As part of a trend affecting the finances of the rare-earth industry, a Canadian exploration company with one of North America’s largest projects under development has listed its stock for sale on the American Stock Exchange.
Indeed, analysts said executives at Quest Rare Minerals Ltd. decided to submit to tighter regulatory scrutiny by the federal Security and Exchange Commission (SEC) to gain broader support – and greater liquidity – among U.S. investors.
China not only controls more than 95 percent of the world’s rare-earth production, it has adopted export restraints over the last two years that have roiled international markets.
In turn, that has not only forced prices higher, it has caused a major scramble among exploration firms to move beyond proving the strategic and financial importance of their deposits and actually begin gearing up for production.
Though analysts predict a flow of new supplies could alleviate shortages by 2013, currently only one company in all of North America mines rare earths. Molycorp Inc. recently reopened its Mountain Pass mine in southern California.
With this strategic advantage, Molycorp set the market for rare-earth stocks on fire last summer when it initially sold shares to the public. Since that time, the price of Molycorp’s stock has gained more than 500 percent with a recent price of about $60 a share.
For its part, Quest becomes the third Canadian rare-earth exploration company to gain a U.S. listing in the past year. But observers note it certainly won’t be the last.
Shares of Tasman Metals Ltd. also could begin trading in the U.S. in a matter of weeks, the experts said. Known for its ownership of a strategically vital mine in Europe, Tasman Metals recently filed a registration statement with the SEC to gain access to a U.S. exchange but at deadline had not yet received approval.
Analysts note two other Canadian companies have received strong investor support since listing shares on U.S. exchanges in the past year. These are:
• Rare Elements Resources Ltd. Recently trading at about $11.50 a share, the company boasts the highest stock price of any exploration company in this space. Interestingly, Rare Elements focuses heavily on its U.S deposits at Bear Lodge in northeastern Wyoming. The company also owns Eden Lake in Canada’s Manitoba province. Its stock has soared 340 percent since May 2010.
• Avalon Rare Metals Ltd. Primarily known for its Thor Lake development in the Northwest Territories, Avalon owns four other projects, three of which are in advanced stages of exploration. To make sure it has enough cash to meets its mining and exploration needs, the company recently filed a shelf registration statement with the SEC to raise up to $500 million. Since May 2010 its stock has climbed some 240 percent and recently traded at around $7.25.
Typically, Canadian explorers officially list their shares with the Toronto Stock Exchange. Although that exchange is highly respected in the metals and minerals fields, it presents barriers to many U.S. investors who don’t want to trade “foreign” stocks for fears of currency fluctuations.
For that reason, many of these stocks also trade in the U.S. in a market known as Over the Counter (OTC). Most professional investors and fund managers are specifically prohibited from buying OTC stocks because these so-called “pink sheet” investments have what are considered lax safeguards.
Rare-earth experts note that investor support remains particularly important for exploration-stage companies. That’s because they typically have little cash flow since their mines have not yet opened. However, they may need to raise millions more to continue their exploration efforts to advance to production.
Higher share prices allow these companies to issue more stock without significantly undermining the value to existing shareholders. Thus, analysts said, a healthy U.S. market for rare-earth stocks could play a significant role in aiding global production needed to ensure the nation has abundant supplies of these critical elements.