Look for our latest rare earth research later today with a more in-depth view of Elissa Resources (ELI.V) and its Thor mine, which could hold the heavy rare earths we so desperately need.
For now, though, here’s my full interview with the President and CEO of Elissa Resources, Paul McKenzie.
Enjoy.
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Wealth Daily: What kinds of catalysts do you see for the company? I know the stock was trading, from what I last saw at 20 cents (now at 38 cents), but do you see catalysts that can drive that stock valuation higher?
Our proximity to Molycorp’s Mountain Pass mine on our Thor lead project is very compelling. And I don’t think too many people have been made aware of it yet. We’re differentiated from that very important mine… our project has heavy rare earths associated with it. And the Molycorp mine is strictly a light rare earths mine.
We’re 60 miles away (from Molycorp) by paved highway. And so some of the things that are coming up in the near-term for us are drill programs. We’ll do some additional exploration on the core project. But we’re also in the process of applying for drill permits on that property. We have some other drill properties going forward. All of our projects are at drill ready stage. We’ll have a lot of news coming up in the near future.
Wealth Daily: What you’re finding is a bit more substantial than what Molycorp is pulling out of the ground?
What we have on our Thor project next to Molycorp… We have anywhere from 4% to 10% heavy rare earth associated with our discovery. And that is substantial.
That’s significant. There’s no sole heavy rare earth mine in the world. They’re either straight up light rare earth, or they’re a combination of light and heavy. But the value here for investors is to discover heavy rare earth deposits. They’re more valuable than the light.
Wealth Daily: And just to be clear, Thor has more of the heavy?
Thor has a heavy component, which would be the big money maker for the project in addition to the lights. We make more money potentially on the heavy rare earths even with the 4 to 10% ratio, that we would on the lights.
Wealth Daily: How much heavy are you looking to pull out of the ground?
It’s too early to tell but if our surface indication of what we hope to pull out the ground… anywhere up to 10%, which would be significant. I think the highest heavy rare earth mine in the world is a 50-50 ratio and I think there is only one of those on planet, and the rest of those… anything associated with heavies is sort of in the ballpark of what we have.
Wealth Daily: So Thor could be substantial for you guys?
Absolutely… absolutely. It could be huge. We’ve done a lot of work on that project and we’ve got some very compelling drill targets, really compelling drill sections on multiple sections of the property.
Wealth Daily: And what stage of drilling is the rare earth project?
The rare earth project is drill ready at the moment and permits are being applied for.
Wealth Daily: Do fundamentals in the rare earth industry support higher stock valuations we’re seeing, or are we in a bubble that a lot of people have been talking about?
That’s a great question. We’re asked that on a daily basis and really what we’re seeing in the rare earth space is a perfect storm of high demand for rare earth… the demand for the rare earths is accelerating at a pace that I don’t think any one could have seen or very few people saw coming. Basically a 50% increase in demand per year… Prices should be up to… are expected to be up as high as 70% increase to current prices by 2014. And China who’s been the world’s largest supplier is cutting back their supply. They’re cutting back their exports (they’ve already slashed them by 35% to 40% this year). But also their supply of the metals is going down. Their mines are not producing as much, so there’s a real shortage here. So yes, there have been some big valuations for these stocks but at this point, in my opinion, they’re justified.
Wealth Daily: So China could eventually become a net importer at some point?
Absolutely… I think China very likely will be. China, far and away, is the world’s biggest supplier of coal. And they were the largest exporter of coal. Now they’re a net importer of coal. And I think the same thing is going to happen with rare earth. Far and away, they’re the biggest rare earth supplier and in a matter of years, they’re going to need to start importing rare earths.
Wealth Daily: At Thor, how soon do you see supply possibly coming online? And where would it be processed?
I’ll deal with the processing question first … that’s an excellent point to be made here on the processing. Our proximity to Molycorp, which is actually been permitted by the US government and the state government of California, and they’ve spent hundreds of millions of dollars to refurbish and re-establish a processing facility on their site and they’re 16 miles away from us, which is perfect fit for us. If we have even modest discovery success, or world-class discovery success, we’re a billion dollars ahead of the curve, so to speak.
Wealth Daily: With China controlling 95% of the market right now, do you think Thor could get the US to stop relying so heavily on China?
Yes, it’s going to take some time. And I think there’s a lot of interest in companies like Elissa because our project is in the United States. And rare earths are becoming increasingly a vital commodity to our country’s economic stability, as oil is. I think the US will bring some production back online but, again, they’re going to need a combination of heavy and light. Molycorp’s mine is going to be online within the next year or two, but again they’re only producing the lights, which is going to leave a gap for heavy rare earth. There is a strong interest in the US having domestic production.
Wealth Daily: Thor could potentially fulfill?
It could… potentially. We’ve got one of our structures we’re examining right now is over a mile long, 2.5 kilometer strike length that could have a significant discovery there. If that were the case, it could be a very important domestic supplier of heavies to the United States.
Wealth Daily: Goldman Sachs recently came out and said demand for rare earth elements have driven up prices ten-fold since 2009 is likely to be met by a surplus of supply by 2013 as Western companies start up new mines to compete with the Chinese firms that now dominate the market. Do you agree with that or do you think Goldman Sachs might be wrong with that?
Well, there’s a lot of variables and again, you’ve got to differentiate between the light and heavies. I think that Molycorp at one time, their Mountain Pass mine was the largest rare earth mine in the world and the largest supplier of rare earths to the world until China knocked them out of business. And yes, there are increases to supply coming but you’ve got to look at the component to heavy and light and then you have to look at the increased demand. Demand is expected to go up by 70% by 2014 and you also have to keep in mind that if it’s a smaller discovery it won’t justify a billion dollar processing plant. So yeah, there are some discoveries being made but not all are going to make economic sense to bring online. So it’s a combination of factors.
Wealth Daily: Where do you see current rare earth prices running to? I know, at last check, it was $100,000 a ton. How much higher do you think it could run?
With demand expected to go up 70% by 2013, I think they could go up exponentially from here. Again, you’ve got to take it case by case. There’s 15 elements involved here and it depends on which one. The most expensive are the heavies and they’re upwards of $780 a kilogram at the moment. They’re significantly expensive and hard to find. So there’s a lot of room for upside. It just depends on which one. They’re not all going to go up by the same percentage. Some of the lights could be expected to go down, but some of the heavies could be expected to go up.
Wealth Daily: Do you see the United States stockpiling? And if so, what would your role be in that?
I could definitely see the US stockpiling. It’s becoming more and more strategic element to economic stability. And the US is notorious for planning for worst case scenarios, and they’ve already done this with oil supplies. And it would very much so make strategic sense for them to stockpile rare earth metals. It’s plausible. I think they would take it on a metal to metal basis.
Wealth Daily: And your role would be to contribute a lot of heavy rare earth to that?
Yes . That’s our goal.
Wealth Daily: Do you see the US Rare Earth bill passing this time around… And if so how might that impact your company’s upside?
I think it’s going to pass. I think what it will do is put a spotlight on companies that are producing… exploring in the US. I think it would garnish just a lot more investor attention in the sector.
Wealth Daily: What else can China do to really disrupt the supply chain even more right now?
There’s a couple things that are happening in China. One, they are cracking down on illegal mining in the country as a whole and it’s very much effecting rare earth supply. So a lot of these small rare earth mines in the country are being shut down altogether. The larger mines are going through a process of trying to bring them closer to Western standards of environmental practices. So those are two factors alone, which are disrupting supply. I think supply is expected to drop a further 20% over the next 3, 4 years in that country while the demand increases. So those are two things. And I think also they may well get into a situation where they start hoarding some strategic minerals as well. That would have a shocking impact on prices.
Wealth Daily: Have any US officials contacted you regarding supply?
No. Not yet. I think we’re still too premature. But with some positive drill results at the Thor project, I think we’ll definitely get on their radar screen and if we start converting those into resources in the ground, then that could happen.
Wealth Daily: Can you tell my readers the difference between light and heavy rare earth? And which is under heavier demand and why?
Literally, on the periodic table of elements, the heavies are literally that. They’re heavier. They’re denser. And they’re significantly scarcer. The one thing about the heavies is that they’re being used more and more in what we consider today very environmentally friendly products, for example, hybrid cars, and the wind power industry battery magnets and things like that. Because the heavies are just that much rarer, and the demand for them, in particular, is going up, the price of them are just going through the roof. For example, in some instances, $780 a kilogram.
Wealth Daily: And what are the heavies used in?
They’re used in magnets. They’re used in hybrid cars. They’re used in fluorescents. All of us today are using them on a daily basis increasingly in our cell phones, computer screens, things like that.
Wealth Daily: The mine that you’ll be drilling has significantly more heavy than Molycorp?
Molycorp, to date, hasn’t found any, and I understand they’re looking for some. And they would certainly like to discover some. But they haven’t do date. The heavies is what differentiates us from Molycorp, which is garnering interest in our project.
Wealth Daily: Could you eventually be a buyout target for Molycorp?
I would say so. I think our proximity, I mean we’re 16 miles away and again, they’re spending over a billion dollars to get their facility up and running. And the fact that they’re interested in heavies… significantly interested in heavies and we have a potential for that, yeah absolutely.
Wealth Daily: That could be really explosive for you guys?
Absolutely, yeah.
We’re just beginning to get our story out to investors and your readers. We’re in the process of making ourselves known. We’ll be going through investment communities throughout US and Canada to make people aware of us… because I don’t think we’re on too many people’s radar screens at the moment.
