SOURCE: Resource Capital Research

March 04, 2011 06:00 ET

Resource Capital Research -- March Quarter 2011 Equity Research Report

Global Rare and Minor Metal Companies

DENVER, CO--(Marketwire - March 4, 2011) -

Key Points

  • The primary price driver in rare and minor metals markets is China's ongoing policy of tightening supply by squeezing export quotas, raising tariffs, and rationalising supply chains. Its stated purpose is to encourage value-adding and domestic use of its own resources.

  • Rare and minor metals (RMM) company share prices (304 global companies) have climbed in the past twelve months (+118%, to February 16). Some gains in 2H 2010, especially in the rare earth sector, were fueled by market speculation but companies with strong fundamentals have retained most of these gains.

  • It is clear that, for the most part, demand for the RMM should increase in the next 4-5 years. This should benefit current and near-term producers, or exploration and development companies with projects that can be fast-tracked or will be low cost.

Resource Capital Research ("RCR"), an equity research company which focuses on small and mid size resource companies, today published its quarterly research report covering Rare and Minor Metals exploration, development and production companies.

RCR also publishes quarterly reviews of the Iron Ore, Uranium, Gold and Copper sectors. To access the free summary of the Rare and Minor Metals Report or to purchase the 56 page Subscribers report, go to www.rcresearch.com.au/reports.

The outlook for rare and minor metals

Rare and minor metals (RMM) equities have made considerable share price (sp) gains in the past 12 months (sp +118%), in parallel with metal prices, but speculation has cooled in the past quarter (sp +5%, for a basket of 304 stocks). Companies with good-quality projects have retained most of their gains from the second half of 2010 and remain close to yearly share-price highs.

The main commodity and equity market driver is China. This has been the case for the past several years and is likely to remain so for the foreseeable future. China is reforming its RMM sectors, by raising tariffs, reducing export quotas, stockpiling metal to ensure steady supply, and encouraging consolidation and vertical integration of production. China's stated aims are to increase domestic value-adding and use of the RMM, conserve resources, and improve industry monitoring and efficiency. China's actions could boost global RMM production.

Some examples of commodities with a stable to strong demand outlook for the next several years:

  • Lithium: Increasing intensity of use will require additional supply beyond 2014, although new mines could lead to oversupply.
  • Niobium: Industry forecasts are for FeNb consumption growth of ~15% per annum to 2014.
  • Rare earth elements (REE): Forecasts are for 6-10% annual growth in demand to 2015. Export prices (China) up 679% year-on-year.
  • Tantalum: A supply shortfall is expected to hand a competitive advantage to companies that provide a long-term supply of ethically produced tantalum, including Wodinga (WA, to be recommissioned).
  • Tungsten: Supply shortages are indicated from 2013.

RMM deposits can take 5+ years to develop as mines, sometimes due to their geochemical complexity, and the challenge of financing projects that are still considered to be outside the resources mainstream.

This provides an opportunity for companies with projects that are advanced or can be fast-tracked, e.g. due to location, favourable chemistry, size and/or high grades).

Equity performances

Globally, RMM stocks have matched or outperformed most exchange-based indices in the past 12 months. Share price performances have been studied, for 304 exchange-listed companies with one or more RMM projects (in six groups: lithium, REE, tungsten, zirconium, niobium, tantalum).

The unweighted average performance over 1 month (to February 16) was +6%. Twelve-month performance was +118% (S&P300 MM, +25%). The average RMM company share price is 25% below its yearly high and 249% above a 12-month low.

Analyst's Comment

"Metal prices have risen across the board in the past year, with a lot of the action occurring in the past three months," says RCR analyst Trent Allen. "The rare earths get a lot of attention from commentators due to their political and economic sensitivity and some extreme gains in value: an average 679% over 12 months, and 48% over three months, the latter from a very high base. REEs have become symbolic of the profound influence of Chinese policy -- tighter export quotas, stockpiling and enforced supply chain mergers -- on specialty metal markets."

"Other metals such as tungsten and tantalum are at record (nominal) highs, with markets anticipating tighter supply conditions as China moves towards vertical integration and domestic value adding in the RMM space."

"For equity investors, to state the obvious, the key is to focus on companies with sound fundamentals. For explorers that can mean a strong story, with prospective ground, good cash backing and experienced management; for developers, a valuable resource (large and/or high grade), well-tested process route and realistic capital costs; and for producers, offtake agreements to guarantee market share and competitive operating costs to help maintain it."

About Resource Capital Research

Resource Capital Research ("RCR") (www.rcresearch.com.au) was founded in 2004 and is based in Sydney. RCR provides investors with in-depth reports on current investment opportunities in the mining sector both in Australia and globally. The focus is on small and mid cap resource companies, within the iron ore, uranium, gold, copper and rare/minor metals sectors, ranging from exploration stage, through development and production. John Wilson the principal of the firm and analyst has over ten years' experience analysing mining companies in Sydney and on Wall Street including for major investment banks. Dr Trent Allen, Rare and Minor Metals Analyst, joined RCR in 2006. Trent has extensive experience as a mine geologist, academic and journalist.

The report is available at www.rcresearch.com.au. The next Rare and Minor Metals Company Review will be of the June Quarter, 2011.

Contact Information

  • For further information please contact:

    Trent Allen
    Rare and Minor Metals Analyst
    (+61 (0) 438 873 682)
    Email Contact

    John Wilson
    Managing Director
    Email Contact

    Resource Capital Research
    Phone: (+61- 2) 9252 9405