Mining and Rare Earth Juniors Lack of Investment Capital

Mining juniors, in general, and rare earth juniors, in particular, are contending with a lack of investment capital, and the writing is on the wall for many, as their projects remain too ‘early stage’, and much too ill defined with regard to end products and their markets, to attract capital (which is bearish and risk averse toward the resource sector at present).

Rare earth exploration juniors are at the edge of the cliff, and the culling of the herd is imminent for many of the blue sky/early stage projects that failed to deliver even an NI 43-101 compliant resource, much less an advance stage development document.

Such is the Darwinian nature of the markets, and there’s something to be said for the channeling of capital to the strongest individuals that remain standing in times of drought and famine.

                      

Two such survivors are Ucore (QTCQX: UURAF) and RER (ASE: REE), which are smallish, right size projects. In the case of Ucore their recent PEA delivered some metrics that set its Bokan property apart from the crowd…not the least of which is an almost absurdly low projection of the CAPEX required to get into production ($221M) and a product mix and form stated to be valuable enough to generate close to $100M per year in pre-tax profit (with a 43% IRR). That’s a bullish return on limited input capital. Ucore plans to be in production in 3 years or so, which places them at the forefront of the international race (along with, in my opinion, RER), to generate HREE’s outside of China.

Ucore estimates that they’ll be producing some 95 TPA of Dy; close to ½ of current US OEM automotive requirements and more than 10X the requirement of US Department of Defense (with which Ucore signed a strategic agreement in Q4 of 2012 for the purpose of advancing their HREE project). DOD is interested in Dy at least partially as an input component in unmanned drones in theaters of war (a topic that has garnered much media attention of late as a bulwark of the Obama administration’s offense strategy in the Middle East). Beyond this, UCU’s Dy output will be readily received by the American automotive industry, as prospective production of EVs and HEV’s continues to grow.

Ucore has yet another ace on the hole with the State of Alaska in their corner. The State has a long history of assisting in the financing of CAPEX to worthy mining projects, with very patient long term, below market interest loans over life of mine. Alaska has a $39B permanent fund, largely the outcome of a robust long term petroleum sector which is now falling into abeyance. So, they’re the rare sovereignty in the western world that has not only significant capital but also the wherewithal to invest in its own future. In Ucore’s case, the stated CAPEX is so low, that the State could singlehandedly guarantee Bokan’s rise to production (witness Alaska’s underwriting of $225M just for the port and road infrastructure at the Red Dog Mine in Central Alaska; an amount which ironically totals more than Bokan’s entire CAPEX requirement). As previously reported, the Goldilocks Principle will gain new credibility in the REE space, as it’s the right size project with the right products, Critical Rare Earths that will ultimately prevail. Ucore’s Bokan is such a project.


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