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Rare Element Resources Ltd. Ord Message Board

  • pantoe2 pantoe2 Oct 25, 2010 11:40 AM Flag


    Rare Element Resources (REE)

    The company says that the estimated cost of work on the project is $15 million. Quite frankly, that seems like an unrealistic assessment when considering that Molycorp just raised some $394 million to reopen mines that were previously functional, and Lynas (see below) also just raised more than A$400 million to get its operations into full swing. This seems to suggest that either management does not have a firm handle on the finances needed, or it is not being completely transparent with the amount of capital that will be needed. Either scenario does not bode well for investors, though. Also, at this point, it may be a good time to mention that REE discloses in its financials that, as of October 31, 2009, it only had two full time employees/consultants and five part time employees. Therefore, the company clearly seems to be lacking the professional talent to thoroughly evaluate the finances needed for a major project such as this.

    Unfortunately, that is not the only red flag that makes us nervous about REE. While the company is expressing much optimism about the mineral and gold prospects in this territory, this isn't the first time that the property has been explored. Over the past few decades, three other significant mining companies -- Molycorp, Hecla Mining, Duval Corp -- have all taken cracks at Bear Lodge, and all eventually chose to abandon their drilling activities. REE does state in its financials that Hecla initially estimated that three carbonatite dike-swarms contained 4.3 million short tons of rare-Earth oxides. Also, it discloses that in 1972, Duval Corp. encountered intercepts of rare-Earth oxides ranging from 1-15%. REE says that both of these companies withdrew from the property after being acquired -- Molycorp by UNOCAL in 1980, and then Duval by Pennzoil. However, it begs the question: If Bear Lodge holds such a lucrative assortment of rare-Earth elements and gold, why would any company pack up and leave?

    Limited Revenue, Not Profitable

    As is the case with all these rare Earth stocks, REE is not profitable. In fact, there isn't much in the way of financial information to analyze. For REE's fiscal year 2009, REE did not generate any revenue from its operations and lost $1.3 million compared to a net loss of $853K in 2008. Its operations burned roughly $820K last year. At the end of March, the company had $4.7 million in cash and no long term debt. With the company burning through cash and with its plans to ramp its Bear Lodge project, the company will likely need to visit the capital markets in the near future. Quick Take

    This is a company that we are clearly cautious on. From the fact that other larger, more sophisticated drillers voluntarily abandoned the area years earlier, to REE seemingly vastly underestimating the start up costs, to the fact that it only has a handful of employees, we feel there are too many red flags on this name. Not only are there questions about the legitimacy of its primary project, but, even if everything worked out to plan, actual production would still be well behind Molycorp and Lynas. Therefore, by the time it had supply contracts in place for customers, the price of rare Earth elements could be significantly lower. In conclusion, the risks seem far to high with REE, and we would avoid the stock.

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