By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
Interview with Tracy A. Moore, CEO of Canada Rare Earth Corporation (TSX.V: LL): Developing a Global Supply Chain within the Rare-Earth Industry
Canada Rare Earth Corporation (TSX.V: LL) (“Canada Rare Earth” or the
“Company”) is developing a global, vertically and horizontally integrated,
supply chain within the rare-earth industry, which is separate from and
alternative to the dominant China supply. This involves:
- working with proven and advanced-staged mining ventures;
- securing supply arrangements with the mining operations for immediate
delivery to customers and to proprietary refineries;
- designing, building and operating rare earth processing refineries in
multiple geographic locations; and
- entering into long-term sales contracts with leading international
manufacturers for a majority of the output from the refineries.
According to Tracy A. Moore, CEO of Canada Rare Earth, the rare earths prices
are at the bottom, but even at this level the Company can be profitable with
trading activities and with refinery operations. The near term and on-going
focus is on trading of concentrates and oxides to generate positive cash flow
and earnings for shareholders while developing strong customer relationships
and concurrently developing rare earth separation refineries. The Company is
taking charge of the final permitting of an existing refinery outside of
China and, if successful, the Company may exercise the option to acquire a
majority interest in that refinery for a pre-negotiated price.
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-chief of Metals
News, interviewing Tracy A. Moore, CEO of Canada Rare Earth. I can see that
many new initiatives are occurring with Canada Rare Earth. Could you tell me
how you're proceeding to become a totally integrated rare earth company?
Tracy A. Moore: Yes, with pleasure. We've been working for the last 3
years, on investigating the best approaches to provide a secure, transparent
supply of rare earths to the 200+ major international manufacturers and their
supply networks which depend on rare earths for their numerous and wide
ranging products. China, for a number of reasons, has come to dominate the
market for rare earths and this has caused the large manufacturing companies
to become substantially dependent on the flow of rare earths from China.
Prudent business practice dictates that key ingredients should be dual-
sourced wherever possible. Many companies in the rare earth industry have
tried to “push” their exploration properties to become producing mines in
order to create a concentrate which then would either be sold into China or
require processing by facilities yet to be developed. We have taken a
completely different tact – 180 degrees from the norm: we have firstly
focused on what the customers want. Our view is that rare earth concentrates
are not particularly rare but the processing of rare earths is and therefore
the supply chain to customers is particularly tenuous. The 4 main aspects of
the supply chain, from our perspective include: (1st) securing long-term
consistent sources of rare earth concentrates; (2nd) establishing one or more
fully capability rare earth separation refineries outside of China, which we
think is the key to unlocking the industry; (3rd) establishing relationships
with many of the 200 largest companies that depend on rare earth to
manufacture and develop their products; and (4th) securing financing for
capital expenditures and working capital to support these endeavors.
We've identified a good number of rare earth sources and, with existing
refineries, we are analyzing samples for optimization and benchmarking. The
focus is to line up supply for refineries with existing requirements and for
future rare earth separation refineries we are developing. We've also studied
prospective sites for refineries in 9 different countries situated in South
East Asia, the Caribbean, South America and the Middle East. We're narrowing
our focus on two sites with two other strong contenders being considered.
We've also had meaningful discussions with 25 of the 200 major manufacturing
companies. We need 3 to 5 of the 200 to take up about a half or more of the
output from any one of the refineries to make the project viable and
financeable. We've been dealing with a few financiers and depending on which
refinery project proceeds we are confident about the availability of funds
although terms need to be finalized. We will continue to canvass other
potential sources of capital.
These 4 major activities are happening simultaneously, but to get
things moving, we're starting to buy rare earth concentrates and high purity
rare earth oxides and sell them to suitable customers. These trading
activities and the strong relationship with one particular rare earth
refinery customer are the subjects of the most recent news releases in
September, October, November and December 2016. Our purchases have taken
place in India, South America and China and our sales have taken place in
Europe, North America and China.
We're particularly excited about the sales we have completed and the
increasing momentum of selling concentrate sourced from various providers in
South America and selling to an existing refinery that has a definite need.
We're very pleased with these commercial transactions as they, together with
follow-on transactions, generate income and positive cash flow for us and
very significantly prove that we are in business. Having cash flow is quite
unique in the rare earth industry outside of China at this time and our
achievements prove to the customers (who keep pushing and encouraging us)
that we can deliver.
Dr. Allen Alper: That sounds exciting! Really great!
Tracy A. Moore: Yes, the fact that we are generating sales is a very
significant differentiator in the rare earth industry.
Dr. Allen Alper: It's been a tough environment, and I must commend you
for hanging in there, working hard and establishing relationships in this
very difficult market. What does the market look like now? What are people in
the industry saying, and market experts, about the outlook for rare earths in
the years to come?
Tracy A. Moore: The market for rare earths, particularly those used
in magnets, have a very good future. Each of the rare earth elements has a
separate market, so it's hard to generalize, but if I were to generalize, I'd
say the prices can't get much lower because even the big organizations in
China had losses of, I believe, in the order of US$300 Million last year.
They're not very happy about that. I think they're going to be encouraging
the prices to go up, which will help float our business as well. I think the
prices are at a bottom, and I'm hoping that they're tending to go up from
this point. Even at this level, with our trading activities, and the
financial models we've created for our solvent extraction refineries, we can
make profits albeit not the profits that we would have enjoyed a few years
ago, when the market was probably too buoyant.
Dr. Allen Alper: Could you tell me a bit about your background Tracy,
your team, and your board?
Tracy A. Moore: Of course. My background is strategic planning,
business planning, and corporate finance. I founded a small corporate finance
firm in the '90s. We had small offices in Vancouver, Toronto, London and
Paris. We were even expanding from there when 9/11 happened, and it took the
fun out of international traveling. I've been dealing with 1 or 2 major
clients since 9/11 and this led me into the rare earth industry. Our chief
operating officer, Peter Shearing is an engineer with a Master’s degree. He
worked in the global high tech and contract electronics manufacturing
industry for over a decade and before that with the Canadian Army as an
engineering officer. He's a very accomplished person, well rounded in
operations, engineering and supply chain matters, so he's much more
technically astute in these matters than I am.
We have an excellent, well rounded team of 11 directors, officers and
advisors who are very helpful in moving us forward, including: two people
involved with the rare earth industry for over 40 years at technical and
business levels; a registered professional geologist who has worked in over
50 countries; a professional engineer who has overseen capital projects with
budgets of US$1 billion; a director with extensive background in commodity
trading and natural resources procurement; and a former Canadian ambassador.
Dr. Allen Alper: That sounds very good. Could you tell me a bit about
your stock, where it is listed, etc.?
Tracy A. Moore: Our shares are listed in Canada on the TSX Venture
Exchange. The shares also trade in the United States, but we really don't pay
much attention to the US trading at this time. In fact, we have devoted most
of our energies on preparing and developing our business and really haven't
paid very much attention to the public markets other than complying with all
the regulatory filing requirements. We will be increasing our public
awareness efforts early in 2017 as our business is gaining traction. We
believe we have a unique story line in the rare earth sector and exciting,
news worthy events will attract attention. As one of our advisors said,
“until we have a shovel in the ground, we're just a concept.” We are now in
business and hence we have a shovel in the ground. We’re very excited to
start telling people about our focus and our opportunities.
Dr. Allen Alper: That sounds promising. Could you tell me, going out
into the rest of 2017, what might be the important milestones that you're
looking forward to accomplishing?
Tracy A. Moore: Our focus is on trading activities of concentrates
and oxides to generate positive cash flow while we develop equity positions
in at least two rare earth separation refineries. We're helping with the
permitting of an existing, truly unique refinery in part because it is
situated outside of China but also because it is capable of separating the
entire spectrum of commercially traded rare earths. If we're successful with
the permitting, then we will have an opportunity to buy a majority interest
in that refinery for a pre-negotiated price. We're hopeful about that as we
have eliminated the largest objection to the issuance of the final operating
permits and we have support from 2 different federal governments and a
European major business entity, amongst others. We expect to have some
positive news in the next few months in this regard.
We are also involved with 3 other refinery projects that are in the
planning phase. Some work has been done on one of them, studying the
opportunity. For another one, there are permits that have been issued to
start construction. Our roles, responsibilities and equity positions are yet
to be finalized and the doors are open. Involvement with rare earth
refineries is a key aspect to the global supply chain so we are working very
hard to become positioned in multiple refineries. In the meantime, and on an
ongoing basis, the trading of the rare earth concentrates and oxides will
help cement our relationships with customer groups, and also generate
revenues and a fairly decent gross profit, which will help cover our
operating costs and deliver a profit to the shareholders.
Dr. Allen Alper: That sounds very good. Could you tell me a little bit
about the markets and the applications, for which rare earths are used, and
why they're important?
Tracy A. Moore: I often refer to a National Geographic article back
in June, 2011, entitled “The (Chinese) Secret Ingredient of Almost
Everything”. These elements are used strategically and critically in many
products, particularly electronics, and electronic applications. We have some
rough numbers. It's very hard to prove these numbers, but intuitively it
makes sense, that about $2 Billion a year of rare earths are critically
incorporated into $1 Trillion of electronic products. Not a lot is needed for
each one product, but they're critical to those products.
Examples are: guidance systems on missiles, electric cars, hybrid
cars, regular cars, medical equipment, cellphones, laptops, just almost any
electric product you can think of, and others, require, or can definitely
benefit by using rare earths.
Dr. Allen Alper: That sounds very good. Could you summarize the
primary reasons our high-net-worth readers/investors should consider
investing in your company?
Tracy A. Moore: That's a very good question. There are a number of
reasons, but one is that we are about to start actively promoting our company
because our recent accomplishments have got the ball rolling on realizing our
strategy. Our shares have been hovering at a low price for a long time, and I
think that we're just breaking out now. We'll be making the point that we are
one of the few companies in the rare earth sector with revenues and with
profits through the trading activities we recently started. These activities
are important in their own right, but they also help cement and bring
together, what I call, the 4 Legs Of Our Chair: long-term sources of
concentrate; rare earth processing facilities; 3 to 5 customers for each
refinery; and the financing. The first commercial step (trading), is making a
concerted effort to bring together the 4 legs of our chair, and to create a
firm foundation for a business going forward.
Another key reason for investing in our company is our strong foundation of
the processing of rare earths. Most of our peers are either traders with no
processing capabilities in-house or they are explorers hoping to create a
mine but without viable plans for processing the concentrate they hope to
create. We are developing multiple streams of rare earth concentrates that
are byproducts of other mining activities which generates additional revenues
for the existing mining operations and allows us to avoid the typical risks
and costs associated with exploration and mining. We maintain predictable
overheads and therefore have minimal downside risk. For processing refineries
our intention is to work with our proven technical partners and finance each
refinery “off of our balance sheet” so again minimal down side risk other
than for the overhead costs we allocate to initiatives. And, our trading
activities are helping cement relationships with customers and partners that,
in turn, establish even stronger relationships and international profile.
Our low-risk business model is designed to build long-term shareholder value.
Dr. Allen Alper: Thank you – that was well explained. Is there
anything else you'd like to add, Tracy?
Tracy A. Moore: It is very important to emphasize that our global
supply chain integration strategy is based on three factors: satisfying
customer demands; being in business with revenues; and having secured
technical processing capability. In contrast, most peers follow the
traditional geological flow of exploration, hopefully creating a mine,
hopefully creating a saleable concentrate and then finding a processor to
deal with the concentrate. The rare earth industry is different from most
other mineral industries – processing cannot be assumed. By-and-large, China
is the dominant country where many of the processors of the rare earth
concentrate are situated. There are very few exceptions, so most of our
peers, if successful must either sell to China, or develop their own
separation processes. There are a number of efforts including new
technologies but they tend to be unproven and therefore risky propositions.
There are very few full-size processors outside of China.
The customers have 4 ways of dealing with the rare earth issue. One
is to continue exporting from China with the inherent risk of depending on a
sole supplier. The second is to set up operations within China and thereby
transfer technology and value –add to China. The third choice these major
companies have is to engineer away from the use of rare earths, and in some
cases, companies are successfully doing so. In many cases, the best they can
do is reduce the amount of rare earths that they incorporate in products, but
they still require rare earths. The fourth is dealing with a refinery setup
outside of China. That's the solution we are endeavoring to provide. In fact,
with the rapid development of new technologies we see an increasing demand
for rare earths, particularly if a reliable, transparent supply (such as
ours) becomes available.
Each refinery that we are planning to develop will be a profit center unto
itself, and for that, we need 1 or more sources of concentrate, we need 3 to
5 customers, and we need the financing. Each refinery would be something on
the order of 2% of the world market. We'll have a viable business and we can
step up with 1 or more refineries as we bring in the customers and secure the
long-term feedstock for the refinery.
Dr. Allen Alper: Sounds like a very good approach.
Tracy A. Moore: I hope so – our team has devoted a lot of time and
energy developing the strategy and pulling together the key aspects, and we
are now beginning the implementation phase.
Dr. Allen Alper: Well, you've had the courage and the resolve to work
at it. It sounds like you've been able to move forward and keep your dreams
and goals viable.
Tracy A. Moore: Thank you. We have a very strong team and the support
of many, significant customer groups.
Tracy A. Moore, CEO
15th floor - 1040 West Georgia St.
Vancouver, BC, Canada V6E 4H1