Medallion Resources is a rare earths company focused on production from monazite, which is a by-product from mineral sands mining. The company has 84M shares outstanding, with 23.6M warrants and 2.9M options. The market cap is currently $3M, with cash of $121,367 as of September 2016. The company has no debt, but does have $467,200 in current liabilities, mainly in payments due to related parties. You can find more at the company's website.
I had the pleasure to talk with Mr. Don Lay, CEO of Medallion Resources, recently about the company and have prepared the following transcript from the first part of our conversation. Read on for some background information on the rare earth markets, what Medallion Resources is doing, and why.
PB: Hello, Don. Thanks very much for talking with me today. Please can you start us off with some background on the rare earth markets?
DL: You're welcome, Peter. To get a sense for things, it is important to know that there was a major increase in prices for rare earths in 2011 that led to a boom in exploration and development outside of China. The prices went 10-20x above where they had been for many years. At that time, China was 96% of the world's rare earths and it scared everybody when they established additional export quotas, export taxes, and announced that the State Owned Enterprises were going to aggregate, manage, and control rare earth processing and exports. All of that led to a large amount of exploration for rare earth properties around the world. Many of these exploration projects had already been identified, but a lot of additional exploration and metallurgical work was done on them.
DL: During that period, two companies were funded to production -- Molycorp, with Mountain Pass in California, and Lynas, which is an Australian miner with processing in Malaysia. Those were recognized as the two best rare earth properties outside of China, in terms of grade, processing, and so on, which is why they made it into production. Subsequently, Molycorp went into Chapter 11 in July 2015 as it couldn't produce economically at the lower rare earth prices at the time. The creditors took control and shut down Mountain Pass, which was on care and maintenance. My understanding is that, as of this month, they are selling off the processing equipment from the Mountain Pass mine with a minimum bid of $40M. Lynas, which also got into production, is now processing about 22,000 tonnes a year of rare earths. Lynas is mining by campaign in Australia and then shipping the upgraded ore to Malaysia, processing there, and selling the bulk of their products into China and Japan. China has gone from 96% of the world's processing to somewhere between 80% and 85% with Lynas in production, today.
DL: Now, it looks like the long bear market in rare earths are over. The rare earth prices appear to have bottomed sometime in the fourth quarter of 2016 and have firmed up substantially since that time. Keep in mind, this substantial increase I am referring to is a 10% increase in prices for neodymium and praseodymium, which are the key metals in the markets today. We are certainly not seeing 10x moves in prices again right now.
DL: For the most part, the share prices for the rare earth companies are off their lows, as well. Lynas is a good example of that, but the shares of all the junior miners that are still in the rare earth business have moved up. All of the juniors that are nominally in the rare earths business and have properties that are perceived to be of merit have moved up, regardless of whether they are actually moving their projects forward quickly or not. It is not that people are predicting high prices for rare earths, but the consensus is that we have seen the end of the lows in rare earth prices and the bear market in the equities.
PB: Great, thanks Don. I admit that I wonder if we will ever see those crazy prices increases again and I guess time will tell. Please can you tell me about what Medallion Resources is doing?
DL: Medallion initially got involved in rare earths as an explorer. Bill Bird, who was a former CEO of the company, is a geologist who ran Rare Element Resources for several years prior to the boom. He was a former academic who took it upon himself to learn all about rare earth geology and processing. When he left Rare Element Resources, Medallion was basically a trading shell and I was the largest shareholder. Bill said to me "I have some ideas about rare earths" and I was keen to listen.
DL: Bill told me that Jim Dines had written about rare earths at that time, and even gotten involved in Rare Element Resources. Jim Dines is a smart guy and tends to be prescient in looking forward at trends. Bill thought that, if Dines is right, then there might be a boom coming in rare earths where we can get some projects and companies funded. Bill said, "I have a decent background and understand it, I can probably find us some good projects to explore initially, but if those don't work out then I have some other ideas for processing." So, we went out and got a couple projects -- one in Labrador and one in Manitoba. We did some basic exploratory work on the projects, but our view was that they weren't worth pursuing and have subsequently dropped them. Ultimately, Bill's view was that finding rare earths as byproducts was the best way forward and that is what we have been working on for the last four years or so.
PB: Wow. I think that is the first time I've actually heard about a junior miner getting started up in association with Jim Dines' ideas. What an interesting story.
DL: As you know, Peter, rare earths are not exactly rare, with respect to their preponderance in the earth's crust, but they tend to be scattered. You don't find a lump of neodymium the way you might find a nugget of gold. Because of that dispersion and the fact that the processing is a bit challenging, we decided that production of rare earths as byproducts was the best method to look at.
DL: There are many sources of rare earths in byproducts, but the three best ones in Bill's view were uranium, phosphates, and heavy mineral sands. Uranium and phosphates certainly make sense, but there is a big challenge: you have to secure an arrangement with a major processor to put a rare earth extraction circuit in the middle of their large-scale uranium or phosphate production circuits. That is a tricky thing to do with an existing producer. It could be included in designs for a new producer, but those large new producers do not come by all the time. It would take time and effort to build that relationship and, in the end, you would be sharing revenues or profits with a partner like that. Instead, we pursued the heavy mineral sands approach.
DL: The heavy mineral sands refers to mining beach sands, both modern beaches and paleo beaches. They are mainly mined for two titanium minerals, rutile and ilmenite, and zircon. These mines are generally large operations and they exist in the Southern USA, Brazil, India, and elsewhere. The biggest operations in the world happens to be in Australia and Southern Africa. When they mine these beaches, they typically use dredging operations or shovel and truck. Either way, they initially separate the heavy sand from the light sand, by mass: the light sand gets sorted out by gravity and sent back to the beach right away. The heavy sand, which contains the economic minerals, which they are after, get sent to a Mineral Separations Plant or MSP. The MSP uses classic physical metallurgical techniques, like electrostatic, electromagnetic, Humphrey Spirals, or shaking tables to tease apart the economic minerals that are in it. Again, the MSP are mainly after the ilmenite, rutile, and zircon.
DL: When they put the beach sands through this MSP, they end up creating a variety of waste streams or tailing streams. One of the tailing streams is monazite, which is only a few parts per million on the beach. Since monazite is a heavy mineral, it goes with the heavies, then is separated from the target minerals, and ends up coming out in a tailing stream. Monazite typically comes out at 20%-25% of the total tailing stream, although this varies somewhat and there are instances where tailings are as high as 80% monazite.
DL: The monazite is a rare earth phosphate mineral. It has been mined and processed for it's rare earths for over 100 years. It has also been used as a source of thorium. The metallurgical processing for monazite is relatively simple, compared with other types of rare earth processing. Keep in mind that all rare earth processing is fairly complicated, but producing rare earths from monazite is well-understood and has been done for a long time. Since you are only dealing with one particular mineral, there are no new metallurgical techniques to invent.
DL: This is a good potential source of rare earths because monazite is about 60% rare earths. If it is coming off a tailing stream at 20% monazite, then that means your head grade is approximately 12%, which is higher than Lynas or Molycorp by a fair bit. Even better, it is relatively easy to upgrade because it is already coming out as sand material. It is well-classified. Mother nature has beat it up over millions of years, which means you have minerals that are relatively clean and easy to tease apart. You can put it through a small mineral separation process and typically upgrade it to 80% or 90% monazite relatively easily, and that is what we are working with companies to procure as our input feedstock. So, our input feedstock is between 55% and 60% rare earths.
DL: As I say, monazite has been processed for a long time as a source for rare earths and thorium. It is processed today in India, China, and a little bit in Southeast Asia, but nowhere else in the word at this point. In the past, it was processed in France at the La Rochelle plant from the 1960s through the early 1990s by a company called Solvay or Rhône-Poulenc in the old days. They extracted it and separated the rare earths from monazite, which had been procured in both Australia and South Africa. We are looking to replicate that business model.
PB: Thanks very much for the introduction here, Don. I look forward to discussing things further with you.
DL: My pleasure, Peter.