Dr. Luisa Moreno explains what strategic metals are and why the group is so important. She also describes the technological and environmental changes that could boost demand for some of these rare earths and metals and mentions a number of publicly-traded juniors that she’s watching now. She also mentions a number of her favorite stocks to watch.
Video transcription follows:
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Interviewer: Dr. Luisa Moreno has 10 years of experience as a publishing research analyst and academic researcher working primarily in the field of material science and mineral resources. Few other analysts focus on the technical thresholds issues of engineering such as she does. As a frequent speaker at international conferences on commodities and strategic metals and materials, she is a sought-after consultant to numerous mining and processing companies. In May 2014, SmallCapPower was pleased to have Dr. Moreno in our studio, where we asked her about her specialty and why these metals are important.
Dr. Luisa Moreno: Strategic metals are different metals from those that are the most common ones, which I would say would be copper, steel, which is an alloy of iron. The most specialty materials would be the rarest, for instance, graphite, lithium, antimony. Many materials, they come under different names. Some folks call them “minor metals.” Others call them “strategic materials.” But essentially, they are very important because they are used in a number of advanced devices that we use currently. And they also are important for a number of technologies, the so-called modern and green technologies that are emerging in the market space. So for this reason, they have become very important and some of them are, like, for instance, the rare earth, graphite, tungsten and so forth, are mainly produced in China. China has significant control of these materials which makes some of them to be more critical because the supply is a bit more constrained. There was more constraint to supply.
Interviewer: There was a noticeable amount of investor interest in the rare earth stocks a couple of years back, but that has cooled since. Do you know why that is?
Dr. Luisa Moreno: Back in 2010, we started seeing an increase in demand for rare earth and rare earth prices. But prices really peaked after the incident between China and Japan. As I indicated earlier, China is a significant producer of many of these strategic materials and rare earth is no exception. They still control a significant percentage. And so, essentially, what happened at this time, is, you may be aware, there’s a territorial dispute between China and Japan. And at one point, one of Chinese fishermen were arrested by Japanese authorities. And what China did, they halted the export of rare earths into Japan. So, at that point, Japan, which is a significant manufacturer of many of these technologies that basically use rare earth and other strategic materials, realized that they needed to find other sources. And because of the constraints in supply from China..And the other important point that it’s important to notice as far as rare earth is concerned is that China, prior to 2005, did not have export quotas. And they implemented those export quotas in 2005, and from there on, it started decreasing the quotas.
Interviewer: Do you expect China’s domination of the market to continue for the foreseeable future? Are there any other mines expected to begin production in other countries in the next year or two?
Dr. Luisa Moreno: Yes. China controls a number of these materials. And in the very near term, I do not foresee a significant contribution from outside China. So, in terms of the rare earth, we know that Molycorp is ramping up production and they’ve been trying to do that for a while, the same with Lynas in Malaysia. And so, hopefully, they will be able to advance the production and ramp up into next year. These two companies, however, they produce mainly light rare earth. So, there’s still going to be a need to find mines that can produce the less common heavy rare earth. So, if you look in terms of vanadium, for instance, there was one mine in Australia that was ramping up production and there was an incident of fire, the Windimurra deposit. So, there was an incident there. The only other really deposit or project that is coming up with vanadium now is Largo Resources, for instance. So, that is very positive. But in terms of graphite, for instance, we know that China also controls a good percentage of that market,70% to 75%. We have a number of projects, some in Africa, like Syrah Resources, but a number of them in Canada. We have Focus Graphite, Mason Graphite and so forth. So, in the near term. . .By “near term,” I mean maybe the next two years, I do not foresee production, but in the next three to five years, hopefully, we’ll see more supply outside.
Interviewer: Are there any one of these particular metals and minerals that you think will outperform the others this year?
Dr. Luisa Moreno: These materials are used in different industries. Many of them are technology materials. So, if you look, for instance, to sectors, let’s call it, so, the L.E.D. space or sector and the lithium battery space. So, in the L.E.D. space, there are a number of materials that are going to be used in that. As you may be aware, there’s a number of policies around the world, even China, but a lot in Canada, U.S. as well as Europe, the policies are to phase out incandescent lights and adopt fluorescent and L.E.D. lights. And L.E.D. lights, for instance, required a number of strategic materials, which includes gallium, includes europium, which is one of the rare earth, is in medium, sometimes grouped with the heavies as well. And they will also need high-purity aluminum, which is more of a specialty material. And in the lithium space, you will need, depending on the lithium battery technology, assuming that it’s lithium ion batteries that have been used in cars. Obviously, lithium is going to be very important. It seems that is going to be the battery technology of choice. But also, depending on the type of battery, you may need cobalt, graphite, nickel and a number of other less common metals. So, I would say these metals will be very interesting. And the supply, so outside. . .The demand for the materials that I indicated for these two sectors, I think, will be very positive.
Interviewer: What companies do you like in the rare earth and strategic metal space at this time and why?
Dr. Luisa Moreno: In the rare earth, a number of companies have been able to advance. As you know, the mining space is pretty tough for financing at the moment. So, in the rare earth space, we have, for instance, Tasman Metals. They have a heavy rare earth deposit in Europe and the stock has been performing well in the last six months. And the company just raised some funds recently and they are advancing their Norra Kärr deposit, again, because they have a deposit in Europe. Other two interesting companies as well that I’m watching very closely, one is Avalon Rare Metalsand the other is Quest Rare Minerals. Those are companies that. . .They’re one of the most advanced in terms of that they have put out, a physical study in the case of Quest, they actually have a Prefeasibility Study, but they have done significant tasks to reduce their capital costs. And in the case of Avalon, they have an agreement with Solvay for the separation of materials which was very interesting to see. So, we do cover Avalon, we don’t cover Quest. But we are watching these two companies in this space very closely.
Another one which is very interesting is Ucore Rare Metals. They are waiting for House approval in Alaska for funding about two-thirds of the Capex for their projects. So, that’s really interesting. As far as lithium is concerned, there’s a number of companies we’re watching very closely as well. RB Energy, they have a Quebec lithium deposit. They’re close to production. They expect to reach full capacity and realize full capacity by the end of this year. And another company in Quebec as well is Nemaska Lithium. They are targeting the hydroxide market instead of the lithium carbonate. So, they’re using a different technique to produce. And we also like Critical Elements Corporation. They have tantalum potentially as a by-product. So, in the lithium space, those are the names that we are looking at.
Interviewer: We understand that your firm is hosting an upcoming lithium graphite conference. Can you tell our viewers more about this?
Dr. Luisa Moreno: Yes. There’s been an increased interest in lithium and in graphite for battery applications. And so, we decided to invite a number of potential future lithium and graphite producers, but also, end-users and scientists that are involved in development of lithium battery technologies. So, we are inviting, for instance, Electrovaya, AMG, Advanced Metallurgical Group, Asbury Graphite and a number of others. Like I said juniors like RB Energy, Nemaska, Focus and so forth. So, we want to be discussing a number of important questions that investors are asking. For instance, what’s the difference between natural and synthetic graphite? How big is the lithium market? All of those questions, we want to be addressing and discussing.
Interviewer: Thank you for taking the time for the interview, Dr. Moreno.
Dr. Luisa Moreno: My pleasure. Thank you for having me.
