Rare Earths: The Path To Profits

Posted by Gareth Hatch - Resource Investor

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There are few mining sectors where chemistry, metallurgy and the supply chain meet in such a complex yet potentially profitable way as rare earths. Companies must keep an eye perpetually toward the future, making prescient judgments about end-user demands and constantly evolving technologies. In this interview with The Critical Metals Report, Gareth Hatch, founding principal of Technology Metals Research and president and director of Innovation Metals Corp., gives an update about which projects are closest to production and which have the right recipe to entice customers.

The Critical Metals ReportGareth, many investors have abandoned rare earth element (REE) equities either because equity prices have fallen dramatically or the path to profits is moGare complicated than other equities in the mining space. Why should investors remain here?

Gareth Hatch: The answer to that question lies in understanding the cycle that we are in, with respect to the ongoing development of exploration plays and their transformation into nascent mining operations within the next two or three years. Clearly, the vast majority of companies in this sector are not going to follow that path, as is true in every mining sector. Some of their projects will go into production; the vast majority will not, at least not anytime soon; and investors need to do their due diligence.

This is no longer a sector where investors should be looking for a five- or tenbagger. Investors have already sunk a lot of money into these stocks. In the long term, investors should focus on the technical side and follow the companies that are doing the right things. If investors are here and want to stick around, they should look for the companies that are going to go into full-blown mining and processing, the companies that are going to actually make metals and oxides and sell such material through offtakes and the like.

TCMR: What about this sector still remains unclear to many investors?

GH: Few investors have a real appreciation of the complexity of developing processes that turn attractive geological deposits into actual commercial-grade materials that can be sold. It is interesting to me that four or five years after the interest in this sector underwent a major uptick, people are still not really aware of just what it takes and the questions that they should be asking to determine the probability that projects will go forward. There’s a lot of fuzziness and uncertainty.

TCMR: What are some of those questions that investors should be asking?

GH: First, do you understand exactly what type of minerals make up the deposit? That will tell an investor the approaches that the company will need to take to recover, process and develop the metallurgy, the chemical engineering required for those minerals.

Second, investors need to understand exactly where companies are at in their development. What is the status of a company’s resource development work, its mine design and its environmental permitting plans for building infrastructure? Investors need to dig into the reports – the preliminary economic assessment (PEA), the prefeasibility study (PFS) and any other information that is published to assess how a company is addressing each of these areas.

Another critical question concerns the handling of radioactive materials that can occur in REE deposits. Companies need to address the issues of handling radioactive substances, regardless of how low the levels may be, instead of, in some cases, just brushing this off. Sometimes that only starts to get focus and attention as a company moves into the prefeasibility stage.

TCMR: What are some companies that have done a good job of communicating the answers to these questions?

GH: I think it is less about the individual companies and more about where they are listed. Canada has guidelines that require companies to put out high-quality, independently developed information, for example, into the public domain. For such companies, there really are no excuses for investors to not review this information, if it exists. And if it doesn’t, depending on where particular companies are at in the development cycle, investors should be asking themselves whysuch companies have not yet put out such reports.

Investors can look at companies that are much further along in development and that have put out a PFS or who are working on one –  Avalon Rare Metals Inc. (AVL:TSX; AVL:NYSE; AVARF:OTCQX)Quest Rare Minerals Ltd. (QRM:TSX; QRM:NYSE.MKT) or Frontier Rare Earths Ltd. (FRO:TSX), for example.

Companies like Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX) and Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE) have done a good job of outlining the information at the PEA stage. They are not the only ones.

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