Alex Koyfman: “Hidden away in the coldest regions of the North Atlantic, about 700 miles northeast of Newfoundland, lies a desolate, forbidding tundra.
“It’s more than three times the size of Texas, and yet only 56,000 people dare to live there — giving it the lowest population density of any nation.
“From the surface, this wide expanse of desolation doesn’t look like much.
“It certainly doesn’t look like the most strategically important piece of real estate on the planet.
“But that’s exactly what it is.
“You see, locked within a 278-square-mile section on the southern tip of the giant Arctic island known as Greenland is a unique group of minerals, concentrated unlike any other deposit on earth.”
Exciting, right? Ever since the natural resources markets collapsed with falling commodity prices we’ve seen a shortage of these kinds of “desolate terrain/Indiana Jones” teasers — and I admit that I kinda miss ’em.
So it’s nice to see that someone is again teasing us about a secret gift on the remote island of Greenland (which is now a semi-autonomous country, though low oil prices are keeping them tied pretty closely to their former colonial owner, Denmark), and one that’s going to make us stinkin’ rich. We don’t even have to jump on the roof of a speeding truck or snowshoe across the harsh and forbidding frozen mountains… what could go wrong, right?
The pitch is from Alex Koyfman for Penny Stock Millionaire, which will run you about $499/year if you’re inclined to subscribe (don’t do it just to learn the name of this company — I’ll tell you that in a moment, free) — he’s previously teased us about some biotech stocks for this letter, but today we’re looking at rare earth minerals — which were kinda like the story-driven “junior biotech” stocks of four or five years ago, when it seemed like any stock that could get pitched as an “end China’s rare earth metals monopoly” opportunity doubled or tripled.
And yes, there are a couple deposits of rare earths in Greenland (some are found alongside uranium, too, which has presented a challenge in the past), and those companies have been teased from time to time during the on-again, off-again periods of rare earth mania … so which one is being teased by Koyfman today?
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Well, the basic pitch, as with most mining companies, is that the discrete land position they own is incredibly valuable because of what it might produce someday… here’s some more from the ad:
“They’re called Rare Earth Elements, or REEs for short. And this prized piece of land contains more than $273 billion worth.
“Without them, some of our most important modern technologies would not exist.
“In fact, they’re so crucial to modern circuitry that industry insiders came up with a nickname for REEs: “technology metals.”
“From hybrid car batteries to wind turbine motors to missile guidance systems…
“Metals such as cerium, promethium, europium, and many of the remaining 29 Rare Earth Elements are essential to all modern electronic devices…
“This chunk of land isn’t controlled by any nation. It’s controlled by a single company — and not some giant multi-billion dollar corporation with interests scattered all over the globe.
“This company is small… Tiny, in fact. Less than $25 million market capitalization as of today…
“Its stock, which trades at $0.30, is priced so low because the company is technically still in its development stage.”
Well, given the relatively small number of companies exploring in Greenland that’s actually enough clues… but let’s get just a wee bit more from the ad so we can be completely certain… apparently, this company is doing something besides just exploring for rare earth elements deposits:
“Just a few weeks ago, this company did something that nobody has ever managed to do on the island of Greenland…
“It actually produced a product — a key raw material used in the production of plastics, fiberglass, aluminum alloys for car bodies, and a multitude of other high-demand consumer products…
“And it was some of the purest ever — the product of a unique, highly efficient yet chemical-free refinement process.
“Now it’s partnering with one of the biggest materials companies in the world — I bet you’ll recognize the name when you see it a bit later — to produce fiberglass from this material in huge quantities.”
They might actually have some revenue? That would be a novelty, indeed.
And he teases us that they’re really on the verge of something big happening in the very near future, just as soon as Greenland warms up enough for them to do more work this Summer…
“Right now, my brand-new recommendation is poised to make a triple-digit leap as early-stage limited production — like the kind I told you about at the beginning — moves to full-scale production….
“Up until several years ago, two other mining companies — Lynas Corporation and Arafura Resources — were also major contenders to threaten the Chinese Rare Earths monopoly.
“But after these companies barely survived the global downturn, the Chinese swooped in with emergency financing.
“The infusion of capital saved these companies’ hides, but it came at a price.
“When it was all over, these two companies — and their vast Rare Earth deposits — were in Chinese hands… leaving my brand-new recommendation all alone to challenge the Chinese.
“Once production ramps up in Western Greenland — which could happen this summer as the weather warms — this operation will remain securely at the top of the food chain by producing at least 50,000 tonnes of Rare Earth Elements and lithium annually.
“With an expected annual production of that magnitude, this $30 million outfit would have grossed a staggering $720 million — in last year’s market!
“But even if it was running at only quarter capacity, and even if costs ate up an almost unheard-of 90% of gross revenue (for REEs, 50% is closer to normal), the share price would still hit about $2.00.”
OK, so that’s getting a LOT more specific. We can feed all that into the Mighty, Mighty Thinkolator and get to our usual 100% level of certainty for a teaser answer: This is Hudson Resources (HUD on the Venture exchange in Canada, HUDRF OTC in the US). And if I had to guess, I’d say Koyfman recommended it to his subscribers on March 24 or 25, since that’s when the stock surged from 30 cents to 50 cents for a few days, it has come back to earth now a little bit and trades for about 44 cents as I type (those are Canadian cents, so HUDRF recently traded for about 36 cents in US$ terms).
Sound familiar? Yes, Hudson Resources has been teased by this publisher before — well before Alex Koyfman or his Penny Stock Millionaire exited, Brian Hicks teased the stock as the “Saudi Arabia of the Arctic” in 2009 when it was around C$0.60 and Ian Cooper teased it a year later as “Greenland’s Giant Killer” for his Pure Asset Trader when it was trading near a dollar (and moving wildly with all this attention).
And yes, the big picture story is pretty much the same for Hudson Resources as it was five years ago — still a big rare earth minerals deposit at the ends of the earth, still dependent more on investor sentiment about rare earths and the Chinese monopoly than on actual financial operations.
But there has been a bit of a twist… while for a few years from 2007-2011 or so they were REE-focused as they explored their Sarfartoq project (before that they were looking for diamonds) to define their neodymium (and other REE) resources, they switched their focus starting in 2012 or so to a non-rare earth minerals resource, their White Mountain anorthosite/calcium feldspar deposit that would apparently be much, much easier (and faster, and cheaper) to bring to production. You can see their most recent investor presentation here, it looks like this product is destined for use as a replacement for kaolin in fiberglass production and as a primary source of alumina.
The last rare earths/Sarfartoq press release from the company was more than two years ago, though they’ve likely been doing some quieter work on that project — since mid-2012 the attention has all been on the White Mountain project.
They have indeed tested their anorthosite product with a potential large customer, Owens Corning, and they were able to make E-glass with it (a form of fiberglass, apparently) so that was termed a success. Their current plan has them bringing on some major offtake agreements (pre-funding the project with customer commitments), getting financing for actual mine construction, and starting production probably late in 2016. It’s a fairly simple project, there’s no refining or leaching or anything yucky like that — they basically just smash the rocks and ship the crumbled bits to customers, and there’s a deepwater fjord right next to the deposit so the transportation should also be fairly simple.
Which is not to say that it’s guaranteed to be an easy start-up, easy to get offtake agreements, or easy to get financing… or that it will be profitable. I have no idea what the economics of aluminum or kaolin/fiberglass production are or what the pricing will be like.
They completed a preliminary economic assessment recently for the possible production of alumina from White Mountain, for that they give themselves a net present value of the project (aluminum alone, not the fiberglass ingredient production) of about $200 million. So that’s one possible number to build upon.
Secondarily, you could use the rough numbers for the anorthosite production and its ability to replace kaolin clay in e-glass/fiberglass — they share these numbers in their investor presentation (200,000 tonnes of anorthosite per year initially, rising to 500,000 tonnes in several years, and the fact that kaolin is priced at $85-200/ton), and get that the possible revenue from production could be anywhere from $17 million to $100 million. Presumably the costs would also be up there somewhere near the $115 million/ton that the alumina production would cost, or some substantial portion of that. Other than to say, “hmmm, production costs and shipping costs are going to be a big deal,” I don’t really know how specific you can get about assessing the value of the project… but there is at least some underlying potential economic viability there, with the first green flag to be waved probably being the fact that someone ends up, in the next few months if their projections are accurate, giving them the $100+ million in initial financing that they’ll need to build the mine.
Hudson is a tiny company, with a market cap of about C$35 million, and they have probably less than a million dollars in the bank so they’ll need to raise funds pretty soon — presumably they’d like to do that after they have good news to report that can boost the share price a bit (like financing, or an off-take agreement with a fiberglass manufacturer… or a zealous endorsement from a widely circulated investment newsletter). And, of course, if the world manages to create another “rare earths bubble” in the rare earth element stocks, as we’ve seen twice in the past decade, the stock could rise with that kind of enthusiasm even if their rare earths project is currently on the back burner.
With that, I’ll leave you to do your own thinking and research — let us know if Hudson appeals to you, or if you have other ideas in the sector that Gumshoe readers should be considering… just use the friendly little comment box below. Don’t worry, it won’t bite.