Quest Rare Minerals' Significant Potential

For the past several days I have been researching a company called Quest Rare Minerals (QRM), a Canadian-based exploration company focused on the identification and discovery of new world-class rare earth deposit opportunities. The company is led by CEO Peter Cashin and a highly-respected management team as well as a technical team with a proven mine-finding track record.

Quest is currently advancing several high-potential rare earth projects in Canada’s premier rare earth exploration areas, including the Strange Lake and Misery Lake areas of northeastern Québec, the Plaster Rock area of northwestern New Brunswick, and the Kenora North and Snook Lake Projects in Northwestern Ontario.

On May 23, Quest was approved for listing on the New York Stock Exchange Amex. Inclusion on the exchange will facilitate trading of QRM’s shares by investors in the United States. More importantly, it will increase Quest's exposure to the U.S. investment community.

On June 8, QRM along with its exploration partner Search Minerals Inc. (SHCMF.PK), reported the first results of a diamond drilling program completed on the Strange Project. A total of four diamond drill holes for 310.3 m were completed during the program. More drilling in the area has already been planned because of the total Heavy REOs sampled between 38.5% and 70.4% were of the Heavy Rare Earth mineralization.

Heavy rare earth oxides (HREO) include Y2O3=yttrium oxide, Eu2O3=europium oxide, Gd2O3=gadolinium oxide, Tb2O3=terbium oxide, Dy2O3=dysprosium oxide, Ho2O3=holmium oxide, Er2O3=erbium oxide, Tm2O3=thulium oxide, Yb2O3=ytterbium oxide, Lu2O3=lutetium oxide.
Light Rare Earth Oxides (LREO) includes La2O3=lanthanum oxide, Ce2O3=cerium oxide, Pr2O3=praseodymium oxide, Nd2O3=neodymium oxide, Sm2O3=samarium oxide.

As previously reported, an exploration and option agreement with Search Minerals Inc. and Alterra Resources Inc. (ALTE), a wholly-owned subsidiary of Search, was executed on June 16, 2010, Quest may earn a 50% undivided working interest in the 30 mining claims by issuing an aggregate of 90,000 common shares of Quest to Alterra over a period of three years and by incurring mining exploration expenditures of $500,000 in the aggregate over a period of three years. Upon completing all of the payments mentioned above, Quest will have an option to acquire an additional 15% undivided working interest in the mining claims by making a payment of $75,000 before the fourth anniversary date of the exploration and option agreement, by issuing an additional 150,000 common shares of Quest to Alterra on or before the fifth anniversary date of the exploration and option agreement, and by incurring mining exploration expenditures of $1.25 million in the aggregate on or before the fifth anniversary date of the exploration and options agreement.

Pursuant to the exploration and option agreement, Quest will enter into an assignment agreement with Search and Alterra pursuant to which Quest will transfer and assign to Search nine claims located in Western Labrador in the Province of Newfoundland and Labrador in consideration for 10,000 common shares in the capital of Search. Immediately following the transfer by Quest to Search, Search will transfer these nine claims to Alterra. These nine claims, together with 21 claims already owned by Alterra comprise the 30 claims that are the subject of the exploration and option agreement. The 30 mining claims are subject to a 1.5% net smelter return royalty in favor of Alterra. Quest may, at any time, purchase two-thirds of the 1.5% net smelter return royalty for $1 million.

Plans for upcoming summer work on the property are well advanced and will include additional exploration drilling, prospecting, geological mapping and rock sampling. Exploration on the Alterra (Search) Option Property will be operated from Quest's Strange Lake facilities. Construction work is underway to enlarge Quest's exploration camp to accommodate 100 employees, up from the current 55.

All of the above information leads me to conclude that QRM is not interested in being a “one trick pony" or in mining one ore. It's interested in dominating the procurement and possibly the production of both heavy and light rare earths for the next century.

On June 6 I spoke with Cashin and while I did not completely understand his intentions, I think that this preliminary research I have done has made it clear to me what his intentions are for this company. I believe his intentions are the continued acquisition of properties that will propel QRM to be the dominant company in REEs for a long time. If my impressions mean anything, I will surely be betting on his ability to separate the “wheat from the chaff.”

While I still believe that Ucore (UURAF.PK), Avalon (AVL) and Tasman Metals (TASXF.PK) will be profitable and viable companies, I think that there is a new player on the scene and we are getting our first glimpse at what may be the new dominant company on the world stage.

Yesterday I opened a stake in this company at $6.08 but had it figured for a buy at $8.00 or below. If it pulls back today I will buy more.

Below, please find a chart of this company and my preliminary analysis of QRM.

[Click to enlarge]


Disclosure: I am long QRM, AVL, UURAF.PK, TASXF.PK.