Last week, Christopher Ecclestone of Hallgarten & Company issued an in-depth report titled “Rare Earths: The GAO Report – Mapping the Road Not Taken” – a report that I highly recommend to anyone involved, in any way, in the rare earths sector. This was another ‘no holds barred’ analysis from Mr. Ecclestone, focusing in particular on the recent report issued by the Government Accountability Office on rare earths.
Mr. Ecclestone discusses the demise of vertical integration as a means of securing access to scare metals and minerals. He notes that in contrast to the approach in the West from the 1970s onwards, Japanese trading houses continued to invest in mines and the subsequent offtakes from these entities, taking a much more strategic, longer term view.
On the topic of stockpiles, Mr. Ecclestone comments that, since governments buy their weapons and other defense systems from industry contractors, it is these contractors who should be investing in stockpiles, or in mining ventures upstream of their production streams, to ensure security of supply. Later in the report he suggests that the Federal government should include penalty clauses in contracts that would punish suppliers for not being able to supply products and systems due to “foreseeable” supply issues with rare earths and other specialty metals. Now there’s an idea worth considering!
Mr. Ecclestone than goes on to discuss the recently proposed Molycorp Mineral IPO in great detail, talking through what many agreed was the strange withdrawal of Goldman Sachs from ownership of the company shortly before the IPO announcement. He draws attention to Molycorp’s intentions to acquire a “third-party producer of rare earth metals and alloys in the United States“, and suggests that this might indicate a second go at acquiring the asset of Great Western Minerals. My sources indicate that the assets of the Santoku facility in Arizona may be the target of Molycorp’s interest here, but we shall see what they end up doing.
In concluding his remarks on Molycorp, Mr. Ecclestone makes some intriguing observations concerning the true intent of Chinese players as they look to probe the US mining sector for investment opportunities – read the report to see more on this. Interesting comments indeed.
In his executive summary of the report, Mr. Ecclestone concludes as others have, that the Molycorp IPO will be a tipping point of sorts, bringing greater awareness of the rare earths sector to the wider financial circle, stating that
“[t]he spin-offs from the IPO will be felt by a feeding frenzy in the second tier of REE wannabes with easier financing possibilities for those with serious intentions of becoming producers.”
He goes on to say that
“Rare earth players include a number who do not seem serious about mine-building and may just be paying lip-service to the concept. Very few have made moves that might hasten production any time in the foreseeable future.”
My summary above does not do the report full justice. I particularly enjoy Mr. Ecclestone’s earthy tone – but behind his often amusing turn of phrase lies some pretty damned sharp analysis. I again urge you to download a copy for yourself.
[First published at RareMetalBlog.]