The Rare Earth Story - Permanent Magnets

The Rare Earth Story - Permanent Magnets

This REE (Rare Earth Elements) industry that has been making more noise in the last few weeks is a bit of a mystery to most people.  The recent US-China trade war sparked the latest resurgence in pricing.  Before this event, the REE industry outside of China was pretty much a non-event.  The most promising story in town, which was that of Arafura Resources was almost a sunset industry.  In a matter of a few words from the Chinese government, the diminishing light at the end of the tunnel suddenly became a bright light of sunshine.

I must admit that I have not been a fan of this sector because you are entirely at the mercy of the most significant player in town, The Chinese Panda.  Cute as he may be, but when he sits on you, you are not getting up.  In saying that, I do feel that the complete dominance of this sector by China does open up opportunities of being the one of few that the rest of the world will support.

Photo by Jay Wennington on Unsplash

The REE sector is very tight, and those that have been in the game the longest will surely benefit the most.  A few searches on the internet and you will learn quickly about the dominance of China in this sector.

Now that there is more excitement happening, there are some players that may well take full advantage of the uncertainty because of this tug of war between the US and China.

 

What is Fueling this REE sector?

One of the biggest and if not most significant use of REE is in the permanent magnet industry.  According to a site called, Tech-FAQ,  a  permanent magnet (ferromagnet) is a material that produces a magnetic field. Permanent magnets are made from ferromagnetic materials, such as iron. They are created when the material is placed inside a magnetic field. When the magnetic field is removed, the object remains magnetised. Permanent magnets have a continuous magnetic field and do not turn on and off as electromagnets do. Permanent magnets are the oldest type and are still used for a wide variety of applications today.

These magnets have electrons moving in the same direction, and as more electrons align themselves, the magnetic field increases and become stronger. Standard magnets have electrons moving in a random manner.  This is as simple an explanation that I can come up with to explain the phenomenon of permanent magnets.

Permanent magnetic field. (Source: Tech_FAQ)

If you are still wondering why they are so important, think about power generation and electric motors. The induction process for turbines and generators needs permanent magnets to turn mechanical motion into energy. They are also crucial for electric motors in many electronics using the reverse of the induction of electrical current to make mechanical energy. As you can see without the permanent magnet, we would not be able to take full advantage of the capabilities of electricity in modern devices.

In our time of EV (Electric Vehicles), these little “slippery critters” are critical.  Currently, the whole EV story needs permanent magnets.

 

Which ASX companies are involved?

As I mentioned, I have not followed this sector in great detail, and I have just included the companies that I am familiar with for the moment.  I have chosen the better-known companies.  Lynas Corporation and Arafura Resources have been singing this song for a long time.  Hastings Technology was a bit later in the game.  The others I have just noticed and I have put them in my list to get some context.  I learnt about Greenland Minerals a while ago and it is a fascinating company.

Alkane Resources is a gold miner with a polymetallic REE project in NSW.  In this instance, Alkane Resources will probably never make a play for this sector.  I can’t see that happening but they could get value from teh project if they were to JV it to a willing participant.

Northern Minerals and Peak are pretty much unknown entities to me but I wanted to include them as they may be positioned in this sector better than I know.

Lynas Corporation Limited (ASX:  LYC)

Market Capitalisation:  AUD 1.5B
Shares Outstanding: 662.50M
Top 20 shareholders:  70.20% (2019)

LYC 5-year chart. (Source: Commsec)

 

Arafura Resources Limited ( ASX:  ARU)

Market Capitalisation:  AUD 51M
Shares Outstanding: 639.90M
Top 20 shareholders:  54.60% (2019)

ARU 5-year chart. (Source: Commsec)

 

Hastings Technology Metals Limited (ASX:  HAS)

Market Capitalisation:  AUD 160M
Shares Outstanding: 711.50M
Top 20 shareholders:  84.10% (2019)

HAS 5-year chart. (Source: Commsec)

 

Northern Minerals (ASX:  NTU)

Market Capitalisation:  AUD 100M
Shares Outstanding: 1.15B
Top 20 shareholders:  55.40% (2019)

NTU 5-year chart. (Source: Commsec)

 

Alkane Resources Limited (ASX:  ALK)

Market Capitalisation:  AUD 116M
Shares Outstanding: 506.10M
Top 20 shareholders:  51.50% (2019)

ALK 5-year chart. (Source: Commsec)

 

Peak Resources Limited (ASX:  PEK)

Market Capitalisation:  AUD 29M
Shares Outstanding: 799.20M
Top 20 shareholders:  42.60% (2019)

PEK 5-year chart. (Source: Commsec)

 

Greenland Minerals Limited (ASX:  GGG)

Market Capitalisation:  AUD 79M
Shares Outstanding: 1.1B
Top 20 shareholders:  62.70% (2019)

GGG 5-year chart. (Source: Commsec)

 

My Thoughts.

I am familiar with Arafura Resources and Hastings only because I had to deal with the company in the past. In 2015, while I was evaluating a project in the Gascoyne, I was put on notice that Hastings was doing a lot of drilling around an REE project.  This went on for a while, and when I read their story now, they are well advanced.  It is good to see that the company had the perseverance to hang around and had continued to do work on the ground.  I am sure they are all pleased to know that their time for picking the fruits may be close.

For Hastings, I am surprised to see that the Top 20 shareholding is so high at 84.10%.  I am guessing that in the bad times, those shareholders that put in money would have been rewarded with cheaper shares.  Looking at their market capitalisation of 160M, the company does not appear to be overly expensive.  With the sector experiencing some buoyancy, I think this may be an exciting company.

However, I think Arafura is looking more interesting from a market capitalisation point of view.  A market capitalisation of AUD51M is not very high.  I have seen some exploration companies with that kind of capitalisation and has nothing to show for it :-).  The share register appears to be more liquid and for a company with the Nolans project at the stage that it seems to be relatively cheap.

Greenland Minerals have an enormous project in Greenland. So big that it will tip the scale of world REE monopoly.  For once, I will agree that this is a world-class deposit.  However, on the other side of the waterway, there is also another project that is held privately, which is a world-class deposit. How this pans out in the future, I am not sure.  There is no doubt that the projects are “gianormous proportions”, but I am not sure if they will take off.  Greenland Minerals have been playing here for a long time, and they don’t seem to be moving fast.  One will need to ask why is that so?

I won’t comment on the other companies as I am not too intimate with their journey.  I am sure readers will DYOR for now.  I think this sector will be exciting, going forward.  Looking at the history of the industry, the recent brush with “death” may likely be a thing of the past.  The US-China trade war and the Chinese reaction may be sufficient for the industry to make sure they will not be hostage to one supplier.  This can be the same as the cobalt industry where the majority is coming out of the Congo.

I do believe that the REE sector may have learnt a valuable lesson where the guarantee of supply must be protected.  Hence, those that can get to production quickly may become part of the protected species.

 

 

 

 

 

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