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The 88 Yr Old Legend Russell on Fear an October Stock Plunge & Gold

Posted by Richard Russell - Dow Theory Letters

on Thursday, 4 October 2012 13:48

“The last two weeks saw four distribution days in both the S&P 500 and the NYSE Composite, and three distribution days in the NASDAQ. A distribution day is reported when the market declines on increasing volume. Distribution days are deemed days when institution are selling. Four or five distribution days falling within a two week period are usually enough to send the trend of the market lower.”

“We’re now dealing with October, which historically is both a down month and a bottoming month. As for my position, I continue to believe that the primary trend of the market turned bearish in 2007, and that it is still bearish (although the bear trend has been suspended for awhile due to the Fed’s actions).

The VIX, often called the ‘fear index,’ is a forward looking metric (it’s actually a measure of the implied volatility of the S&P index over the coming 30 days). The VIX in recent months has been fluctuating in a very low area below 20 (see chart below). Back in June the VIX jumped up to 26.66, then settled back to its low range.

In past history, extended periods of very low volatility have been followed by major upward thrusts in the VIX. The cycles in the VIX tend to be repetitive. Following the recent bouts of extremely low volatility, a period of super-high volatility may be anticipated.

It’s been a year since we’ve seen high numbers in the VIX. Super-high volatility is often accompanied by a collapse in the Dow. Thus, a forthcoming period of a very high VIX (maybe as high as 80) may next be expected. An upward spike in the VIX is usually accompanied by a downward plunge in the Dow.

vixruss

Back in the 1960s, analysts couldn’t wait for the next posting of Barron’s so-called Confidence Index (CI). Since then the CI has been largely forgotten. The CI is computed by dividing the yield of the highest-quality bonds by the yield on the medium quality bonds.

When bond traders are worried, they move to the highest quality bonds, in which case the CI declines. When bond traders feel confident they move to the higher yields of the medium quality bonds — in which case the CI advances. Bond people tend to be more knowledgeable about business and economics than the stock crowd. The CI has a reputation of moving weeks or even months ahead of significant moves in the stock market.

I’ve followed the moves of the CI for years. Therefore, I was interested to see the CI drop from 66.3 last week to 64.9 this week. One year ago the CI was 70.3. All of which means that bond traders are turning increasingly cautious. In the past, when bond traders turned cautious, it was not a good omen for the stock market.

A third reason for caution is the fact that Lowry’s Selling Pressure Index is now 170 points above their Buying Power Index. When Selling Pressure clearly dominates as now, the market is on potentially thin ice. It takes volume to push stocks up, but with a lack of volume stocks can fall off their own weight.

Thus, I consider the current area of low volume to be bearish for stocks. In fact, any increase in volume seems to be associated in this area with lower prices. Thus, the abundance of distribution days (i.e. days in which the market declines on increasing volume).

Below, gold breaks upward from a nine day consolidation. The next target is for gold to rally into the 1800s. Gold is climbing (RSI) into the overbought zone, but the position of the moving averages has turned bullish.

russegold

When everything else is crushed by unsustainable debt, gold (‘the last man standing’) will still represent eternal wealth. When everything else is crushed by compounding debt, a new monetary system will have to be devised. Gold will be a part of any new monetary system.

Investment advice. Sit with your gold coins and your GLD, and be out of common shares.”

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“The Perfect Business“

Potential Intermediate Term Targets for Gold & Gold Stocks

Posted by Jordan Roy Byrne - Daily Gold

on Wednesday, 3 October 2012 18:51

The precious metals complex rebounded strongly in August and September, which is typical when the larger trend is bullish. We believe the larger trend turned bullish with the bottom in May. However, weeks ago we noted targets of $1800 for Gold and 57 for GDX as resistance points. The market has begun a corrective period which should last deep into October. Nevertheless, such a correction would provide an excellent entry point before the market makes its next move higher. Today we examine potential medium term and intermediate term targets for Gold and the gold stocks.

Starting with Gold, we find it correcting and consolidating after reaching resistance at $1800, which was an obvious short-term target. Upon a break past $1800, the initial target would be $1900. Since $1800 is stronger resistance than $1900 we can apply its distance from the bottom ($1550) and that projects to another target of $2050. Upon a breakout past $1900, the market could be setting up for a potential cup and handle pattern which projects to a minimum of $2250.

Next we analyze Gold in terms of its trend channels. Note that trendline A defined resistance from 1999 to 2010 and has defined support in 2011 to 2012. The next trendline resistance comes into play at $2350 in Q3 2013 and $2550 in Q4 2013.

Moving to the shares, we note that GDX faces its next major resistance at $65. A potential cup and handle pattern projects to the $90-$93 zone.

The GDX vs. Gold ratio shows 0.40 to 0.45 as a potential future target zone. Figures of $2250 for Gold and 90 for GDX equate to a ratio of 0.40.

The precious metals complex is correcting in the near-term and we expect that to continue for the next several weeks. Following the correction we see immediate upside targets of $1900 for Gold and 63-65 for GDX. Essentially, the next breakout should result in a retest of the former highs. Moving beyond the medium term, we see a target zone for Gold of $2300 to $2500 and GDX to 90-93. The timetable for such is in the next 15 months. In the meantime, the sector is correcting and we expect that to continue for the majority of October. Thus, be advised that the coming weeks will be an opportunity to accumulate your favorite positions at lower prices. If you’d be interested in professional guidance in uncovering the producers and explorers poised for big gains then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

A Look At Reality…… Understanding What Is Coming Next

Posted by SHTF & C. McGrath

on Wednesday, 3 October 2012 15:16

Everywhere we look the masses are hurting. Whether it be the 100 million Americans dependent on the government safety net to survive, or the millions of Europeans rioting in the streets of Spain and Greece, a sense of serious crisis is in the air.

Over the last four years, slowly and without abatement, the economic outlook across the globe has worsened significantly.

In France, a new 75% income tax on individuals earning over a million Euro ($1.2 million) per year was announced today. Incomes of $150,000 will be taxed at 40%. French business owners and citizens are scrambling to leave the country to avoid the new legislation. This has been done to offset the billions being used to bail out failing banks and reckless government spending.

Similarly, in the United States next year, individuals and small business owners will be hit with massive tax increases as universal health care is implemented across America.

Last week the Spanish Congress had to literally barricade themselves behind police and locked doors as thousands of protesters stormed their Congressional hall demanding the resignations of every representative.

The austerity sledgehammer is coming down hard, and everyone is starting to feel it.

The response from the political and financial elite has been to continue doing what they’ve been doing, because somehow the same financial and economic policies they’ve implemented over the last four years, those which have done nothing to increase jobs or economic growth, are going to make a difference now.

The decline is happening before our eyes. Millions of people in once stable economies have been impoverished by job losses, taxation and out of control price inflation on essential commodities like food and energy.

Charlie McGrath, of Wide Awake News, warns that what’s coming next is a catastrophic implosion – and none of us will be spared:

Europe, Japan, China, and the United States are in serious trouble. It may not happen next week, or next month. But, you can be assured, just as 2+2=4, that a financial and economic collapse is coming.

It will be (is) unprecedented in size and scope.

Tens of trillions of dollars in monetary printing in the US, Europe and China has not been enough to stave it off, and all signs indicate that the next round of multi-trillion dollar infusions will do nothing but extend the game just a bit further.

We have long since passed the point of no return and are rapidly approaching the breaking point.

Bazooka Ben Goes All In or “The Fed Plays All Its Cards”

Posted by Peter Schiff - Peter Schiff, CEO and Chief Global Strategist

on Wednesday, 3 October 2012 14:39

There never really could be much doubt that the current experiment in competitive global currency debasement would end in anything less than a total war. There was always a chance that one or more of the principal players would snap out of it, change course and save their citizenry from a never ending cycle of devaluation. But developments since September 13, when the U.S. Federal Reserve finally laid all its cards on the table and went “all in” on permanent quantitative easing, indicate that the brainwashing is widely established and will be difficult to break. The vast majority of the world’s leading central bankers seem content to walk in lock step down the path of money creation as a means to economic salvation. Never mind that the path will prevent real growth and may ultimately lead off a cliff. The herd is moving. And if it can’t be turned, the only thing that one can do is attempt to get out of its way.

The details of the Fed’s new plan (which I christened Operation Screw in last week’s commentary) are not nearly as important as the philosophy it reveals. The Federal Reserve has already unleashed two huge waves of quantitative easing (purchases of either government securities or mortgage-backed securities) in order to stimulate consumer spending and ignite business activity. But the economy has not responded as hoped. GDP growth has languished below trend, the unemployment rate has stayed north of 8%, and the labor participation rate has fallen to all-time lows. In the meantime, America’s fiscal position has grown significantly worse with government debt climbing to unimaginable territory. Despite the lack of results, the conclusion at the Federal Reserve is that the programs were too small and too incremental to be effective. They have determined that something larger, and potentially permanent, would be more likely to do the trick.

However, in making its new plan public, the Fed made a startling admission. At his press conference, Ben Bernanke backed away from previous assertions that printed money would be effective in directly pushing up business activity. Instead he explained how the new stimulus would be focused directly at the housing market through purchases of mortgage backed securities. He made clear that this strategy is intended to spark a surge in home prices that will in turn pull up the broader economy. Such a belief requires a dangerous amnesia to the events of the last decade. Despite the calamity that followed the bursting of our last housing bubble, economists feel this to be a wise strategy, proving that a poor memory is a prerequisite for the profession.

But now that the Fed is thus committed, the focus has shifted to foreign capitals. Not surprisingly, the dollar came under immediate pressure as soon as the plan was announced. In the 24 hours following the announcement, the Greenback was down 2.2% against the euro, 1.6% against the Australian Dollar, and 1.1% against the Canadian Dollar. A week after the Fed’s move, the Mexican Peso had appreciated 2.7% against the US dollar. Many currency watchers noted that more dollar declines would be likely if foreign central banks failed to match the Fed in their commitments to print money. On cue, the foreign bankers responded.

It is seen as gospel in our current “through the looking glass” economic world that a weak currency is something to be desired and a strong currency is something to be disdained. Weak currencies are supposed to offer advantages to exporters and are seen as an easy way to boost GDP. In reality, weak currencies simply create the illusion of growth while eroding real purchasing power. Strong currencies confer greater wealth and potency to an economy. But in today’s world,no central banker is prepared to stand idly by while their currency appreciates. As a result, foreign central banks are rolling out their own heavy artillery to combat the Fed.

Perhaps anticipating the Fed’s actions, on September 6th the European Central Bank announced its own plan of unlimited buying of debt of troubled EU nations (however, the plan did come with important concessions to the German point of view – see John Browne’s commentary). On September 17th, the Brazilian central bank auctioned $2.17 billion of reverse swap contracts to help push down the Brazilian Real. The next day, Peru and Turkey cut rates more than expected. On September 19th, the Bank of Japan increased its asset purchase program from 70 trillion yen to 80 trillion and extended the program by six months. It’s clear we are seeing a central banking domino effect that is not likely to end in the foreseeable future.

Although the Fed is directing its fire towards the housing market, the needle they are actually hoping to move is not home prices, but the unemployment rate. Until that rate falls to the desired levels (some at the Fed have suggested 5.5%), then we can be fairly certain that these injections will continue. This will place permanent pressure on banks around the world to follow suit.

All of this simultaneous money creation will likely be a boon for nominal stock and real estate prices. But in real terms such gains will likely not keep pace with dollar depreciation. Inflation pushes up prices for just about everything, so stocks and real estate are not likely to prove to be exceptions. Even bond prices can rise in the short term, but their real values are the most vulnerable to decline. In fact, even nominal bond prices will ultimately fall, as inflation eventually sends interest rates climbing. But prices for hard assets, precious metals, commodities, and even those few remaining relatively hard currencies should be on the leading edge of the upward trend in prices.

While I believe the Fed’s plan will be a disaster for the economy, the silver lining is that it provides investors with a road map. As the policy of the Fed is to debase the currency, those holding dollar based assets may seek alternatives in hard assets and in the currencies of the few remaining countries whose bankers have not drunken so freely from the Keynesian Kool-Aid. We believe that such opportunities do exist. Some broad ideas are outlined in the latest edition of my Global Investor Newsletter, which became available for download this week. I encourage those looking for ways to distance their wealth from the policies of Ben Bernanke to start their search today.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Subscribe to Euro Pacific’s Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

And be sure to order a copy of Peter Schiff’s recently released NY Times Best Seller, The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country.
— Posted Wednesday, 3 October 2012 | Digg This Article | Source: GoldSeek.com- Peter Schiff C.E.O. and Chief Global Strategist

Euro Pacific Capital, Inc.
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Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation’s leading newspapers, including The Wall Street Journal, Barron’s, Investor’s Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation’s financial newsletters and advisory services.

Previous Articles by Peter Schiff, CEO of Euro Pacific Capital

TenBaggers & Bottoms In The Rare Earth Metals Markets

Posted by Luisa Moreno - Critical Metals

on Wednesday, 3 October 2012 14:16

The worst is over, postulates Luisa Moreno. But is modest appreciation in rare earth stocks a symptom of across-the-board improvement in equities, or have fundamentals in the space changed for the better? To tackle these questions, the Euro Pacific Canada analyst gets elbow-deep in metallurgical data. In this exclusive interview withThe Critical Metals Report, Moreno lends her razor-sharp analysis to determine the frontrunners as metals prices stabilize.

COMPANIES MENTIONED : AVALON RARE METALS INC. : COMMERCE RESOURCES CORP. : FRONTIER RARE EARTHS LTD. : GREAT WESTERN MINERALS GROUP LTD. : LYNAS CORP. : MATAMEC EXPLORATIONS INC. : MOLYCORP INC. : MONTERO MINING AND EXPLORATION LTD. : NAMIBIA RARE EARTHS INC. :ORBITE ALUMINAE INC. : QUEST RARE MINERALS LTD. : RARE ELEMENT RESOURCES LTD. : TASMAN METALS LTD. : UCORE RARE METALS INC. : DNI METALS INC. :ENERGY FUELS INC.: GOLD CANYON RESOURCES INC.: IBC ADVANCED ALLOYS CORP. : MEDALLION RESOURCES LTD.: STANS ENERGY CORP.

The Critical Metals Report: Luisa, the share prices of a number of leading companies in the rare earth elements (REEs) space have started to trend upward again. Where is the sector headed in 2013?

Luisa Moreno: Brian, it is likely that we have seen a bottom for these stocks. I’m not sure that it necessarily has to do with developments in the REE space, however. It is much broader than that. Overall, there is somewhat better performance in the equities market, including the commodities and REEs. However, I believe that REE prices will continue to go down, which is a positive event because some end users had to find less efficient alternatives when prices were very high.

Recent news out of China indicated that the price of didymium, which is praseodymium and neodymium together, is trending lower. The light rare earth elements (LREEs) are especially likely to fall flatter asLynas Corp. (LYC:ASX) and Molycorp Inc. (MCP:NYSE) come into production. And as LREEs continue to fall, prices for heavy rare earth elements (HREEs) will likely stabilize. That will be an important development for junior companies in this space. They will have a much clearer idea of the economics of the projects.

TCMR: What’s Euro Pacific’s investment thesis when it comes to these companies?

LM: Euro Pacific has a great deal of focus on strategic metals. We believe that they are and will continue to be important. Because REE prices were so high last year, some end users were forced to find less efficient alternatives, but there are many avid applications where the price of the elements is not as important and substitutes are very hard to find. The end users are not going anywhere, and neither is the REE story. Going forward, it will be important to have sustainable supplies of these elements.

TCMR: You recently produced a report titled “Who’s the Heaviest?,” where you try to clear up some of the misconceptions about Molycorp and its ability to process heavy rare earths (HREEs) at Mountain Pass. Can you share your bullet points with our readers?

LM: There is not a significant amount of HREEs at Mountain Pass. It does have HREEs, because rare earths occur all together, so when you find LREEs, you’ll find the HREEs as well, and vice versa. The proportions in which they occur can vary from location to location, however.

Molycorp has a high-grade deposit. Proven reserves’ grade is 8.5% TREO, which is significantly high compared to others. Most of that is LREEs, however. It has a very small grade and percentage of HREEs, and that’s why some people in the REEs space were very surprised when they heard Molycorp was planning to separate it.

It is able to separate samarium, europium, gadolinium (SEG) and all the HREEs from its top-four elements, which are lanthanum, cerium, praseodymium and neodymium. It ends up with a HREE concentrate, which is also known as the SEG stream. This SEG stream usually comes from light deposits because it has a very small percentage of the heavies, and it is not economic for them to focus on that small percentage of elements.

Molycorp is planning to produce 19,500 tons (t)/year, but it’s only going to produce a SEG stream that is 254 t. Most of that is samarium. It’s about 1.3% of everything that it’s producing.

TCMR: How will falling LREE prices affect Molycorp?

LM: Molycorp has a mine-to-magnet strategy, meaning it wants to vertically integrate and potentially use everything it produces to transform it into metal, alloys and, ultimately magnets and other engineering products. If it is successful in allocating internally all or most of its mine production, it probably is not going to be affected that much. But I believe it is not yet there. To the extent that it does not fully consume all of its production, it will be hit by the fall in prices.

TCMR: Let’s get into the deposits a little bit. Critical metals expert Jack Lifton recently told The Critical Metals Report that many investors do not understand that 50% of the concentration at the average REE deposit is not worth anything. The composition of the ore matters more than the grade. Would you agree?

LM: Yes I agree. Molycorp, for instance, has all the light and heavy elements, but the heavy elements, including samarium, are only 1.3% of the yield. Jack was probably trying to explain that it is important to not just look at the grade. A company may have a very high grade, but if more than 50% of what it’s selling will end up being priced at, say, $10/kilogram (kg), how material is it if only a tiny portion of the output is worth $1,000/kg or higher? Project economics are highly affected by the composition of the ore.

In my report, I introduced a table (below) that shows the potential production per ton of total rare earths produced for a number of companies. Because the rare earths are all recovered at the same time, it is not the grade but ultimately the average proportion of each element that determines how much of each element is produced per ton of output.

TCMR: If half the material at an average REE deposit is not worth much, does that make it difficult to calculate a project’s net present value (NPV)?

LM: It’s definitely more complex than modeling a simple gold project, as various products have to be taken into account. Analysts usually break down a deposit based on a company’s rare earths distribution. We want to know how much of each element the company could extract, and we calculate the total potential production per element. Most of us actually tend to assume that some of the elements that occur in very small percentages are not separated. We give zero value to those, which are usually erbium, thulium, holmium, ytterbium and lutetium. When we do an NPV, we’re basically forecasting the production and prices for several elements, assuming that several elements are recovered and each will have its own price and its own volume. Determining the NPV is a complex process, and the fact that half the ore or more may have low value, is indeed taken into account in our calculations. Also important are the recovery rates, production costs and capex, which are also included in our forecasts.

TCMR: Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) recently announced that it is able to take uranium and thorium out of its processed ore at its mine in Alaska. Is that meaningful to investors?

LM: It is very meaningful. Most projects, if not all, will have concentrations of uranium and thorium that they will have to deal with. They need to find a safe way of extracting the uranium and thorium, storing it and disposing of it. It’s good that Ucore is talking about it and educating investors about the amount of uranium and thorium it has in its deposit and how it can be extracted. And the company is taking it into account as it develops its preliminary economic assessment (PEA) report and analysis. Hopefully, we will better understand what the costs are for the handling and storage of these elements as Ucore completes its economic study. Depending on how you look at which are the heaviest or which are the most valuable, they all rank differently, but Ucore’s Bokan is well positioned. It has the second-highest grade for dysprosium and a favorable HREE distribution, according to my analysis.

TCMR: Ucore has also announced that it has had success separating these elements with a type of processing technology called solid-phase extraction. Some scale tests have been done so far. Tell us about that.

LM: Ucore is working with a group from Stanford University, which has technology that was mainly used in biotechnology applications. Its nanomembranes are able to filter some elements and let others go. It gets rid of some of the impurities, like iron, uranium and thorium, in two or three steps. In the following step, they change the chemistry of the membrane and it’s able to recover the REEs. It seems that it actually can go through several interactions and recover individual elements and refine them. We don’t know the economics at this stage, but it’s unique. It’s very exciting for Ucore. We think it is the only REE group trying this, and it has observed very interesting results. As Ucore puts together the PEA, we will definitely learn more about it.

TCMR: Could other companies that are having some difficulty with their metallurgy be able to mimic what Ucore is doing?

LM: Hopefully, yes. If Ucore is successful, others should be able to do it as well. It could be a positive development in the REE space across the board.

TCMR: Of the short number of HREE-weighted deposits that you chose, you say Namibia Rare Earths Inc. (NRE:TSX) is the heaviest, followed by Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE) and Quest Rare Minerals Ltd. (QRM:TSX; QRM:NYSE.MKT), Ucore, Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX) and Avalon Rare Metals Inc. (AVL:TSX; AVL:NYSE; AVARF:OTCQX). Can you expand on your system of evaluation?

LM: It is actually fairly simple. We define heavy deposits as those that have a higher percentage of HREEs relative to the total elements. It is important to understand that REEs occur together and are recovered and first concentrated all together. It is not possible to produce a mineral concentrate rich in only one rare earth element. Furthermore, rare earths are first recovered as a mixed rare earth chloride, or oxide concentrate, and only after are they individually extracted. Thus, companies that could produce a mixed rare earth concentrate rich in HREEs would be able to produce more heavy rare earths per ton of output. And those are the ones we consider the “heaviest.”

The ranking considers europium all the way to lutetium and yttrium but does not take into account recovery rates, which are actually a very important factor in project economics.

If you look at one of the tables included in the report, Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX) has a total grade of 18.74%. But the cerium grade alone is 8.5%, lanthanum is 3.96% and it has only about 8% HREO/TREO. Thus, although Great Western has a very high-grade deposit, it won’t be able to produce more heavies per ton than, for instance, Tasman or Quest, which have total grades of less than 1%.

One company that actually gives a good description of all the grades is Lynas, which has a total grade of 7.96%—with 3.62% of cerium alone. Its dysprosium grade is 0.038%. That is very similar to Quest, which has 0.034%. Quest’s total grade is only 0.93%.

An important point is that if you look at the heavy grades, they are actually very comparable across companies. At the bottom, Molycorp’s grade for the heavies is the smallest, at 0.03%. Although the total grade is very high, the total grade for the heavies is 0.03%, compared with Tasman Metals, which is much higher at 0.29%. As I pointed out, Tasman’s rare earth distribution is considerably more favorable toward the most critical and heavy elements.

MorenoReetable

TCMR: Rare Element Resources Ltd. (RES:TSX; REE:NYSE.MKT) has a large secondary REE deposit near its flagship Bear Lodge property in Wyoming, which has the highest concentration of europium and the largest overall reserve of dysprosium in the continental U.S. What is Rare Element Resources’ plan for that deposit?

LM: The company is committed to explore and potentially develop this deposit so it can bring more value to its REE assets. My understanding from my conversations with management is that it will continue working on the various deposits in due time. The Bull Hill deposit on the Bear Lodge property is its main focus. However, it is drilling the other deposits at Bear Lodge to determine their value.

TCMR: What’s the approximate timeline for production?

LM: Based on the work Rare Element has been doing at Bull Hill, it is targeting 2015. It is one of the most developed projects. I visited its pilot plant. It completed a prefeasibility study and is progressing toward a definitive feasibility study. It is planning to complete that by the summer of 2013. Once it completes the bankable feasibility study, Rare Element should be able to be in good shape to start attracting end users and determine its path to production.

TCMR: Any issues with metallurgy there?

LM: The deposit is not identical to Molycorp, but it has good grades and is rich in bastnasite as well. Rare Element has been able to produce a concentrate in its pilot plant, and this concentrate material should be sellable in China. Unfortunately, most of the separation facilities are still in Asia. Those outsideChina might not have the capacity to absorb additional feedstock concentrate. It could be difficult to allocate a concentrate material out of Wyoming, but the company may have plans to eventually separate individual elements. Having said that, it could potentially sell its SEG stream to Molycorp as well, which is far richer in the critical rare earths elements.

TCMR: Wyoming is not a great distance from Mountain Pass.

LM: It’s definitely closer than China, that’s for sure. It would make total sense for Molycorp and Rare Element Resources to work together. Rare Element Resources has far better rare earths distribution for the production of, for instance, europium and dysprosium than Molycorp has, so that could be potentially a good idea for them to come together and build an extended separation facility. That will be really interesting to see.

TCMR: Let’s talk about Orbite Aluminae Inc. (ORT:TSX; EORBF:OTXQX). It is building a solvent extraction and ion-exchange combination plant as part of a system to produce high-purity alumina to be used in electronics. The plant and process should be finished by the end of the year. Orbite says it’s willing to let other companies process their ore there. What do you make of that move?

LM: Orbite has said that it has filed a patent for that process and could help other REE companies that might be facing issues with chemical cracking. It might be very successful in processing it, making a concentrate and then separating it using solvent extraction. My question concerns the economics. It is true that some elements carry higher prices than alumina, such as dysprosium, which is now selling for about $1,200/kg, which is $1.2 million (M)/t compared to alumina, which sells for $320/t. What I am not sure of is if it will be economic to use the Orbite rare earth process for chemical cracking of REE ore as a stand-alone REE plant. Given that most PEAs indicate capital costs of $200–900M, the Orbite process could well be a good alternative. I don’t know yet, but it will be interesting to analyze.

But to answer your questions—yes, I think Orbite could introduce at the front end of its process higher-grade ore to boost its rare earths output. Transporting the ore, or mineral concentrate, has to be economically viable, though.

TCMR: When will Orbite begin processing its own REEs?

LM: It should be able to at least produce a byproduct concentrate once its high-purity alumina plant comes on-line in Q1/13.

Higher rare earth production is expected however, when the larger-scale, smelter-grade alumina (SGA) plant is built. In the meanwhile, we should be able to visit a fully integrated working plant with Orbite’s disruptive technology in less than four months. These will significantly derisk the full-scale SGA plant construction. At Cap-Chat, where Orbite is building its HPA plant, the intermediate, lower-grade material will be produced in a smaller-scale SGA plant with the major acid regeneration systems. This SGA co-plant is similar to the larger-scale SGA plant that is expected to be commissioned in 2014.

Orbite doesn’t have a solvent extraction plant right now. There’s a pilot plant in Europe that can refine individual rare earths, I think. Orbite could potentially send REE concentrate there and produce small amounts of refined REOs. Orbite will likely build the first separation facility in North America with the capability of refining HREEs, when the first larger SGA plant is built.

TCMR: What kind of advantage does Orbite have in being the only high-purity alumina producer in North America?

LM: There would certainly be a geographic advantage as most high-purity alumina comes from China and Japan. Apparently, Orbite does have a potential cost advantage, so it should be able to come into the market with competitive prices. It seems to be able to control a number of important characteristics, such as granule sizes and distribution as well as purity, which indicates that it should be able to create physical consistency in its products. It seems that the lack of product consistency has been an issue for some of the end users of high-purity alumina in North America who currently get these products from China.

TCMR: Do you expect to see a round of consolidation in the rare earth industry before everything picks up entirely across the board?

LM: I think we may see some consolidation. There are a number of consolidation candidates in Quebec.Commerce Resources Corp. (CCE:TSX.V; D7H:FSE; CMRZF:OTCQX) has a very large deposit and favorable distribution with a good percentage of the most critical elements. Quest Rare Elements and Matamec, which now has a deal with Toyota Tsusho Corp. (TYHOF:OTC; 8015:JP), also look promising. With Orbite building a solvent extraction plant, Innovation Metals Corp. (private) also wants to build a separation plant there. Maybe we will see some consolidation or collaboration of some sort between these Quebec companies.

In South Africa, there is Great Western as well as Frontier Rare Earths Ltd. (FRO:TSX). Perhaps there will be a collaboration there of some sort. Frontier has a very large deposit, which could potentially complement Great Western’s assets. I’m not sure about the relationship between the companies, but geographically they’re not far from each other. Also in Africa, there’s Montero Mining and Exploration Ltd. (MON:TSX.V) and Namibia Rare Earths. There could be an interesting synergy there for some of these companies with African assets.

TCMR: Thank you for sharing your expertise with our readers.

LM: It’s been a pleasure.

Luisa Moreno is a mining and metals analyst. She covers industry metals with a major focus on technology and energy metal companies. She has been a guest speaker on television and at international conferences. Luisa has published reports on rare earths and other critical metals and has been quoted in newspapers and industry blogs. She holds a bachelor’s and master’s in physics engineering as well as a PhD in materials and mechanics from Imperial College, London.

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DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in this article are sponsors of The Critical Metals Report:Commerce Resources Corp., Frontier Rare Earths Ltd., Namibia Rare Earths Inc., Rare Element Resources, Tasman Metals Ltd., Ucore Rare Metals Inc., Quest Rare Minerals Ltd. and Orbite Aluminae Inc. Interviews are edited for clarity.
3) Luisa Moreno: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.