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KMW Blog May 16, 2016: The Motley Fool's Foolish Takeway

Posted: May 16, 2016JK: The Motley Fool's Foolish Takeway
Published: May 16, 2016Misc: Why the Clean TeQ Holdings Limited share price is up 122% this year
Robert Friedland's Clean TeQ Holdings Ltd surged to $0.35 on 11.76 million shares volume on the ASX on May 16, 2016 in the wake of an AUD $4 million private placement at $0.21 with two institutional investors based in Sydney and Hong Kong. That boosts fully diluted capitalization to 459 million shares, assigning a AUD $161 million value to the Syerston scandium project for which Clean TeQ hopes to deliver a feasibility study in June 2016. Compare that to the CAD $55 million the market is currently assigning to the Nyngan project for which Scandium International Mining Corp published a feasibility study on April 18, 2016. Mike King on behalf of The Motley Fool tries to make sense of this market move. He sees Clean TeQ as part technology and part mining company due to its water purification technology which has yet to generate any commercial business and thus, according to the Motley Fool, is not likely to pay for Syerston's development. What he does not quite get is that the water treatment business was a money pit that threatened Friedland's initial investment with extinction, but the technology was potentially useful for stripping scandium out of solution once the heavy lifting of cracking and dissolving the ore with high pressure acid leaching (HPAL) was done. That is why Syerston was shifted from Ivanhoe Mines Ltd into Clean TeQ rather than some other shell. So far it still looks like Clean TeQ thinks its ion exchange technology is critical to Syerston's recovery process though conventional solvent extraction does the job fine with Nyngan's scandium enriched ore.

When it comes to mineralogy lots of devils lurk in the details and ion exchange may be the only solution for Syerston and the adjacent deposits which is bad news for Platina and Jervois unless Clean TeQ is misguided about the importance of ion exchange for scandium recovery. But if Clean TeQ is correct in its conclusion about the need for ion exchange technology, that is good news for Nyngan's owners because Friedland is very unlikely to share Clean TeQ's technology edge with its neighbors 150 km south of Nyngan, and has so much ore at Syerston that his best strategy is to use his control of the regional water supply and a recovery process relevant to local mineralogy to keep competing scandium supply in limbo until needed. A flow-sheet that works with one scandium laterite deposit probably will not work with a similar deposit in another region unless its peculiarities are worked out through trial and error testing. Nyngan and Syerston are the most advanced in this regard, and if successful supply from their initial "pilot plant" study equivalent operations does indeed coax serious offtake demand from the sidelines, they are in position to capture the first 300 tonnes of scandium oxide demand that emerges through capacity of expansion of fully permitted minesites, not johnny-come-latelies who may have the grade but not the flowsheet. Clean TeQ has worked on its flow-sheet while others such as Platina have simply cut and pasted the Nyngan PEA into their news releases, something that was the case a year ago with Clean TeQ but will no longer be the case when it publishes its own DFS because Clean TeQ invested the risk capital needed to solve the processing problem.

In a nod to the problems rare earth juniors encountered with their flow-sheets, The Motley Fool draws a comparison with the rare earth project of Lynas Corp and opines that investors are hoping for a different outcome. Its "Foolish Takeaway" is that Clean TeQ is "for the punters prepared to lose all of their investment if it doesn't work out". What the Motely Fool does not understand is that while recovering scandium is not a cakewalk, bringing a single target element into solution and dropping it out as a single oxide is nowhere near as complicated as cracking 14 elements squirreled away inside different minerals, and when they drop out as two piles of mixed light and heavy oxides, the work of separating them into saleable individual piles has only just begun. Furthermore, recovering a single element such as scandium oxide which has a range of end uses with different price points that will determine what the output gets sold at is very different from producing 14 elements with very different end uses, each with their own price points and demand dynamics unrelated to many of the other rare earths. To make matters worse, with rare earths only the supply of cerium and lanthanum, the cheapest of the bunch, can be scaled in response to demand growth potential. It is simply wrong to use the complexity of the rare earth sector to cluck warnings about scandium which is a transition metal different from the lanthanides. It is closer to yttrium which gets classified as a rare earth, but its special role in enhancing the properties of one of the world's most abundant and important metals, aluminum, makes scandium far more interesting than yttrium, more in the style of niobium as an alloying agent for iron. Overall, while the Motley Fool frets about recovery and its cost, it does concede that making scandium oxide available is a good thing, even if it costs end-users $2 million to $3 million per tonne.

If you want to read something foolish about scandium, check out Jack Lifton's article Lifton on Scandium as the new Gold published on May 16, 2016 by Investortel whose CleanTech Conference run by Tracy Weslosky in Toronto last week was, according to Jack, a "hoot". His article contains snippets of insight about the critical metals space that unfortunately drown in a grammatically challenged and incoherent ramble at the end of which one is left wondering if he is bashing scandium as just another rare earth delusion (he does not mention lithium) or praising the next big thing in critical metals (not sure who gets credit for the foolish title that scandium is the next gold). My sense is that Lifton belongs in the camp of skepticism about scandium recovery processes and the idea that if you build primary, scaleable scandium supply, the demand will come. His cynicism about critical metals is understandable, given the $100 million that disappeared into a radioactive bat cave which boasted the world's highest rare earth grade in a mineralogical form with an established recovery process whose proposed output scale was small enough not to disturb China's domination of rare earth supply. Rest in peace Steenkampskraal or Steaming Pile of Crap as the street used to call it.

As somebody who joined Chris Ecclestone in proclaiming "small is beautiful" with regard to critical metal supply, Jack Lifton's myopia on scandium does not make a lot of sense. Sure the current supply is tiny, but relative to the demand potential if that supply can be scaled bigger at a stable price, the proposed scandium mines very easily meet Lifton's "small is beautiful" criterion. At least his pal Ecclestone, who somewhat grudgingly is sympathetic to scandium, is consistent in that regard. Neither do Jack's comments about a Japanese fantasy regarding the recovery of critical metals from seabed mud make sense (I cannot tell if he is mocking the idea or warning us about a future deluge of seabed mud derived scandium). If he wondered aloud about recovering scandium from the red mud left over from processing bauxite into alumina, which can run up to 150 ppm, then at least he would be relevant, though only if he addressed the problems the Japanese encountered trying to recycle Jamaican red muds before giving up. Jack, however, is brilliant in pointing out a flaw in Mark Smith's flow-sheet for Elk Creek, namely the decision to drop the lower value by-products titanium and scandium out of solution before the primary metal, niobium. Doing that is a no-no in process engineering economics where the rule is to convert into saleable form the most valuable target metal first, not keep it orbiting the vessel circuit while a lower value metal gets teased out. This apparently is also a problem the Japanese encountered with their efforts to recover scandium from nickel-cobalt laterites in the Philippines. At Elk Creek figuring out when to drop out the elevated thorium and what to do with it afterwards is going to be an additional problem the good farm folks of Nebraska may not dismiss as a technical detail. For now Niocorp shareholders need not worry about a moratorium being created to allow Nebraska to establish its own mine permitting regime, because despite all the hand-wringing about a "scandium bubble", no such thing has so far developed. Mark Smith has another couple years to talk about $3,500 per kg scandium oxide before there are 50 plus juniors talking up smallish zones with 1,000 ppm plus scandium grab samples, or babbling about 30-70 ppm "bulk tonnage" ultramafic bodies.

Scandium is such an important alloying agent for aluminum that all this low cost scandium supply which "experts" warn will flood the market if an offtake market emerged due to a couple primary mines such as Nyngan and Syerston coming on stream would have happened a long time ago if it were feasible. And given the functional value created by scandium for aluminum, end users will not waste time doing offtake deals with future scandium suppliers piggybacking on the established pioneers. They will line up at the doors of SCY and Clean TeQ to do offtake deals just as the two consortia of Chinese and Japanese/Korean steelmakers did with Brazil's CBMM in 2010 to secure their long term supply of niobium from Araxa. There will, of course, be wishful thinkers such as the German conglomerate ThyssenKrupp which gave Niocorp words of encouragement in exchange for warrants to buy the stock at a cheap price, warrants they probably still own unexercised for the same reasons why they were not standing side by side with the Asians at CBMM's door in 2010. At least when Robert Friedland and Sam Riggall got Airbus to gush about the future of scandium and Clean TeQ's potential supply role they did not have to pay anything for the publicity. But in rare moments of doubt I do sometimes wonder if sombeody paid people like Tim Worstall and Jack Lifton to say dumb things about scandium in order to rile up the audience. Sometimes the best way to promote a story is to mobilize its bashers. Perhaps that explains why Clean TeQ's Syerston project commands a $161 million implied value compared to the $55 million value of SCY's Nyngan.


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