mixed signals

Not for us the Americans will back PEAK all the way

Wednesday, February 15, 2012
The Weekly Review: Mixed signals on REE financing

So, here’s the big question: is the non-China rare earth thrust going to be derailed, or at least delayed, by general financing problems?

This issue arises after the thunderbolt today from Australia’s Arafura Resources. Five directors - including CEO Steve Ward - are departing, the company citing the stresses of the global financial crisis.

However, this must be balanced against, one, the recent backing out of the US for Lynas Corp which means it has the money to complete development of its REE project and, two, the more recent raising by Australian junior Hastings Rare Metals of A$5.5 million with Asian parties contributing much of that money.

But let’s first examine the bad news from Arafura, which was heavily punished last year when it announced serious delays to its Nolans REE project and processing plant at Whyalla, South Australia. Actually, the punishment on the Australian market today was not as savage as one might have expected: it was a pretty dreadful for mining stocks all over, so Arafura’s 4.3 per cent decline by early afternoon trade on Thursday was not catastrophic, even though at A33.5c the company is a long way off its 52-week high of A$1.45 last April.

Clearly, investors are probably accepting the line advanced by chairman Ian Kowalick. He says the company is reluctant to invest in view of global financial strains and, particularly, the European debt crisis. This has made it, he says, difficult to raise capital for new projects. Four directors will go, and Steve Ward is also stepping down. In regard to Ward, the chairman said the former CEO “has articulated a business model and technology pathway for Arafura”.

It is less than a week since Arafura issued its latest business report, confirming it had reduced the rate of work until more money could be raised. The message is that the company is going to concentrate on getting a number of technical issues resolved so that - when the financial situation improves - it will be ready to kick-start action. And, as we have reported, that progress is being made with separation, with samples being sent to prospective customers. These include a heavy rare earth oxide product containing terbium, dysprosium, holmium, erbium, ytterbium, lutetium and yttrium.

Sure, the project to complete is going to take close to $1 billion but, with A$35.3 million as of December 31, the company has a good financial buffer at the level at which it plans to operate in the interim.

FYI, the cash positions of other Australian REE companies as at December 31 were (in A$):

Kimberley Rare Earths $13.66 million

Hastings Rare Metals $437,000 (before the recent raising)

Alkane Resources $9.52 million

Globe Metals & Mining $39.23 million

Peak Resources $5.74 million

Greenland Minerals & Energy $10.87 million

Southern Crown Resources $2.7 million

http://www.raremetalblog.com/2012/02/the-weekly-review-mixed-signals-on-ree-financing.html#more