“The Saudi Arabia of the Arctic” — Huge profits from Greenland’s Rare Earth Minerals?

By Travis Johnson, Stock Gumshoe, November 5, 2009

We’ve looked at rare earth elements before (also called rare earth metals or minerals, and some of them are rare earth magnets), they’re a dozen different rare elements from the periodic table that have specific uses in lots of high tech gear, from batteries to missile guidance systems. China is widely credited with strategically undercutting all the other global producers of rare earth minerals over the last couple decades by slashing prices, but has more recently been cutting export quotas because they need these resources for their own industries — so the feared result is that China continues to have essentially all of the global capacity for producing and refining rare earth minerals tied up, and if other countries and industries lose access to them there will be hell to pay.

Which is why we see teasers for “non-China” rare earths pretty frequently. Rare earth minerals are actually fairly common in the earth’s crust, but it’s fairly rare to find them in decent concentrations that can be profitably mined and refined, particularly in relatively high-cost countries like Canada and Australia, and every mine produces different kinds or rare earth ore with different concentrations, which apparently requires complex and tailored refining.

The first company I looked at in this area as a strategic play to build rare earth capacity outside of China was Lynas, and I owned shares of this one up to a couple months ago. To further complicate things, for a while it looked as though Lynas would effectively be taken over by, you guessed it, a Chinese company — but that takeover was essentially nixed by the Aussie government, so Lynas is still an independent company that owns one of the world’s largest unmined rare earth minerals resources and they can still promote themselves as the strategic alternative to Chinese hegemony. They are also moving ahead now, securing new financing now that the world hasn’t fallen apart and restarting the construction of their processing plant in Malaysia, and preparing the concentrator plant in Australia that will prepare the rare earth ore for shipment to the Malaysian refinery. I have no idea when they might become profitable, but it appears that the economy has recovered enough that they might not need the rescue funds that the big Chinese investment represented (they were in a dispute with bondholders before that, and essentially had to stop all operations to preserve cash).

So that’s one that we’ve seen teased several times, and that gets covered by bloggers and the financial punditocracy with some frequency. But today we’re not looking at an Australian rare earths project, or even a Canadian one … today we’re looking at Greenland.

The tease is from Brian Hicks, published in a Wealth Daily article, and it doesn’t specifically tease this stock as a secret that will be revealed only after subscribing to one of their paid newsletters, but perhaps that will come in the future — they just say that “In the next few weeks, we’ll be publishing specific approaches to squeezing the most mileage out of this historic stock.” So maybe they’ll reveal the name of their favorite Greenland rare earths investment for free someday … but really, why wait? Let’s look over the clues and see if we can identify it ourselves.

We get some more enthusiasm from Hicks first:

“This single site boasts deposits valued at an estimated $1.3 trillion. . . and yet, REEs are worth more than just money.

“Which is why the world’s leading manufacturers of hybrid cars, wind turbines, batteries, and yes — even the guidance systems to our most sophisticated air and ground defense missiles systems, are watching the events in Greenland unfold with baited breath.

“The elements that fall into the category of Rare Earths include:

“Lanthanum – essential in the production of electric car batteries;
“Terbium – without this element, high-strength magnets would not exist;
“Erbium – makes possible a wide range of light-weight, high-strength metal alloys;
“Thulium – makes high-frequency lasers a reality.
“And once Greenland takes control of its mineral wealth, this land — totaling barely 800 square miles — is projected to supply 25% of the world’s entire REE market. . . for half a century.”

OK, so that’s a lot of rare earth minerals. And they go on to reiterate some of the same arguments about Chinese hegemony that we’ve been hearing for quite some time (not to say they’re not real arguments — China has certainly focused on controlling this market, whether for economic, political or military reasons we’ll have to guess).

“According to Wired Magazine, “China’s Ministry of Industry is weighing a total ban on exports of terbium, dysprosium, yttrium, thulium, and lutetium — and may restrict foreign sales of other rare earth metals.”

“This news is a potential death knell for hybrid manufacturers that have forecast 500% growth in the next 6 years alone. . . alongside a wide spectrum of other cleantech companies whose products depend on magnets, motors, and batteries to create and store energy.

“Not to mention a political and economic nightmare for our Department of Defense. . .

“However, as Greenland prepares to open its resources to the open market, this Chinese monopoly has finally met a foe it cannot easily topple.

“Come January, a single company will control this massive deposit, turning it into the world’s second biggest single producer of REEs.

“With a stock price just under 60 cents today, this company has already gained close to 30% since the start of September. . .

“But the big spike is still just around the corner, with a vast majority of the gains still in the future.”

This one, by all accounts, must be Hudson Resources (HUD on the venture exchange in Canada, HUDRF on the pink sheets, tiny volume and minuscule market cap, shares are likely to jump like crazy today thanks to Hicks and yours truly, so be very careful — gravity usually hits these little guys pretty soon after a morning like this).

Hudson resources is focused on rare earth exploration in Greenland, and they are the best match for those clues — the shares are right around 60 cents at the moment (going up quickly today, probably thanks to Hicks’ email, and were at 40 cents at the beginning of September, so the 30% gain is a match (it’s also a match, though a more strenuous one, for Greenland Minerals and Energy, which I’ll go into a bit below). And the other specific clue we get, the fact that the land totals “barely 800 square miles”, is sort of a match. I’m assuming that Brian Hicks or his copywriter forgot that the calculation for converting square kilometers to square miles is different than that for converting km to mi — Hudson does have concessions totaling about 1,300 square kilometers (1,300 kilometers would be 807 miles, but 1,300 square kilometers would be more like 500 square miles). That’s a common mistake, so I feel comfortable counting this as a match.

They gave a presentation at a Canaccord Adams conference last week (it provides a good overview of this tiny company, worth a look — click here for the pdf file), and they’ve been raising money actively and are soon going to be releasing drill results, so this is probably the rare earths play that has the most “news” floating around it lately, but it’s also still in the very early stages of development. They don’t have the uranium risk of the other Greenland rare earths play that I often hear about, Greenland Minerals, but they are also far, far behind Lynas in developing an actual mine — they are really just this year beginning to actively explore their potential rare earth deposits, after years of focusing primarily on diamonds (they’re still looking for diamonds, too, but the diamonds aren’t as lucrative as rare earth elements right now — nor, the cynic states, as much of an attraction for investors).

And yes, the company is incredibly tiny — a market cap of something like C$30 million unless the share price is going up even faster since the moment I typed those words (the kind of interest generated by big distribution newsletters like Wealth Daily, or even Stock Gumshoe can easily double a share price for a tiny firm like this, albeit for only a few brief moments). Personally, I find these little rare earth plays interesting but if I were to actually invest in one I might choose to focus back on Lynas again, given the fact that they are so far ahead of all the other small potential non-Chinese rare earths miners, and thus might actually have some revenue in the foreseeable future … but still, the temptation to find lightning in a bottle with a teensy weensy stock like Hudson is certainly always there. It will be many, many years and many, many fundraisings before they do any mining, but perhaps it’s still worth a daydream. And since these nonproducing rare earths miners trade largely based on Chinese behavior and pricing, and on strategic posturing over availability of these metals, a sneeze from Hu Jintao or a move from a big mining company to sniff around for some little rare earths deposits could easily move the shares far more than the upcoming drilling results.

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So not to overstate this, but if you do decide you’d like to speculate in these shares, be very careful of the price — and watch the Canadian price, that’s where most of the volume is. There’s no reason for the shares to jump today other than the attention from Hicks and this article you’re reading, which means, unless those drilling results are released tomorrow, the shares could easily fall right back down again (or Hicks could write about it again and they could shoot up, I have no idea).

The same warning applies to the other significant rare earths explorer in Greenland, by the way — that one is an Australian firm, Greenland Minerals and Energy (GGG on the Australian Exchange, GDLNF on the pink sheets). Be careful if you’re a pink sheets trader in this one, most of the volume is on the Australian exchange and the occasional US interest in these shares can spike the stock painfully up (and sometimes back down). There have been a few times when the shares were in the news and it traded up to a million shares or so, but most of the time far fewer than 100,000 shares are traded on the pink sheets on any given day, which means that at about 38 cents a share right now there’s often less than $50,000 changing hands in these shares. If you decide you’re interested in this one and want to be careful, use the Australian price as your guide and place limit orders. GGG closed in Australia at just under .39, which at the current currency rate would be US .35, but the shares are already spiking on the pink sheets as I type this and are now changing hands for more like .38. You may decide it’s worth that price, of course, but be careful.

Who is Greenland Minerals? This is an Australian company that has exploration concessions in Greenland, with the critical ones for our purposes being at the site where the Danish government identified significant uranium resources decades ago. Greenland Minerals noticed that the Danish survey was done without chemical analysis of the drill cores, so they went back and did that and found that in addition to the uranium that has long been known to be present, the site also contains high concentrations of many valuable rare earth minerals. Yippee!

Except, bah humbug, Greenland’s law specifically forbids uranium mining — I assume that’s a political sentiment influenced by the controlling Danish government, but it might be an environmental or safety one as well. So the big question for Greenland Minerals is whether that law will change — the hope seems to be that the country’s move to greater independence from Denmark will also lead them to be more interested in economic development, and for Greenland, which currently relies almost exclusively on fishing and Danish support, probably the most immediately lucrative “new” industry would be mining … it is, being huge and lightly populated, already a good target for natural resources extraction, and the government has apparently been largely friendly to most mining operations, and several large mining companies are looking for resources of various types — the geology reportedly has quite a bit in common with the Kola Peninsula in Russia, which is a large mining center. Greenland also floated a partially state-owned company on the Copenhagen exchange a couple years ago, mostly to raise money for gold exploration — that company is also available for investment and has some potential for rare earth mineral exploration, it’s called NunaMinerals and it has a large portfolio of potential projects, but I don’t think it’s available to trade outside the Copenhagen market.

Greenland’s autonomy in natural resources began in June of this year, though Denmark remains in charge of their finances, defense, and foreign affairs. Greenland is in the process of being identified as an independent nation, slowly weaning itself from Danish rule and welfare — and a big part of that independence is going to rely on natural resources. Licensing rounds are expected for offshore oil in the years to come, and the government is currently debating a big potential aluminum smelter to take advantage of hydroelectric power. If I had to guess I’d say they probably will move forward with the rare earths mining, with uranium as a critical secondary resource that helps to pay for the mining of the rest of it (the way GGG presents it on their website, uranium represents a tiny fraction of the physical ore (maybe 5-10%) but would account for almost 25% of the value of the resource, so with current economics they probably have to produce the uranium to make the rare earth mining feasible. But my guess that they’ll be allowed to move forward is just that, a wild guess — the resource looks very large and strategically and economically interesting, based on what I’ve read, but it’s also probably true that even if the government proves to be mining friendly and uranium-friendly, this is still just a hilly plateau near the ocean with a few drill holes in it, it will be many, many years before they produce anything and, as with all mining operations, a huge number of changes can occur in that time. After all, the Mt. Weld deposit owned by Lynas in Australia was discovered as a rare earths deposit in 1988, Lynas didn’t start really focusing on it until 2001, and, while they have begun mining eight years later, they haven’t actually produced any concentrated ore, let alone any refined rare earth minerals.

So there you have it — rare earths are a “story” that investors come back to with some frequency, though this is the first time I’ve looked at the Greenland potential. There are also rare earths deposits in Canada (Avalon’s Thor Lake and Great Western’s Hoidas Lake), and others in Australia (Alkane, Arafura) that are being developed, but all are also at very early stages as far as I can tell, and there are at least a half dozen more that are in the extremely early stages of exploration, well behind the ones I’ve named here. I expect we’ll continue to see many of these firms teased now and then, as rare earths bounce in and out of the headlines.

So what do you think? Like Hudson, or Greenland Minerals (or Lynas, or Great Western for that matter?) If you’ve a favorite rare earths investment, or if you think they’re all crazy, feel free to let us know with a comment below. And we’ll be keeping our eyes out to see if Hicks goes further with his “I’ll tell you more later” bit about Greenland rare earths.

Full disclosure: as mentioned above I previously owned Lynas shares, but do not currently own stock in any other firm noted in this article, and will not trade in any of those stocks for at least three d


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