-
Q2 Results Highlight Need for Speed: It has long been our contention that if a rare earth junior is not in a position to be one of the early entrants to the market, then that company will, depending on the quality of its deposit, either become an acquisition target or be forgotten. Rare Element Resources' (Rare Element) Q2 results put a spotlight on this issue. We have long been a fan of the Bear Lodge deposit, due to an anomalously high level of what we believe will be the most valuable REEs in the long term, elements like Nd and Dy. The company had previously raised sufficient funds to complete its feasibility study, and is now on the verge of publishing its PFS, and will immediately thereafter commence its DFS. With $59.6 million in cash and marketable securities, the company has the resources to complete its DFS quickly. Due to the company's conservation of cash and speed in completing its feasibility studies, we maintain our SPECULATIVE BUY rating and $18.75 target price, based on our current price deck and a 13% discount rate.
-
Cash Is Always King: Without cash, nothing else matters. Rare Element had a cash balance of $59.6 million at the end of December. In spite of being in the middle of an exploration phase at Bear Lodge, the company only used $4.7 million in cash in the quarter. Accounting loss was $10.1 million, or $0.23/sh, but we worry much more about cash balances at this stage of a company's life. And the cash that the company has on hand should safely see it through to its feasibility study.
-
Metallurgy and Partnerships: We know that the metallurgy of the Bear Lodge ore is workable, owing to the work done on the company's PEA. In our opinion, the company has always been conservative in its approach to the market, and we have assumed that the company will reach beyond the work of its PEA and find ways to produce separated and purified oxides. But given that Lynas (LYC -ASX) is now licensed to begin ramping its plant in Malaysia, that Great Western Minerals Group (GWG - TSXV) remains on schedule to commence mining operations at Steenkampskraal in South Africa by the end of Q2/12 with first production of SX processed REOs available in very early 2013, and that Molycorp (MCP - NYSE) is moving to full mine-to-magnet production as rapidly as possible, the world does not need much more in the way of La or Ce.The later a company comes to market, the more it must rely on profitability from Nd and other valuable rare earths to compensate for its inability to achieve much cash flow from the very lightest of its REEs. If there is any predominantly LREE deposit out there that can accomplish that, it is Bear Lodge, but the sooner that the company can give us a glimpse into possible off-take partners, the better we will feel. We maintain our SPECULATIVE BUY rating and $18.75 target price.
Jon Hykawy, Ph.D., MBA
Head of Global Research
Clean Technologies and Materials Analyst
|
