Stockhouse Movers & Shakers: Supply concerns and the magic metal

Newsletter writer John Kaiser says security of supply concerns will prompt investors to continue to focus on companies engaged in developing specialty metal projects.

Even though prices have softened in recent months, security of supply concerns affecting rare earths and other specialty metals have not gone away, says a U.S. investment newsletter writer.

It means companies engaged in the development of rare earth projects, for example, will continue to attract market attention, particularly the ones who are deemed to be serious players in the field, says John Kaiser, the publisher of the San Francisco-based Kaiser Bottom Fishing Report.

It is why he continues to track rare earth sector companies, including Avalon Rare Metals Inc. (TSX: T.AVL, Stock Forum) (AMEX: AVL, Stock Forum), Tasmin Metals Ltd. (TSX: V.TSM, Stock Forum), Quest Rare Minerals Ltd. (TSX: V.QRM, Stock Forum) and Rare Element Resources Ltd. (TSX: T.RES, Stock Forum) and (AMEX: REE, Stock Forum).

Shares of all of those companies came under pressure last year when prices tumbled from peak levels reached in July, 2011, a correction that was driven largely by the uncertain macro-economic environment, analysts say. Prices had previously soared on the back of supply concerns sparked by the threat of export quotas in China, which controls 96% of global production.

A group of 17 minerals, known as rare earth elements are used in the production of mobile phones, LCDs, light bulbs, laser beams, superconductors and radars.

Once it becomes clear that prices have stabilized, Kaiser believes key companies in the rare earth sector should have no trouble raising the money they need to fund their programs.

Meanwhile, Kaiser likes the prospects for EMC Metals Corp., a (TSX: T.EMC, Stock Forum) a Vancouver junior which is working to become a supplier of scandium, a specialty metal that is sometimes produced as a by-product of Chinese rare earth mines, or from scrapped Russian military aircraft.

Trading at 12 cents this week, EMC Metals is developing the Nyngan Scandium project in Australia with partner Jervois Mining Ltd. of Melbourne. At current levels, EMC has a market cap of $18 million, based on 150.7 million shares outstanding. The yearly range for the stock is 43 cents and $0.075.

“Scandium is the magic metal of the future,’’ Kaiser said.

A silver-coloured metal, scandium is used to manufacture a light and weldable form of aluminum. If end users in the aerospace and auto industries can secure sufficient amounts of scandium they will be able to make lighter vehicles and aircraft without sacrificing strength.

Kaiser says he likes the fact that EMC is preparing to release an economic feasibility study for the Nyngan project in February, potentially putting it among a handful of primary producers. (World consumption is limited by lack of availability and supply statistics are considered to be unreliable).

“If you can demonstrate supply from multiple sources, the end user industry will adopt this [metal] in a heartbeat,’’ Kaiser insists. “It’s a fascinating story because Scandium is sometimes lumped in with rare earths, but it does not really exist in rare earth deposits in any meaningful quantities,’’ he said.

Orbite Aluminae Inc. (TSX: T.ORT, Stock Forum) is another Canadian company that could produce low grade scandium as a by-product from an alumina clay project in Quebec’s Gaspe Peninsula.

Meanwhile, Kaiser says he is watching First Point Minerals Corp. (TSX: V.FPX, Stock Forum), a Vancouver junior which is targeting awaruite in central British Columbia with joint venture partner Cliffs Natural Resources Inc. (NYSE: CLF, Stock Forum) at the Decar project.

Awaruite is a nickel-iron alloy (or naturally occurring stainless steel) that requires no smelting because it is not associated with sulphides. This means that it is more environmentally benign than the nickel sulphides that are mined in Sudbury, Ont., for example, and it can be delivered in concentrates directly to the steel mills.

Awaruite is similar to porphyry copper in that developers typically use bulk-tonnage, open pit mining methods to extract the ore. “This is the alternative nickel story that I have covered intensely in the past couple of years,’’ Kaiser said. “They met all their milestones and this year we will get the first resource estimate for [the Decar project],” he said.

Cliffs has earned a 51% stake in Decar and can increase its interest to 75% by completing a bankable feasibility study.

Aside from Decar, First Point is the sole owner of eight other properties in central and northern B.C., the Yukon, and Australia and is exploring in eight countries, including Canada and the U.S.

Trading at 49 cents this week, the junior has a market cap of $44.4 million, based on 90.6 million shares outstanding. The yearly range is $1.06 and 39 cents.

Note to readers. This is the second article that is based on a recent interview with John Kaiser. The first one was posted on Stockhouse on January 6th.