Palisade Research - Tue, Jul 31, 2018

Big Bank UBS Joins Palisade in a Very Optimistic Outlook for Rare Earth Materials

picture of two wine glasses holding various rare earth metals

"Sell in May and go away."

An old and very well-known trading adage that holds especially true for the cyclical mining markets.

Traders usually sell their stocks in May to avoid the flat summer months.

Being on the merchant banking side of things - we can attest that capital does seem to dry up.

But being on the investment side - it's also the best time to find deals. . .

For example, earlier this month on July 4th, we informed our readers of the very real opportunity in rare earths. And the impending 'supply squeeze' on the horizon.

The rare earth supply crunch is something we've touted since November 2017. But the mainstream is finally starting to realize it.

Just last week, UBS released their own bullish report on rare earths elements (REEs) - specifically neodymium and praseodymium (NdPr).

UBS is the largest Swiss banking institution in the world, and they arrived at a similar thesis to ours - the undeniable rise of permanent batteries and their role in electric motors. . .

area chart and bar chart both from 2012 and projected to 2025 in millions, of flattening to falling global light vehicle sales by powertrain versus rising electric and hybrid vehicle sales

This narrative's further emphasized by the huge growth of wind turbines - which also use NdPr magnets. . .

two bar charts from 2001 and projected to 2021 in megawatts, of rising global installed wind capacity versus incremental wind installations each year

As of today - China produces over 85% of the World's rare earths.

They control nearly the entire world's supply - and with trade wars looming between the U.S and China, this is a huge advantage for them.

This gives China a vital hold over a world that's rotating from fossil fuels to cleaner energy sources.

If they decide to ban rare earth exports - or simply decrease them - this will create huge problems abroad. . .

The only other major sources of 'rare earth oxides' (REO), is from the Australian- based producer, Lynas Corporation, Ltd., and the Mountain Pass mine - which is located in California - and needs to be re-started.

Therefore - due to the political risks of China, and the minimal production outside of it, UBS predicts a supply deficit for NdPr beginning in 2021.

bar chart from 2012 and projected to 2025 of supply and demand in tonnes per year of neodymium and praseodymium (NdPr)

Our exploration pick to play this coming supply crunch has always been Appia Energy (CSE:API, OTC:APAAF), whose Alces Lake property, located in Saskatchewan, Canada, hosts some of the highest-grade total - and critical - rare earth's in the world. The potential gain from this stock is significant.

But back in November 2017, we also mentioned our favorite near-term producer of REEs - a company's whose story gets better with time. . .

Medallion Resources (CVE:MDL, FRA:MRDN, OTCMKTS:MLLOF) - the World's next rare earth producer.

Medallion is an innovative company that's focused on processing monazite sand - which has 50-60% REEs. Monazite sand is produced as a by-product during the heavy-mineral-sands processing flow i.e. what's left over after the titanium and zircon is extracted.

Because of this - there are over 200,000 tonnes of monazite sand stockpiles around the world. And Medallion is seeking monazite processing partnerships to process and produce rare-earth products from all of this.

In terms of infrastructure, Medallion has executed a non-exclusive commercial agreement with Rare Earth Salts Separations and Refining LLC (RES) to produce, market and share revenues from the sale of finished rare-earth products.

Medallion will produce and supply rare-earth concentrate to Rare Earth Salts, who will in turn, separate and refine it into marketable rare-earth oxides.

Thus far, RES is pleased with the sample concentrate products they've received. And technical discussions moving forward will focus on optimizing the concentrate feedstock for distribution and chemical formatting.

RES plans to expand production capacity to separate rare earth concentrates into marketable oxides. And is targeting an output of 3,500 tonnes per year of rare earth oxide (REO) by 2022. Partnerships with companies like Medallion are crucial to achieve such an aggressive goal.

Medallion differs from other REE deals as there's no exploration risk.

Monazite sand stockpiles are discarded - and the company can take advantage of it with: minimal technical risk, low operational costs, and low capital expenditures.

The narrative for REEs is stronger - and simpler - than ever. . .

The world needs production and Medallion is the only near-term producer.

Palisade Global Investments Limited holds shares of Medallion Resources. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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