The Gold Report | Nov 21, 2012 06:39AM ET
Gareth, many investors have abandoned rare earth element (REE) equities either because equity prices have fallen dramatically or the path to profits is more 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 why such 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.
Australian companies that have put out a fair amount of information even though they are not required to make such information public include Arafura Resources Ltd. (ARU:ASX) and Alkane Resources Ltd. (ALK:ASX).
You can't do due diligence by press releases alone, although unfortunately there is a sub-group within the retail investor community that seems to think otherwise. You've got to delve into the other information, if it's available, and place importance on its availability. I have little patience for those who get upset with me for not talking about the deposits owned by certain companies, when such companies have put little to no independently developed information out into the public domain. What is there to talk about, exactly? Getting excited on the basis of company-generated press releases alone is not doing your homework—it's simply a classic case of confirmation bias. There's a reason for the existence of the NI 43-101 guidelines. Any retail investor who does not know about the scandal that triggered the introduction of those guidelines, needs to read up on it.
TCMR: I wholeheartedly agree. You recently hosted a riveting webinar that covered the critical elements that will make or break every REE project. What are those critical elements?
GH: Neodymium, a light rare earth element (LREE), would be considered critical to the future green-energy sector, along with dysprosium, which is a heavy rare earth element (HREE). Both of those are used in high-performance magnet materials, which are absolutely critical to the functionality of so many electrical machines and devices. Alongside those are europium, terbium and yttrium, which are primarily related to energy-efficient lighting, display screens and other high-tech applications.
TCMR: You've done a remarkable job of improving the clarity of information surrounding a number of these companies. One of the ways that you've done that is by creating the TMR Advanced Rare Earth Projects Index. There are now about 50 projects on that list. Tell us about the index and what you're trying to tell investors through it.
GH: A criteria for inclusion in this index, which can be found at Gareth Hatch is a founding principal of Technology Metals Research, LLC, a consulting and analytics firm that helps people understand the challenges and opportunities associated with the growing demand for REE and other critical and strategic materials. He is also a president and director of Innovation Metals Corp., a provider of downstream processing and marketing services to the rare earths industry. For several years, Hatch was director of technology at Dexter Magnetic Technologies. He holds five U.S. patents on a variety of magnetic devices. A two-time graduate of the University of Birmingham in the U.K., Hatch has a Bachelor of Engineering degree in materials science and technology and a Ph.D. in metallurgy and materials, focused on REE permanent-magnet alloys. He is a fellow of the Institute of Materials, Minerals & Mining, a fellow of the Institution of Engineering & Technology, a Chartered Engineer and a senior member of the Institute of Electrical and Electronics Engineers. Hatch is also a member of the Strategic Materials Advisory Council.
DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Frontier Rare Earths Ltd., Quest Rare Minerals Ltd., Namibia Rare Earths Inc., Ucore Rare Metals Inc., Orbite Aluminae Inc., Tasman Metals Inc. and Stans Energy Corp. Interviews are edited for clarity.
3) Gareth Hatch: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
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