The 'REE Basket Price' Deception and the Clarity of Opex - 2015

Rare Earth Deposits & Mining

Rockstone Research reported in 2015 that the term "REE basket price" is a common and highly promoted deposit metric, and one that is most often associated with disclosure of heavy REE (HREE)-enriched deposits. However, there's a prevalence of misunderstanding by management teams and investors alike as to what the term actually denotes and, perhaps more importantly, how it should be applied. There is no standard set of prices for the REEs.

This leaves public mining companies to their own devices as to which prices they choose to use. Such varying prices are one of the two inputs (the other being REE distribution) that make up the so-called REE basket price, which in itself forms the foundation of a project's entire economic picture. Unfortunately, the REE basket price is too often derived with strong bias, and applied incorrectly and/or inappropriately by companies in a misguided fashion, intentional or otherwise, to convey a REE project's potential merit to the market.

Rockstone brings some clarity to the concept of a REE basket price through discussion of how this term is derived, what it illustrates, the numerous limitations/assumptions associated and the proper context this metric should be applied within. Rockstone takes the discussion a step further and relates a deposit's basket price to the project's overall economic picture. Moreover, the author presents the operating expenditures (opex), expressed in $/kg rare earth oxide (REO) produced, in order to provide a broader context for perhaps the most appropriate usage of the REE basket price term.

DEFINITION

With respect to REEs, a deposit's "basket price" (expressed in $US/kg) is defined as the value ($) of one unit mass (1 kg) of separated rare earth oxides (SREOs), in which those SREOs are in the same proportion (i.e. distribution) as the deposit. Note, the term REO is often used instead of REE, as this is the form that the final products are priced and sold in the global market, whether or not the specific companies' business plan is to produce separated oxides (more on this later).

An example is discussed involving a basket price calculation of a well-known REE deposit in development. It is clear that this deposit has a well-balanced REO distribution with ~70% of its value from the magnet feed REOs (Pr, Nd, Tb and Dy), which is a sizable and growing market in the rare earth industry.

Read on .... Original working URL with graphics: https://seekingalpha.com/article/2996346-the-ree-basket-price-deception-and-the-clarity-of-opex