the next year or two, but who knows, maybe if all goes well, in five years the mine will be underway and producing strategic ore. That’s not really the big question, though, there won’t be any fundamental “value” investors digging into these shares — the question is whether the stock market will experience a rare earth mania (again) and drive up the value of anyone with a rational-sounding project. I don’t know the answer to that, but it has happened before. And it has happened to REEMF specifically (though it was NYSE-listed back then) — this is what the chart for Rare Element Resources looks like over the past 11 years:
Though I should remind you, as well, that time is not the friend of the junior mining speculator — these companies churn through cash even when they aren’t doing anything, and if they get into active development the money really starts to get burned through. This adds the share count to that same chart… in general, the higher that orange number gets, the more challenging it becomes for that blue line to go up really fast again:
And one more…
“My third recommendation is a North American company that is becoming a major player in a number of critical metal projects.
“They are currently sitting on a rare earths project with a sizeable “land bank” of metal in the ground… including europium, terbium, dysprosium and yttrium.
“I really like the fact that the has company assembled a powerful leadership team with prolific mining experience.
“In fact, one of their directors was involved in Paladin Energy’s impressive 10-bagger uranium project.
“While other team members were involved in numerous success stories… including a resource firm that now commands a $1.5 billion market capitalization.
“Further, management recently inked a groundbreaking deal that increases the company’s land holding by 30 times.
“This will open up a number of new discovery opportunities across their multiple project holdings.”
That’s mostly pretty generic teasing that could sort of match a number of oft-cited rare earths stocks, including Avalon Advanced Materials (AVL.TO, AVLNF), which is gradually selling off its long-promised Thor Lake heavy rare earths project to an Australian company, or Ucore Rare Metals (UCU.V, UURAF), which is teaming up with Materion (MTRN) to try to get that same DoD pilot project funding…. but I think this is actually a bit more unusual of a name, it looks to me as though Forest is teasing Namibia Critical Metals (NMI.V, NMREF).
Why this one? Well, it used to be called Namibia Rare Earths… until it acquired Gecko Namibia’s portfolio of “critical metals” projects and shifted its focus to cobalt in February of 2018. Just before cobalt peaked (in June of that year) and started its long decline, decimating the stock prices of all the cobalt hopefuls.
And yes, that acquisition did bring on a bunch of projects, and it vastly increased their acreage by, yes, roughly 30X. Most of that isn’t rare earths-related, but who knows what they might find, given time and money. And their CEO was indeed involved with Paladin, he was operations manager of Paladin’s uranium mine during their glory days.
It’s a bit of a technicality to say that they’re a North American company, but it is true — their operations are in Namibia, but the headquarters is in Halifax, Nova Scotia. You can check out their investor presentation here if you’re curious… it’s not of particular interest to me, but, as with the others, if rare earths (or cobalt) go bonkers again, Namibia Critical Metals will probably join the party. At least for a while.
Just be careful, this one is even smaller — market cap below $20 million, and they’re actually spending money on drilling and exploration on the cobalt project and were down to about $450,000 in cash on the books way back in August, so I would assume they are currently just about out of cash… they probably won’t report again until the end of March (March 25 last year), but it’s hard to imagine they won’t be raising more money to keep the lights on and the drills turning at some point in the next few months.
And notice that name change — it took several years for Namibia Rare Earths to give up and diversify away from rare earth elements into the “hot” cobalt sector after the rare earths market fizzled in 2012, but they’re far from alone. You won’t find many rare earths elements explorers who haven’t at times had to shift their focus (and their name) to get attention or appeal to investors… so most rare earths stocks have spent some time as gold explorers, or uranium companies, or even lithium hopefuls. It’s a niche sector that encourages moonshot dreaming, thanks to past price spikes, but it’s not one where many solid or dependable companies have been built. Which is fine, but know what you’re getting in for — and if you’re fortunate enough to get those windfall returns in some future mania, don’t start buying Ferraris until after you’ve sold the shares.
And that’s about all I’ve got for you today… excited about some more rare earths mania coming to make us all 60X richer? Think that story’s overblown and we won’t see such a manic market again? Have a favorite among these or other rare earths names that you think is worth a gander? Let us know with a comment below.