Mackie Research on REO`s - Greenland Minerals and Energy

Transcrição

ALTERNATIVE ENERGY
8 FEBRUARY 2011
RARE EARTH INDUSTRY UPDATE
Matt Gowing, CFA 416.860.8675
[email protected]
Raveel Afzaal, Associate 416.860.7666
2011 Rare Earth Industry Update: We Remain Bullish
We are pleased to present a comprehensive rare earths industry update. This forward-looking report predicts future demand and supply of rare
earths and analyzes the impact of changes in supply-demand dynamics on rare earth prices. The key findings of our report suggest that supply
of rare earths, particularly heavy rare earths, is expected to remain strained over the next four years.
Inelastic demand in high-growth industries
Rare earths are an integral input, with little or no substitutes, required in a multitude of industries.
•
The average CAGR of these industries range from 6% to 15%.
•
Rare earths are usually a small component of the overall manufacturing costs of the end products in most industries. Therefore,
•
companies are more likely to be able to bear an increase in rare earth prices compared to an increase in prices of raw materials that
constitute a large component of the overall manufacturing costs.
Supply to remain strained
In this report, we detail a list of new rare earth mines that are expected to come on-line over the next five years (see Figure 7a). We
•
believe the supply of rare earths is going to remain strained, even after incorporating a very generous assumption that these new rare
earth mines will come on-line on schedule and meet their production goals.
China consumes more than 60% of its current rare earth production. We expect its domestic consumption to further increase based on
•
its significant investments in domestic industries that require rare earths, such as wind turbines. In addition, China is no longer
interested in realizing lower margins through the sale of unrefined rare earths. It aims to build vertical industries to further participate
in the down-stream business and realize higher margins. Therefore, we do not expect China to flood the global markets with cheap rare
earths in the foreseeable future.
Rare earth prices to further increase, given tight supply and inelastic demand in high-growth industries
Many of the light rare earths, such as
•
Figure 1a: Future Price Estimates of Selected Rare Earths
Lanthanum and Cerium, experienced pricing
Calendar
period
2010A
2011E
2012E
2013E
gains ranging from 600-700% on average in
2010, while most heavy rare earths saw more
Dysprosium Oxide (Dy)
305
375
454
504
modest gains, yet still generally doubled on
Dysprosium Fe (Dy)
300
369
446
496
Gadolinium Oxide (Gd2O3)
70
73
71
78
average in 2010.
Lutetium Oxide (Lu2O3)
412
461
517
579
After analyzing the correlation between the
•
Terbium oxide (Tb4O7)
610
778
968
1,172
tightening of rare earths supply and price
Yttrium Oxide (Y203)
78
99
121
135
from the years 2005 to 2010, we have used this
Neodym ium (Nd2O3)
90
113
125
151
Held within China
same correlation to forecast rare earth prices
Europium Oxide (Eu2O3)
454
499
549
604
for the 2011 to 2015 period. Our model
8
8
9
10
suggests that rare earths, in particular heavy
Source: Mackie Research Capital
rare earths, are expected to see further price
appreciation.
2014E
2015E
580
570
65
648
1,373
163
176
672
661
55
726
1,029
186
238
665
11
731
12
Recommended plays – Focus on heavy rare earths
Mines with high heavy rare earth content.
•
Rare earth mining companies, and their associated rare earth deposits, that are valued by the market at significant discounts to peers.
•
Mining companies that intend to participate in the downstream business through building out a separation facility. Our financial
•
modeling on the economics indicates that adding refining and separation facilities to a rare earth mine plan adds considerable net
present value (NPV).
Refiners and separators of rare earth materials also offer investors exposure to the sector, and they are currently benefitting from this
•
current state of strong rare earth pricing.
We expect consolidation in the space to become a recurring theme as mining companies look to acquire companies with abnormally
•
large resources as well as companies with expertise and technology in building and operating rare earth separating facilities.
Investment opportunities also exist in the physical ownership of rare earth commodities.
•
Page 2
TABLE OF CONTENTS
Industry Overview ................................................................................................................................................................... 3
Supply & Demand ................................................................................................................................................................... 4
Rare Earths Pricing Forecast ................................................................................................................................................. 12
Consolidation ......................................................................................................................................................................... 14
Conclusion .............................................................................................................................................................................. 15
Appendix 1 – Rare Earth Industry News ........................................................................................................................... 16
Appendix 2 – Rare Earth Mineral Profiles ....................................................................................................................18-23
Appendix 3 – Selected Company Profiles:
Avalon Rare Minerals Inc. (AVL-TSX, Unrated) ...................................................................................... 24
Neo Material Technologies Inc. (NEM-TSX:, BUY/TARGET PRICE: $10.00) ...................................... 25
Relevant Disclosures/Analyst Certification ...................................................................................................................... 26
www.mackieresearch.com
Page 3
INDUSTRY OVERVIEW
WHAT ARE RARE EARTHS?
Rare earth elements (REE), also described as rare earth oxides (REO), are a group of 17 metals critical to several clean energy, clean-tech, and
electronic applications. Of these 17 elements, the group of lanthanides amount to 15. They are listed in Figure 1b. A group of chemically similar
elements, the lanthanides, are grouped together on the chemical periodic table.
Distinguishing between heavy rare earths and light rare earths: In Figure 1b, we separate the 15 lanthanides into light rare earths elements
(LREE) on the left side, and heavy rare earths elements (HREE) on the right. The rare earths are defined as those chemical elements beginning at
number 57, lanthanum, on the periodic table and running consecutively through to number 71, lutetium. The chemical differences in rare earths
come about due to differences in ionic radius, crystal structure, and basicity of the mineral. For example, Neodymium magnets hold their
magnetic properties much better due to their internal crystal structure. The ionic radius of the heavy rare earths is smaller than the light rare
earths, which makes them denser, more resistant to high temperatures, and less reactive in some circumstances. The rare earths vary in crustal
abundance with from cerium, at 60 ppm (parts per million) to thulium and lutetium, at 0.5 ppm. The division is important as HREEs command
higher selling prices and therefore higher margins for their producers.
Yttrium - Some call it the 16th lanthanide: Yttrium is often found along with other lanthanides in nature. Although it has similar chemical
properties, it is not officially classified as a lanthanide.
Scandium, atomic number 21: Scandium rounds out the group of 17 rare earth elements. It typically occurs in rare earth ores, in minor amounts,
because of its smaller atomic size.
Figure 1b: The 15 Lanthanide Elements
.
LREE (Light Rare Earth Elements):
HREE (Heavy Rare Earth Elements):
Element # in periodic table:
Element # in periodic table:
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
La
Ce
Pr
Nd
Pm
Sm
lanthanum
cerium
praseodymium
neodymium
promethium
samarium
Eu
Gd
Tb
Dy
Ho
Er
Tm
Yb
Lu
europium
gadolinium
terbium
dysprosium
holmium
erbium
thulium
ytterbium
lutetium
Source: USGS, Mackie Research Capital
INDUSTRIAL USES
Rare earths are an essential ingredient used in a multitude of industries: The market for rare earths has grown rapidly given their use in a
wide array of applications. In some applications, rare earths do not have any effective substitutes and are vital to the manufacturing process.
The highest rare earths-consuming industrial applications are shown in Figure 2.
Page 4
Figure 2: End-Market & Applications of Rare Earths
Rare Earths are a group of elements with unique properties
Rare Earth Elements
Catalytic Magnetic Electrical Chemical
Optical
Lanthanum (La)
X
X
X
X
Cerium (Ce)
X
X
X
X
X
X
X
X
X
X
Praseodymium (Pr)
Neodymium (Nd)
X
Samarium (Sm)
X
X
Europium (Eu)
X
Gadolinium (Gd)
X
X
Terbium (Tb)
X
X
Dysprosium (Dy)
X
X
Holmium (Ho)
X
Erbium (Er)
X
Ytterbium (Yb)
X
Yttrium (Y)
X
Source: Lynas Corp
SUPPLY & DEMAND
CONSUMPTION
Volume growth outlook for rare earths usage is high: In Figure 3, we provide a forward-looking comparison by usage for various rare earths
consumption growth rates as forecast by two leading industry specialists, Roskill and IMCOA (Industrial Minerals Company of Australia).
Demand for rare earths is expected to increase from 95,000 tonnes in 2005 to about 180,000 tonnes in 2014. What is striking is the general
expectation for high growth rates across all categories. In certain end-markets, i.e., those products that require terbium and dysprosium, such as
magnets, growth rates are expected to sustain double-digit increases, even approaching 15%. Additionally, almost all of the end-markets are
expected to experience average estimated growth ranging from 8% to 11%.
Figure 3: Projected Growth of End Markets
Applications
Elements
Magnets
Dy*, Nd, Pr, Sm, Tb*
Metal alloys
Ce, La, Nd, Pr
Catalysts
Ce, Nd, La
Polishing
Ce, La, Pr
Glass
Ce, Er*, Gd*, La, Nd, Yb*
Phosphors & pigmentsEu*, Tb*, Y*
Ceramics
Other
Total
2005
17,150
7,200
21,230
15,150
13,590
4,007
16,935
95,262
% of
Supply
18.0%
7.6%
22.3%
15.9%
14.3%
4.2%
0.0%
17.8%
100%
% of
2008F Supply
2014F
26500 21.4%
39-43,000
22500 18.1%
43-47,000
23000 18.5%
28-30,000
15000 12.1%
19-21,000
12500 10.1%
12-13,000
9000
7.3%
11-13,000
7000
5.6%
8-10,000
8500
6.9%
10-12,000
124,000
100% 170-190,000
% of
Supply
22.8%
25.0%
16.1%
11.1%
6.9%
6.7%
5.0%
6.1%
100%
9-yr
08-14
CAGR Growth
10.2%
7.5%
22.6% 12.2%
3.5%
3.9%
3.1%
4.9%
-0.9%
0.0%
13.0%
4.9%
4.3%
-4.7%
4.4%
7.3%
6.4%
11-14
Growth
10-15%
15-20%
6-8%
6-8%
0-1%
7-10%
7-9%
7-9%
8-11%
Elements with *: HREE
Source: Roskill, IMCOA
Page 5
RARE EARTHS SUPPLY INADEQUATE TO MEET DEMAND
Shortfall particularly severe for the heavy rare earths: Avalon’s Thor Lake project and Quest’s Strange Lake projects currently have two of the
largest deposits of heavy rare earths in the world. Our research suggests that heavy rare earths are likely to experience the greatest shortages. As
shown in Figure 4, according to IMCOA, terbium and dysprosium are expected to have global shortages of 105 and 500 tonnes, respectively, by
2015. This implies that the future supply of terbium and dysprosium would only be able to meet 80% and 73% of their respective demands in
2015.
Figure 4: Supply vs Demand in 2015
Source: IMCOA
According to China’s Ministry of Commerce, there is a concern that at today’s rates, China’s heavy rare earths supply could be depleted in the
next 15-20 years. Even though the heavy rare earths are sold in much smaller volumes than neodymium and the lighter elements, shortfalls in
supply would be a major driver for relative price outperformance of the heavy rare earths.
New mines coming on-line have a higher mix of light as opposed to heavy rare earths: The supply impact of new mines coming on-line may
have little effect on reducing the upward pressure on rare earths prices, especially heavy rare earths prices. The two non-Chinese projects
expected to come on-line in the next two years, Mt. Weld in Australia and Mountain Pass in the US, are weighted towards light rare earths.
Moreover, 72% of Lynas Corp’s Mt Weld deposit is composed of lanthanum and cerium (light rare earths). Figure 5 further supports our
argument that heavy rare earth content (HREE) as a percentage of the total rare earth from existing and future mines is quite low.
Consequently, HREE will likely be much scarcer going forward.
Page 6
Figure 5: HREE Content as a Percentage of Total Rare Earths by Mine
Resource
(million
Grade
Deposit
tonnes) (% TREO)
Bayan Obo, China
1,460
3.9%
Kvanefjeld, Greenland
215
1.0%
Mountain Pass, USA
20
9.2%
Nechalacho, Canada
65
2.1%
Mt. Weld, Australia
12
9.7%
Nolans, Australia
30
2.8%
Dong Pao, Vietnam
11
6.9%
Bear Lodge, USA
9
4.1%
Hoidas Lake, Canada
2
2.6%
TREO
HREE
(million Content
tonnes) (% TREO)
56
2%
2.6
14%
1.8
1%
1.3
20%
1.2
3%
0.9
4%
0.8
n/a
0.4
n/a
0.04
7%
Cut-off Grade
n/a
0.015% U3O8
5% REO
1.6% REO
2.5% REO
1.2% REO
6.9% REO
1.5% REO
1.5% REO
Source: IFRI Energy Breakfast Roundtable, Christian Hocquard
Figure 6 reinforces the point that even with new mines coming on-line, the supply of heavy rare earths is expected to remain tight. Mt. Weld in
Australia is expected to begin producing at a rate of 20,000 tonnes per year in 2011. Molycorp’s Mountain Pass project in the United States, and
possibly Alkane Resources Limited’s Dubbo project may come on-line by end of 2012 and 2014, respectively. Avalon’s Thor Lake mine in
Canada is expected to come online in 2015.
Mt. Weld is expected to add 19 tonnes of terbium and 34 tonnes of dysprosium at initial production. Mountain Pass is expected to add only trace
amounts of terbium and dysprosium when it comes on-line. Nolan’s Bore is expected to add 16 and 68 tonnes of terbium and dysprosium,
respectively. Moreover, Thor Lake is expected to add an additional 45 tonnes of terbium and 250 tonnes of dysprosium.
Figure 6: Rare Earth Content by Mine for 2012-2014
Source: IMCOA
Page 7
Figure 7a: Rare Earth Mines Development Outside of China
Project
Mount Weld
Mountain Pass
Nolans
Dubbo Zirconia
Thor Lake
Bear Lake
Hoidas Lake
Kvanefjeld
Strange Lake
Location
Australia/Malaysia
USA
Australia
Australia
Canada
USA
Canada
Greenland
Canada
Potential
Production
mid 2011
mid 2012
2013
2014
2015
2015
2015+
2015/2016
2016
Owner
Lynas Corporation Ltd
Molycorp Minerals, RCF, Goldman Sachs and Traxys
Arafura Resources Ltd.
Alkane Resources Ltd.
Avalon Rare Metals Inc.
Rare Element Resources Ltd
Great Westerns Minerals Group
Greenland Minerals & Energy Ltd.
Quest Rare Minerals Ltd.
Source: IMCOA
Unexpected supply shocks may occur as delays are encountered in new mine development: When these projects do come online, they are not
expected to produce an adequate quantity of heavy rare earths to satisfy demand. Typical mining risks accompany these projects and delays
may be commonplace in reaching operating status by the expected dates. Even if these projects meet scheduled timelines, supply for heavy rare
earths over the next three to four years will continue to be tight. We believe this shortage will be further exacerbated by China restricting
supplies to the rest of the world.
Figure 7b provides a comparison of some of these projects in terms of current valuation, heavy rare earth content, and historical price
performance.
Figure 7b.Rare Earth Mining Companies Comparable Table
Mkt Cap/
Measured
Measured
Measured
Measured
Measured Mkt Cap/
&
&
Total
&
&
Total
Mkt Cap/
and
Inferred Indicated
Inferred Indicated Inferred Indicated Inferred Indicated Mineral
Inferred Indicated Inventory
Grade
Grade
Grade
Resource Resource Reserve
Grade Inventory Inventory TREO
Pre-Tax Resources Resources
Value
Ticker (mt, 000s) (mt, 000s) (mt, 000s) (TREO)
(TREO)
(TREO)
($/tonne) ($/tonne) ($/ tonnes)
(TREO) (mt, 000s) (mt, 000s) (mt, 000s)
IRR
Lynas Corp - Mt. Weld
Molycorp - Mt. Pass
Alkane Resources - Dubbo Zirconia
Arafura Resources - Nolans
Great Western Minerals - Hoidas Lake
Greenland Minerals & Energy Ltd. - Kvanefjeld
Avalon Rare Metals Inc - Thor Lake
Rare Element Resources - Bear Lodge
Quest Rare Minerals Ltd - Strange Lake
Frontier Rare Earths
LYC-AU
MCP-US
ALK-AU
ARU-AU
GWG-V
GGG-AU
AVL-T
RES-V
QRM-V
FRO-T
5,294
35,700
12,800
287
92,000
226,880
15,876
114,823
20,810
12,200
37,500
17,400
2,561
365,000
88,130
22,920
2,040
48,375
12,001
-
8.30%
7.00%
0.90%
2.60%
2.14%
1.01%
1.30%
3.46%
1.00%
1.99%
7.96%
0.90%
2.92%
2.43%
1.01%
1.53%
2.32%
8.30%
7.00%
0.90%
2.60%
2.14%
1.01%
1.30%
3.46%
1.00%
1.99%
7.96%
0.90%
2.92%
2.43%
1.01%
1.53%
2.32%
439
321
333
6
929
2,949
549
1,148
414
971
338
508
62
3,687
1,348
532
1,410
3,386
659
840
68
4,616
4,298
549
1,148
946
18%
24%
23%**
40%***
36%
6,698
n/a
899
1,469
65,219
416
209
1,101
316
671
3,032
n/a
856
963
6,428
105
457
n/a
n/a
523
2,087
1,256
439
582
5,851
84
143
1,101
316
294
** Avalon's IRR estimate based on Mackie Research model. IRR estimate for the remaining companies based on company announcements.
*** Rare Element Resources IRR estimate is after-tax.
Source: Companies, Mackie Research Capital
Page 8
Figure 7c.Rare Earth Mining Companies Share Price Performance
Company
Lynas Corp
Molycorp
Alkane Resources
Arafura Resources - Nolans
Great Western Minerals
Greenland Minerals & Energy Ltd.
Avalon Rare Metals Inc - Thor Lake
Rare Element Resources
Quest Rare Minerals Ltd
Frontier Rare Earths
Pele Mountain Resources Inc
Quantum Rare Earths Development Corp
Ucore Rare Metals Inc.
Commerce Resources Corp.
Rare Earth Metals Inc
Stans Energy Corp
Dacha Strategic Metals
Neo Material Technologies Inc
Ticker
LYC-AU
MCP-US
ALK-AU
ARU-AU
GWG-V
GGG-AU
AVL-TSX
RES-TSXV
QRM-TSXV
FRO-TSX
GEM-TSX
QRE-TSX
UCU-TSX
CCE-TSX
RA-TSX
RUU-TSX
DSM-TSXV
NEM-TSX
Price Change (%)
1 Month 3 Months 6 Months
-5
40
111
-6
44
288
18
41
180
-5
8
78
83
159
444
1
32
189
-2
64
148
-3
31
380
11
32
117
-8
-10
80
341
2
6
113
24
78
138
-9
27
202
-5
-8
44
169
264
1131
-7
-6
7
14
54
113
1 Year
236
280
82
293
114
182
334
135
120
34
172
135
-32
841
-20
112
Neo Materials (NEM – TSX, BUY Recommendation, $10.00 price target)
Source: Bloomberg
China in supply restriction mode: In 1992, China began selling rare earths at a significant cost discount to producers outside of China. Chinese
miners were able to produce rare earths at lower costs due to weak environmental regulations and cheap labour. This led to rare earth mines
outside of China closing down. China continued to invest in rare earth production and now supplies 97% of the market globally. However, the
country is currently in a unique position; domestic demand for rare earths in China has increased dramatically. As well, a substantial increase in
demand has occurred in the export market.
China intends to create vertical industries that not only mine rare earth ore, but also consist of world-leading refining and processing facilities.
The priorities of job creation and production dominance are factors that are likely to result in China continuing to place increasing restrictions
on rare earths exports. As well, China has been imposing increasingly stringent environmental regulations that place further supply pressure on
the output from rare earth mines.
China has taken a multi-pronged approach in restricting supplies: As discussed, China has been making its export restrictions increasingly
stringent. We expect this trend to continue, providing further upward pressure on rare earth prices.
Export Tariffs – In 2006, China introduced a flat 10% export tariff across all rare earths. In 2008, this was revised to 15% for light rare earths
and 25% for heavy rare earths. On December 16, 2010, the Chinese Ministry of Finance announced that it will raise export taxes for some
light rare earth elements − such as cerium, lanthanum, and neodymium − to 25% in 2011.
Export Quotas – In 2003, China started introducing export quotas that have continued to become increasingly stringent and further restrict
supplies of rare earths in the export markets. Export quotas for 2010 totaled 30,258 tonnes compared with 50,145 tonnes in 2009,
representing a 40% decline. On December 28, 2010, China announced allocations of rare earths quotas of 14,446 tonnes for H1/2011,
equivalent to a 35% decline relative to H1/2010. This became a major catalyst for stocks exposed to rare earths prices. We believe the
upcoming July quota allocation announcement could again act as a major catalyst for higher prices.
Elimination of the Value-Added Tax (VAT) Rebate - In 1985, China began to implement an export tax rebate policy that has since been in
steady decline. In 2004, the export tax rebate for rare earth metals was reduced to 5% from 17%. In May 2005, the export tax rebates for all
rare earths were abolished.
Page 9
Production quotas – In order to prevent over-mining and illegal mining, the authorities introduced product quotas in 2007. As of
September 2010, the production quotas stood at 82,320 tonnes.
Figure 8: Chinese Rare Earths Quotas Continue to Decline
(Metric Tonnes)
Foreign
Local
TOTAL
2008
8,211
34,156
42,367
09/1H
6,685
15,043
21,728
09/2H
10,160
18,257
28,417
Foreign
Local
TOTAL
2009
16,845
33,300
50,145
105%
-3%
18%
10/1H
5,978
16,304
22,282
10/2H
1,768
6,208
7,976
2010
7,746
22,512
30,258
Y/Y % Change
-11%
-83%
8%
-66%
3%
-72%
11/1H
3,746
10,762
14,508
-54%
-32%
-40%
-37%
-34%
-35%
Source: Chinese Commerce Ministry, Mackie Research
TREND OF POLITICAL DEVELO PMENTS SUGGEST RARE EARTHS SUPPLY REM AINS TIGHT
Even if the Chinese government were to announce that full-year 2011 quotas will be flat compared to the 2010 level, we believe there is a strong
likelihood of further near-term increases in rare earths pricing. Again, this is due to the tight state of rare earths supply-demand. We have
included a number of recent comments from noteworthy sources regarding Chinese export policy on rare earths in Appendix 1. The key takeaway is that China is expected to reduce export quotas in 2011, or at-least keep quotas at a consistent level from 2010.
PRICING TRENDS INDICATE FURTHER INCREASES
Rare earths have experienced strong pricing gains over a multi-year period. Not surprisingly, the supply squeeze has helped sustain these
pricing gains. Also interesting is that price gains have recently accelerated. Pricing of terbium and dysprosium has been particularly strong over
the past several months (Figure 9).
Figure 9: Historical Prices of Rare Earths
(US $/KG)
Product (oxide)
Dysprosium
Dysprosium Metal
Terbium
Gadolinium
Yttrium
Europium
Lutetium
Neodymium
Held within China
Europium
Yttrium
2005
2006
2007
2008
2009
Q1/2010*
Q2/2010*
Q3/2010*
Q4/2010*
2010**
35
300
290
70
70
460
5
240
190
250
600
9
20
530
200
290
515
9
20
530
14.8
118
118
721
10
13
482
550
27.21
116
150
362
7
15.5
493
6
89
89
590
10
11
324
550
28.9
15.29
30
30
293
282
628
61
63
600
412
60
305
300
610
70
78
640
412
90
305
300
610
70
78
640
412
90
290
-
240
5
324
11
482
13
493
15.5
423
7.57
416
7.11
454
7.57
454
7.57
454
7.57
* end of quarter prices
** estimated current price as of 30th December 2010
Source: IMCOA, metal-pages.com, Lynas, Martin van Britsom & Diksmuide, Asian Metals
Figure 10 illustrates rare earths data points spanning the past few decades. We note the severe price correction as a result of the 2008/2009
global recession and the recent reversal to price improvement. The figure also provides a good overview of the magnitude of cyclical price
swings in the rare earths market. Currently, we are experiencing the upswing of pricing strength, and if the trend continues, our pricing
estimates may be surpassed (see Figure 11).
Page 10
Figure 10: Historical Prices of Rare Earths (US$/kg)
Data Source: http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2010-raree.pdf
Figure Source: http://tikalon.com/blog/blog.php?article=RE_shortage
DEM AND
Rare Earths – Substantial Market Opportunity: According to the China Rare Earth Information Center, the global rare earths market amounted to
about 124,500 metric tonnes in 2008. In 2009, as a result of the recession, volumes dropped to roughly 100,000 tonnes. The market is currently in
the process of a drastic recovery in sales volumes, and is believed to have jumped back to about 135,000 tonnes in 2010, and expected to increase
to about 152,000 tonnes in 2011. By 2014, IMCOA (Industrial Minerals Company of Australia) estimates the rare earths market will exceed $2
billion in value. Data obtained from Metal Pages and Roskill support the contention that rare earths sales represent a market opportunity in the
billions of dollars. Figure 11 illustrates that in 2007, neodymium was the largest segment of the rare earths market by value, closely followed by
cerium.
Figure 11: Historical Rare Earths Oxide (REO) Pricing 2007 Production Value - $1.05 Bln
Source: metal-pages.com, Martin van Britsom & Diksmuide, Tianjiao International
Page 11
Figure 12 depicts the steady growth of total global production. Given a higher current production run-rate combined with recent strength in
pricing, we believe the value of this market has grown significantly in the past couple of years and will continue to do so.
Figure 12: Historical Rare Earths Oxide (REO) Production
Outlook for demand strong, driven by clean-tech and “new age” applications: Figure 13 provides a segmented list characterizing the
downstream end-markets that have been driving a considerable amount of the demand for rare earth materials. The appearance of electric
vehicles and renewable technologies on this list is a reminder of the key role that green and renewable technologies play in the industry. Growth
of miniaturized electronics is believed to be considerable, another key demand driver for rare earths.
Figure 13: Projected Growth of Downstream End-Markets & Applications
End Use
Computers
Electric bicycle motors
Electric vehicle batteries
Electric vehicle motors
LCD displays
Moblie CE
Mobile phones
Wind turbines
Unit Shipments (000s)
2008
2014
CAGR
293,000 529,000
12.50%
23,000
100,000
34.20%
527
2,717
38.80%
527
2,717
38.80%
102,200 375,000
29.70%
1,055
58,000
122.90%
1,222,245 2,250,000
13.00%
81
239
24.10%
REE Used
Nd, Pr, Sm, Tb, Dy
Nd, Pr, Sm, Tb, Dy
La, Ce, Pr, Nd
Nd, Pr, Sm, Tb, Dy
Eu, Y, Tb, La, Ce
Nd, Pr, Sm, Tb, Dy
Nd, Pr, Sm, Tb, Dy
Nd, Pr, Sm, Tb, Dy
Page 12
RARE EARTHS PRICING FORECAST
We have forecasted and analyzed supply and demand imbalances for each of the relevant rare earth elements using our proprietary
methodology in order to derive our rare earth price estimates. The future demand projections for each element are based on Roskill’s projected
CAGR for the specific industries that use the respective rare earths in their manufacturing processes. The US Department of Energy’s estimates
are used to determine individual rare earth content in existing and upcoming mines. This, coupled with industry expert consensus regarding the
commercial operations start date of the new mines, allows us predict future supply of individual rare earths on a year-to-year basis. We then
analyze the relationship between historical demand and supply imbalances and the price for each of the rare earths under consideration. After
analyzing the correlation between excess demand and price for the years 2005 to 2010, we have used this same correlation to forecast rare earth
prices for the 2011 to 2015 period. For each element, this is done by calculating the average change in price per one tonne increase in excess
demand (where excess demand equals global supply less global demand per element).
In the terbium tear sheet in Appendix 2, for example, we calculate a historical average price of $7/tonne for years 2006-2010. This average ratio
of $7/tonne is projected forward, and is multiplied by our proprietary estimates for change in excess demand. These calculations are repeated for
each element and are detailed in Appendix 2. The end-result of our price forecasts are shown in Figure 14.
Figure 14: Rare Earth Price Forecasts (US$/kg)
Calendar period
Dysprosium Oxide (Dy)
Dysprosium Fe (Dy)
Gadolinium Oxide (Gd2O3)
Lutetium Oxide (Lu2O3)
Terbium oxide (Tb4O7)
Neodymium (Nd2O3)
Held within China
Europium Oxide (Eu2O3)
2010A
2011E
2012E
2013E
2014E
2015E
305
300
70
412
610
78
90
375
369
73
461
778
99
113
454
446
71
517
968
121
125
504
496
78
579
1,172
135
151
580
570
65
648
1,373
163
176
672
661
55
726
1,029
186
238
454
8
499
8
549
9
604
10
665
11
731
12
Source: metal-pages.com, IMCOA, Roskill, US Department of Energy, Mackie Research Capital
Appendix 2 contains summaries of the supply and demand projections we use to derive our rare earth element price estimates. Also in
Appendix 2 we include a one-page table from the US Department of Energy’s December 2010 report, ”Critical Materials Strategy” featuring
tables that provide an overview of the supply-demand dynamics for each element.
RECENT EVENTS INCREASE PRO SPECTS OF FURTHER PRICE STRENGTH
On January 24, 2011, Molycorp announced it would be targeting production of 40,000 tonnes per annum (tpa) at mine start-up, double its
previous rate. This was an important announcement because Molycorp’s Mountain Pass mine, after Lynas’s Mt. Weld project, represents the
industry’s next new capacity addition to the market. We believe this announcement further highlights the global shortage of rare earth supplies
and increased interest by investors in the space. Our analysis indicates that this mine will add only trace amounts of heavy rare earths compared
to Avalon, which has significant heavy rare earth resources.
China’s December 28 rare earth export quota reduction set off a flurry in the rare earth stock prices. China decreased H1-2011 quotas by 35%
YOY, which led to sharp increases in the share prices of rare earth companies outside of China. We do not believe these restrictive export quotas
are a short-term phenomenon. China currently consumes about 60% of rare earths domestically and its future consumption is expected to
increase significantly. There are concerns that by 2015, China may not be able to meet even its own internal demand for rare earths.
Page 13
Chinese government nationalized 11 rare earth mines. In the third week of January 2011, China nationalized 11 rare earth mines in the eastern
province of Jiangxi. China took this step to protect the dwindling supply of heavy rare earths as these mines are rich in heavy rare earths. This
move also helps curb illegal and irresponsible mining practices in the region that had led to environmental damage. We believe nationalization
will provide further upward pressure to the prices of rare earths, particularly heavy rare earths, as the state strengthens its control over the
mines. This bodes well for Avalon, which has a heavy concentration of heavy rare earths at its Thor Lake project. A comprehensive summary of
rare earth-related industry events is shown in Appendix 1.
CONSOLIDATION
EXPECTED TO BECOM E A RECURRING THEM E IN THE RARE EARTHS SPACE
In order to unlock the full potential of the mines and realize higher margins, the companies will need to participate in the downstream business.
We believe the rare earth mining companies realize that the risk-return profile of their respective projects is more attractive with equity partners
that share the huge costs associated with building the mine and the additional costs involved with building out separation facility. For instance,
Avalon expects to spend over $1 billion in capital expenditure to develop its mine and an additional $300 million to build out its separation
facility. We have already seen a rise in bankable off-take agreements and believe this to be a segue to consolidation in the industry through
M&A activities.
Figure 15: TREO Basket Price by Mine
Operator
Weighted Average Price/KG
Europium
Gadolinium
Terbium
Dysprosium
Holmium
Erbium
Thulium
Ytterbium
Yttrium
Lutetium
Lanthanum
Cerium
Praseodymium
Neodymium
Samarium
Price/KG
Arafura
Avalon
Lynas Corp
Molycorp
Resources
Nechalacho
Mt Weld
Mountain Pass
Nolans
2.6
2.2
3.4
8.1
3.6
2.1
4.3
4.5
10.5
0.6
0.0
9.3
22.1
3.0
16.0
1.4
93.9
2.3
0.6
0.5
0.4
0.0
0.0
0.0
0.0
0.3
0.0
0.0
15.0
28.9
3.5
16.6
0.8
68.8
0.6
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
19.6
30.5
2.9
10.8
0.3
64.9
2.1
0.6
0.5
1.0
0.0
0.0
0.0
0.0
1.2
0.0
0.0
11.7
29.5
3.8
19.1
0.8
70.4
Rare Element
Resources
Bear Lodge
Quest Rare
Minerals
Strange Lake
Frontier Rare
Earths
Frontier/ZC1
2.9
0.7
1.1
1.2
0.2
0.1
0.0
0.1
0.7
0.0
0.0
18.4
29.3
2.7
10.7
0.8
69.1
1.1
1.6
3.8
12.3
6.8
4.6
12.5
13.1
25.3
1.6
0.0
7.8
17.0
2.0
9.6
0.9
119.9
3.2
0.9
1.1
2.3
1.0
0.5
1.0
1.0
3.7
0.1
0.0
15.0
27.4
3.0
14.2
0.8
75.1
Source: Companies, Mackie Research Capital
We have analyzed the characteristics of Avalon’s Total Rare Earth Oxide (TREO) basket and found that its current market price is approximately
$90/kg (Figure 15). However, in its pre-feasibility report, the company assumes it will realize a TREO price of about $22/kg. If it builds a
separation facility and further refines the rare earths, we believe the company has the potential to realize a much higher TREO price ($35$50/kg) and improve the economics of its projects (from 12% IRR to mid 20%s IRR). We estimate the capital expenditure required to build a
separation facility that processes $25,000 tonnes will be more than $300 million.
A highly active off-take market has developed for advanced rare earth projects. Over the past two months, we have seen increased activity in
the off-take market for rare earths, primarily driven by concern amongst end users.
Page 14
Figure 16: Comparable Off-take Agreements
Date
5/11/2010
24/11/2010
12/10/2010
Supplier
Molycorp
Lynas Corporation
Molycorp
Off-taker
W.R. Grace (U.S. Chemical Producer)
Sojitz Corporation (A Japanese Trading House)
Sumitomo Corp
Price ($ mm)
undisclosed
250
130
Source: Mackie Research Capital
In November 2010, Molycorp agreed to sell more than 75% of its lanthanum production each year to WR Grace & Co over five years. Financial
terms for the agreement were not disclosed. In November 2010, Lynas signed an agreement with a Japanese trading house. The agreement
entails Lynas starting shipments of 1,000 to 3,000 tonnes of rare earths near the end of 2011, and increasing shipments to 9,000+ tonnes per year
by 2013. The contract price reflects the spot market price at the time of delivery plus shipping costs. Furthermore, Molycorp signed a seven-year
off-take agreement with Sumitomo Corporation in December 2010. The agreement calls for shipment of about 2,500 metric tonnes per year of
cerium- and lanthanum-based products and 250 tonnes per year of didymium oxide (which is a mixture of neodymium and praseodymium). In
return, Sumitomo agreed to purchase shares in Molycorp for a total consideration of $100 million as well as provide $30 million in cheap debt
financing.
Off-take agreements a natural path to consolidation. We expect to see an increase in M&A activities involving mining companies with
significant deposits of heavy rare earth content or those mining companies that are expected to come on-line in the near term. The list of logical
suitors is long, with many major Japanese electronic companies at the top of that list.
Molycorp (MCP-US) is currently in discussions with Neo Materials (NEM-TSX, BUY recommendation, $10.00 price target) to send rare
earths to China. In return, Neo would help Molycorp make rare-earth alloys and metals in Thailand. Molycorp has been very clear regarding its
goal to become a mine-to-magnets integrated firm. Neo Materials, conversely, has monopoly over the US magnets industry and possesses strong
expertise in building and operating rare earth separation facilities. We believe M&A activity involving these two companies will deliver
synergies and be a significant driver of value for both companies. It would demonstrate to Neo’s investors that it has reliable future supply of
key manufacturing inputs, which shows longevity and continuation of Neo’s proven business model. Furthermore, it would allow Neo to
diversify its supply exposure away from China to expand its export business, despite the increasingly stringent Chinese export policies. In
addition, Neo’s unparallel expertise in building and operating separation plant facilities would be a significant value add if Molycorp decides to
go ahead with its plans to build a separation facility. It may also help Molycorp share the financial burden of building out its mine and
separation facility with a reliable off-take partner. We believe this is the right time for Molycorp to look at such ventures. The all-time high
prices of rare earths and the shrinking supply put the company in the position to negotiate favourable terms for the off-take agreements.
We expect to see similar discussion of consolidation in the industry as other rare earth mining companies near production. We expect China,
which is the world’s largest consumer of rare earths, to play a major role in the consolidation of the industry. China bought all or part of 184
foreign mining assets for $37.2 billion in 2008 according to Ernst & Young, while the rest of the world was struggling with the onset of the
recession. It is our understanding that China has in the past approached companies like Molycorp and Lynas regarding potential takeover bids.
We expect China to continue to look for opportunities to improve its resource asset base to feed its growing economy.
Page 15
CONCLUSION
WE REM AIN BULLISH O N RARE EARTHS, BUT TAKE CARE WHEN “PICKING YOUR SPOTS”
In 2010, investors did not require a considerable amount of “craftiness” in selecting which rare earth companies to add to their portfolios. A
tremendous number of equities that were associated to the rare earth sector experienced considerable gains. This experience is not surprising
when considering the price performances of the underlying rare earth elements highlighted in this report. As we progress through 2011, we
remain bullish on the sector. However, investors will require a more discerning investing approach going forward. Some of our key
recommendations and observations include:
•
Focus on the “heavies”. This applies not only to the rare earth mining plays, but the other rare earth investment opportunities that
exist in the sector; including those “arbitrage” plays that own and hold physical rare earth elements.
•
Brace yourself for consolidation. As the rare earth cycle progresses, we believe those companies with global leading expertise in
“manipulating rare earth molecules” may look more attractive in the eyes of senior mining companies bringing projects to the
operating stage. Other strategic investors may also become attracted to ownership of these technologies. Our industry sources suggest
that negotiations are gaining traction in this regard.
•
Look for continued rare earth pricing strength in 2011, but less drastic export quota reductions from the Chinese government.
While 2011 will likely not show us the severe cuts in export quotas in the same order of magnitude from the Chinese government as
we saw in 2010, the international supply-demand situation should remain tight. Heightened geo-political tensions over global access
to China’s “strategic” source of rare earths may provide further upward pressure on prices.
We are very excited about what is to come from the rare earth sector in 2011. Yes, rare earth price swings have historically proven to exhibit
severe cyclicality. However, we believe rare earths are currently in the robust phase of their cycle, and take exception to any view that “the rare
earth price bubble that is about to burst”. However, investors will certainly have to be more discerning with respect to their investment strategy
in the sector in 2011. We believe that taking into account the key points in this report should help in the quest for outperformance in what
remains an exciting space.
Page 16
APPENDIX 1
SUMM ARY OF POLITICAL ANNOUNCEMENTS/EVENTS RELATING TO CHINESE RARE EARTH EXPORT QUOTAS
Date
Source
07-Feb-11
Wall Street Journal
Comment
China is building strategic reserves in rare-earth metals. The reports say storage facilities built in recent months in the
Chinese province of Inner Mongolia can hold more than the 39,813 metric tons China exported last year.
Chinese Society of
Rare Earths
China’s Ministry
of
Land
&
Resources
China's Ministry of
Commerce
China’s chief rare earths research body says it expects the nation to become a net importer, even though it is the world’s
biggest producer.
16-Dec-10
China's Ministry of
Finance
China will raise the export taxes for some elements to 25% next year. The move is an increase from the 15% temporary
export tax on neodymium. Lanthanum and cerium, were not taxed in 2010, and will be taxed at 25% in 2011.
15-Nov-10
Japan's
Minister
Trade
China, the world’s largest producer of rare-earth metals, will speed up exports of the minerals after delays disrupted
supply, according to Japan’s Trade Minister Akihiro Ohata.
Chinese Society of
Rare Earths
China has to strictly manage the exports and make dynamic adjustments, without hampering development of the
world’s high- tech industries,” said Chen Zhanheng, the head of research at the society, which represents the nation’s
major producers. “China should dedicate itself to develop high-tech end products, rather than shipping out low valueadded raw materials,” Chen said yesterday in an interview in Hong Kong at a rare earth conference. “The idea to swap
mineral resources for advanced technologies never works.”
China's Ministry of
Commerce
China will reduce its rare earth export quotas next year, but not by a very large margin, Yao Jian, spokesman of China's
Ministry of Commerce, said on Tuesday. “To protect the environment and natural resources, China will stick to the
quota system to manage rare earth exports next year, and quotas will also decline," Yao told Xinhua News Agency.
Though giving no clear extent of the decline, Yao's remarks echoed the comments of Wang Jian, a vice-minister of
commerce, made on Monday at a news conference. "I believe China will see no large rise or fall in rare earth exports next
year," said Wang.
EU Trade Chief
The EU trade chief said on Wednesday he would press China for assurances on rare earth supplies in talks next month,
though there was no conclusive evidence Chinese limits on such exports had hit European industry. The European
Union is struggling to secure supplies of rare earth minerals, which are used in the production of high-tech goods and
defense products, and has said it could take legal action against China for cutting down on exports.
9-Nov-10
Japan and
United States
the
"The Japanese and US foreign ministers have agreed that the two nations need to hold economic talks on issues
including rare earth minerals," Japan's Chief Cabinet Secretary Yoshito Sengoku told a news conference. "Of course the
issue of how to diversify the procurement of rare earth minerals and other resources such as oil will be discussed with
the United States as well as with other countries," Sengoku said. Washington has called restrictions on the minerals a
potential threat to the US economy and national security.
8-Nov-10
US Chamber
Commerce
of
A letter written by 37 groups including the US Chamber of Commerce, and various other business and trade
associations, urged G20 leaders to “refrain from export taxes, quotas or other market-distorting measures on rare-earth
elements that restrict global supply and unnecessarily contribute to price volatility,” reported an article by the AFP.
8-Nov-10
Chinese
Minister
Trade
Trade Minister Chen Deming cautioned that other countries will have begun sharing the environmental burden of
mining the metals in the future. “We are currently in talks with rare earth consuming countries and countries with rich
rare resources on how to produce rare earth in a more environmentally friendly way,” Chen said. “We also need to find
new rare earth resources.”
8-Nov-10
Hillary Clinton
Mrs. Clinton, who is leaving Australia today after weekend defense and security talks, said the US and Australia "need
to discuss in depth the supply of rare-earth minerals".
7-Nov-10
China's Ministry of
Commerce
China will maintain its export volume of rare earths next year, the official Xinhua News Agency said, citing Minister of
Commerce Chen Deming.
7-Nov-10
Chinese Industry
Ministry
China's industry ministry is considering regulations to tighten pollution standards for rare earth producers, Xinhua
news agency reported on Sunday, a move the country's top firm said might further raise export prices.
6-Nov-10
Chinese
Commerce
minister
The Chinese commerce minister Chen deming 5 in Paris dismissed some western media in China rare earth export
untrue reports, and said China next year will remain rare earth exports.
04-Feb-11
20-Jan-11
30-Dec-10
11-Nov-10
11-Nov-10
10-Nov-10
The Ministry of Land and Resources, invoked a seldom used mining law to take direct control of 11 rare earth mining
districts in southern China.
China cut its export quotas for rare earths by 35% in the first round of permits for 2011 relative to H1/2010, threatening
to extend a global shortage of the minerals needed for wind turbine, electric cars and other clean tech applications.
Source: Mackie Research Capital, Various news articles as listed
Page 17
APPENDIX 1 (cont’d)
HIGHLIGHTS OF RARE EARTHS-RELATED NEWS
4-Nov-10
China's Ministry of
Commerce
China will cut rare earth export quotas for 2011, but only by a small amount after slashing them this year, the
Commerce Ministry said on Tuesday, calling the squeeze on exports a step to save the environment. “Given that
we've already had major reductions in export quotas over recent years, the extent of the fall in China's rare earth
export volumes next year will not be great,” the brief Xinhua report cited him as saying.
3-Nov-10
Chinese Newspaper
China studying plan to build strategic reserves for ten minor metals, Shanghai Securities News reported last night,
without citing anyone. Ten metals include rare earths.
Lynas Corporation
The quota for rare earth exports could be reduced 3% to 10% in 2011 from this year’s levels after the 40% cut in
permitted exports in 2010, Matthew James, executive vice president for strategy at Australian miner Lynas Corp.,
recently told China Real Time. He said that as China restructures its rare earth industry domestically, there is less for
export. James predicted next year’s export quota on rare earths will emerge in two tranches, making it difficult to
know until mid-2011 exactly how much China will permit to leave.
3-Nov-10
Chinese Newspaper
China Securities Journal today quoted an unidentified source from China's Ministry of Commerce who said that the
country's rare metal export quota will be cut by 2 percent to 3 percent. "The export quotas for rare metals will
unlikely rebound in the future," said an industry insider, who helped draft related policies, during an interview with
China Securities Journal.
2-Nov-10
China's Ministry of
Commerce
China will cut rare earth export quotas for 2011, but only by a small amount after slashing them this year, the
Commerce Ministry said on Tuesday, calling the squeeze on exports a step to save the environment.
28-Oct-10
New York Times
China ended its undeclared embargo of exports of crucial strategic minerals to the US, Europe and Japan, although
shipments to Japan still encountered difficulties, the New York Times reported, citing four unidentified rare earth
industry officials.
27-Oct-10
Newspaper
China has called off a meeting of its economics minister with his counterparts of Japan and South Korea, scheduled
for the week-end, amidst a row over its policy of exporting rare earths, a Japanese media report said Wednesday.
25-Oct-10
Newspaper
China practices the quota license administration on the export of rare earth products since 1998. In recent
years, Chinese government cuts down the volume of export enterprises, export quotas and annual exploitation
volume of rare earth ores. China’s Ministry of Commerce declared that the total export quota of rare earth
products of domestic-funded enterprises was 50,000 tons in 2005, 34,000 tons in 2008. In 2009, it set the total
export quota of 50,145.1 tons for domestic-funded and foreign-funded enterprises. In 2010, it cut down the
export quota to 30,258 tons, including 22,512 tons for domestic-funded enterprises and 7,746 tons for foreignfunded enterprises.
19-Oct-10
Newspaper
A story has been published on the China Daily online website today stating that China will further reduce
quotas for rare earth exports by 30 percent next year to protect the precious metals from over-exploitation.
6-Oct-10
Chinese Premier
Chinese premier Wen Jiabao in Brussels attended the 6th sino-european business summit, pointed out that
“during a speech to the management and control of rare earth is necessary, but never blockade. China will not
put rare earth as a bargaining tool; our purpose is to the sustainable development of the world.”
9-Jul-10
Bloomberg
China, the world’s largest rare- earths producer, cut export quotas for the minerals needed to make hybrid cars
and televisions by 72 percent for the second half. Shipments will be capped at 7,976 metric tons, down from
28,417 tons for the same period a year ago, according to data from the Ministry of Commerce yesterday.
7-Apr-10
Article
In 1985, China began to implement the export tax rebate policy for rare earth products. From January 1, 2004,
export tax rebate for rare earth metals was adjusted from 13% to zero, the export tax rebate rate for yttrium
metal, scandium metal and its compounds, inorganic or organic compounds was adjusted from 17%, 13% to
5%. From May 1, 2005, the export tax rebates for rare earth metals, rare earth oxides, rare earth salts were
abolished. On November 1, 2006, the regulation of imposing export tariffs on rare earth products was released
and would implement by June 1, 2007, the tax rate was 10%.
8-Jul-09
Newspaper
Chinese export quotas have been decreasing each year for the last 8 years. Most recently, China has announced
that export quotas for the first half of 2009 are being reduced by approximately 34% over the same period last
year.
3-Nov-10
Source: Mackie Research Capital, Various news articles as listed
Page 18
APPENDIX 2
Source: US Department of Energy, Mackie Research Capital, IMCOA; Price Forecast Source: Mackie Research Capital
Page 19
Page 20
Page 21
Source:
US Department of Energy, Mackie Research Capital, IMCOA; Price Forecast Source: Mackie Research Capital
Page 22
Page 23
Page 24
Page 25
Page 26
RELEVANT DISCLOSURES
1.
N/A
ANALYST CERTIFICATION
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and
opinions expressed in this research report accurately reflect the analyst’s personal views and (ii) no part of the research analyst’s
compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
I n f o r ma t i o n a b o u t M a c k i e R e s e a r c h C a p i t a l C o r p o r a t i o n ’ s R a t i n g S y s t e m, t h e d i s t r i b u t i o n o f o u r r e s e a r c h t o c l i e n t s a n d t h e p e r c e n t a g e o f r e c o m me n d a t i o n s wh i c h a r e i n
e a c h o f o u r r a t i n g c a t e g o r i e s i s a v a i l a b l e o n o u r we b s i t e a t ww w. ma c k i e r e s e a r c h . c o m.
The information contained in this report has been drawn from sources believed to be reliable but its accuracy or completeness is not guaranteed, nor in providing it does Mackie Research Capital
Corporation assume any responsibility or liability. Mackie Research Capital Corporation, its directors, officers and other employees may, from time to time, have positions in the securities
mentioned herein. Contents of this report cannot be reproduced in whole or in part without the expressed permission of Mackie Research Capital Corporation. (U.S. Institutional Clients — Research
Capital U.S.A. Inc. (a wholly owned subsidiary of Mackie Research Capital Corporation) accepts responsibility for the contents of this report subject to the terms & limitations set out above. Firms
or institutions receiving this report should effect transactions in securities discussed in the report through Research Capital U.S.A. Inc., a Broker-Dealer Registered with the United States Securities
and Exchange Commission).
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Mackie Research on REO`s - Greenland Minerals and Energy

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