What’s Oxford’s “Junk Metal” That Can Produce All the Energy You’ll Ever Need?

Looking at the teased company in Oxford Club's "How One Undervalued Company Will Fuel the New Nuclear Renaissance" pitch

By Travis Johnson, Stock Gumshoe, August 20, 2013

The Oxford Club is looking at the promise of a new material and technology again — last time around, a few weeks ago, it was genetic material and the power of RNAi to extend human life … this time, it’s thorium and the power of that material to make nuclear power generation safe and fuel a “new nuclear renaissance.”

We’ve heard the thorium pitch before — much of the time it was used to tease the nuclear fuel research and consulting company Lightbridge (LTBR), but that’s not the case this time around (LTBR is a teensy stock that designs nuclear fuel assemblies and consults with the nuclear power industry, they’re not profitable and will probably need financing soon). But this isn’t about the design of thorium reactors or fuel, this is a step down the product lifecycle to the actual thorium miners.

So which thorium mine is being touted by the Oxford Club? Let’s check out their clues and get you some answers:

“Just 15 miles from the Nevada border, on the edge of the desert, lays an open air pit filled with what could soon be the world’s most precious commodity…

“This mine – which once produced over 20 million pounds of valuable resources a year – was left to collect dust after competition from China drove it out of business in 2002.

“But little did the mine’s operators know that some 11 years later, one “junk metal” contained within its walls would prove to be the most powerful metal on Earth…

“I’m talking about a little-known metal that, according to the findings of former NASA engineer Kirk Sorensen, can generate 639,000 times more energy than oil… create 99% less waste than coal… and is four times more abundant than uranium.”

So yes, that “little-known metal” is thorium (they don’t keep that a secret in the ad, they just wait a few more interminable pages before revealing it). Here’s some more on how they sell the idea of thorium as a valuable asset:

“In the mid-1950s, the U.S. Geological Survey found that the mine contains massive deposits of an extremely powerful – yet little-known – element. One that’s been considered ‘junk metal’ for more than a hundred years.

“But that’s all about to change…

“Over the coming months, we believe the value of this metal could rocket as much as 700% or higher.

“Here’s why…

“You see, like uranium, it can be used as a nuclear fuel. Only it produces 10 times more energy… and generates 99.4% less waste.

“Even better, a study conducted by the University of Cambridge found that any waste it does produce can be re-used as fuel.

“This metal is also ‘non-fissile,’ which means it won’t react on its own… So you could literally stop and start a nuclear reaction with the flip of a switch.

“And here’s the real kicker…

“It has a boiling point of 4,790 degrees Celsius – almost 1,000 degrees higher than uranium. In other words: This element is essentially meltdown-proof.”

So that’s the argument for why you’d want to use thorium as your nuclear fuel instead of uranium — though it’s also been the argument for decades, so I’m not sure what catalyst might get us over the hump. Let’s see if they say anything about that …

“In August 2012, China announced it would spend $350 million to develop a state-of-the-art plant that runs exclusively on this resource.

“India has plans to develop dozens of these types of facilities over the next decade. The head of the Indian Atomic Energy Commission has even said the country’s “long-term objective goal” is to use this metal to become “energy-independent.”

“Norway recently teamed up with a well-known Japanese manufacturer to bring its first reactor online in Halden.

“And there are plenty more on the way. But they’re all going to require massive amounts of this obscure metal.

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“Which is why that desert mine could soon see a flurry of activity for the first time in over a decade.”

OK, so … some hope of actual reactors being built and tested that use thorium. That might help to create a market, though I can’t say that I know where thorium comes from these days — presumably it’s produced as a byproduct of some mines somewhere. If you start to research the mining of thorium ore right now, you mostly run into stories about how to farm thorium in … the virtual lands of World of Warcraft, a massive video game universe owned by Activision Blizzard (ATVI). So the video games are, again, out ahead of the real world on this one.

As I understand the story of thorium, it was one of two materials that were being considered in the 1940s and 1950s as a source of nuclear power. The other one, of course, was uranium — and the pat answer (maybe the right answer too, I don’t know) was that uranium was chosen for the US nuclear power program because it created the byproduct of plutonium that was needed for making nuclear warheads and thorium did not. That’s a huge benefit now, of course, with worries about proliferation and nuclear waste much more at the forefront than they were 50+ years ago. And Thorium’s claims of a safer and less meltdown-prone or accident-prone reaction is obviously appealing, particularly with memories of Fukushima (and even Chernobyl) still very strong (safety depends at least partly on the design of the reactor, I gather — thorium can be used in some forms in conventional nuclear reactors now, but the safest designs are apparently the molten salt reactors that many researchers are excited about).

That’s my non-scientist, quick and dirty explanation of why people like the idea of thorium reactors. There’s a good story here about a thorium prospector who’s hoping to revitalize the 1940s-era thorium mine in Idaho, and that also talks about the broad promise of thorium if you’re curious … or if you’ve got time, you could dig into pretty much anything from the Thorium Energy Alliance and you may well come out ready to drink the thorium kool-ade yourself. There’s also the Energy From Thorium site, which features a lot of commentary from researcher Kirk Sorensen, a very vocal proponent of the liquid-fluoride thorium reactor (LFTR).

But none of that gets us all that much closer to which stock the Oxford Club folks are pitching — so what is it?

The tease says that it’s …

“The only operational mine in the U.S. that could possibly turn out this incredible resource in mass quantities… positioned to become the top global supplier of this resource for the foreseeable future….

“They already have a fully operational mine with massive amounts of reserves – discovered decades ago – that could soon be processed and shipped to new plants all over the globe.

And some more specifics for us? (or as we like to call ’em, “clues?”)

“This company owns the exclusive rights to one of the world’s most significant deposits of this element – an area that covers an estimated 2 million square feet.

“So far this year, the company’s revenue has shot up more than 73% from the previous year. But when each new reactor comes online, it’s going to create an unprecedented frenzy of demand that is all but certain to drive that number even higher….

“For more than four decades, this company supplied a massive chunk of the world’s more unusual metals. In the 1960s, it was the No. 1 europium producer (the element that made color TV possible).

“And at its height, the company’s main facility in the Mojave Desert generated 40% of all global rare earths.

“But by 2002, the balance of power had shifted… competition from China forced the company to shut down its top-producing mine indefinitely.

“The facility collected dust for almost 10 years….”

But although it’s a rare earths mine, and thorium isn’t a rare earth metal, they’re also sitting on a bunch of thorium:

“According to the U.S. Geological Survey, its open-air pit mine contains “widespread occurrences” of thorium sources. The largest vein measures nearly a half-mile long and 700 feet across.”

According to what I’ve been browsing through online in sniffing around this topic, the primary source of thorium currently is rare earth mining (and, on the flip side, a fair amount of rare earths have been found as a result of mid-twentieth-century thorium exploration), and rare earth mining produces more thorium than is currently in demand for research and the other industrial uses (there’s some kind of welding that uses a bit of thorium, etc.). It’s a pretty abundant element in the earth’s crust, though the costs for extraction vary widely — there are thorium sands in India that are theoretically more expensive than the seams of thorium in Idaho to extract, for example.

But thorium is way, way more plentiful than uranium and less dangerous to mine and process, that’s for sure — there’s no real infrastructure to mine it and build up a supply chain as there is for uranium, so that would take a long time if indeed thorium is going to become a substantial fuel source globally, but there’s a lot of it around — with big deposits in the US, Australia and India and probably lots more yet to be found or proven (it’s on every continent, but it hasn’t been worthwhile to search for it in recent decades).

Here’s some more from the ad:

“So far this year, the company’s revenue has shot up more than 73% from the previous year. But that number is poised to explode once thorium reactors are switched on… this situation is eerily similar to when uranium took off in the 1970s. Only this time, the vast majority of profits will likely go to one underappreciated mining play.”

OK, so that’s enough of the pitch and tease — what’s the stock? The Mighty, Mighty Thinkolator can confirm that the Oxford Club is teasing … Molycorp (MCP)

Molycorp is a rare earths miner that has spent the past few years re-starting the Mountain Pass mine and processing facilities in California. The stock had a heckuva run in late 2010 and early 2011, as rare earth mania gripped that little corner of the stock market that’s dedicated to natural resources and all the companies that had any kind of potential project for producing rare earth metals, the stuff that enables much of high-tech life and that’s still almost monopolized by Chinese producers and refiners, doubled or tripled in price (or more). The stock got to $70 or so back then in the heady days of 2+ years ago, then stumbled downhill in a series of violent falls and quiet bounces to get to the current price, wavering right around $6 a share.

Unlike many of the rare earth stocks, most of which were and are junior explorers, Molycorp is a real company — they’ve still got a market cap of a billion dollars, and about that much in debt, and they bring in meaningful revenue. They’re not profitable, and only the most optimistic of analysts thinks they’ll be profitable by the end of next year, but they are just now hitting their stride with something near a commercial level of production and they are ramping up sales quite nicely. They disappointed in their last quarterly earnings update, in part because prices for rare earth oxides were softer than some hoped, but there are plenty of investors who believe the stock is getting appealing at these historically low prices given their continued ramp-up in production and the likely continuing demand for (and continuing Chinese hegemony over) rare earths for automobiles and all manner of electronics. There’s one semi-optimistic piece from a Motley Fool writer here if you’d like another perspective.

From a quick glance at their last quarter, it appears that they have roughly enough cash to finish the year if they complete their capital investments as scheduled and burn through roughly as much cash in the operation of the business as they did in the first half of the year. So they may well end up having to raise money at some point in the next several months, though they may well have options to do deals with strategic partners or customers if they want to avoid selling more stock at depressed levels, we’ll see.

Usually whenever I mention Molcyorp their preferred stock comes up, too, but do be careful with that one these days — we’ve only got two more dividend payments on that preferred stock to go before it matures and turns into two shares of Molycorp Common. That would be $11 in dividends, $5.50 in December and $5.50 at maturation on March 1, I presume, and then you lose the preferred and get two shares of common in its place. With MCP-PA (the preferred) at $22.60 as of the last close, that would mean you’re paying $11.60 for two shares of Molycorp in March — which is dang close to where the common is trading now (that would be $5.80 if you don’t have your calculator handy). So no one is bidding up the preferreds with hope that they’ll provide some leverage to the stock price anymore, or to get that “income,” it looks like they’re just arbitraging to see whether it’s worth getting that dividend — expect the stock to drop another $5+ when it goes ex-dividend for that December payment. And remember — it’s not really working out quite even right now unless you’re in a tax-deferred account, because you’ll owe income taxes on that preferred stock coupon payment. If you want leverage to MCP and think rare earths are going to the moon again, then there are also options trading on MCP, including January 2015 LEAPs, so you can go crazy if you feel like it and are confident that Molycorp is going to be a great investment at these levels. I said, “if you feel like it” — I think our local rock junkie Myron has talked up Molycorp some in the past and he might even still own it (I don’t know), but I have no idea where rare earths prices are going these days or when MCP will become profitable, so I’m just avoiding it entirely.

If you do decide to buy Molycorp, buy it because it’s a large rare earths producer that’s becoming established and might break through to positive cash flow at some point — not because it also produces thorium. Thorium has consistently been a negative for Molycorp, the difficulty of dealing with radioactive mine waste because of the thorium content was one contributor to the Mountain Pass mine being shut down in the first place (Chinese price dumping was arguably a larger contributor). I admit that I didn’t dig all that deeply, but I can find no evidence that Molycorp has ever considered trying to process and sell their thorium. Like most rare earths and uranium miners, they have considered thorium to be a cost — thorium production is not and won’t soon be a cash generator, it’s a radioactive waste problem for a miner.

Now, if that does change and thorium becomes a product with real demand, which is always possible, then I’m sure all of the uranium and rare earths producers who end up with substantial thorium byproduct would try to collect it and sell it. Whether that will begin to happen next year or in ten years or never, I have absolutely no idea.

That’s about all I can come up with to share about Molycorp and thorium — there are also some “pure play” thorium companies beyond Lightbridge (which isn’t really a thorium pure play, though it’s probably the public company that would benefit most from thorium nuclear fuel demand immediately), but as far as I know there aren’t any viable public thorium stocks, just lots of uranium and rare earth miners that either produce a little thorium for the limited current commercial uses or have to deal with thorium as a waste product. It seems quite unlikely that there will be real, sustainable demand for thorium fuel over the next several years — and when I say “several years” I’m thinking in my head “probably 10-15 years or more.” Most of the reactors that I’ve seen mentioned for thorium are either on the drawing board or are small-scale tests or research projects that won’t get to the point of proving that a thorium reactor design can become a commercial reality for at least five years, and no one really knows what thorium production capacity might be should any customers begin to get the itch to buy truckloads of the stuff. Things move slowly in the nuclear power industry, plants take a long time to build, and change is almost as frightening as leaving things the way they are, so if you have a handle on where all this thorium talk is taking us then you’re a step ahead of me — who knows, maybe I’m missing something big. If you’ve been following this stuff or have a thorium (or Molycorp, or rare earths) opinion, feel free to chime in with a comment below. Thanks!

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August 20, 2013 9:29 am

Molycorp has been over $75./shr. in 2011, it’s near it’s low now so Oxford must know something new for them to promote a stock that’s been declining for 2yrs.