There has been a lot of major news from Ucore (TSXV:UCU) recently, and I would like to take this chance to look back at the news from the company over the last couple years. Where are we and how did we get here?
Read on for excerpts from the old releases with a bit of commentary.
March, 2015, was a watershed moment where we saw the first announcements regarding IBC Advanced Technologies and Molecular Recognition Technology. Ucore had two announcements during PDAC that year. First, they separated each rare earth element at high purity using feedstock from the company’s own Bokan REE deposit.
“It’s very gratifying to see the fruition of this work and achieve such a high level of success. It is exciting to think of the business opportunities this can create for Ucore and for Alaska,” said Ken Collison, COO of Ucore. “The underlying MRT technology, while new to the REE industry, has a lengthy history of success in mining, with IBC SuperLig® installations now active world- wide. We look forward to deploying MRT as an efficient means of REE separation.” Source
The second announcement during PDAC in March 2015 was that Ucore had secured rights to use SuperLig® MRT for REE and any metals at all in recycling or tailings.
“This is an important step for Ucore in obtaining the capabilities of an integrated provider of rare earth products from mine to metal,” said Jim McKenzie, President & CEO of Ucore. “MRT is a remarkable technology, already used extensively around the world in non-REE mining applications, where advanced SuperLig® circuits are currently used to liberate high purity PGM’s and specialty metals. We’re delighted that IBC, the recognized world leader in the highly specialized field of MRT, has now partnered with Ucore to bring this extensively proven separation platform to the rare earth sector. Perhaps most importantly, our licensing arrangement includes the application of SuperLig® technology to the world recycling and tailings processing sector – both for the recovery of rare earths and all other metals.” Source
Those two news releases were an epic combo that still shape the company’s activities today.
In June, 2015, we heard that "Ucore Appoints Molecular Recognition Pioneers to Advisory Board". Dr. Reed Izatt and Steve Izatt are the father-son team behind IBC Advanced Technologies, which sells products "worldwide to premier metallurgical, advanced materials, analytical, chemical, health care, catalyst, and other industrial companies as well as to domestic and international governmental and academic organizations". This was a good piece of news that showed the two companies were playing nice together. It also marked the start of a growth period that is still underway in terms of Ucore’s human capital and intellectual property.
We also saw the first royalty financing in June, 2015, where a private investor bought a share of the proceeds from use the first MRT project at Ucore. The royalty had a convertibility option, as well.
"The Investor has the right to convert the total amount of the Investment (minus any Royalty amounts already then paid by Ucore) into common shares of Ucore (“Common Shares”) at any time during the period commencing upon the date the full USD$4.0 million is provided to Ucore and ending three years thereafter. If the Investor elects to convert such amount, then Ucore’s Royalty obligations shall cease and the conversion amount shall be converted into Common Shares at the greater of: (i) the 30 day volume weighted average share price of Common Shares, less a 20% discount; (ii) the market price of Common Shares on the day immediately prior to the conversion date, less a 20% discount; or (iii) CAD$0.25 per Common Share." Source
The terms of that financing seemed generous for the investor with the full warrant and pricing options, but I was impressed that they were able to raise this money in 2015 at all. Raising money in a bear market like that can be very painful at the time, but can prove to be to a company-making decision if it allows you to get ahead of the curve.
For what it's worth, the shares traded from 35C to almost 45C in June 2015 and then traded down to 20C six months later. I wrote some of my first articles on the company on CEO.CA not long after, in Q1 2016.
We saw the next royalty financing in December 2015:
"Pursuant to the Agreement and subject to any required regulatory, stock exchange or shareholder approvals, the Investor has the right to convert the total amount of the Investment (minus any Royalty amounts already then paid by Ucore) into common shares of Ucore. If the Investor elects to convert such amount, then Ucore’s Royalty obligations shall cease and the conversion amount shall be converted into common shares at the greater of: (i) the 30 day volume weighted average share price of Ucore’s common shares, less a 20% discount; or (ii) the market price of Ucore’s common shares on the day immediately prior to the conversion date, less a 20% discount; or (iii) $0.20 per common share." Source
You can analyze the terms of this royalty in a few ways. When the first royalty came out, the market price was approximately 35C and the fixed-floor price for the conversion was 25C, which is approximately 70%. When the second royalty came out, the market price was approximately 22C. If this deal had the same ratio, then we could have seen a fixed-floor of approximately 15C. I am glad the second royalty didn’t mention prices below 20C because that would be getting into territory of new all-time lows.
In January, 2016, we heard that one of the royalties had been converted into common shares for the first time:
The Investors paid a total of USD $5.3 million for the Royalties, and the conversion will take place at a price of CAD $0.25 per share, resulting in a total of 30,470,760 shares being issued, using a foreign exchange rate of $1.44 CAD / USD. Source
I suspect this conversion was the first royalty, which had been up-sized, because it was converted at the fixed-floor price of 25C. This conversion made for a lot of new shares outstanding, but they are closely-held. The ability for Ucore to raise capital from committed shareholders may prove to be the most important feature of the royalty financings completed so far.
January 2016 also brought news that the company was engaging a market maker:
Additionally, the Company announces that, subject to regulatory approval, it has retained Venture Liquidity Providers Inc. (“VLP”) to initiate its market making service to provide assistance in maintaining an orderly trading market for the common shares of the Company. The market making service will be undertaken by VLP through a registered broker, W.D. Latimer Co. Ltd., in compliance with the policies of the TSX Venture Exchange and other applicable legislation. The Company will pay VLP $5,000 per month. The engagement is for a period of 12 months, but can be terminated by either party at any time with written notice. The Company and VLP act at arm’s length, and VLP has no present interest, directly or indirectly, in the Company or its securities. The finances and the shares required for the market making service are provided by W.D. Latimer. The fee paid by the Company to VLP will be for services only. Source
I think market makers are sorely needed amongst junior mining companies. Some promoters provide that function in a way, but the whole arms-length thing comes into play. I have written a bit on the topic at here and here. I wonder if some of the private investors who participated in the royalty financings have considered doing some market-maker type trading in Ucore shares, themselves.
In January, 2016, we also learned that Mr. Randy Johnson had become a reporting insider in the company and was joining the advisory board. He was involved in the royalty conversion that occurred earlier in the month.
On January 15, 2016, the Company reported that a recent investment of USD $5.3 million has been converted into 30,470,760 equity common shares of the Company. The majority of those shares (81%) are owned by Mr. Johnson. On January 17, 2016, pursuant to the conversion, Mr. Johnson issued a supplementary Early Warning Press Release (“EWPR”) informing that Orca is now a 10% Shareholder of Ucore and that he is now a Reporting Insider of Ucore. “We’re extremely pleased to welcome Mr. Johnson as a Reporting Insider of Ucore,” commented Jim McKenzie, President and CEO of Ucore. “Randy has built an impressive industrial resume in Alaska and beyond, and his experience in company-building will be a significant asset and resource to us as Ucore enters its early production phase. What’s more, his substantial recent investments in Ucore, and his commitment to retaining and progressively expanding his ownership position over the long term, are significant votes of confidence in the prospects of the Company. We look forward to rewarding this commitment with continued growth and return on investment. Mr. Johnson is a long standing shareholder of Ucore, having first invested, through Orca, in May of 2013, again in April of 2014, and most recently through the Royalty Agreement announced by the Company on May 20th, 2015 (the “Royalty”). Mr. Johnson filed an initial Early Warning Press Release on July 10th, 2015, disclosing Orca’s ownership in approximately 9,742,105 outstanding shares of the Company, prior to the exercise of any warrants or conversion of the Royalty. The Early Warning Report filed today discloses Mr. Johnson’s total direct and indirect beneficial shareholdings to be 34,463,665 Common Shares of the Company. The Company notes that the EWPR issued today indicates that Orca has sold no shares since its initial early warning report was filed in July 2015 and that Mr. Johnson has advised that he continues to hold all shares that he has acquired and controls in the Company over the past 3 years. Source
I am curious to learn more about the story behind Mr. Johnson's connection to Ucore, but was pleased to see him described as a company-builder based in Alaska. At the time, it was becoming clear that Ucore was lining up a large set of opportunities in front of itself and would need help from an accomplished cast of characters to exploit those opportunities.
For what it's worth, the last SEDI report I see for Mr. Randy Johnson was an acquisition of 6,672 shares at 23C on February 12, 2016.
In March 2016, we found out that one of the initial royalties had been up-sized:
Under the terms of the original agreement, the Investor agreed to pay a total of USD $5 million for the Royalties, with USD $2.5 million being paid in December of 2015 and the remaining USD $2.5 million to be paid in April of 2016. The Company has agreed to allow the Investor to convert the USD $2.5 million already paid into common shares of the Company in exchange for the Investor’s agreement to increase the payment due in April 2016 from USD$ 2.5 million to USD $5 million and a firm commitment on behalf of the Investor to exercise its option to increase its royalty investment by USD $1 million under the terms of the original agreement. The conversion will take place at a price of CAD $0.26625 per share, resulting in a total of 12,676,050 shares being issued, using a foreign exchange rate of $1.35 CAD / USD. All included, the Investor has committed to a total investment of USD$8.5 million (approx. CAD$11.5 million) since December 14, 2015. The conversion and amendment to the original royalty agreement are subject to the approval of the TSX-Venture Exchange. Source
I am afraid I don’t know who chose to increase their original investment by 70% in March 2016, but I remain impressed by their aggressive investment plan.
In April, 2016, we had a series of news items. First, we found out that Ucore was starting commissioning for the SuperLig®-One pilot plant:
Ucore Rare Metals is pleased to update on the commissioning of the SuperLig®-One rare earth element (“REE”) separation pilot plant (the “Plant” or “SuperLig®-One”). The first tranche of pregnant leach solution (“PLS”) derived from the Company’s Bokan – Dotson Ridge (“Bokan”) project in Alaska has been produced by SGS Lakefield Research Ltd of Lakefield, Ontario (“SGS”) and delivered to IBC Advanced Technologies, Inc. of American Fork, Utah (“IBC”). The PLS has undergone confirmatory analysis and will be submitted to the Molecular Recognition Technology (“MRT”) circuit. Source
Then, we found out that Mr. Jack Lifton is joining the advisory board as an exclusive advisor in rare earths: "Jack will be consulting exclusively to Ucore in matters related to rare earths, including resource securement, production, and offtake agreements."
Finally, we found out that Mr. Frank Hogel was joining the advisory board:
“Frank’s years of experience in both the international financial and resource sectors will be an invaluable addition to our Advisory Board,” commented Jim McKenzie, President and CEO of Ucore. “We’ve had the pleasure of working with Frank for the last several years, and we’re delighted to increase his involvement with the Company as we enter early stage production. Frank’s experience in the structuring of growth companies will serve us well as we initiate and expand our throughput and output capabilities in the near term and beyond.” Mr. Högel joins a number of highly regarded individuals on the Ucore Advisory Board, including Nobel Prize Winner Dr. Jean-Marie Lehn, MRT pioneers Dr. Reed Izatt and Mr. Steven Izatt, Alaska based Industrialist Mr. Randy Johnson, and Rare Earth Consultant Mr. Jack Lifton. The collective experience of this exceptional group will be brought to bear as the Company advances the development of its SuperLig® molecular recognition technology platform in the rare earth, clean energy and technology metals sectors. Source
This was another big month for Ucore. The commissioning of the pilot plant was another step towards a technical success with MRT. The cost of extracting the ore from Alaska, sending it to Germany for x-ray sorting, then to Ontario, and finally to Utah for processing by MRT were unclear, but you can bet it was not cheap. Was the money well-spent?
The appointments of Mr. Lifton and Mr. Hogel added significant depth to the team in terms of metals markets and financing. These appointments also helped formalize relationships that had existed for years prior and take the advisory board to the next level. At the time, my sense was that Ucore could accomplish a lot if they can make good use of their advisors.
In May, 2016, we heard about another increase to a royalty financing and conversion to shares in the company. The company was looking pretty cashed-up at this point. The up-sized investment also had revised terms, which had a fixed-floor of 29C and warrants at 38C.
As I read this release from May again, I notice that there was a debt-settlement for shares. I don’t know the story there, but would be curious:
"The Company has agreed to settle payables in the amount of USD $195,000 through the issuance of 600,000 shares at a deemed value of $0.325 per share. The proposed debt settlement involves amounts owed to arm’s length parties and is subject to approval by the TSX Venture Exchange. The shares issued will be subject to a four month hold period." Source
In July, 2016, Ucore announced their first efforts to use MRT with another party: a Major Oil Sands Producer (MOSP). Notably, this project included major funding from the Canadian Government under the Industrial Research Assistance Program. I have some experience with such research funding programs and was very impressed to see Ucore taking this route.
The IRAP funding totals $220,000 in the form of cost reimbursement for eligible project expenditures. These expenditures are related to the creation of a low organic and carbon content PLS from the MOSP process flow, and the separation of a selection of high-value metals therefrom using SuperLig®. Separations will take place at IBC Advanced Technologies, Inc. (“IBC”) facility in Utah. Under the terms of the Partnership, Ucore and the MOSP will absorb the net costs of the IRAP project, after grant contributions, on a 50/50 basis. MRT is at advanced testing stages and has yet to be proven, at a commercial scale, for the separation of rare earth elements. Ucore has not yet released an economic assessment on the use of MRT for the separation of rare earth elements and has not yet obtained specific contracts for the processing of rare earths using MRT. Source
At this point, my head was spinning thinking about the potential of producing metals for clean technology from the oil sands waste. We hear a lot about the environmental damage associated with the oil sands and this struck me as an inspiring example of finding a better way through technology.
In August, 2016, the company announced that it had successfully separated four-9 dysprosium from Bokan using MRT. My understanding was that this was a first in several ways and an important mark for the company as an American success-story. This may sound like empty rhetoric, but the reality is that Ucore has a history of accessing funding from government organizations and getting on the right side of policy.
In September, we had verification of the dysprosium results from Bokan. "The results from the Independent Laboratories have now been reviewed by Mr. Bentzen and found to confirm and authenticate the 99.99% Dy purity valuation obtained earlier by IBC Advanced Technologies, Inc. (“IBC”) of American Fork, Utah, utilizing the Bokan PLS (see Ucore Press Release dated August 15, 2016)." Source
In November, we first heard about the "Strategic Metals Complex", where Ucore would use their SuperLig-One pilot plant:
“This Strategic Metals Complex represents not just a transition by Ucore towards near-term production and revenue,” said Jim McKenzie, President and CEO of Ucore. “It represents a reaction to a very real domestic need for high-purity energy metals. In turn, the SMC represents a significant progression for Ucore, capitalizing on the innovative design of SuperLig®-One, and leveraging this platform in to full scale production.” “Ucore has followed an aggressive development cycle with SuperLig®,” continued McKenzie. “Our bench scale testing commenced two short years ago, followed by successful industrial pilot testing over the past year, and now culminating with a near term transition to production. The development arc has been a fast and effective one, and we intend to continue this momentum in the months ahead." Source
This news of the Strategic Metals Complex fit with my expectations, but still had some good features. I was pleased to see the appointment of Mr. Mike Schrider as VP of Operations, following the sudden death of Mr. Collison.
For what it's worth, I was blown away to hear that the 2016 Nobel Prize in Chemistry had some connection to MRT and IBC Advanced Technologies. I enjoyed Mr. Izatt senior's article on the topic for Investor Intel.
Following the news of the Strategic Metals Complex in November, I had my first interview with Mr. Jim Mckenzie. I believe there are still some gems hidden in that interview for people who care about the company.
In December, 2016, we found out that 35C warrants were being extended until June 2017:
A total of 20,000,000 share purchase warrants were originally issued by the Company pursuant to the closing of the equity offering as originally announced on May 13, 2013. Each share purchase warrant entitled the holder to purchase one common share of the company at a price of $0.35 per common share. A total of 16,953,340 of these Warrants remain outstanding as of this date and are scheduled to expire on December 31, 2016. As a result of market conditions during the term of the Warrants and the capital raising opportunity represented by the Warrants, the Board of Directors of the Company has approved an amendment to the term of the original Warrant so that the term will be extended to June 30, 2017. There will be no change to the exercise price of the warrants. This amendment to the Warrants is subject to the approval of the TSX-V. Source
Of the 20M warrants originally issued, just over 3M had been exercised. These may have generated some selling pressure above the 35C price level in 2015 and 2016. With the extension until June, they may provide even more concentrated selling pressure above that level over the next three months.
If the remaining 17M warrants are exercised, then the company could see almost $6M come into treasury. That would be very good for the fundamentals of the company and the stock in the long-term by delaying further dilution, but it might cause the stock to have a hard time staying above 40C in the near term.
In December, we also heard that “Ucore looks forward to cooperating with the Trump Administration’s efforts to return the U.S. strategic materials market to self-sufficiency,” said McKenzie. “What’s more, we look forward to continued collaboration with legislators in their efforts to break the United States of critical material dependencies.” As I think back, I can't recall many other people who said they actually looked forward to working with Trump. This fit with my understanding of the political dimension of the company, but gave me the impression that Ucore is not afraid to take a page from the contrarian playbook.
In February, 2017, we heard that Ucore was making progress with their Strategic Metals Complex and the first metal to be produced were Platinum Group Metals. This was news to me and led me to dig deeper into the platinum markets to get a handle on why Ucore was starting with platinum.
“The ‘Stage A’ processing circuits will prepare the PGM-bearing input material for submission to the SuperLig® metal separation process.” said Mike Schrider. “The design will accommodate unpurified PGM bearing metal alloys (from third party sourced recycled catalytic converters) as input material to the MRT process, and then transform the high purity rhodium, palladium and platinum concentrate MRT output into high value products such as individual PGM sponge and specialty salts, both in high demand in US markets.”
The PGM refinery is being specifically designed to receive, process and separate recycled catalytic converter material which has been concentrated to a metal alloy via a plasma arc smelter. The refinery design consists of three distinct processing areas: (i) Pre-MRT post-smelter metal alloy dissolution; (ii) MRT (SuperLig®) PGM metal separations; and (iii) Post-MRT PGM sponge and specialty salt making. The final PGM refinery design allows for an ultimate annual production capacity of 750,000 troy ounces (all Stages complete) comprised of 99.95% Rhodium, 99.98% Palladium and 99.98% Platinum pure sponge material and or specialty salts. The spatial design of the PGM refinery will utilize a 25,600 square foot facility situated on a 3 acre complex. Source
The news from February also showed that things were progressing with Rare Earth Elements for the Strategic Metals Complex:
REE Phase – Detailed Engineering The Company is nearing final selection of REE bearing feedstock for the other phase of the SMC, a U.S. based REE separation refinery. Upon finalization of the feedstock selection, similar engineering efforts will commence, also leveraging the work undertaken with the SuperLig®-One rare earth pilot plant (see Ucore Press release dated Sept. 26, 2016). Progress on this critical aspect of the SMC will be detailed in forthcoming announcements. Source
Now, March is only half over and we already have several important releases.
First, an update on the oil sands project during PDAC 2017:
Phase I of the development agenda, now successfully completed, has included initial flow-sheet design work, beginning with input material from a froth treatment plant located at Fort McMurray, AB. Representative samples comprising a tailing slurry and containing REE, Ti, and a range of other valuable metals, were then obtained from the MOSP process flow. Also during Phase I, a Pregnant Leach Solution (“PLS”) formulation process was designed by Edwin Bentzen, BSc. of Bentzen & Assoc. of Arvada, CO (the “Bentzen Process”). The Bentzen Process, proprietary to Ucore, has been designed specifically to modify the bitumen PLS for submission to Molecular Recognition Technology (MRT) metals separation. During Phase II of the development agenda, Ucore has selected Resource Development Inc. (RDi) of Wheat Ridge, Colorado USA, to perform the PLS preparatory work. The output of the RDi initiative will be shipped to IBC Advanced Technologies (“IBC”) of American Fork, Utah, for bench scale separation trials. Pending successful completion of bench scale tests, the Company intends to utilize its SuperLig®-One Pilot Plant Facility to test the process on a greater scale. Source
Note that they particularly mention titanium and zirconium minerals, which made an appearance in the METALS Act announced the next day!
"Ucore has worked closely with a number of key legislators to affect the intent and the potential of this bill,” said Jim McKenzie, President and CEO of Ucore. “The Act promotes the development of a domestic industrial base for the production of strategic and critical materials, and is in direct keeping with our present objective of establishing a US based Strategic Metals Complex (SMC). With a new administration focused on trade issues vis a vis China, our timing could not be better.” Source
And then, we learned that Ucore has bought an option to acquire IBC Advanced Technologies outright sometime over the next two years. That is a stunning development, which opens up a broad range of opportunities for the company. I wrote a short note here on some important strategic issues that I see facing the company. How will Ucore choose which metals to produce next? Will they focus on taking market share from incumbents or on developing new markets?
The terms of the acquisition seemed generous for the IBC AT shareholders, which I think is appropriate.
Ucore has paid a total of USD$650,000 in consideration for the Option, which expires on March 14, 2019. Under the terms of the Option to Purchase Agreement:
- Outstanding Shares – Ucore shall have the right to purchase the outstanding shares of IBC in exchange for cash consideration totaling USD$10,000,000 and a grant of 10,000,000 units (the “Units”).
- Units – Each Unit shall consist of one common share of Ucore (the “Common Shares”), plus one half of a common share purchase warrant (the “Warrants”).
- Warrants – Each full Warrant shall entitle the holder to acquire one additional Common Share of Ucore at a strike price equal to the market price of the common shares of Ucore as of the date on which the Option is executed.
- Performance Incentives – Upon the execution of the Option, IBC key personnel shall receive performance incentives and payments totaling 7% of annual EBITDA for each of the first 5 years of operations subsequent to the execution of the Option. Source
The significance of this acquisition for Ucore cannot be understated:
“This Option to Purchase Agreement is a major milestone for Ucore” said Jim McKenzie, President and CEO of Ucore. “IBC is already a world leader in Molecular Recognition Technology (MRT) for the mining industry, with an existing customer base spanning several continents and including majors such as Asarco Grupo Mexico (USA), Impala Platinum of South Africa, Tanaka Kikinzoku K.K. of Japan, Sino Platinum of China and LS Nikko of Korea. Remarkably, this initiative places us in a position to assume and accelerate a business platform that IBC has established over almost 30 years in business.” Source
Looking back at it all, I am impressed. Ucore has taken a bit of a circuitous route, but they may end up in just the right place at the right time. I think a REE mine at Bokan is closer to reality than ever before and a big part of that is Ucore's ability to get on the right side of politics, whether in Alaska, Alberta, or Washington DC. And I think they have more opportunity on the table than they expected when they first started working with IBC Advanced Technologies.
Ucore has stayed open to new opportunities, but haven't lost the main goal of their business. First, they proved themselves as survivors by sticking with an exciting project through a tough market cycle. Now, they are proving themselves as innovators by positioning themselves as a licensing machine for MRT. They may have bitten off more than they can chew, but they have certainly created a great foundation for growth. Thanks for reading, from Peter Bell.
