It's been three months since my last post on Ucore and they have been making steady progress since then. News releases on the "SuperLig®-One Pilot Plant" have appeared like clockwork and there have been additional developments with financings and the Advisory Board. I briefly review each, and then discuss the company in terms of Casey's 8P's and some recent comments by Rick Rule.

The pilot plant strikes me as a project that is going well. There appears to be a clear plan and steady progress towards the ultimate goal, which is to validate a new method for processing 'technology metals' (REE). Success in this effort means big things for Ucore in terms of commercializing the MRT rights through partnerships to process REE feedstock from other mines and validating Ucore's own flowsheet for their REE deposit at Bokan-Dotson Ridge in Alaska.

There have been three NR on the pilot plant recently:

  1. Update on 17 February 2016 that stated ore from Bokan-Doston Ridge was pre-processed using XRT in Germany, then shipped to Ontario for processing into PLS ready to run through the MRT plant. This answers a question from my last article (does MRT change the flowsheet or just replace the solid phase extraction method?). It is good to see that they are sticking with their plan from the 2013 PEA.
  2. Update on 7 March 2016 that the plant is constructed and the first stage of water testing is complete, with processing of PLS coming soon. This release also articulated that the Pilot Plant Program plans to deliver on four goals (Rare Earth Class Separation, Removal of Scandium (Sc), Class Separation of the Light REEs, Separation of Individual REEs), which is an encouraging sign of focus.
  3. Update on 5 April 2016 that they are beginning to process the PLS in the plant! A key quote to my mind was "Following confirmatory testing of each unit operation, the Plant will undergo a continuous run of PLS." I imagine the scientists are having fun finding ways to stress the plant and see how it works with PLS from Bokan-Dotson property.

These news releases are important because they show that the company has a sense of where it is going and is able to communicate this to the market. We can look forward to further good news in near future, too. The Annual Financials and MD&A are due at the end of April 2016 and the company may be able to confirm that it has successfully met the four goals of pilot plan program soon after (Rare Earth Class Separation, Removal of Scandium (Sc), Class Separation of the Light REEs, Separation of Individual REEs).

Going forward, I will be looking for the company to clarify how it plans to approach the broad set of opportunities ahead and a first round of contracts to commercialize the MRT rights. I will also be curious what kind of carrying value ascribed to MRT rights, as the big question amongst investors seems to be "what is the potential value of the MRT rights"?

The company's Board of Advisors will play an essential role in figuring out how to approach the opportunities ahead and execute on them. The current lineup of the BOA started with Alaska-based Industrialist Mr. Randy Johnson in 2014, around time when secured State funding for infrastructure. He also participated in a royalty financing in 2015 and is now a reporting insider who has been buying in the open market.

In 2015, the company added MRT pioneers Dr. Reed Izatt and Mr. Steven Izatt to the BOA when they secured rights to MRT for REE and all recycling applications from IBC Advanced Technologies (the Izatt's company). Great synergy there -- I hope the working relationship continues to function smoothly as the company uses IBC to test the pilot plant. The company added Nobel Prize Winner Dr. Jean-Marie Lehn to the BOA later in 2015 and I believe he can add some scientific credentials that may help the company access valuable government funding programs. Since my article in January 2016, they added Rare Earth Consultant Jack Lifton and financier Frank Högel. Management has been busy building a great advisory team.

Jack Lifton is probably the best known member of the BOA. You may know about him from his writing online (http://investorintel.com/author/jack-lifton/ ). There is a new interview with Lifton available on the Ucore site (http://ucore.com/ucoreTV) that does a great job explaining the potential of Ucore here. Here are a couple key quotes (apologies on my transcription):

  • "At the moment, there is no other place in the world, outside of China, that is capable of producing heavy rare earth metals in high purity form -- or mid-range metals for that matter" Link 
  • "I believe the next step is for you to select projects … and develop a world-wide network of resource suppliers to you, for which you produce high quality finished goods… You should start with rare earths, because you have the most experience with that, but certainly in this era of clean tech and green technology, we're looking for lithium, we're looking for cobalt, i.e. battery materials. Quite frankly, we're looking to separate hafnium and zirconium for the future of energy production and, so, there is a huge area where you can get into. And we're all looking forward to see where you start and how you develop." Link 
  • "There's also a tremendous amount of tailings, of residues from existing mining and processing, which were not processed for these rare earth materials. They're not just sitting there, but enough of them are sitting there to keep ten of your plants busy for the rest of your life… The amount of material already above ground and concentrated in a residue is mind boggling. You could not possibly process all that material, and the interesting thing is that, at the moment, you are the only people who can process that material outside of China. So it's actually waiting for you." Link 

I encourage you to watch the entire interview with Jack as he does a good job summarizing the situation and why he has joined up. It is exciting that he has an exclusive advisory relationship with Ucore now.

Ucore has a lot of potential and some of this is reflected in recent share price activity. Shares are up 50%-ish since the start of year. The share price hasn’t really moved to new levels over prior years, but the company has become much more than it was fundamentally and that makes for an interesting setup.

I will point out that the recent highs in share price came at 4 March 2016, the same time they announced that a 'Royalty Investor Increases Commitment to CAD $11.5 Million'. The coincidences in markets are always interesting, aren't they?

The recent royalty investors have gotten a good deal -- some at effectively 0.18 CAD per share (0.25 per share CAD, 1.44 US/CAD). I applaud their bold investment and hope they can provide a strong foundation for key business relationships going forward. For example, Randy Johnston participated in the royalty financings after years of serving on the Advisory Board and helping the company gain traction in Alaska.

I am skeptical because I don’t know the details of the royalty financings, but I believe that these royalty financings can provide the kind of anchor investors that the company needs. The company has the strategic position to exploit an exciting new technology on the way out of a rough bear market (eventually), but it will need good people around to ensure that it can fully benefit from this unique position.

As an exercise, I have prepared my brief comments on the company in terms of Casey's 8 P's. My apologies to the Casey team if I embarass myself using their system.

  1. People: The Board of Directors and Board of Advisors are stacked with dedicated, long-term members. It is not clear how deep the bench strength is amongst employees, but the company has shown it is able to leverage the operational expertise of partners in the pilot plant program (IBC, in particular). I will be watching for further additions to the team.
  2. Property: There are several angles here, but the main assets are the Bokan-Dotson REE property and the MRT rights. The PEA from 2013 showed substantial returns to Bokan-Dotson, which could be enhanced by the MRT rights. I don’t know how to value the MRT rights on their own, but would suggest that they resemble an option on a positive cash flow with very high uncertainty. The potential to combine Bokan-Dotson and the MRT rights in different looks like a wild card to me.
  3. Phinancing: The recent royalties have provided enough cash to complete the payment for the MRT rights, build the pilot plant, and survive for a few months. This came at a fair amount of dilution as the royalties have all been converted into equity, but they may prove to be a turning point if the company can use the MRT rights to generate positive cash-flow and get creative in financing the development of the Bokan-Dotson property.
  4. Paper: The company is a survivor and they have a lot of shares out (200M+ Issued and O/S). The current market cap of $75M-ish seems generous for the valuation of the Bokan-Dotson property and the MRT rights, but I don’t suppose to know what the future holds for comparables.
  5. Promotion: The company shows a steady stream of results for it's promotional efforts. The company is not over-exposed, but gets enough attention to keep securing rounds of financing over the years. The Ucore TV site (ucore.com/ucoreTV) and other material available online (mrt.ucore.com) make a good impression, which is surprisingly rare. I hope that Jack Lifton can contribute to the public persona of the company.
  6. Politics: This has always been a strength of the company. I wonder if they will be able to secure a deal with the US Military at some point? I would like to see a partner with deep pockets who can help ensure that the company has a strong source of demand for the REE salts that it produces -- I fear that the company may be too far ahead of the curve in terms of REE in the USA. I also wonder if the company could ever become too important politically and subject to espionage or (wartime?) seizure.
  7. Push: The next push here is clear, to have a successful run of the pilot plant and validate the MRT for REE at scale. This may prove to be a turning point where people start to recognize the potential of the company. After this, the next big pushes will come from commercializing the MRT rights and developing the Bokan-Dotson property. The main ways to commercialize the MRT rights are to contract with other miners to process their REE feedstock, re-process mine tailings, or recycle end of life electronics. Three lines of business with global potential.
  8. Price: There is upside in REE prices. If prices increase and the MRT proves to reduce costs, then Bokan-Dotson could prove wildly economic. If REE prices go lower, then the company may be able to survive by pivoting towards the MRT rights but they will be hard-pressed to sustain their current market cap solely by commercializing MRT rights.

To close, I'd like to riff on some recent comments by Rick Rule on Liberty Radio. Rick's first comment seems to be that he is somewhat uncomfortable about the gold sector here because some gold investors have a religious attitude towards gold. The REE space is not as dogmatic as gold, but it does attract a special crowd -- a crowd who emphasizes issues like potential military conflict and 'supply chain sovereignty'. These issues are important, but they can distort the valuation of a company away from the basic economics of resource development. The rhetoric around Ucore seems to be more focused on the economic feasibility of the Bokan-Dotson project and MRT applications, which is a good thing that shows a hard-earned discipline and maturity from management.

As we go forward, I will try to stick with survivors like Ucore and be cautious about new entrants. Ucore is earning a position as a pioneer in the commercialization of next-generation mineral processing technology. They have a global scope in terms of geography and the mineral's lifecycle (from deposits in situ to recycling applications). This is a great competitive position, particularly as we move out of this bear market -- whenever that may be.

As always, this is not investment advice. Do your own due diligence.