Rinehart-backed Brazilian rare earths play highlights worth of ASX peers

Brazil was the place to be during the week for ASX-listed rare earths companies.

Like the rest of the rare earths stocks, they got a lift from China extending reporting requirements for exports of rare earths metals and oxides against a backdrop of recent curbs on other metals critical to the green revolution.

China currently dominates global rare earths supply and demonstrated back in 2010 in a territorial dispute with Japan that it is prepared to withhold supplies to make a point.

In more recent times, it has wielded its dominance of the semiconductor metals germanium and gallium, and the battery anode material graphite, in a tit-for tat response to the US restricting its access to semiconductor chip manufacturing equipment.

The extension of China’s export reporting requirement did not exactly fire up prices for rare earths but it did serve as a reminder to the world that there is a risk to supplies for the critical magnet metals from an unhealthy reliance on a dominant supplier.

It means both industry and governments around the world will remain focussed on encouraging new non-China supplies to come forward, just as Japan did with its backing of ASX rare earths leader Lynas (LYC) after its 2010 scare.

More particular to the rise of interest in the Brazil-focussed stocks on the ASX during the week was the circulation of terms for the IPO of the simply named, and Gina Rinehart-backed, Brazilian Rare Earths (BRE).

At the issue price of $1.47 a share in the $50m IPO, BRE will have a market cap of $315m, with Rinehart’s Hancock Prospecting holding about 6%. BRE comes to market with an inferred mineral resource of 510.3Mt at 1,513ppm.

But unlike the other Aussie players in Brazil with a focus on ionic-clay hosted rare earths, BRE’s resource is split across 25Mt of high-grade monazite sands grading 10,022ppm, and the remainder of the ionic-clay type averaging about 1,000ppm.

While the monazite sand resource is a point of difference, the buzz around Brazil is its emerging status as probably the most important source of ionic-clays, with their attractive low capex and opex, outside of China. It could take China on.

BRE’s implied $315m market cap allowed investors to do the “comps” with the ionic-clay players on the ASX – Meteoric (MEI), Alvo (ALV) and Viridis (VMM), the latter in a trading halt pending the conclusion of a capital raising.

They are at different stages, with Meteoric the most advanced with a maiden resource of 409Mt at 2,626ppm announced earlier this year. The grade is off the charts for ionic clay deposits, so the company was always going to fare well in a comparison with BRE.

Although not as advanced, Alvo and Viridis also benefitted from the “comps” because of their currently modest market caps of $25m and $60m respectively.

By the by, Brazil does not have a mortgage on the capability to build an ionic clay response to China’s grip on the rare earths industry.

Back here in Australia, Australian Rare Earths (AR3) has a 186Mt resource grading 712ppm in the bag at its Koppamurra project in South Australia.

It has also set an “exploration target” of 340Mt to 3.1bt grading 510ppm to 780ppm. In pursuit of that target, it has just kicked off a 30,000 aircore drilling program.

The grade is not up there with the Brazilian projects mentioned above. But there is clearly a multi-decade project in the offing, particularly when the twin impacts of forecast supply deficits and the push for non-Chinese supply sources take hold in a big way.

Best of all, it is in Australia. AR3 last traded at 19.5c for a market cap of $30 million.

Buxton/Stavely:

There has to be some sympathy out there for Buxton (BUX).

Along with its bigger name partner IGO, the explorer has notched up one of the best nickel finds of recent times at the Dogleg prospect in the West Kimberley region.

It is the one where interesting looking intersections were announced early last month. The assays are now in for the first hole and they impressed – 13.34m true width grading 4.35% nickel, 0.34% copper and a handy 0.15% cobalt from 177.34m.

A 5.6m massive sulphide zone from 179.08m returned an impressive 7.47% nickel, 0.31% copper and 0.25% cobalt.

Normally there would be celebration in the share price of a company of Buxton’s size (21.5c for a market cap of $37m).

But base metals aren’t exactly flavour of the month at the moment so the celebrations have been put on hold pending confirmation the joint venture is in fact on to what could be the next magmatic-style Nova-Bollinger, or Voisey’s Bay.

As for Nova-Bollinger owner IGO, the assays from Dogleg were never going to move the dial given it is a $7 billion lithium-nickel-copper producer. But like Buxton, things will be dialled up in a big way for IGO should its regional play in the West Kimberley deliver another Nova-Bollinger.

As mentioned here on October 6, Chris Cairns’ Stavely Minerals (SVY) is now a player in the region after picking up the Hawkstone project which contains 30km of easterly strike of the prospective Ruins dolerite, about 120 north-east of Derby.

Hawkstone was picked up from Chalice (CHN) for a $1.4m share deal and was Chalice’s top rated base metals exploration project before it hit the big time with its Julimar PGE-nickel-copper discovery on Perth’s doorstep.

Cairns said this week that Stavely – trading at 6.8c for a market cap of $26 million - would hit the ground at Hawkstone in April, making the project complementary to the summer focus of its namesake copper project in Western Victoria, which alone justifies its market cap.

He said the West Kimberley was an emerging nickel province. “In any other market there would be a land-pegging rush and all the near neighbours would double in value,” Cairns said. “That’s not this market. But this is as exciting as it comes for new nickel provinces.”

Buxton would agree will all that. IGO too.

Christmas rally for gold:

The big fall in long-term US interest rates augurs well for the gold price. Why, perhaps there might even be a Christmas rally for the yellow metal.

The metal’s recent push to more than $US2,000/oz in response to the Israel-Hamas war did not last long, which is a good thing if it points to a peace deal before long. Oil reflects that too, with the key benchmark price falling below $US80/bbl to a three-month low.

With gold now back at US1,950/oz, a push back to $US2,000/oz is likely then to be driven by growing expectations that interest rates have peaked, with the US Fed possibly moving to cut rates from 22-year highs as 2024 unfolds.

The likely cuts will be front-run by the gold price, so the sideways drift in ASX gold stocks could soon be replaced with some spirited buying. There is an argument that the leading gold issues already contain a premium for that outcome.

So the junior producers and explorers could be in line for out-sized support as 2023 runs down.

A stock often mentioned here, Sunstone (STM), will be hoping that is the case. Despite its gold-copper hunt in Ecuador this year being full of highlights, the stock has drifted away to 1.9c for a $55 million market cap.

It has just established a compliant “exploration target” of 900,000-1.7 million ounces for the Limon epithermal system in the south of the country, and part of the broader Bramaderos project with its existing resource estimate and exploration targets.

All up, Sunstone is confident it is on its way to establishing a 10 million ounce province, with Limon shaping up as a WA-style big open cut to provide early cashflow, leveraging off infrastructure that includes the Pan American Highway some 3km distant – less than Without a Fight ran on Tuesday to win the Melbourne Cup.