Hallgarten & Company analyst Christopher Ecclestone recently suggested the overabundance of names in the uranium, lithium and rare earths sector may be a case of "killing the goose that laid the golden egg." "There is no need for more than ten REE explorers/ producers; just as there is no need for more than around ten lithium explorers/producers," he declared in a recent analysis piece. "The uranium space does not require more than 20-30 players also."
"While uranium has had its bust (and false dawn) and largely faded into secondary interest, the REE space has yet to have its day of reckoning," he observed. "The Lithium players, if anything have been spared a rout by the rare earths phenomenon gradually siphoning away interest and thus letting the Lithium subspace ‘down gently.'"
In his analysis, Ecclestone suggested that larger cap rare earths companies "are knitting, unraveling and reknitting their projects (via endless drilling, surface sampling and metallurgical testing) to fill in time waiting for the right ‘gentleman caller'. In the meantime a company like Lynas, whose Mt Weld property two years back was essentially as developed as these others pretenders to being industry majors, has shot ahead and built its mine and nearly finished its processing plant."
"Those that can: do, those that can't: instead have their bloated IR departments send investors every news article about Rare Earths that crosses the wires to try and disguise their lack of any real progress," Ecclestone complained.
"It would appear that the mining promotional ‘art' has reached its apogee with rare earths after practicing on Lithium and Uranium. After the apogee comes the slide," Ecclestone warned. "The number of promoters piling into this space have exceeded all previous efforts..."
Meanwhile, Ecclestone suggested "the fate for most uranium juniors is sealed. We have totally dropped interest in the sector as we feel that all but a few near production stories are doomed to whither and die of lack of funding."
"The problem the survivors face is that struggling out of the ‘Nuclear Winter' is going to be a tough road and the temptations of switching back to being a gold stock or suchlike is going to be more tempting than remaining poor but virtuous and persisting with a uranium theme," Ecclestone asserted. "We would not be surprised to see the number of uranium juniors (i.e. non-producers) globally shrink to less than 50 over the next two years."
In his analysis, Ecclestone outlined the reasons why he thinks so many junior explorers/producers will be surplus to actually demand including:
--Insufficient end users for all of them to make matches with miners. (As an example, Ecclestone notes that Silmet recently confessed to having only 15 clients for its REE production)
--With hundreds of millions of dollars in budget and many REE end-users being small, "the prospect of an end-user being the solution to capital poor REE producer wannabes is not good"
--"End-users of size are showing their own doubts on the seriousness of the ‘juniors' with Toyota walking away from its JV with Great Western on Benjamin River and option for a recycling effort in Vietnam instead, Santoku selling out to Molycorp, and Showa Denko giving in and selling its plant in China."
Nevertheless, Ecclestone suggested five companies are likely survivors of the REE space:
--Lynas (by virtue of being a first mover)
--Molycorp (by virtue of vertical integration and being a first mover)
--Great Western (by virtue of vertical integration and being a first mover)
--UCore (by being acquired)
--Northern Minerals (by having potentially large Xenotime-thus Yttrium-resources)
In his analysis, Ecclestone suggests Frontier Rare Earths, Arafura Resources and Stans Energy "are a few names that might also cling to the lifeboats."
"The end of the Rare Earth boom is somewhat inevitable as there must be some winnowing process eventually," Ecclestone observed. "That there is demand for 200 or 100 or even 50 of the current flock of prospects is dubious indeed."
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