A Real Rare-Earth Company to Own

Rare earth metals exploded on the scene in 2011 to 2015 after China drastically cut its export quotas

At the time, China produced around 90%+ of the global rare earth supply. Up until that point, most people had no idea what they were or how they were used.

But in that five-year span, a gazillion (technical term) new mining companies went public with “rare earth metals”. It got so bad that my friend Rick Rule, founder of Sprott Global Securities, used to refer to them as scamium, fraudium, and storyium.

We avoided them all because the companies had huge flaws. Many of the Canadian companies were designed to sell the story, rather than create real value.

But this month, we are going to dig into one of the most promising rare earth companies we’ve encountered.

But first, we need to discuss why they are so important to the world economy.

Where in the World Do We Use Rare Earth Metals?

As Penn State University points out:

Think of any technology that’s part of a clean-energy economy: electric vehicles, wind turbines, solar panels. Think of the devices we depend on for work and play: smart phones, computer hard drives, flat screen monitors, rechargeable batteries. Or the systems that undergird our national defense: lasers and missile guidance, radar, and sonar.

The most important things we use them for today are as magnets.

Magnets made of rare-earth metals are the strongest by weight. That makes them ideal for clean energy applications where weight makes a difference.

Wind turbines and electric vehicles use magnets made of four REEs: neodymium, samarium, dysprosium, and praseodymium.

However, it was the glass industry, particularly camera lenses for cell phones, which sent the world into a rare earth frenzy.

Here’s a short list of other applications that need REEs:

• Lanthanum gets used for petroleum catalysts.
• Cerium gets used in automobile catalytic converters.
• Cerium, lanthanum, neodymium, and praseodymium are used to make special steel alloys.
• Lanthanum makes up nearly 50% of digital camera lenses (including cell phone cameras).
• Yttrium, europium, terbium make the red-green-blue phosphors used in televisions and screens.

https://pubs.usgs.gov/fs/2014/3078/pdf/fs2014-3078.pdf

That’s why China’s dominance worried the world. We only produce about 350,000 metric tons per year. These are critical commodities. We need a more diverse supply. Here are the world’s largest producing countries of mined REEs (USGS, 2023):

• China – 68%
• U.S. – 12%
• Burma – 11%
• Australia – 5%
• Thailand – 2%
• India – 1%
• Russia – 1%

However, China also controls nearly all the refining capacity in the world.

So, all the REEs produced in Asia, Russia, and Australia go there for processing.

China also has a geological abundance. They are the Saudi Arabia of REEs.

A specific deposit, called “south China clays” form as granite weathers in hot, wet parts of the country. The clay is low grade, but the REEs are easy to process.

The prices of the REEs vary (USGS, 2023):

• Cerium – $1/kg
• Lanthanum – $1/kg
• Europium – $27/kg
• Neodymium – $80/kg
• Dysprosium – $323/kg
• Terbium – $1,300/kg

https://pubs.usgs.gov/periodicals/mcs2024/mcs2024-rare-earths.pdf

As you can see, the heavier they are, the more desirable.

Outside of China, there aren’t many good sources of the more valuable “heavy” rare earths.

The Mountain Pass mine in California is a rare exception. It is an unusual bastnaesite (really weird, geologically) deposit. Some of the REEs are also sourced from mineral sands deposits in the southeastern U.S.

The short answer is, we need more. It’s the same math that we did for the battery metals like copper.

If you want renewable energy, you need more of all the stuff that goes into it. And that means more REEs.

This month’s company will shake things up…

Aclara Resources (TSX: ARA) – Disrupting Old Mining with New Ideas, For the Good.

This month we are featuring Aclara Resources (TSX: ARA) a C$96 million junior mining company with three important parts: a heavy REE development project in Chile, an exploration project in Brazil, and a refining project in the United States.

As we discussed, having REE refining outside of China is critical. Having it in the U.S. gives is some huge benefits over imported material. The single largest are the tax benefits for electric vehicle (EV) makers.

As we discussed previously, the U.S. government provides a $7,500 tax break for EVs that use material sourced in the U.S. or free trade partners.

China is not one of them. So, material coming from there doesn’t qualify. That means REEs sourced domestically will be in huge demand by the automakers, among others.

In addition to the processing plans, Aclara has a proprietary Circular Mineral Harvesting (CMH) process. It’s an environmentally friendly way to remove REEs from the ionic clays. Here’s what the company says about CMH:

it uses no explosives, no crushing, no milling, and it does not produce any liquid residues. No tailings dam is required in our process. Furthermore, this patented process uses only recycled water, and it recirculates ~95% of it, as well as 99% of its main reagent; a common fertilizer.

We will leave no hole in the ground, as we will return the clays we extract back into the pits, and 100% of the land impacted will be replanted with native species. What is more, our product will contain 0% radioactive elements.

That is the complete embodiment of the “new mining” paradigm.

They developed a “radically different way of extracting rare earths”. They plan to disrupt the industry in a good way.

REE mining has a terrible reputation for creating hazardous waste. But Aclara’s scientists collaborated with scientists from the University of Toronto and local academics in Chile.

The company operates as two “modules”: Penco in Chile and Carina in Brazil.

The Penco module 1,483-acre site about 15 km from Concepcion, Chile. The company’s mining concessions are 1.1 million acres (1,718 square miles) in the Maule, Nuble, Biobio and Araucani region. Like the deposits in China, there are ionic clays in this area of Chile that contain economic amounts of REEs. The company published a mineral resource update in October 2022:

Aclara awarded the pre-feasibility study to Hatch, a global multidisciplinary consulting company. The study is a necessary step on the path to building a mine.

They currently have a partnership with CAP S.A., a 77-year-old Chilean mining and industrial conglomerate. CAP paid $29.1 million for a 20% equity stake in Aclara’s Chilean subsidiary that owns the Penco Module project. That purchase price values the company at $145.5 million. That’s a 51% premium to the current market value. In other words, CAP thinks this company is worth much more than the current price.

Aclara received $9.7 million in April 2024. It will get another $12.5 million in January 2025 and $6.9 million in January 2026.

Here is the current corporate structure:

As you can see, its in three parts. First is the REE production, the actual mines. Second is the separation process, called Aclara Technologies. It will be located in the U.S.

That’s where the company removes the REEs from the clays and refines them. The company hired Dr. Kurt Forrester to lead the separation division.

Dr. Forrester has more than a decade of hands-on technical leadership experience with the development of primary rare earth projects in Europe and North America. He’s the former Chief Technology Officer of Medallion Resources. In that position, he developed a novel chromatography process to separate REEs from ore. Additionally, he was the Chief Operating Officer and Chief Metallurgist of Innovation Metals Corp. In that role, he developed a proprietary solvent extraction process to separate REEs from ore.

If personnel are key to company success, Dr. Forrester is a fantastic addition for Aclara.

The third division is the metal and alloy fabrication division. That’s where the partnership with CAP will reap the largest benefit. CAP has a strong metals and alloys division. This division will lean heavily on CAP’s expertise.

Aclara Technologies will develop REE separation processes in the U.S. The goal is to create a geopolitically independent supply chain – from mine to finished product – of REE magnets.

We see Aclara as an excellent long-term play on the future of electrification, particularly in North America.

This is the kind of company we can add to the portfolio and ignore for two to three years, while it builds out its infrastructure.

Action to Take: Buy Aclara Resources (TSX: ARA; OTC: ARAAF) up to C$0.60 per share (if you are buying on the OTC, up to $0.45 per share). Use a 50% trailing stop on the position. That means if the shares close below C$0.30 per share, we would sell them and exit the position.

We see Aclara Resources as one of the companies that exemplifies the New Mining paradigm. That’s the idea that huge, dirty, dangerous mines are things of the past.

Today, mining must consider the stakeholders in the areas to be mined. Even the most remote mines, must understand the downstream and long-term effects of their industries. This industry must move beyond the idea that profit margins are all that matter.

Without that kind of awareness, mining will continue to be hated. And that creates an expensive future for all of us.

For the Good,

The Mangrove Investor Team