Rare earths juniors fire up on news of Iluka’s $1.2b refinery

Taxpayer loan for Australia’s first refinery highlights size of the prize for successful explorers. Plus, last week’s column on DGO-De Grey proves very timely, Calidus re-rates and Sovereign’s monster find yet to be appreciated.

The Federal Government’s $1.2 billion in soft loan support for Iluka’s (ILU) Eneabba rare earths refinery project highlights just how seriously Australia and the rest of the Western world are taking the challenge of reducing China’s dominance in the supply of the strategic metals.

Apart from China’s current dominance of the industry, there is the need to increase supplies to see through the world’s decarbonisation challenge, with rare earths of one type or another critical to the technologies that can make a greener world happen.

Today’s interest is what taxpayer support for Iluka’s Eneabba refinery means for the ASX-listed rare earths juniors.

Iluka has hinted at access to the plant for “potential third party suppliers” of feedstock. And it has to be said that after a ring around of the juniors, they are happy that in trying to pick a potential winner in the rare earths space, the Government’s soft dollar loan has gone to Iluka.

But the reality is that Iluka, with its stockpile of monazite and xenotime from past mineral sands mining, won’t be building the refinery on an open-access basis. Apart from the stockpile, it has supply options from its Wimmera operations in Victoria.

The juniors know that, and being the plucky types they are, they are exploring on the basis that they will prove up rare earth deposits that justify them building their own processing operations, be it concentrators and/or refineries.

There are more rare earth juniors out there than most would think would be the case. Two that came on to the radar in recent days are PVW Resources (PVW) and RareX (REE).

PVW announced it had pulled in $9.5 million from a heavily oversubscribed placement at 40c a share to get cracking at its Tanami (heavy) rare earths project in WA’s Kimberley region.

The word from Cottesloe beach was that Gina Rinehart took $2m of the placement. There is no confirmation of that just yet. But the chatter does go to the idea that funding for the Western world’s rare earths supply challenge is coming thick and fast.

PVW is now fully funded to complete an aggressive drilling program at the Killi Killi East target in the Tanami project area. It is where rock chip sampling returned up to 12.45% in total rare earth oxides in October last year.

Rock chips aren’t a reliable guide to what is underneath but they are a good start, particularly when the initial target has 3km strike length of surface expression along the 18km-long Killi Killi East-Watts Rise trend.

It is exciting and potentially province-making stuff. Recently-listed junior Killi Resources (KLI) is also active in the area, as its name suggests. It is putting together an upcoming drilling program for gold and rare earths at what it calls its West Tanami project.

Another Kimberley region explorer, RareX, has received more assay results from its 2021 drilling program at its advanced Cummins Range project, and they have continued to impress (including 22m at 1.7% TREO).

The results bolstered confidence in the existing resource estimate of 18.8Mt at 1.15% TREO being increased towards the much bigger stock exchange-compliant “exploration target”. Reaching the target would establish Cummins Range as a top-three deposit in Australia.

So the 10.5c stock has plenty to shoot for. It is doing just that with a resource expansion drilling program to kick-off in the next fortnight.

DGO-De Grey:

Last week’s item on DGO Gold (ASX:DGO), which highlighted the discount in the stock to its equity interests – including a 14.4% stake in De Grey (DEG), was prescient, in part anyway.

What was missing was the $308 million agreed scrip takeover bid for DGO that followed a couple of days later from Gold Road (ASX:GOR).

But what the heck, what was a $2.80 stock when written up last week is now valued by the Gold Road scrip offer at $3.55 a share, an implied gain of 27% if you don’t mind.

As suggested last week, the 14.4% stake in De Grey is a handy springboard for a takeover bid for the $1.7 billion company, owner of the 6.8 million ounce Hemi gold discovery in the Pilbara.

That De Grey shares have not taken off in response to the Gold Road move means the market rates an immediate move by Gold Road on its ultimate quarry is unlikely.

Afterall, Gold Road – a 50% partner in the Gruyere gold mine joint venture with Gold Fields - has a lesser market cap of $1.3 billion.

But Gold Road has bought itself a seat at the table should De Grey become a takeover target as most suspect it eventually will. And it could well engineer a joint approach at Hemi as it did with its Gruyere discovery when it brought in Gold Fields as a partner.

Hemi is a new-style of mineralisation (intrusive-related) for the Pilbara and more drilling on De Grey’s ground is widely-tipped to carry the regional resource to more than 10Moz, if not 20Moz, over time, not including the couple of million ounces De Grey has in shear-hosted deposits.

The scale and location means Hemi would fit nicely in the portfolio of any of the big gold producers. But surprise, surprise, none of them had bothered to suss out whether control of DGO’s stake was for sale through a scrip takeover bid (to avoid a tax bill for DGO’s backers), just as Gold Road has done.

Maybe it is simply a case of the big producers being petulant on the issue of a junior, like De Grey was in late 2019, finding Hemi and not them. Whatever the case, it has been a nice bit of footwork by Gold Road MD Duncan Gibbs to make the DGO-De Grey play.

Payday for three amigos:

Gold Road’s agreed bid for DGO – on the basis a higher offer does not emerge – represents a $100 million pay day for three former Eastern states’ stockbrokers with 50 year-plus histories in the game.

The three are Tom “Black Cat” Klinger from McIntosh stockbroking glory days, equities dealer extraordinaire Bruce Parncutt, also from McIntosh, and Peter Woodford of JB Were resources dealing fame.

Now all in their 70s or 80s, the three amigos collectively hold about 30% of DGO and were there on day one when veteran geologist of Jundee/Bronzewing fame, Ed Eshuys, came on board as executive chairman of what was then Drummond Gold.

Along with the three amigos, Eshuys devised a dual strategy of DGO investing in juniors with promising exploration and an open share register by taking up a substantial position on the register by way of placements, as well as exploring on its own account.

In a piece of sweet timing, DGO’s first investment was a $5m placement in De Grey at 20c a share in May 2018 – more than a year ahead of the Hemi discovery being made. But the subsequent surge in the value of the DGO’s stake – increased over time – also created a problem.

It was the so-called holding company discount where the value of the investments is more than the market cap.

The three amigos and Eshuys no doubt thought that after 50 years in the game, they would be able to remove the discount. But they couldn’t, with the acceptance of the Gold Road bid acknowledging defeat on that point.

So when Gold Road made its takeover bid approach at a premium, there was an acknowledgement that here was a way to close the discount and move on. Apart from anything else, the three amigos aren’t getting any younger.

Update file on Calidus and Sovereign:

Calidus was mentioned here on March 10 as an 85c stock on the strength of the re-rate that would occur as it approached first production at its Warrawoona gold project in the Pilbara.

It has since motored on to 96c after confirming commissioning was going well, with first gold likely to be poured in mid-May.

Canaccord reckons the re-rate is not yet over, and has a $1.15 price target on the stock.

Also from the update file comes the news from Sovereign Metals (SVM) that its Kasiya rutile discovery in Malawi is the biggest ever, and the second biggest graphite discovery.

The stock was mentioned here back on March 25 when it was trading at 52c. It last traded at 73c.

The March 25 mention was based on the company’s well flagged intention to announce a resource update, and the boom like conditions in the mineral sands space.

But the scale of the increase to 1.8 billion tonnes of 1.01% rutile, and 18 million tonnes of contained graphite, blew expectations out of the water.

It is not well followed (yet) in this market. But it will be as major players in the mineral sands markets begin to circle what is an industry shape-changing discovery.