KIM Report

New Developments and Talking Heads in the Resurgent Commodity Boom

Posted by David

This weekend I stopped by the 2009 Toronto Resource Investment Conference held by Cambridge House International Inc. I sort of treat these conferences as a useful mini-PDAC: 100-200 juniors and some talks by analysts, but less free booze and conference swag.

Before getting onto the discussions I had at the booths, a short note on the talks given at the workshops. I attended two very different types of talks at the conference. The first was by Thom Calandra of Ticker Trax fame titled Guanajuato Silver (e.g. Great Panther Resources), Canadian Moly (e.g. Avanti Mining Corporation, TSX.V-AVT), Ghana Gold, and Global H1N1. The talk covered his past experiences, the millions he made selling companies he helped found, his run-ins with the S.E.C., his recent fishing trip with other colleagues, how accurate his past stock predictions have been, past anecdotes, and basically very little to do with the topics covered by the title. No information on how to pick a good stock was given, nor were his strategies discussed in any useful detail. Although in his defense, his presentation was accompanied by many pictures of his visits to sites in those regions.

In contrast to this drivel I was forced to sit through until the main booths opened, Mr. John Kaiser (The Bottom Fishing Report) gave a later talk that Sunday titled Understanding the Rare Earth Metals. This talk was much more useful (even though I found it a little distracting that he looks a little like the PC guy from the “I’m a Mac and I’m a PC” commercials). Although he and his colleagues take a much looser stance on what constitutes a Rare Earth Metal than do us scientists –he includes metals like Y, In, Sc, Ga, Ge, etc. along with the lanthanides, he presented a compelling argument for the future’s demand for these metals. He discussed the increasing need for most rare/exotic metals in new consumer products such as LCD screens, hybrid and electric cars, cellphones, etc. He made an interesting point that the world market for lanthanides was ~$1 billion (USD) in 2005. This has obviously changed to a much higher number. Actual recent pricing for all exotic metals is very hard to find as there is no centralized commodities exchange for these metal oxides (pricing is done in oxides of these metals). A “journalistic approach” is required to obtain much of the current pricing market data, to quote Mr. Kaiser.

One gripe I have is mostly due to my own fault not closely following Mr. Kaiser’s advice earlier. Many of the juniors exploring for exotic metals that have earned a recommendation by him back as recently as the beginning of the summer have shot up significantly. Some include Avalon Rare Metals Inc. (TSX-AVL) (up 386% since May 1, 2009) and Quest Uranium (TSX.V-QUC) (up 2325% since May 1, 2009). I was not able to get around the crowd at the Avalon booth during my time at the conference, but they seem to be making good headway with their Thor Lake peralkaline pegmatite in the Northwest Territories. I did get a chance to speak to some QUC employees though, including one of their field geologists. Their Strange Lake project straddles the Quebec-Labrador border and is an altered (secondary hematite, specularite, fluorite, etc.) alkali granite. Recent drilling confirmed zones of REEs+Y of 1.11-3.47% over 1-14 m. There is also a weighting towards the more valuable heavy REEs. Although this is not unusual for pegmatite REE deposits when compared to their carbonatite counterparts. Though it has pegmatitic zones similar to Thor Lake, the mineralogy, particularly the ore minerals, are very different. Strange Lake has zircon, gittinsite, pyrochlore, gadolinite, and allanite, whereas Thor Lake possesses bastnaesite, monazite, synchesite, allanite, zircon, columbite-tantalite, and fergusonite. In some cases, these ore minerals are quite coarse grained (>1 cm), leading to easy liberation from the rock during processing.

This means that should both projects make it to production, very different metal processing methods with have to be employed for each to obtain marketable metal oxides. One thing that did concern me is that QUC has basically no idea how to process this amazing deposit. (Nor does the literature given out by AVL give a clear image of how to process theirs either). These metals, especially the REEs, are very similar chemically and difficult to separate. Then again, this may not be a problem as most companies this size will, at a certain point, bring in a senior partner with better technical know-how to worry about this.

Other exotic metals companies at the conference that were worth notice were Matamec Exploration Inc. (TSX.V-MAT, light-heavy REEs, Y, Zr), Hudson Resources (light REEs, Ta, Zr, Nb), Rare Element Resources (Au, U, REEs) and Commerce Resources (Ta, Nb).

Needless to say, there is a lot of investor appetite for these types of companies with promising properties. Though I am not a fan of buzzwords such as the “Green Economy” and so on, there is definitely some substance to the developing markets for these metals that new technologies cannot do without.

As a final, but somewhat unrelated note, fans of Stornoway Diamond Corp. will be happy to know that drilling results will be out soon and an update of the 43-101 report on Renard will be due in this upcoming quarter. The preliminary assessment will be out no more than 6 months after that. As for their Avait play on the Melville Peninsula, progress was mostly relegated to desktop work this year as the unexpected extension of the Renard-2 pipe has kept their resources tied up. The company did make it to $0.30/share (down to ~$0.20 now), but that has mostly been due to the success of Peregrine Diamonds’ progress at their Chidliak property, proving to the “sheeple” in the investment sectors that yes, you can still make money holding diamond stocks post-2007.

More news on the diamond sector to come in the next article. Thanks for reading and it looks like a bit of good luck is returning.

Disclaimer: The author owns 4000 shares of SWY and 1000 shares of GPR. Although he wishes he had bought some PGD back in March when he recommended it. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com

A REEally Interesting Commodity Market

Posted by David

As the commodity markets shyly improve, one sector (aside from gold of course) is giving a strong showing. It is not one metal, but rather a collection of metals (and metalloids) that has experienced a strong increase in investor and consumer demand. Exotic metals: lithium (Li), tantalum (Ta), beryllium (Be), gallium (Ga), germanium (Ge), niobium (Nb), indium (In), and of course the rare earth elements (REEs), are all experiencing their increased demand. Many of these exotic metals are found in relatively rare geologic occurrences such as carbonatites or pegmatites. This is particularly due to their use in electronics. As more of these devices -typically hand-held or personal, make their way into our lives, the demand for these elements increases.

In the recent commodity rebound, many exploration and mining companies focusing on these exotic metals have been riding the crest of the wave. Companies such as Avalon Rare Metals Inc. (TSX-AVL) and Rare Element Resources (TSX.V-RES) have been stand-outs in this group with a 3-5x increase in share prices since April of this year. AVL has been focused on developing the Thor Lake pegmatite deposit (NWT) and has been refining the process by which to extract the REEs from the rock to an experimental yield of 80%. RES is lot only looking to produce REEs from its Bear Lodge deposit in Wyoming, but gold and uranium as well partially with the help of Newmont Mining Corp. Marifil Mines Ltd. in Argentina is still sitting on its indium (plus gold and silver) property at San Roque, waiting for a JV partner to come through.

Other juniors with more subdued share behaviour are Hudson Resources and Commerce Resources Corp. (TSX.V-CCE). Hudson is gearing up on their Sarfartoq carbonatite REE deposit in Greenland as their other main play: diamonds at Garnet Lake, has lost market attention. Surface sample results from Sarfartoq deposit have given promising numbers in the range of ~1-9% TREO (total rare earth oxides) with a strong weighting to neodymium, one of the more valuable REEs.

Commerce Resources has been busy with their Ta-Nb-REE carbonatite project near Blue River, British Columbia. They have recently announced a $5 million private placement to fund the further evaluation of the Blue River project, particularly the Upper Fir portion. Though not a REE-focused company as most of those mentioned above, CCE is looking at tapping into the increasing demand for exotic metals though its Ta-Nb properties

The carbonatite bodies at Blue River are rather coarse-grained (see picture). This makes liberation of the ore mineral grains (such as Nb-bearing pyrochlore) more efficient and points to a high recovery for these exotic metals.

Tantalum in particular is poised for an increase in demand as personal electronics use increases. It is often a crucial component in microelectronic circuitry. Niobium’s main use is as an alloy with iron to produce high-strength steel. As demand increases, the supply side has to potential to contract significantly. A major source of Nb and Ta, African coltan ore, is being slowly cut off. This is because much of the coltan mined in Africa is done under inhumane conditions to finance local conflict, much in the same way as “blood diamonds”.

As with any commodity market, China is another factor. It is the largest producer of REEs though its vast clay or carbonatite mines, over 95% of world production. There are major worries by the rest of the developed world that China’s control of these strategic metals may have major geopolitical consequences, meaning that alternative deposits in the free world may become attractive not only to investors, but to governments as well.

Disclaimer: The author holds 1000 shares of MFM. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com