The Goldilocks Principle: What The Engineers Are Missing

by Gareth Hatch on October 13, 2010 · 12 comments

in Rare Earths

Bookmark and Share

Earlier this week, Mickey Fulp, the “Mercenary Geologist”, published a thought-provoking piece in response to the article that Jack & I wrote on right-sizing rare-earth mining ventures. He has given permission for me to reproduce his article in its entirety here. Your comments are welcome and can be posted below.

by Mickey Fulp – Published: October 11, 2010

I read with interest the recent blog from respected engineers in rare earth element space, Jack Lifton and Gareth Hatch. These two men are experts and likely have forgotten more about the process metallurgy, separation, refining, sales, and marketing of this fascinating specialty metals group than I will ever know.

I can agree with many of the points that each makes in his analysis. I will not quibble with the idea that “small” is okay in REE space but will disagree with Jack that small is somehow better.

That said, as a field geologist by education and experience and an analyst and investor by profession, I think both gentlemen are missing key criteria for success by not carefully considering the share structure, people and projects of their top stocks before picking them as favorites. There is much more to the REE game than deposit size, metal distribution, process metallurgy and concentrate tonnages.

I would suggest that most readers of this are speculators in the junior resource sector attempting to learn about the best companies so they can invest and make money in the stock market. Thorough due diligence is always required to assess a company’s chances of success.

Let’s look briefly at some of the companies favored by Jack and/or Gareth:

I visited Ucore Rare Metals’ (UCU.V) Bokan Mountain project in mid-August along with fellow Rare Metal blog editors Jack Lifton and Tracy Weslosky.

The Dotson Ridge deposit is small with low TREO (total rare earth oxide) grade but heavily skewed toward the HREOs (heavy rare earth oxides). The individual mineralized zones are very narrow (generally less than a mineable width of 1.5 meters) and are discontinuous along strike. The deposit will require selective mining and/or physical or mechanical separation of pay zones from wall rock using very high cost mining methods.

The company apparently is reluctant to commence the next logical step: Permitting, test mining, and bulk sampling during the 2011 field season. I must conclude the sole corporate exit strategy is to sell the project but have doubts that any larger player in the REE sector is seriously interested at this juncture. With current knowledge, the Bokan Mountain project is not viable. I agree with Jack that it will require private or government subsidies if a significant deposit can be delineated and if it is ever mined.

As of June 30, Ucore Rare Metals had 105.4 million shares outstanding, 134.0 million shares fully diluted, 24.5 million warrants at an average price of 26 cents, market cap of about $65 million, and $4.4 million in cash and securities. The company must go to the market for financing later this year or in early 2011. Ucore Rare Metals’ share structure is highly diluted given the stage of its flagship project and the potential for a significant increase in its share price is therefore limited.

The second company Jack discussed is Great Western Minerals Group Ltd (GWG.V). Great Western is the only current North American junior with a partially integrated REE business via its Less Common Metals alloy facility in England and what appears to be an R&D lab in Michigan.

I do not think any of the company’s exploration projects currently are candidates for development and mining. Hoidas Lake is too small, low grade, remote, and infrastructure-challenged to be of interest to outside parties. Others are very early stage, remote and/or too low grade.

Steenkampskraal in South Africa is a small, narrow, high grade vein deposit that was mined from 1952-1963. If it eventually proves to be of sufficient size and grade, the mine likely will be operated at a loss to secure supply. Its high thorium content could be an environmental issue. GWG has signed an off-take agreement to purchase the REE mineral concentrates from owner Rare Earth Extraction Co. of South Africa and currently holds a 20% equity interest in that company.

GWG recently announced a $35,000,000 equity financing at 33 cents with a two year half warrant at 45 cents. With another 106 million shares out and 159 million fully diluted, I address the crux of my issues with Great Western Minerals Group: It has a severe case of “Aus disease”, i.e., an excessive number of shares outstanding. I first evaluated GWG at a Toronto show in October 2007 and it had too many shares for my liking at that time.

Post-financing I estimate the company soon will have about 350 million shares outstanding, 451 million fully diluted, a market cap of $125 million, and $38 million in working capital post-financing.

Compare GWG with the share structure of Quest Rare Minerals Ltd (QRM.V): After completion of its new bought deal financing, QRM will have about 53 million shares outstanding, 64 million fully diluted, a market cap of about $250 million, and about $55 million in the bank; or Rare Element Resources Ltd (RES.V; REE.AMEX) with 32 million out, 39 million fully diluted, a market cap of $270 million, and about $8 million in working capital.

I opine that Great Western Minerals Group has diluted beyond being a vehicle for speculative investment. A big share rollback (5 or 10:1?) appears inevitable for Great Western Minerals Group. Note I have never experienced a rollback that was beneficial to current shareholders.

I know some about Gareth’s suggestion, Alkane Resources Ltd (ALK.ASX). The Dubbo project may become a mineable deposit for zirconium and rare earth elements but development has been pending for two decades. As of June 30 Alkane had A$8.5 million in the bank and requires a large capital infusion to complete its goal of a definitive feasibility study, environmental assessment, and mine financing within one year. Capital expenditures to build the mine and processing complex are estimated by the company at A$150 million. The deposit has significant uranium content and that could be problematic since uranium production is prohibited in New South Wales. With ALK’s significant gold projects, Dubbo could be acquired by a specialty metals miner, Zr or REE consumer, or perhaps spun-out as a stand-alone entity.

Alkane is not a company that is likely to attract significant North American speculative interest due to the difficulty of trading Australian-listed stocks in this hemisphere. As per usual, it has a mild case of “Aus disease” with 249 million shares outstanding but with a healthy current market cap of about A$210 million.

I think most savvy North American investors will play on our own terra firma and leave this speculation for those that speak English with an oversized twang, drink beer from oil cans, and waltz with sheilas.

Gareth also mentions Stans Energy Corp (RUU.V). My problem with this company is reflected in its name: Stans’ flagship project is in a country that ends in “stan.”  It’s Kyrgyzstan, a country that had a violent coup, street riots, and ethnic fighting this spring and summer. I will steer clear of companies operating in any of the “stans” for obvious geopolitical reasons.

The Luxembourg-based company, Frontier Rare Earths that Jack writes about is new with little public information available. It holds the Zandkopsdrift deposit in South Africa and recently applied for a Toronto Stock Exchange listing. I have not found sufficient information to comment.

In my opinion most of the companies discussed above have projects of merit in rare earth element space. That does not imply I will consider them for speculative investment using my key criteria for investing of Share Structure, People, and Projects and employing my Power of Two philosophy.

I will let you decide which are worthy of your speculation. As Otto sez: DYODD dudes and dudettes!

P.S. I own shares of Quest Rare Minerals and Rare Element Resources. Quest is a sponsor of my website.

Ciao for now,

Mickey Fulp

The Mercenary Geologist Michael S. “Mickey” Fulp is a certified professional geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia. Mickey has worked for junior explorers, major mining companies, private companies and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping, property evaluation, and business development.  In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia. Mickey is well-known throughout the mining and exploration community due to his ongoing work as an analyst, newsletter writer, and speaker.

Disclaimer: I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, interview, and other content reflect my personal opinions and views and nothing more. All content is subject to international copyright protection and no part or portion of this report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary LLC.

Copyright © 2010 Mercenary LLC. All Rights Reserved.

Bookmark and Share
1 Gareth Hatch October 13, 2010 at 11:43 AM

As I have said elsewhere, the goal of the original piece was not so much to “pick stocks” – I do not own shares of any of the companies in this space, I am no stock picker and I do not claim to be :-) – but to highlight “technical projects” with the strategic perspective in mind.

Certainly as Mickey pointed out, from a commercial point of view, there is indeed more to these projects than just the in-situ minerals and subsequent “technical” steps required for success. Management, share structure and other parameters are important aspects for potential investors to consider. I also take Mickey’s point that, given the number of retail investors in the audience of the Web site on which I reposted our original piece, and where his original response was posted, it’s important to acknowledge these additional factors.

Mickey’s original article has stirred up a lot of debate in the rare-earths community over the past couple of days and has now been removed from the Web site at which it was originally posted. While I don’t necessarily agree with Mickey’s perspective on the companies mentioned above, I do believe that discussion is healthy when conducted in a civil manner, and that reasonable men [and women] can respectfully disagree without the need for censorship.

2 CuriousCat1 October 13, 2010 at 3:05 PM

Originally on RareMetalBlog comments:

Mickey, forgive me, but saying that a stock has to many shares is like saying that a piece of music has “too many notes” (Cote from: Emperor Joseph II to Mozart). You might also want to disagree with Jon Hykawy Ph.D. who has a sell rating on Quest and Avalon:
(Sorry to repeat this but I couldn’t help it)

In view of the capital and dilution needed to finance Quest and Avalon, GW dilution is laughable for us GW investors. GW is also probably on its last miles of financing.

Also I believe that Thorium is not an issue for GW. Anyone, correct me if I’m wrong but these issues should to be resolve. In the “PresentationGWMGApril29.pdf” document on page 11 & 12 on this link:

A “conceptual processing flowchart” shows how the metallurgy should be carried out. Since the Steenkampskraal SA mine was a thorium producing mine the metallurgy is verified up to the thorium and rare earth separation point. At that point hydrochloric acid HCl and water H2O is added to a solid mixture of thorium hydroxide Th(OH)4 and rare earth hydroxide RE(OH)3. The hydrochloric acid neutralizes the rare earth hydroxide to form a rare earth chloride RECl3 into solution. The thorium hydroxide is highly insoluble in water and does not react with acids (is not amphoteric) and therefore stay as out of the solution. From the rare earth chloride solution a 45% rare earth chloride concentrate is obtain.

Plus the plan is to store the thorium encase in concrete in the underground Steenkampskraal mine. They even have a permit to store thorium (and they are apparently the only ones outside China) this way.


3 Tekton October 13, 2010 at 5:16 PM

Now I know where the article went. And I agree that open discussion among adults is the best policy. Apparently it got out of hand, even without MY help. I’m glad to reread it here, allowing me to consider his points.

4 Gordon Clarke October 13, 2010 at 5:20 PM


Debits are on the left and credits are on the right.

5 Chris October 13, 2010 at 8:48 PM

” I think both gentlemen are missing key criteria for success by not carefully considering the share structure, people and projects of their top stocks before picking them as favorites. ”

I don’t think enough reading has been done on Ucore, comments don’t even scratch Ucore’s activites.

Deep sea access at front door.
Comments on potential shipping costs.
Next to zero radioactive contamination so far.
No indeginous issues.
Mining only district.
Based in the only U.S. state with a 100% mine permit approval.
Local, state, federal support. ( not even Molycorp can say that )
State has pledged no permitting delays for Bokan.
Past USGS grant.
Current USGS support.
Some of the best REE’s guys in world.
N. America’s highest Heavy numbers.
Some of those heavies at Bokan, China’s considering eliminating the export of.

March 1, 2010 :
” We are encouraged by the coarse grain size and liberation of iimoriite, a key REE mineral that has high concentrations of the more valuable heavy rare earths and has relatively simple refining properties. We already have previous metallurgical test reports by the US Bureau of Mines that indicate recoveries of more than 95% yttrium, and results of our new mineralogical studies will be used to develop bench-scale metallurgical investigations to determine the potential recovery of the full suite of light and heavy rare earth minerals and elements.”

September 2, 2010 :
” In addition to the foregoing, the USGS has now sent a team of geoscientists to Bokan for the purpose of advancing the U.S. government’s understanding of the area’s unique Heavy Rare Earth (HREE) mineralogy, believed to be the largest historically documented HREE deposit in the United States. The USGS field work, completed in August, 2010, was conducted under the supervision of USGS resource and geological specialists Bradley van Gosen, Dr. Philip Verplanck, and Richard Grauch. Also in attendance were Dr. Anthony Mariano, an internationally recognized expert in rare earth mineralogy; James Barker, co-author of the USBM study of Bokan originally compiled in 1988; and Dr. Dostal, a recognized expert in ore genesis.

Of particular interest are terbium and dysprosium, which are among the most scarce and valuable metals in the world, and which have been found in anomalously high grades in the Bokan area. “The U.S. government is quite interested in these minerals because they are of military importance,” said Dr. Mariano. China has moved to decrease the export of these essential metals to the U.S. and elsewhere, thereby increasing interest in securing short and long term domestic supplies within the U.S. ”
Mr. Fulp also says: ” The company apparently is reluctant to commence the next logical step: Permitting, test mining, and bulk sampling during the 2011 field season. I must conclude the sole corporate exit strategy is to sell the project but have doubts that any larger player in the REE sector is seriously interested at this juncture.

So they’re only looking to dump this project? ( LOL )….sounds to me like somneone is looking to short something,,,,but anyway back to the developing OR lack of.

May 10, 2010 :
The two initial target zones addressed by this model, known as the I&L and Dotson Shear Zones, are components of a larger, multi-zone rare earth system at Bokan-Dotson Ridge.

The conceptual model is intended as a partial estimate of prospective rare earth mineralization at the Bokan project for an initial limited exploration area, and specifically does not include surrounding zones located to the north and south of the subject areas, such as the Sunday Lake, Geiger, Geoduck and Cheri zones, or any of the additional zones comprising the Bokan Intrusive Complex. Further, the model spans a combined strike length of 2425 metres over the initial two target zones, and projects to a limited depth of 200 metres below surface, and therefore does not include prospective mineralization located at greater depth, or extraneous to the target zones.

” “This estimate applies to a very limited portion of the overall REE-prospective area at Bokan as established by the USBM, and yet the initial figures already establish the area as one of the most significant heavy rare earth deposits in the United States,” said Jim McKenzie, Ucore’s President and CEO. “Our overriding objective continues to be the proving of the historical USBM estimates for Bokan, and this interim conceptual estimate more than delivers on that objective. The projected grades and tonnage of this conceptual estimate surpass the historical USBM estimates for the same target areas: namely the I&L and Dotson Shear Zones. What’s more, our estimate of 60% HREE content exceeds the original USBM projections of 50%, and highlights Bokan as having one of the highest prospective HREE skews in North America.”

“Our geologists believe that the deposit may be hydrothermal in nature and that the mineralization may persist vertically,” continued McKenzie. “If this is confirmed by additional drilling, the initial 200 metre vertical depth projection is potentially the top of a very deep and continuous heavy rare earth deposit.

It can be picked up from there, and
July 15, 2010 :

” Drill permits have been issued by the U.S. Forest Service. More Core Drilling of Stewart, British Columbia has been retained to provide diamond drilling services on a 24 hour per day basis, with drill activity expected to proceed into September of this year. Additionally, Collison and Associates has been retained for scoping and pre-feasibility work on the prospective heavy rare earth mine at Bokan, as well as the planning of progressive underground exploration.”

“Considered by many to be the nearest heavy rare earth facility to production on U.S. soil, our objective for Bokan will be to transition from the delivery of an NI 43-101 compliant Inferred Resource this year to production pre-feasibility immediately thereafter”, continued McKenzie. “There’s been a strong show of support for expedited rare earth production at Bokan, from both the State of Alaska and at the Senate level in Washington. Thus, the political response to meeting this supply crisis head-on has been very rapid, to say the least, with prospective economic and permitting measures designed to obtain domestic heavy rare earth production within the U.S. as quickly as possible.”

Notice it says ” designed to obtain domestic HEAVY rare earth production within the U.S. as quickly as possible.”
Again, something not even Molycorp can say. Not a knock on Moly as i’d imagine they will qualify for the new loan gurantees, just trying to focus on the heavies of all this being those are what a shortage/possible elimination is what the world is projected to be looking at and not a shortage of the light REE’s, as Molycorp, & others are mainly skewed towards & what China themselves have said to be worried about….the heavies.

So to me, 140M o/s I can live with. Especially when it’s estimated that the $2B dollar REE market controls over $1T in products.

That makes me wonder if over the next few years, will there be an unbelivable upward correction on certian REE’s ?? And that excludes any thoughts of China using REE’s as leverage. But they wouldn’t do that. ( oh nooo )

In 1989, a U.S. Bureau of Mines study (Barker & Warner, USBM OFR 33-89) estimated that the greater Bokan area contains 37.8 million tons of TREO at an average grade of 0.50%. This historical, non NI 43-101 complaint estimate, equates to 374 million lbs of contained TREO. With an estimated skew toward HREE content estimated at approximately 50% of total rare earths, the area ranks as one of the most prospective and accessible heavy rare earth enriched projects in North America.
September 3, 2009 :
September 3, 2009 – Halifax, Nova Scotia – Ucore Uranium (TSX-V: UCU) is pleased to report the results of an independent review of a U.S. Bureau of Mines (USBM) metallurgical study which reported a significant 96% separation and recovery of yttrium from Bokan Mountain (Green and Harbuck;1996). Yttrium can be considered a proxy for the entire “Yttrium Group of Lanthanoids”, otherwise called the heavy rare earth elements (HREE’s).

Ucore engaged the services of Mountain States R&D International of (MSRDI) to review the USBM (currently the USGS) study with respect to NI 43-101 compliance. MSRDI`s Roshan Bapphu, PhD, P.E. AZ examined the USBM study and found the methodologies and conclusions contained therein to satisfy the NI 43-101 standards which came into effect after the USBM study was released in 1996.

” The Green and Harbuck metallurgical study was the culmination of a large scale research project commissioned by the USBM to examine the metallurgy of the Bokan Mountain heavy rare earth elements with a particular view to the recovery of yttrium. ”

Neat to see the study from way back when would meet todays standards.

Anyway…glta whatever they choose !!

My money says Ucore, Mr. Lifton, Mr. Mariano, USGS, local,state & federal people can’t all be wrong.

6 Chris October 16, 2010 at 1:52 AM

China Rare Earths to Last 15-20 Years, May Import

” at the current rate of production “.

7 Chris October 18, 2010 at 10:24 AM

An piece that is directly saying, stop your crying or simply continue to fall even further behind. You got your REE’s on the cheap and now we won’t screw ourselves into the same situation the rest of you ( countries) are in.

” These countries “hide” their own reserves and use low-price rare earth materials imported from China. The purpose is self-evident. Not to mention many countries purchase rare earth elements to stockpile instead of immediate use. ”

That’s the kinda of stuff that makes me wonder when I read from Mr. Lifton ( who i very much follow) and others comments about china possibly re-flooding the markets.

At this point, wouldn’t it just be a double shot in the foot for’em being they even feel like they don’t have enough reserves for the future for their own consumption alone ?

Basically, i would guess they can’t play chicken with these metals because they don’t have enough of it anymore to allow that.

I think the wheels around the world have already started spinning and if china was to play games, all it would do is really expedite whatever projects/plans that are in progress.

Just a thought.

8 chris October 19, 2010 at 4:34 PM

Just heard on CNBC that China has blocked REE’s to U.S. and I didn’t catch the other country.

It was clearly said by Maria Bartiroma and then a commercial. LOL


Come ON Ucore, say something ! like everyone else has. ( arrrg )

Lets see, they hit Japan with it and demanded electric car tech if you wanna sell there.

9 chris October 19, 2010 at 4:40 PM
10 chris October 19, 2010 at 4:43 PM
11 T.Martin October 21, 2010 at 9:11 AM

I left this comment to Mr. Fulp:

If you don’t get paid by the companies listed above then you will turn negative on them to help the ones that pay me.

Mr. Fulp this should be your philosophy:

What’s in for me and will they except my fees to be mentioned by me.

12 Tek January 1, 2011 at 3:17 PM

Gareth, Jack, and Mickey

I think it’s time to revisit this subject as 2011 could be a boom year for REEs, and there are a few issues that need to be discussed again:

1. Is the idea of a multisourced refinery using different orebodies completely unfeasible? This idea keeps resurfacing and I think we need some accurate assessments from chemical engineers and professionals like you, Jack, C Karayanopolous, or the people running Alkane’s pilot plant.

2. It seems more likely that some companies will develop JV’s with other to construct refining facilities specific to their needs. Who is most likely to partner up: Obviously MCP, but what about others like GWG?

3. Are there new technologies and processes that might significantly change the refining landscape?

4. After observing Toyota Tsusho’s rapid move into the Indian REE mining/refining, just how fast can one of thes plants be constructed, once the metallurgy is done?

5. What construction companies would be most familair with actually building such facilities, in NA, or anywhere else?

I think it’s time to expand our scope of interests into the next phase of actually bringing these companies and facilities online.

Comments on this entry are closed.

Previous post:

Next post: