Friday, October 11, 2013

Heavy Metals....Texas Style

The leadership of Texas RareEarth Resources (TRER: OTC/QX)were making the rounds in New York City this week to explain the merits of the company’s plan to mine rare earth metals in….where else?....Texas. I had a chance to see a short presentation at a metals symposium sponsored by Murdoch Capital of New York.
 
The presentation given by chairman Anthony Marchese begins with a photo of a barren hillside in Hudspeth County, Texas with the title “A National Treasure.” The Texas RareEarth folks plan to turn this sizable geographic formation into a string of highly marketable materials with tongue twister names like yttrium, thulium and dysprosium, among others. These are the so-called ‘heavies’ - the scarcest of the rare earth minerals. Scarcity in the rare earth world really just means difficult to find and process. There is keen demand for rare earths for everything from electric car batteries to computer and cell phone components to catalytic converters for cars to telescope lens. Robust demand makes it worthwhile to grapple with the complexities of bringing rare earths to market.
 
 This ‘scarcity’ in the midst of widespread availability is the conundrum of rare earths metals. However, Texas RareEarth management believes they have cornered the best rare earth source in the U.S. - an above ground deposit of quartz rich in heavy rare earths. The plan is to essentially level the mountain. It is a plan that could only be hatch in Texas where everything is done on a grand scale.

Most might consider such a plan as environmentally harsh and certain to win the wrath of the locals. The Hudspeth County Herald did acknowledge the potential for mining operations to disturb and spread radioactive materials. However, the impoverished community is apparently more focused on the jobs the mining project will provide.
 
The company provides some impressively low figures to its capital expenditures and operating costs. Management’s confidence is boosted by its plan to use a lower-cost extraction process called ‘heap leaching.’ There is no heat involved, which means lower energy requirements. The typical metal heap leaching operation begins by placing crushed ore on an impervious pad. A chemical solution is delivered to the heap, usually by sprinkling or drip irrigation. The solution takes up the desirable metals and is drained from the heaped ores in some sort of lined pond. Estimated capital requirements range from $150 million to $300 million.
 
Texas RareEarth Resources is not an investment for everyone. A position in TRER will require patience and a taste for risk. Those cost estimates will likely be revised several times before the company begins construction of its processing facility.
 
The good news is that the stock is valued more like an option on management’s strategic plan. Over the past year, the stock has wandered between a low price level of $0.20 and a high of $0.52. The stock does trades with good near 200,000 shares per day, despite the fact that a significant insider ownership position keeps over a third of the shares out of the market.
 
 
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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