Two Undiscovered Rare Earth Stocks
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Pioneer Resources (PIO) 3c
The Perth-based stalwart’s main prize remains lithium but its shorter term revenues lie with an industrial metal few outside of the oil and gas industry have heard of: caesium.
Most of the world’s caesium is turned into a derivative called caesium formate, used to lubricate high-pressure oil wells (mainly in the North Sea).
In radioactive form caesium is a by product of nuclear power production, but we’re assured the mineral version wouldn’t hurt a gnat.
About 75 per cent of output is used in drilling and the remaining 25 per cent for caesium chemicals.
The material is so rare that about 85 per cent of caesium formate used is recovered for re-use.
So much so that the near-monopoly supplier, the Canadian miner Cabot, leases the stuff rather than selling it outright. “Cabot’s business model is so unusual that academics have written whole economic papers on it,” says Pioneer chief David Crook. “In the meantime, 99.9 per cent of people haven’t even heard of caesium.”
Currently, there are only two commercial caesium mines globally: Cabot’s Tanco (in Canada) and Bikita in the Robert Mugabe’s former fiefdom of Zimbabwe.
In a case of caesium-ing the day, Pioneer plans to develop the third at its Pioneer Dome deposit between Kalgoorlie and Geraldton in WA.
Envisaged as a short life, low cost open cut operation, the mine would be done and dusted within six months.
The company received a mining permit last month and hopes to start extracting by the first quarter of 2018.
Pioneer has a measured resource of 10,500 tonnes of the pollucite host material, of which perhaps 7500 tonnes can be extracted.
For those into geo-porn, pollucite is a caesium-bearing zeolite that forms in lithium-caesium-tantalum pegmatite structures.
According to the US Geological Survey, global caesium reserves stood at 210,000 tonnes in 2014, with output of 17,300t of pollucite material.
The pricing dynamics of caesium are hazy because it is not openly traded. But Pioneer’s project is predicated on generating free cash flow of $12m for an investment of around $5m (possibly stumped up by offtake partners).
While that makes for a handy return that mine is hardly a company maker: the funds will be ploughed into drilling for spodumene-based lithium targets at the project.
A farm in deal with Lepidico (ASX:LPD) covers lithium in lepidolite form, also present in the mineralisation.
Lithium is harder to extract from lepidolite, but Lepidico may have the answer with its patented L-Max process that produces the desired lithium carbonate directly from the material.
Pioneer also has a cobalt project near Kalgoorlie (Blair Dome, which it has just started drilling) ) and an option to earn an 80 per cent interest in two Canadian projects.
And did we mention the company has acquired some Pilbara gold tenements? No watermelon seed nuggets have been found as yet, but a team of geologists is leaving no rock unturned.
American Pacific Borate & Lithium (ABR) 38c
As with Pioneer, this one is turning the lithium story on its head with a proposal to develop one of the few borate mines outside of Turkey. According to ABR CEO Anthony Hall, most lithium projects contain borates and most borates contain lithium, but metallurgy issues can make the lithium hard to extract.
The borates are usually a by-product of lithium, but in this case the popular industrial ingredient (in the form of boric acid) is driving the economics of ABR’s fully-owned Fort Cady project in California’s Mojave desert.
Boric acid has not fewer than 300 industrial uses, including heat resistant glass, fibreglass insulation, ceramics and fire retardants. The current global market of four million tonnes, 55-60 per cent of output is controlled by Turkish state-owned monopoly Eti Mine Works.
Rio Tinto operates the Borax mine near Fort Cady. It’s barely a line item in the global giant’s accounts but is profitable and accounts for a further 20-25 per cent of global output.
The former head of Spanish potash hopeful Highfield Resources, Hall formed ABR to acquire Fort Cady from mining veteran Roy Shipes, now ABR’s chairman. As well as being a former US Air Force captain, Shipes has held senior roles at Ok Tedi Mining, Southern Peru Copper and Phelps Dodge.
ABR raised $15m in an IPO and listed in July this year.
ABR is testing the age-old theory that it takes the third owner of a mine to make even money: Fort Cady has had two previous owners who sunk $US50m into developing the mine and ABR will leverage this handiwork.
Fort Cady already has mining and environmental permits, but is waiting the re-granting of environmental approvals bestowed on the second owner (who ran out of money, as you do).
Investors are awaiting a scoping study on Fort Cady and an official maiden resource by the end of the calendar year.
ABR already points to an initial 90,000 tonnes per annum operation with an up-front cost of $US80-90m and an ongoing ebitda margin of $US500 a tonne on the current boric acid price of around $US1000 a tonne.
As Kazakhstani cult hero Borat would say: “very nice”.
Fort Cady’s historical resource suggests 115 million tonnes of borates translating to around 13mt of boric acid, enough for a mine life of around 100 years.
“We have good visibility around those numbers and we are happy,’’ Hall says.
Eventually ABR plans to triple output to 270,000 tonnes of boric acid, as well as producing the desirable fertiliser potassium sulphate (SOP).
As for the lithium, it’s a case of suck it and see. But as it’s a waste material, any lithium production would be an added extra.
Hall reckons half of the lithium borate material is attached to clay (which makes extracting the lithium problematic). But the remaining half is contained in salt based brines – an easier proposition.
Initial heap leach testing of material showed “excellent” boron recoveries of 98.5% and lithium recoveries of 48.3% .
Historical measurement puts the lithium resource at 80mt of lithium at an average 313 parts per million. A confirmatory drill hole this month reported better than expected lithium grades of up to 545 parts per million (ppm).
In comparison, the ASX listed Reedy Lagoon Corp (RLC) is creating excitement with grades of 90-120ppm at three lithium brines projects in neighbouring Nevada.
ABR shares have more than doubled since listing at 20c apiece, but Hall reckons the market is overlooking the “free option” on the lithium. Happily, the environmental permitting process in Trumpland is more straightforward than in Spain, where Highfield’s Muga project has been waiting – and waiting – for the government to sign the paperwork.
ABR shares have more than doubled since listing at 20c apiece, but Hall reckons the market is overlooking the “free option” on the lithium.
The New Criterion is authored by Tim Boreham.
Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.
Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small to mid cap stocks in an accessible and entertaining manner for both retail and professional investors.
Disclaimer: The author nor Independent Investment Research have received a fee or any kind of inducement for this article. The New Criterion is not intended as specific investment advice and readers should contact a licensed financial adviser.