Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation
Terence van der Hout
Apr 1 – 7, 2012
Gold&Discovery Fund
Lynas nearly set for historic production
Lynas has announced it is 3 weeks away from completing its processing factory in Malaysia. Construction in Malaysia has been ongoing intermittedly for four years, and completion is a gigantic milestone for non-Chinese REO processing, as it is the first new non-Chinese separation facility that will come online in a number of decades.
The announcement does not mean that processing is imminent. As we have covered previously, Malaysian public protests against alleged radioactive waste produced at the plant is continuing to frustrate production timelines at the plant. The company was issued a temporary operating license in January, but has not yet received it. The company has stated that any further delay will impact operations and specifically spells a loss to Malaysian suppliers.
It is still difficult to judge the outcome of the political process, in terms of time. Lynas will probably get the go-ahead eventually, given its economic contribution. But politics first needs to get sufficient guarantees in order to satisfy its respective constituents before a positive outcome is announced. This may even be drawn out beyond the elections that are due sometime this year.
Tasman Metals shows value
Tasman Metals has released its long-awaited Preliminary Economic Analysis (PEA) on the Norra Kärr heavy rare earth deposit in Sweden. At relatively conservative product prices, Tasman calculated a Net Present Value (NPV – reflection of the current economic value of the company) of $1.4 billion. The total value of metal in the ground is roughly $10 billion, and matches the top segment of world class gold deposits around the world.
The project is conveniently situated in Sweden, which is part of the European Union. We have covered the activities of both public and private initiatives relating to the EU securing supply of rare metals, previously. The German chemical, automobile and electronics industries in particular should be expected to take a long look at the value of Tasman’s products, as it is capable of producing large volumes of the scarce HREE for at least 40 years.
Disclosure: The Gold&Discovery Fund holds shares of Tasman Metals.
Mitsubishi secures supplies of palladium
Mitsubishi Corp. has announced its intention to take a 25% stake in Stillwater Mining’s Marathon project, intending to secure future supplies of palladium through guaranteed off-takes. Situated in Ontario Canada, Marathon contains substantial amounts of Platinum Group Metals (PGM – platinum, palladium and rhodium), and the project may start mining operations in 2015.
Mitsubishi has historically been very active upstream in various mining sectors. It owns stakes in a number of uranium projects, and has been one of the most active participants in the REE sector over the past two years. Understandable because it is one of the main beneficiaries of Chinese heavies, a flow which is expected to be stemmed as a consequence of the crackdown on smuggling and Chinese policies.
Mitsubishi had a Memorandum of Understanding (MOU) with Neo Material to further develop Neo’s share in the Brazilian Pitinga REO Mine. It has been active in developing technologies to recycle REE from household appliances. It has invested fairly heavily in Australian pending rare earth producer Lynas. And it is involved in a joint venture with the other REE hopeful Molycorp in order to develop NdFeB high performance magnet production facilities.
Now Mitsubishi is taking a strategic approach to palladium. As you can see from the pie chart (courtesy of Stillwater Mining), the auto industry, and catalytic converters in particular, form the largest part of palladium demand by far. Despite the economic down-tu in the west, global annual growth of the auto industry is set at a robust 4.5%, at least until 2020.
The second graph below, also from Stillwater, is more intriguing. This depicts the supply and demand balance for palladium for the same period. As you can see, deficits are already apparent, and are expected to accelerate over the period until at least 2020.
In a recent bulletin we noted that platinum is supplied primarily from South Africa, Zimbabwe and Russia, not countries known for their reliable politics. Given that palladium is always found and therefore mined together with platinum (and rhodium), the same security of supply issues apply to palladium.
The palladium investment in Marathon is yet another strategic spoke in the Mitsubishi wheel, and is further proof that the Japanese are the most advanced in their efforts to secure rare metal supplies outside of China. Obviously, the Japanese high tech and automobile companies are the ones feeling the supply constraints directly, being large users of REO (and other scarce metals) for their proprietary and often secretive innovative processing methods and technologies. This has prompted an approach to scarce metals I hope European counterparts will emulate. They are aggressively securing future supplies, going as far upstream as they can in acquiring stakes in mining projects and operations.
I have not reviewed companies in this sector other than Stillwater and Prophecy Platinum, but I will leave you with the following comment from Pope Company:
The coming deficit in PGM production will lead to higher PGM prices. There are few PGM producers outside of southe Africa and Russia. North American Palladium (PDL: TSX) and SWC are two primarily PGM producers located in North America. Colossus Minerals (CSI: TSX), Magma Metals (MMW: TSX), and Prophecy Platinum (NKL: TSX-V) have PGM Resources. Some of the mining companies exploring for PGMS in Canada are Mustang Minerals (MUM: TSX-V) and Pacific Northwest Capital (PFN: TSX).
Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.
