Geologist Alex Knox followed rare earths before they were Wall Street's darlings, and continues to do so, having seen stormy weather in this industry before. Demand for rare earths remains; it's just a question of who can supply them first — and at what cost? In this interview with The Metals Report, Knox tells investors what questions they need to ask management and highlights companies that are progressing toward production.
The Metals Report: Your last interview with us took place in July. Have there been any real significant industry developments in the last six months that investors should be aware of?
Alex Knox: There are, actually. The tenor of the rare earth element (REE) space has changed quite dramatically in the last six or seven months.
TMR: What are the biggest factors that have influenced the business?
AK: The general lack of ability to raise financing has severely affected the junior companies, especially those that didn't have a deposit or had a deposit at a preliminary economic assessment (PEA) stage. Investors have seemed to have lost interest, and certainly there is far less news about exploration for new deposits or developing deposits that hadn't reached a PEA stage by last summer.
The focus has shifted from exploration to development. Because of the drop in prices for the commodities themselves since that time, costs have become extremely important, and that includes the costs of doing a feasibility or a prefeasibility study as well as production costs.
TMR: What has been the cause in the drop in prices for the elements during this time period?
AK: I'm no economist, but the lack of projected world growth plays a part. It was expected that these commodities were going to be needed in significant additional quantities, and the lack of growth has slowed demand. China, though it's not in recession by any stretch, has slowed down its development.
TMR: China is now talking about tightening up its environmental regulations. Is that going to have a significant effect on either REE supply or prices?
AK: I think it's going to. China is still in the driver's seat, especially on the heavy rare earth element (HREE) side, it has said for years that it was going to try to reduce its output in order to conserve its low-cost sources of production of HREEs. Certainly, any spark that's been left in the REE market is on the HREE side. We've all heard of the impending production of Lynas Corp. (LYC:ASX) and Molycorp Inc. (MCP:NYSE), which, along with a few others, are probably going to satiate the light rare earth (LREE) market with the development of additional production. But because there is still no significant production of HREEs in the Western world and many of these deposits, half a dozen at least, have reached at least the post-PEA stage and are approaching a production decision, there is still a place for HREEs, despite the drop in prices and consumer attempts at HREE substitution or recycling.