At the halfway point, 2010 has not been kind to junior rare earth companies, many of which have watched their stock prices fall. But, with China restricting exports interest in developing new resources is growing.
By Desmond McMahon - Exclusive to Rare Earth Investing News. At the halfway point, 2010 has not been kind to junior rare earth companies. Avalon Rare Metals (TSX: AVL), with its Nechalacho project in northern Canada, has watched its stock hover around the $2.00 mark after starting the year at $2.96. Another promising junior, Quantum Rare Earth Developments (CVE: QRE), which holds the rights to several sites including Nebraska's Elk Creek Carbonite, has fallen from a high of $0.59 at the close on April 27 to $0.215 on June 29. Speaking to Brian Sylvester of The Gold Report, Byron Capital analyst Jon Hykawy explained these losses are not related to rare earth prices, as they have been moving up steadily. “My guess,” he says, “would be that some people are feeling less certain about the near-term economy. The other side may be that people are starting to realize that the path to commercialization for these companies is a lot more difficult than they thought when they first bought the name.” Hykawy says China is in the driver's seat with rare earths because of their low production costs and that makes it harder for new sites to get into the market. Since China entered the rare earth market, mines around the world have been shut down because the Chinese came in with such low pricing that no one else could afford to compete. In June, Avalon released a Pre-feasibility study suggesting their Nechalacho rare earth site is economically viable: it estimated the required capital investment of $890 million would generate a $1.5 billion cash flow. But Hykawy doesn't think it's that simple and cautions that rare earth extraction is a complex process and not for the faint of heart. He was unable to reconcile the company's public statements on the cost of processing with some of the work they've published on the site's metallurgy, and thinks its operating costs are high at $5.93 per kilogram of finished product. “This makes the economics of the project difficult,” he says. “The most important thing to recognize is that the production of rare earth elements is still mining; so many of the same rules that hold for a gold explorer or a copper explorer continue to hold for a rare earths company.”