Canada Rare Earth Corp. (TSX.V: LL): Developing a Vertically and Horizontally Integrated Global Rare Earth Business, Interview of Tracy Moore, CEO
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, US
on 4/5/2018
Canada Rare Earth Corp. (TSX.V: LL) is developing a vertically and horizontally integrated business, within the global rare earth industry. The company is building a supply chain, connecting mining operations to rare earth concentration enhancement, separation and refining processes and to major international customers.
We learned from Tracy A. Moore, CEO and director of Canada Rare Earth Corp., of three recent major achievements:
The Company recently received $500,000 for providing a third party with the right to purchase 83% of CREC’s right to acquire 60% of the completed rare earth refinery situated in Southeast. This speaks to the high level of confidence the third party has with respect to the permitting efforts conducted by the company and the late stage of the permitting process.
The trading platform has generated $1,500,000 of sales in the past nine months. The Company purchases rare earth oxides and concentrates and sells onto our growing customer base.
The Company recently entered into a strategic and financing agreement with Talaxis Limited, which is a member of the Noble Group. They share our view that midstream processing of rare earths is the key to forming an integrated supply chain. As part of this arrangement, the company received a $1,500,000 convertible loan. If the loan is converted into shares and $900,000 of associated warrants were exercised, Talaxis would hold approximately 15% of our then issued shares. The Talaxis group has significant global reach and contacts that are already expanding business opportunities for us.
In 2018, the Company is focusing on obtaining the final operating permit for the Southeast Asian refinery, increasing trading activities and continuing discussions to acquire interests in two more refineries.
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing Tracy A. Moore, CEO and director of Canada Rare Earth Corp. Tracy, could you give our readers/investors an overview of Canada Rare Earth, your focus, current activities, goals and your strategy and bring them up to date from the last time you filled us in on Canada Rare Earth?
Tracy A. Moore: Certainly. We've continued our strategy, which has not changed for several years, and we're making some good strides forward. Our trading platform, where we buy rare earths in oxide or concentrate form and sell them on to customers, is working out quite well. We recently announced that our sales for the first nine months have been $1.5 million. That's up from about $110,000 in the previous year. We're looking to increase trading activities, as our customer base likes what we are delivering. We are discussing with additional suppliers to help our growing customer base and to increase our gross profit.
We've recently established a strategic relationship with Talaxis which is an Asia based company that specializes in global supply chains. Talaxis is focused on rare earths - one of their core focus areas and a key growth area for them in the Electric Vehicle market. They understand and value our mid-stream processing capability (concentrate enhancement, separation and refining) as the key to establishing the integrated rare earth supply chain. Our experience and contacts in the rare earth industry and their logistics capability and systems are a good fit for rapid achievement of synergies.
As a result, we've entered into a significant strategic and financing agreement with them, which is leading into a number of overlapping and complementary areas. For example, we're working with them in a number of parts of the world to source concentrates. We're helping them with one of their mining and exploration properties. In particular, we'll be helping design some of the concentrate treatment facilities. They're quite eager for us to permit the Southeast Asian refinery that we've been working on for a couple of years, and they'd like to participate in that. There're a number of areas in which we can work together, and they bring access to financing, which will help with our capital needs for these large projects. The financing that we're seeking would be at the subsidiary or the refinery level, and would cause minimal if any dilution to our shareholder base.
Dr. Allen Alper: That sounds excellent. Could you elaborate on Talaxis Limited, which is a totally owned subsidiary of Noble Group, and a little bit about Noble Group, how they operate, etc., and why they're important to you?
Tracy A. Moore: Talaxis, a subsidiary of Noble Group, is dedicated to metals catering to electric vehicles – of which rare earths are a major part. Talaxis operations are headquartered in Singapore. One of their senior executives is also a Director of Canada Rare Earth. As a result, we have a close working relationship with Talaxis and thereby with Noble Group.
We are aware of the capital restructuring exercise that Noble Group is undergoing, and even so Talaxis benefits from its parent company’s experience in trading and its international footprint. They see rare earths as an excellent sector for their growth plans.
Dr. Allen Alper: That sounds excellent.
Tracy A. Moore: Yes. We're very pleased. At a personal level, we get on well. We think similarly, and we have a common vision. Talaxis sees that the midstream processing is necessary to have a vertical integration in the rare earths supply chain.
Dr. Allen Alper: That's excellent. Could you tell our readers/investors what you are doing with refineries around the world?
Tracy A. Moore: We continue to place a great deal of emphasis on the Southeast Asian refinery (situated in Laos) and, in particular, on obtaining the final operating permits. In the last 12 months, we've made a number of presentations to the Laotian government, and we feel that we're getting close to having some positive results. We're not there quite yet, but we hope to be in the not too distant future. The recently signed agreement, where we received $500,000 for providing the right to participate in our right to purchase 60% or more of the refinery, is a strong sign that a third party believes we are getting close.
We're also aware of two other refineries that are in progress, and we're in early stage discussions to see if we can become part of those refineries.
Dr. Allen Alper: What role will the refinery play in getting intermediate rare earths processed, and ending up with more refined rare earths?
Tracy A. Moore: In the rare earths supply chain, rare earths are not particularly rare, but they're difficult to find in economically minable quantities and concentrations. Once an economic quantity is found, some effort and financial resources are required to establish the mine and produce a concentrate, which will contain typically 10% to 20% rare earths and occasionally up to 40% rare earths.
Usually at that point, a specialized enhancement refinery improves the rare earth content to 62% of the concentrate, and this concentrate can then be inserted into a very specialized refinery to improve the concentrate to about 95-97%. This enhanced concentrate is then separated into the individual oxides to varying rare earth percentages. In some cases, the purity will be 99.9%, in other cases up to 99.9999%. Those individual oxides are transformed into metals or alloys, and then into subcomponents and more usable products.
Our unique ability is the enhancing of concentrate and then separating it into the individual oxides. Others in the industry focus on establishing a source of rare earths at the mining level, but if successful, the question is - what will be done with their concentrate? Others focus on developing new separation technologies and adapting systems from other applications. Few have progressed past the laboratory or pilot plant stage, scaling up to commercial size is often a technical issue and therefore a financing issue. We prefer to align with proven and improving technology, which is in commercial use.
Dr. Allen Alper: That sounds like an excellent strategy. Canada Rare Earth Corp. has a niche that is needed to supply refined individual rare earths to the marketplace.
Tracy A. Moore: Yes. We're in discussions with a number of buyers of rare earth oxides, and we believe that we will not have a great problem selling the oxides. Of course, we have to compete with China and be cognizant of those terms and conditions associated with sales by the Chinese. But, we are confident we will be able to sell our products.
Dr. Allen Alper: Could you tell our readers/investors on which rare earths you're concentrating and what markets those rare earths serve?
Tracy A. Moore: The refineries, with which our team is associated, are capable of separating the entire spectrum of commercially traded rare earths. The most popular rare earths at this time, the rare earths that are garnering the greatest attention, neodymium and praseodymium, Nd and Pr, are used in a number of exciting applications, including electric vehicles. There are many uses for rare earths, including Nd and Pr, but the electric vehicle segment is garnering the greatest amount of attention these days. We can certainly help fulfill the supply of Nd and Pr into those markets.
Dr. Allen Alper: That sounds excellent. Could you tell our readers/investors what Canada Rare Earth will be focusing on in 2018?
Tracy A. Moore: Our main focus is establishing rare earth concentrate enhancement and separation facilities. The first priority for us is obtaining the operating permit for the Lao refinery, which is a completed refinery. It's substantially complete. It could be operating within three or four months of the issuance of the final operating permits, so it's low-hanging fruit for us, and we're pushing hard to obtain the final operating permits.
Once permitted, we have a number of months to exercise our right to buy 60% of the refinery. We recently entered into a Rights Agreement, where a third party has the option to acquire a large portion of our right to purchase 60% of the refinery. Under the agreements, the refinery is to be branded as a “Canada Rare Earth” refinery, and we would have certain rights to provide concentrate to the refinery, and to sell product. We would be involved, on a fairly active basis, with the refinery. We are in discussions with two other refineries.
We're also looking to enhance our sales of rare earth concentrates, as we have a captive customer base that's eager for us to increase the supply to them. Talaxis will be helping us in that regard.
Dr. Allen Alper: That sounds excellent. Could you refresh the memories of our readers/investors about your background, team, and board?
Tracy A. Moore: We're very pleased with the experience and qualifications of our team. Together we cover the spectrum of corporate finance, international sales and business development, exploration and mining, large refinery construction project management and a former Canadian ambassador.
Dr. Allen Alper: That sounds very good. Could you tell our readers/investors a bit more about your background, Tracy?
Tracy A. Moore: I qualified as a Canadian chartered accountant and practiced for a number of years as a CA and then moved to restructuring businesses, strategic and business planning and then corporate finance. I've worked in over 20 countries in a corporate finance and international business development capacity.
Dr. Allen Alper: That's excellent experience and background for your present position. Excellent!
Tracy A. Moore: Thank you.
Dr. Allen Alper: Could you tell our readers/investors a bit about your share structure?
Tracy A. Moore: Currently, there are 166 million shares issued and 16 million options granted. We've also entered into a convertible debt facility with Talaxis. By converting their $1.5 million loan, Talaxis would acquire approximately 20 million shares (at an average of $0.076 per share) and then have the right to exercise 9,000,000 warrants at a minimum of $0.10 per share. If fully converted and exercised, Talaxis would acquire 15% of our then-issued share capital, and we would have raised a minimum of $2.4 million of equity.
Dr. Allen Alper: That sounds good. Sounds like you have a strong, supportive investor with Talaxis.
Tracy A. Moore: Exactly. We've been very careful to avoid issuing shares over the past four years. However, we are prepared to make an exception with Talaxis for strategic reasons. We are expecting our collaboration with the Talaxis network to yield synergistic benefits in the very near term. The equity positioning will bind our companies together in a stronger fashion.
Dr. Allen Alper: That sounds excellent. Could you tell our high-net-worth readers/investors the primary reasons they should consider investing in Canada Rare Earth Corporation?
Tracy A. Moore: We believe we're uniquely positioned in the rare earth industry outside of China. There are only three or four refineries outside of China that can produce rare earth oxides at scale.
The Laos refinery is designed to produce 3,000 metric tons of commercially traded rare earths (approximately 2.5% of the global market).
A refinery, also situated in Southeast Asia, has a larger capacity, but can only produce part of the spectrum of commercially traded rare earths
A refinery in Europe is similar size to the Laos refinery but 40 years old.
A refinery in North America is not operating and was only capable of producing part of the spectrum of rare earths.
The other refinery in Southeast Asia is starting to earn a profit and its enterprise value is in excess of $1 billion. If this is a good comparison, we think we have very good upside potential with the Laos refinery.
Dr. Allen Alper: That sounds excellent. Is there anything else you'd like to add, Tracy?
Tracy A. Moore: Only that I thank you for your support and continuing interest in our company, and I look forward to having many more conversations with you, talking about the successes we are hoping to have in the coming months.
Dr. Allen Alper: That's excellent. We'll be looking forward to hearing about your accomplishments in 2018, and reporting it to our readers/investors. Have a great day.
Tracy A. Moore: Thank you very much, Al, and again, I appreciate your interest in our company.
Tracy A. Moore
Chief Executive Officer
15th floor - 1040 West Georgia St.
Vancouver, BC, Canada V6E 4H1
t: 604.638.8886
e: tmoore@canadarareearth.com
w: www.canadarareearth.com
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