In the last few weeks a curious meme has been propagating throughout the rare-metals ecosystem, both online and off. It started on a few obscure blogs, but quickly reared its ugly head at outlets such as Benzinga, Seeking Alpha, TheStreet, Street Insider and even CNBC.
I’m talking about the rare-earth companies that aren’t.
A handful of commentators have got it into their heads that companies such as China Shen Zhou Minerals and Resources (AMEX:SHZ), Qiao Xing Universal Resources (NASDAQGM:XING), General Moly (AMEX:GMO) and Thompson Creek Metals Company (NYSE:TC) are rare-earth companies. Those a little late to the game have simply been copying the garbage put out by the earlier hacks, and before you know it, a Potemkin village of new rare-earth companies has been born.
We can thank the Van Eck Rare Earth / Strategic Metals ETF (REMX) for some of the confusion – or more specifically, the apparent inability of giddy investors and commentarati to actually read and comprehend the description of this fund, beyond the third and fourth words of its title. Perhaps that’s a little too much to ask these days, I don’t know. Two of the four companies above (General Moly and Thompson Creek) are featured in this fund. Again – for the record, they neither produce rare earths nor are they developing rare-earth projects.
The same goes for the other two companies, but the reason for their emergence as faux rare-earth companies is less clear. Others who have spotted the issue have suggested that something nefarious might be afoot. In the past month, China Shen Zhou Minerals and Resources has seen its stock more than double; Qiao Xing Universal Resources almost doubled before settling at an increase of around 55% in the same period. these might be good stocks; they might even be good mining companies. They are not, however, rare-earth companies.
I suppose this is yet another illustration of the need to Do Your Own Due Diligence, folks….
i read an interesting article on REE’s and how long it takes to get drill reports, funding, partners, drill, processing etc. and in particular how long it takes to get the final product to market.
Some companies are nearly up and running. MANY are still making first reports and saying how much REE they have but it will take yearss for them to get ot market. By that time they would have missed the boat and shareholders will lose their money.
So beware go for the companies ready or near ready to production. The other Johnny come lately companies will die out – but their board members will still enjoy a free lunch that you paid for.
Gareth
In researching an update on the arrival of new frauds for my own general economics blog I ran into this Friday and have posted it into my weekend update. It’s long but may be related.
http://www.bloomberg.com/news/2011-01-13/texas-short-seller-fights-china-fraud-in-20-billion-u-s-shares.html
Nothing has changed on Wall Street.
Graeme
@blackjack: thanks for your comments.
@Graeme: that’s an excellent link – thank you for sharing. I note that China Shen Zhou Mining and Resources, one of the faux rare-earth companies mentioned above, is referenced in it.
Hi All:
Really good Bloomsberg article Graeme linked. I don’t know anything at all about the two Chinese companies but the two North American companies are both moly companies. Maybe the investors think moly or Rhenium is a rare earth. Van Eck certainly seems to. As for Wall street I have said for a number of years there are many companies on nasdec that would never fly if the US OTC and Pink sheets had the disclosure rules of the TSX-V. Any way good article Gareth. For what its worth I think many investors take the flavor of the month to extremes with no due diligence at all. Just jump on some tout sheet or blog recommendation. I will certainly agree as to the necessity for Due Diligence.
A year or two ago when there were about 15-20 companies, the comments were being made then, about what would be happening now. Lo and behold, a 20 fold increase in the number of “rare earth companies” and critical capital is being diffused and squandered into ventures that don’t have a snowball’s chance in Hades. And honestly, with that maelstrom comes confusion of legit companies simply being lost in the fray. Thanks to TRM and RMB, we have credible and vaulable information sources to hang on to while this tempest reigns.
PS
The Bloomberg article might cast a questionable light on why CIC, according to an RMB article, has apparently chosen Toronto for its base?
So between the lines are we saying to new Rare Earth discoveries “Just leave it in the dirt”? Because I have a solid source of all the rare earth elements plus Molybdenum, Lithium, Copper, Gold,Silver, and Tungsten. I think there is still room for more Rare Earth Element mining if the company has significant by-product revenues from other sources.But of course every one should study the companies they are investing in before jumping over the Grand Canyon without a schute.
@Jim: thanks for the comments.
@Tek: I think that Toronto being the proverbial “hard assets / resource capital of North America” would explain the CIC decision.
@Jack: at the end of the day, any new company has the chance to “make it” if the circumstances are right. The major impediment to any company only now entering the rare-earths sector though, is one of timing. In some cases, such newcomers are 10+ years behind the leading contenders.
Should you also include companies with REE resources that are restricted by current laws from active mining due to uranium in this category? Alkane Resources and Greenland Minerals would be two examples. Both seem to be pushed by some in the press as shovel ready REE projects or at a minimum easily permitted stages.
@Brian: a number of rare-earth projects certainly have a ways to go and some hurdles to overcome. If their owners have a defined rare-earth mineral resource and are actively making progress on their development work, I’d still call them rare-earth companies though :-)
I see this problem isn’t confined to the left side of The Pond…
http://www.telegraph.co.uk/finance/markets/8232346/Rare-Earth-Minerals-333pc-rise-after-name-change-puts-Aim-under-fresh-scrutiny.html
HI Gareth,
Thanks for another great article, I had wondered why General Moly had been discussed elsewhere.
In reference to Rare Earth Minerals (LON:REM), I bought stock in this just before it changed it’s name. I live in England and there has been a lot of talk about this company on the boards. People are interested due to the two people involved- Lenigas (although he is involved with lots of companies) and Bruce Rowan, who bought 11.19% of the company in October. And also because there are no rare earth element companies listed on LSE, except Thor Mining (dual-listed on ASX), which I believe has some exposure (sorry it’s Sunday, too lazy to check).
As The Telegraph article says, it appears they plan to invest in REE companies around the world, or possibly directly stockpile like Dacha do, but there has been no confirmation as yet. And although I have shares, I have to say that there cash position of £630,000 does not strike me as being particularly large in the world of REEs.
Anyway, I suppose my point was that maybe Rare Earth Minerals shouldn’t, just yet, be tarnished with the same brush as the 4 listed above?
Thanks
@Kyle: thanks for the note. Perhaps I’m getting too cynical in my old age :-)
Interesting… I posted a version of the above article to Seeking Alpha over the weekend, and it has now mysteriously disappeared….
I was going to ask if you had informed the offending parties, but I suppose some poeple just don’t like being proved wrong!
@Kyle: I did try to notify CNBC on Friday via the producer who worked on a lot of the rare-earth segments shown that day; he passed a message along to the studio but apparently it made no difference – the two Chinese companies continued to be displayed under the rare-earths banner for the rest of the day…
I had the idea 4 years ago that Rare earth minerals would be a good investment. With my dabbling in small Cap. Australian mining companies, I noticed 12 months ago that any Co. would only have to install the REE acronym in a drilling report, and that would effect their share price for the better. Now we all have to be aware. Good article Gareth.
Chris Alexander
The confusion arises with the adoption by the media and policy-makers of the term “rare earths” for all of what Jack calls “technology metals” and I refer to as “critical and strategic minerals.” Check the front-page article in Sunday (16 Jan 2011) Denver Post. We’re getting some publicity for the issue and will have to work around the confusion created to geologists, geochemists and chemists.
After reading all of this, I’m left with two conclusions, 1) All we truly need is one portal of information that is beyond reproach, which we have in TMR. I suppose it is incumbant on us to spread that fact, and, 2) We tell people to do “due diligence” on any investment decision for a reason. They have more resources to accomplish this manditory investment principle than ever in the history of human-kind. If it is to much of an energy drain to preform that task, these individuals need an actively managed investment account for their capital, or some type of investment that is not quite so labor intensive. We just can’t hold all of those hands. I do believe crooks and criminals assets should be ceased and they should promptly be escorted to the hootscow, but more-over, I was always taught that a fool and his money are soon parted. Thanks for the honest, diligent research that your group does, not to mention that you share it for free. There are many of us who are grateful for that.
Comments on this entry are closed.