Independent investment bank Jacobs Securities recently issued a research report on the junior Rare Earth Element (REE) space, including "Speculative Buy" recommendations for Tasman Metals (CVE:TSM) and Montero Mining and Exploration (CVE:MON).
earths refer to a group of 17 specific elements, known as lanthanides,
plus scandium and yttrium, used for everything from smartphones to
guided missiles. While some rare earths are relatively common, they are
dispersed in a way that makes it difficult to find deposits with high
enough ore grades to economically exploit.
Demand for the metals
is expected to continue to grow steadily as China, which produces 97
percent of the world’s rare earths, has cut exports by more than half of
2004 levels to 30,000 tons in 2010.
Jacobs' Moreno reckons that demand for commodities and specialty materials, such as rare earths, may grow substantially if
emerging markets continue to expand their middle class, who increasingly demand Western standards of living.
many new emerging "green" technologies that are critical to an
increasingly populated world require the use of rare earths, and if they
are adopted, it could spur REE demand further.
According to the
United States Geologic Survey, REE world production was estimated at
130,000 tonnes in 2010. However, the exact production volume is not
certain and some sources estimate that it could be as high as 190,000
tonnes, if accounting for China’s illegal production - carried out by
artisinal miners - and exports.
Under normal market conditions,
it has been estimated that demand for rare earths could grow 5 percent
to 15 percent in the next five years, depending on the application.
as Chinese rare earth export quotas have fallen from 60,000 tonnes in
2005 to 30,000 in 2010, many end-users have been forced to use less
efficient substitutes or to set up manufacturing facilities in China.
terms of pricing, Jacobs Securities continues to expect long-term rare
earth prices to "stay above the historically low prices
of 2007–2009 but well below 2011 peak prices".
Jacobs Securities research note highlights Tasman’s deposit as having
"one of the highest concentrations of heavy rare earth elements and the
company has been able to definite a relatively large deposit."
Jacobs has started coverage on Tasman Metals with a $3.99 target price.
is engaged in the acquisition and exploration of rare earth elements
properties in Scandinavia. The company owns 175 claims and claim
applications for strategic metals, including REEs in Sweden, Finland,
and Norway; and various interests in several iron ore exploration claims
in the Kiruna district of Sweden.
The company focuses principally on the exploration of the Norra Kärr project in Southern Sweden.
"We believe that Tasman has good potential to establish industrial alliances and partnerships as it progresses toward the final
feasibility study," Jacobs Securities analyst Luisa Moreno said.
the markets are favourable and Tasman is able to secure an industry
partner, the company expects to start construction in 2014 and reach
full production by the second half of 2016.
could supply the market for the critical elements yttrium and
dysprosium, which are important for the lighting
and magnet industries, respectively," Moreno added.
For Montero Mining and Exploration, Jacobs Securities has started coverage with a target price of $0.28.
primarily explores for REEs, phosphates and uranium deposits and its
principal asset is Wigu Hill, a REE project located
in Tanzania. The
company also holds uranium interests in two licenses in Tanzania, two
properties in Quebec, and four phosphate exploration properties in South
"Montero has achieved important milestones in this rare
earth race and may cross the finish line before all the other companies
in our coverage universe," Jacobs Securities' Moreno said.
Catalysts for Montero in next 12 months include the potential for industry partnerships for the construction of the plant in
South Africa or India, and the sale of the phosphate properties.
Jacobs Securities has changed its recommendation on Avalon Rare Metals (TSE:AVL)
to "Hold" from "Speculative Buy and cut its price target to $1.87 from
$6.06 due to a delay in the definitive feasibility study for its
Nechalacho rare earth metals project in the Northwest Territories.
that Avalon is likely less than 12 months away from the feasibility
study, it may be the most advanced rare earth junior company," Moreno
On Frontier Rare Earths (TSE:FRO), Jacobs is keeping its "Speculative Buy" but has lowered its target price to $2.07 from
$4.30 as a result of our lower rare earth price forecasts.
Frontier Rare Earths' principal asset is the Zandkopsdrift rare earth deposit in the Namaqualand region of the Northern Cape
Province of South Africa.
is currently the largest NI 43 101-compliant rare earth resource in
Africa. Estimated resources amount to 43.7 million tonnes at an average
grade of 2.16% and a 1% cut-off grade.
"We believe Frontier is significantly underpriced compared to its peers," Jacobs Securities' Moreno said.
Rare Element Resources (TSE:RES) is focused on REEs and gold. It holds a 100 percent interest in the Bear Lodge property located innortheast Wyoming.
is one of the few junior rare earth exploration companies to have
completed a pre-feasibility study and has one of the highest grades of
critical materials (excluding yttrium) in North America.
"The company’s metallurgy results are promising and it may be relatively simple compared to many of its competitors, which
places it in a favourable position as it moves toward production," the Jacobs Securities analyst said.
Jacobs Securities maintains its "Hold" rating and has lowered its target price to $4.17 from $4.50.
Element is one of the most advanced projects and one of the few that
has completed a pre-feasibility study and it seems to be close to a
definitive feasibility study," Moreno added.