Kimberley Rare Earths receives buy recommendation from BGF Equities

The newly minted Kimberley Rare Earths (ASX: KRE) has already started to receive some support from the broader finance and investment community, with BGF Equities placing a speculative buy on the stock.

Following is an extract from BGF Equities research.


Mozambique High Grade Heavy Rare Earths Deal Adds Balance

Event Farm-in agreement to earn up to 90% interest in a pegmatite-hosted rare earth project in Mozambique.

Comment KRE has added a promising heavy rare earths project to its portfolio with the agreement to earn into the Malilongue REO project in Mozambique.

Mineralogical examination has found an exceptional concentration of xenotime, which is very rare. In addition to yttrium, the xenotime shows appreciable presence of dysprosium, terbium and erbium, heavy rare earth metals in critically short global supply.

Strongly encouraging samples have been obtained from tailings from a topaz mining operations but systematic sampling, particularly of the hard rock geology, needs to be undertaken.

Rare earth stocks have been out of favour in recent months as investors have focused on more pressing concerns than how to profit from advanced technology metals, but that is providing a buying opportunity for longer term thinkers.

KRE is the lowest cost entry into the sector as it is selling at less than cash backing, it has a JORC compliant resource in WA, and it has just signed up the rights to what could be a significant source of the most valuable end of the rare earths – the heavies.

It is developing as a sensibly balanced rare earth specialist, with a very strong cash balance that will restrict the downside from here.

SPECULATIVE BUY.

Price: $0.11 Market Cap’n: $13.8m Cash $16.9m (30/6/11)

Key Points:

The project is located a few hours drive from Tete, Mozambique new mining epicenter (iron ore and coal, particularly coking coal) and where a number of companies are making in-roads (BHP, Vale, African Eagle, Globe Metals and Mining, Baobab Resources) in parallel to Rio Tinto making a grab of Riversdale.

The Malilongue intrusion is a large 7km x 3km pegmatite over which 65 separate artisanal workings have currently operating exploiting gemstones such as amazonite, aquamarine and topaz of exceptional quality. The agreement covers all metals but excludes gemstones. Past rock chip samples have returned excellent grades in the pegmatite with 3 assays out of 4 in the order
of 20% TREO.

The proportion of HREO is high in the order of 26% of the TREO mineralization.

This project is in the early days of exploration. No systematic exploration for REO mineralization has been undertaken in the area. As such, the deal has been structured to include technical due diligence and staged consideration.

The Malilongue pegmatite presents many similarities with the Strange Lake deposit in Quebec, own by Quest Rare Minerals (QRM.TSX). QRM has an enterprise value $100m, equivalent to $171/t REO.

KRE is currently drilling at Cummins Range with a view to adding to the JORC resource.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/20435/kimberley-rare-earths-receives-buy-recommendation-from-bgf-equities-20435.html