Lens through Rare Earth stocks amidst Global demand and Supply Dynamics – SG1, LYC, NTU, ARU, ALK, PEK

Due to the increasing applications of Rare-earth elements (REE), investors are taking a keen interest in Rare earth explorers and producers which are trading on stock exchanges.

Applications for REEs in emerging technology areas (Source: Government of Australia)

These days, REEs are mostly utilised in the production of high-performance magnets which are used in the manufacturing of electric vehicles. Rare earth elements are mostly used by the following sectors-

• Automotive: Internal combustion vehicles, hybrid and electric vehicles
• Electronics and Appliances
• Automation and Defence systems
• Wind turbines
• Oil & Gas refining

The ongoing boom in the electric vehicle demand has created a significant rise in the demand for REEs. Recently, China, the leading exporter of Rare earths elements threatened US to use its dominance to gain advantage in the ongoing US-China trade war. Consequently, US has started looking at other countries to fulfil its rare earth demand.

The US?China trade war has highlighted structural rare earths supply chain risks that exist for the US and in fact, for many other Western world economies. The development and facilitation of alternative rare earths supply sources has been the subject of significant media attention and engagement between the U.S. and Australian governments. Significantly in September the joint development of alternative supplies of critical materials was a key topic for discussion in the reported meetings between U.S. President Trump and Australian Prime Minister Morrison.

China’s indication that it may consider restricting exports of rare earths should be seen against the background of a quickly emerging supply and demand imbalance. This could create a pathway of opportunities for rare earth explorers and producers operating outside China.

(Source: Peak Resources and individual company and industry announcements)

Let’s take a look at few Australian listed REE companies.

Sagon Resources Limited (ASX: SG1)

Specialist rare earths company Sagon Resources Limited (ASX:SG1) recently received highly encouraging results of an external study conducted at the Cummins Range Rare Earths Project located in Western Australia.

The results have identified at least 9km of strike of highly prospective trends for the discovery of further resources at Cummins Range.

3 new highly prospective areas identified for potential new discoveries:

• Northeast Channel Prospect – 1.8km geophysical area
• Southwest Boundary Prospect – 1.8km geophysical area
• Southwest Hook Prospect – 0.9km geophysical area

A highly mineralised channels in close association with prominent linear zones of lower magnetic intensity has also been identified.

Sagon Resources intends to commence a passive seismic survey at Cummins Range in November 2019 in order to identify high priority drill targets ahead of the now expanded diamond and RC drilling program next quarter.

Notably, in the last six months, SG1 stock price has increased by 80%. At market close on 15 November 2019, SG1 stock was trading at a price of $0.045 with a market cap of $14.96 million.

Lynas Corporation Limited (ASX: LYC)

Australia’s leading rare earths producer, Lynas Corporation Limited (ASX: LYC) recently announced that Lynas Malaysia Sdn. Bhd. and MARA Corporation Sdn. Bhd have signed an MOU (Memorandum of understanding) to work collaboratively on several key projects.

Both the parties will work collaboratively on the following key projects:

• Attracting downstream industries and downstream customers to Malaysia
• Commercialization of NUF residues from the Lynas Malaysia plant, including making soil conditioner products available to Malay farmers
• Education and training initiatives in Malaysia
• Design and fabrication work related to the Lynas 2025 Project

During the September quarter, despite the volatile market conditions, Lynas was able to produce strong revenues at $99.1 million. Over the quarter, the company continued to prioritise sales of NdPr (combination of Neodymium and Praseodymium, two rare earths elements) to strategic customers, especially in Japan, in anticipation of the strong growth forecast in the Japanese magnet market in the upcoming calendar year.

Lynas has reported that during the September quarter, there was increased interest from magnet buyers in Europe and the US for long term contracts to secure their supply chains.

The company believes that it is uniquely positioned to benefit from the strong growth forecast and is making good progress with its Lynas 2025 growth plans.

In the past six months, LYC stock has incraesed by 21.78% as on 17 November 2019. At market close on 15 November 2019, LYC stock was trading at a price of $2.320.

Northern Minerals Limited (ASX: NTU)

Emerging supplier of ethically produced rare earth metals, Northern Minerals Limited (ASX: NTU) recently held its Annual General Meeting (AGM).

At the AGM, the company announced that over the next 14 months its main focus is on:

• Accelerated exploration aiming to expand the resource base;
• Ore sorting implemented;
• Reach nameplate capacity of the pilot plant;
• Complete separation scoping study;
• To test the economic and technical viability of the pilot plant.

The company has recently entered into an offtake agreement with thyssenkrupp Materials Trading GmbH (thyssenkrupp) for all mixed heavy rare earth carbonate from the Browns Range Pilot Plant Project, including all stockpiled product.

Plus points of Northern Minerals

• Strategic advantage as one of a few non-Chinese producers of dysprosium and terbium
• Pilot plant project to demonstrate and assess economic and technical feasibility of larger operation
• Offtake agreement with quality partner, thyssenkrupp
• Environmentally friendly, sustainable global supply chain
• Ore sorting project is underway, aimed at doubling head grade
• Significant exploration upside potential
• Strengthened balance sheet following $73 million equity raisings

At market close on 15 November 2019, NTU stock was trading at a price of $0.060 with a market cap of $148.22 million.

Arafura Resources Limited (ASX: ARU)

Emerging NdPr producer of Australia, Arafura Resources Limited (ASX: ARU), is in the process of finalising the execution framework of its Nolans NdPr Project.

During the September quarter, the company continued with the execution readiness activities at the project with following undertaken or underway:

• Finalisation of the project execution framework further developing the execution plan outlined in the Nolans definitive feasibility study (DFS);
• Further development of the project execution control budget and schedule based on the cost estimate and schedule developed in the DFS, with these to be finalised in Q4 CY2019;
• Development of scopes of work and tender documentation for the key contract packages for project delivery, with these to be finalised in Q4 CY2019;
• Engagement with legal and insurance support to develop draft contracts for the key contract packages for project delivery.

In the last six months, ARU stock price has increased by 93.05%. At market close on 15 November 2019, ARU stock was trading at a price of $0.090 with a market cap of $94.94 million.

Alkane Resources Ltd (ASX: ALK)

Alkane Resources Ltd (ASX: ALK) recently provided an update in relation to the development of its 100% owned Northern Molong Porphyry Project (NMPP).

In its update, the company highlighted that the recent discovery of significant porphyry style gold-copper mineralisation at the Boda Prospect which is within the NMPP signifies the potential for large porphyry gold-copper deposits in the area, an encouraging piece of news from an exploration perspective.

In the past six months, ALK stock price has increased by 209.30%. At market close on 15 November 2019, ALK stock was trading at a price of $0.645 with a market cap of around $336.55 million.

Peak Resources Limited (ASX: PEK)

Peak Resources Limited (ASX: PEK) recently became the 100% of the Ngualla Rare Earth Project.

After getting the approval from the shareholder’s for the transaction at the recently held General Meeting, the company satisfied all the conditions and became the 100 per cent owner of Peak African Minerals which is the parent company of Tanzanian registered PR NG Minerals Limited, the holder of the Project’s Exploration Licences and Special Mining Licence application.

With its recently acquired 100% interest in the Ngualla Rare Earth Project, Peak Resources Limited is very well placed to gain from the emerging rare earths market opportunity. For the year ended 30 June 2019, the company earned a total income of $98,795 and loss after tax of $4,596,053.

In the last one year, PEK stock price has increased by 35.48% as on 14 November 2019. At market close on 15 November 2019, PEK stock was trading at a price of $0.044 with a market cap of $54.82 million.

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