Several weeks ago, I posted an article suggesting that the rare earth metal sector had turned into a “bubble. That post spurred some discussion and we received some email feedback from those in the rare earth sector (mostly investors I should add) warning us about painting broad strokes. We would reiterate that not every company or junior mining firm has seen its share price move into bubble territory per se, but nobody has convinced me that the sector as a whole has not moved into that zone, which leads me to a few additional points and conclusions.
The first involves the types of “PR pitches we receive here at MetalMiner. There are a couple of firms in the rare earth space that have done an excellent job on the PR front. And they have done an excellent job because they have gone out of their way to explain the underlying issues and/or have carved out the newsworthy aspects within their field and more important how those events/issues might relate to MetalMiner readers. We’d call out Commerce Resources as an example of a company that talks first about an issue, in their case, conflict minerals and second, about their company. Their “pitch led us to a series on newly enacted legislation that will have a big impact on many of our readers who source or procure these “conflict minerals (e.g. tantalum, tin, tungsten and gold) from places like the DRC.
Unfortunately, these pitches are few and far between. That brings us to another point about the sector as a whole. The rare earth industry, from a junior mining perspective, has become quite “slick, if you will. The sheer number of videos, new blogs and new conferences has resulted in impressive media coverage of what we would call the “China Resource Scare. Is that a bad thing? Not necessarily, but I would argue that MetalMiner readers are starting to tire of the story and instead are looking for additional insight around a couple of areas. The first — and this should be most important to junior mining firms is, what do investors look for, and second, for firms that have moved along down the mining/development/exploration process, what do end users look for as they start scouring the earth to secure raw material supplies? We see few stories covering those angles. The plethora of stories fall into one of several categories the fear mongering, as previously indicated or forecasts and discussions of the “explosive growth and rise of the use of rare earth metals (and related minor metals) used in (let’s say this list all together now) hybrid vehicles, iPhones, laptops, wind energy, solar panels, etc. etc.
So let’s talk about what investors like to see. We recently read a well-written piece by Sid Rajeev of Fundamental Research Corp on Resource Investor entitled: Evaluating Junior Mining Companies. Rajeev discusses five key factors that his company looks at when evaluating these firms. The factors do not represent rocket science, just plain old homework, due diligence etc. Anyone looking at the rare earth field ought to deploy the evaluation criteria set out by Rajeev to ascertain the efficacy of a particular junior miner whether in the rare earth field or otherwise. The article examines five areas the management team and in particular the track record of the team from three lenses technical expertise, the ability to raise finance and a proven track record of bringing these types of companies to market. The second area involves a primary target commodity by which Rajeev refers to a sound understanding of the underlying commodity economics and pricing. The piece also suggests investors look at the quality of the underlying asset, the financial position of the company and finally the valuation. Sounds like the basics right?
Hint: For all of you junior mining firms out there seeking additional media exposure — if you want to grab this blog’s attention (or, I’d argue, other media outlet attention) don’t send us your press releases on JV’s (yawn) or the latest forecasts on battery usage. Give us some insight as to why you think a particular company has “got what it takes and from our perspective help us better understand how our readers ought to be thinking about your firm in the context of their global sourcing strategies for rare earth metals. A little extra effort on your part would make for much better reading!