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China sets the price, and the West scrambles to keep up. In this insightful interview, Justin Chan, Head of Research at SCP Resource Finance, sits down with Trey Reik to explain why 90 % of heavy rare earths are still processed in China, how that gives Beijing pricing power over EVs, wind turbines, and defense tech, and why even top-tier mining projects are barely breaking even.

Key Topics:

  • China’s supply-chain chokehold: 70 % of light Rare Earths, 90 %+ of heavy Rare Earths
  • Price suppression playbook: how Beijing keeps rivals on the back foot
  • Mining’s brutal math: 4,000 junior miners, but most never pour metal
  • White Mesa wildcard: the lone U.S. mill that could challenge China’s monopoly
  • Cost-curve support: spotting upside in rare earths, uranium, lithium, and gold
  • Uranium reset: from $30 to $100 and back to $70 price swings and SCP’s $80/lb long-term view

Would you like to hear more about SCP and its rare earth mineral projects? Get their white paper here: https://wealthion.com/rare-earth-metals/

Volatility got you concerned? Get a free portfolio review with Wealthion’s endorsed financial advisors at https://bit.ly/3GDVBkl

Hard Assets Alliance – The Best Way to Invest in Gold and Silver: https://www.hardassetsalliance.com/?aff=WTH

Justin Chan 0:00

Outside of China, there’s so little volume that we have no impact on the price.

Trey Reik 0:09

Greetings and welcome to our wealthion show. My name is Trey Reich of Bristol Gold Group, and we’re here today with Justin Chan, Head of Research at SCP resource finance, an independent broker dealer and merchant bank specializing in the gold mining sector, established in May of 2023 SCP was formed in a management led buyout of Sprott Capital Partners. Now, having worked with SCP for a couple of years now, I can attest that there are few individuals which with as much comprehensive knowledge in the mining sector as Justin. And most important, Justin has developed the rare talent of properly assessing a mine’s chances for profitability and long term success. So thanks for being with us here today. Justin,

Justin Chan 1:05

thanks Trey. And that was a very kind intro. So I appreciate the kind words we assess as best we can. Let’s say

Trey Reik 1:12

so for viewers who may not be especially familiar with SCP, can you give us a just a brief corporate description of your firm, your business model, and where your expertise

Justin Chan 1:25

lies? Yeah, absolutely. So we are a specialist, as they would say in Canada, where I’m from originally, specialist broker dealers. So we we focus. We’re on the sell side of the investment banking business, and we only do mining. So we’re focused on, really all of your all, as I’d say, your hard rock commodities, so gold, silver, copper, zinc, lead, rare earths, more or less, most commodities outside of outside of your eggs and oil and gas. I think what differentiates us, or at least what our what our strategy is, is to have a very technical focus and really try to understand, try to use that to understand, you know, which assets are mispriced. But that tends to lead towards, you know, us looking at companies that are, you know, somewhere between early stage drilling, where we might be able to see, you know, what the resources are before others and and then ultimately assess what can be a mine, what isn’t likely to be a mine, and go from there. And I think that that works up until probably you start to get to a multi asset producer. I think at that point it becomes, you know more about commodity prices and capital allocation. And that’s sort of where we phase out,

Trey Reik 2:41

got it. And do you consider SCP to be more knowledgeable in any sector of metal markets? Or are you an equal opportunity employer there?

Justin Chan 2:55

I think it depends. So, I mean, we definitely have a strength in geology which is pretty which applies pretty widely across, I’d say, the metals and mining space. I think we’re very strong in hydro metallurgy and metallurgy in general, which is perhaps more suited to critical metals, whereas gold metallurgy is more simpler and more widely understood. I’d say so. No, I think we’re we have strengths across the metals and mining space, and they can differ depending on, you know, which commodity in terms of what’s what’s most important to understand.

Trey Reik 3:36

So let me, let me rephrase it a bit. Have has SCP had outsized success in one metal or another, yeah. So

Justin Chan 3:46

that’s, that’s a good way of putting it. So I think, you know, in my five years at SCP, we’ve, we’ve had the good luck that different metals have had cycle peaks at different times, which, if you’re unlucky, they’re all troughing at the same time. But luckily, that hasn’t been the case. So, you know, I think, in the last year, and probably from 2020 to 2021 gold was gold, and silver were this the stronger metals. And from 22 to 23 critical metals, or energy metals, were stronger. So, you know, as a firm, we’ve had pockets of strong success, I think, at different times, in different ones.

Trey Reik 4:28

Well, I hope you’re enjoying my conversation with Justin. But I also wanted to point out that wealthion and SCP resources have produced an extensive white paper on investment opportunities in the rarer space. And for anyone who is interested in receiving that white paper, please click on the link in the description below. So sort of my, my biggest you know, I’ve been following gold companies for about 25 years, and people call me all the time. Simon mentioned, you know, the latest gold company that they’ve been introduced to. And I usually say, you know, run, don’t walk, just because there are so many gold companies that never amount to much. You know, I think there’s 4000 mining companies out there, and most of them will go out of business without successfully, you know, mining an ounce of anything. So my, my question to you is, you know, people go and buy if they think gold is going to go up, they’ll go buy a gold stock. If they think copper is going to go up, they’ll go buy a copper stock. And it’s just not that easy. So this is kind of a funny question, but can you just give us a paragraph on how freaking difficult it is to make mining, you know, make money and last over the long run. It’s almost impossible, right?

Justin Chan 5:48

Yeah, that’s a it’s a great question. The hardest part of it is condensing it to a paragraph, but you can use the two, yeah, there’s, there’s a lot of ways that things can go sideways. Absolutely, I think, I think part of that is, is different stages have different risks. So if you buy an early stage metal, you know, gold company, let’s say, or a copper company, a lot of that comes down to, you know, the team doing the it’s really the team in the ground and the and the setting. Those are probably the three key factors. And a lot of times, you know, all three of those, it’s hard to get them to align. And I’ve definitely seen it, even just meeting a company yesterday, where I think the probability of impressive drilling is quite high. But then translating that into a into a clear plan to cash flow will take time, and not everyone gets there. And then, you know, for for development companies, again, it’s very people driven. But put shortly, there’s not that many capable teams, and I mean teams that can build a mine. And it’s often very hard when, when companies are for the first time, trying to get to understand each other. And I think the ones that really succeed are often ones who can bring teams of individuals who’ve worked together and and can build a mind, and then and producers, yeah, there’s, I think there’s more, that relationship is usually tighter, but producers tend to face inflation over time and and also the physicals. You know, every year you’re deeper into the ground, so you’re just your pure physicals are you’re hauling further, you’re stripping more, if it’s an open pit. So just understanding that, I think is important for investors is that, you know, as mines get older, like, for like, they get less profitable and and the good companies are the ones that make sure that their portfolios are continually refreshed, and they’re willing to take the risk and build new mines to keep that that average age, you know, at a reasonable level.

Trey Reik 7:51

Gotcha. So as an example, I happen to have read the report you have written in the past 24 hours about discovery silver. And could you just not as a recommendation to purchase shares? But can you give that as an example of perhaps a team that works well together, getting back together? Yeah, absolutely.

Justin Chan 8:15

So that team is, is, that is, is Tony Mako Cha of Kirkland Lake, gold, and quite a few Canadian producers before that. So he brings a group of people that have operated with him before. They’re not going to have to learn how each other works, what their strengths and weaknesses are, which I think is a huge advantage, and it’s really asking the team to do what they’ve done before, which is successfully operate Canadian gold mines. And I think part of the thesis there would be that, like a number of assets coming out of majors, the capital cycle and how majors look at assets is very different than, I would say, mid tier or more entrepreneurial, smaller cap companies as an example, oftentimes they’ll have big or bodies that they don’t want to sequence in for, you know, maybe 10 years out, or 20 years out to maintain a long term profile. That’s that’s quite stable over 30 years. Whereas a more entrepreneurial company would run an NPV and say, Actually, the sooner we can bring this forward, you know, the more value we generate. And yeah, so I think there’s a lot of opportunities for for the assets that that Newmont and others have divested in recent times, and then, of course, there’s more opportunity to be leaner on the on the cost structure and the way the assets run. And

Trey Reik 9:38

I didn’t pick this up in the report. But even though the name is discovery silver, there’s a lot of gold there, right? What’s the breakdown?

Justin Chan 9:46

Yeah, so, so really, I mean, in the near term, it’s going to become a gold company with with porcupine. So they have a very large and very interesting silver development project in Mexico. I think. Uh, you know, that’s in the permitting stage. And, and really, this opportunity to acquire porcupine enabled Tony and the management team to focus on what they’ve done before and and treat the silver asset as more of a patient opportunity, as opposed to the main asset. And

Trey Reik 10:18

I’ve heard and read about, you know, threats to mining permitting in Mexico in recent year or so. How do you assess those risks? As far as discovery Silver’s concerned?

Justin Chan 10:33

Well, I think that at this point, I don’t Famous last words. I think that most of that has been priced in for some time, into the stock. So in Mexico, there’s really the federal level, which is not as involved in mining per mining permitting, but was certainly unfavorable under the prior president. And then there’s the local level. So I think the federal level is improving. The local level is really an asset by asset and area by area phenomena. But as if, even if the just the federal level just becomes, you know, as it was before, which is, you know, fairly, fairly neutral to pro development, I think there’s, there’s a huge benefit. But I think what should give people comfort is you’re not, you’re not paying for the perception that this is a permit waiting to happen, and then if, if it takes more time, you know, you’re suffering capital loss, you know, I think that’s been that’s been priced in for some time, and actually the risk is to improvement, not, not disappointment, excellent.

Trey Reik 11:37

So in my last general question about mining before we move on and talk about rares and uranium and exciting topics like that. You know, it’s when I started looking at gold mining companies back in, you know, 2000 2008 that period, the average time it took to develop a mine was like five to seven years, and now it’s expanded to, you know, up to 25 years. Can you talk a little bit about, you know why that’s the case, and you know what deposits are left and where they are and how difficult it is, yeah, for

Justin Chan 12:16

sure. I mean, I think it’s, it’s a very much jurisdiction by jurisdiction phenomena, although, in general, yeah, the secular trend has been for long for it to take longer, I think, you know, a combination of factors. So I think in North America, I think certainly processing times just got longer. In terms of it takes the government longer to decide, even even on similar inputs. I think, you know, I can speak for Canada, maybe a bit more than the United States, but a lot of the experience in the government permitting departments, as you know, a lot of people have retired, to put it frankly, and there’s just less and less experience on the side of the regulators. And also the political environment shifted as well. So there’s more and more caution. So I think those are definitely factors. It’s interesting. You know, I had the opportunity to to meet with a management team a couple weeks ago over here in London, where I’m based, and they worked at at the majors a number of years ago, and they were telling me the story of a world class asset, you’d recognize that they bought after 10 drill holes, and they developed within a year. So that also tells you, even on the corporate side of things, I think people take longer to decide now than before, which is also a factor, but it’s a jurisdiction by jurisdiction thing you know, the your five to seven year number. I think in West Africa, you know, you do significantly better than that if you find the right asset. So I think it does depend. And I think hopefully, in this gold environment, you know, companies will be able to move faster towards deciding that they want to build a mine, and if they have confidence, they start their baseline studies early, hopefully we can get those numbers back down.

Trey Reik 14:08

Got it So switching gears a bit. You know, a topic in the mining sector which has dominated headlines in the past couple of weeks is the topic of rare earth metals. And I think it’s interesting that rare earths get as much attention as they do, since so few people know you know anything about them, I think there’s a lot of you know misinformation out there. But can you give us just a brief synopsis of the opportunity in rare earths, and you know where they are and what makes them rare. And you know, why is this become such a

Justin Chan 14:51

front page topic? Yeah, absolutely. I think I’ll just start on the why is it front page? I mean, it’s, it’s a. It’s an important sector that ties into both military and a lot of new industries. Essentially, you’re talking about inputs into the strongest magnets we can make, which, if you’re doing anything with electricity, and you want to translate that into a efficient power, or efficient, you know, physical performance. Then then you need rare

Justin Chan 15:28

earth robots, etc. So they’re really critical for the new economy and the military. The supply chain is heavily dominated by China. You know, approximately 70% for light rare earths, above 90% for heavy rare earths, which which you need essentially to in high temperature or demagnetizing conditions, so high performance conditions, you need more heavy rare earths. So there’s a huge geopolitical angle to them. And I think from an investor perspective, you know, the price is essentially at or below the cost curve, and has been for a number of years, which is also quite interesting, right? So I think when people look at commodities, you know, if you’re not sure what the future holds, one thing that can give you an indication of where we are is the price relative to the cost curve. And in rares, we’ve got no world class assets, I would argue, like Linus and MP materials mines, these are the highest grade hard rock assets that we know of, and they are basically at operating cash flow break even. You’ve got a lot of cost curve support. So I think it’s, you know, all those factors make it really interesting

Trey Reik 16:41

at this point in the cycle, is your point that from here forward, we should see some exciting development projects? Is that your point?

Justin Chan 16:52

Yeah, absolutely. I think that we well put it this way with with one stroke of a pen in Washington or Beijing, everything could change, right? Which is really interesting. And then secondly, if, even if none of that happened, really, really, really good, high quality assets are operating at break even, which tells you, or at least it tells me, that, you know, there’s not much further the price could go down. And if there is a dislocation, it would send the price higher, not lower, right? So from a risk adjusted perspective, those that’s a nice setup.

Trey Reik 17:29

It sounds a little bit like a conundrum, that we have this rare earth shortage, and yet we’re just at the cost curve. How do you reconcile those two? I

Justin Chan 17:40

think the situation we’re in is that outside of China, there’s so little volume that we have no impact on the price. And essentially, if we are consuming rare earths, it’s through the form of a finished product that we buy from China. So they sell right exactly the price is a Chinese supplier to another Chinese company, and whatever we think of the price, ultimately, we’re neither buying nor selling, really in volume. So you know, the silent man doesn’t get to vote in this situation.

Trey Reik 18:17

Is it fair to say that China is manipulat? May be manipulating prices lower to prevent their profitable development in other parts of the world, or is that getting a little too conspiratorial? I think

Justin Chan 18:29

it’s a, it’s a, it’s a reasonable thesis. I think that, I think that that could well be true. I mean, if you look at their quotas, they increase 20% a year for a number of years. The major Chinese rare earth companies that that do report on the Hong Kong or Shanghai Stock Exchange have eventually, essentially fall into break even, I think, in a normal economy, you know, in any other commodity in any other country, normally, you wouldn’t want to be operating at break even, and you would see supply come offline. So So yeah, there’s, I think there’s definitely a political angle to what’s going on. We

Trey Reik 19:10

spoke with your colleague, Dave Wargo a week or so ago, and he was talking about the vertical integration in the rare earth space in China? Can you give us your spin on how it is that China became so dominant?

Justin Chan 19:27

Yeah, I think, I mean, it was, I think it was a combination of, they, they started with a good hand, which they didn’t start with in a lot of other commodities. So just fundamental geology wise, they have one world class hard rock asset, which is by an oboe, which is a world class ore body. And then in the south of China, they found these ionic clay deposits, which were, while still are, the main source of heavy rare earths that we know of. So they they have good geology. And then some of the other factors that led to them dominating the process of. The processing of not just rare earths. They dominate the processing of copper, for example, which is, you know, a willingness to focus on industry. They built an ecosystem that has cheap power, cheap reagents, cheap acid. Originally, I think, high tolerance for pollution, that’s improved over time. But all these factors meant that they were great at processing any mineral. They had good geology for rare earths, and it was unlike copper or some other larger markets, it was a small niche market that they were essentially able to squeeze out everybody else in, whereas I think, for some of these other markets, they’re just the largest processor, and rarest are almost the only processor

Trey Reik 20:47

interesting. So not to put you on the spot, but we got a follow up question from one of our viewers about my conversation with Dave from Jack Schultz, 2024 and his question is, right now, rare earths mined in the US have to be sent to China for separation and refining. So how long would it take to build the facilities to do that here? How much would it cost? What we what would we have to do to become competitive?

Justin Chan 21:18

I think it’s, I think if we were in an extreme scenario, let’s just say, you know, I’m not forecasting this, but say we were in a war, I think we would be able to do it probably within a couple of years. Some, some of the delays have been associated with the typical delays when you try to do neuro processing in the United States, right? So, for example, Linus had delays relating to their water treatment and getting that approved. So part of it is that, but part of it is that the economics of separation, as as the pricing mechanisms currently exist, are not attractive.

Trey Reik 21:55

Jack, right in his assumption that we do send minerals there. Yes,

Justin Chan 21:59

he is correct. He is correct. Yes. So MP materials, who operate mountain pass were actually had a lot of funding from Shanghai resources, who are a processor from China, and they send concentrate there. But to answer the question, one of the reasons that we don’t have more processing is because, at least when you’re vertically integrated. You have margin from mining, right? And you’re vertically integrating through the processing. But if you were, say, to receive third party material, you know, you’re just competing on your ability to generate margin processing versus, let’s say, someone from China, which is, which is challenging. I think the solution to that would probably be some different pricing mechanisms so that you’re not just receiving Chinese pricing, because, short of that, essentially, you know, someone in China can bid for the for the material, and so can someone in the United States, and essentially they have the same margins to work with. The Chinese operation is cheaper power, cheaper labor, cheaper reagents. It’s it’s very hard to make margin that way, and that’s why, as I think, as a as a supply chain, as a society, there needs to be an evaluation of someone has to be willing to pay more to have these capabilities. But I think that the capabilities are very compellingly worth having

Trey Reik 23:31

interesting. Another follow up question from my conversation with Dave came from Bremer smiley 590 and skipping down he was reacting to Dave’s mention of meteoric resources, which maybe we can talk about in a minute. But he points out the market cap of meteoric is 230, 3 million. And he brought up the topic of Apia rare earth, which has a clay rare earth deposit of similar size, he says, not far, but their market cap is only 12,000,001st of all, does he have that right? And what are your thoughts?

Justin Chan 24:11

A few things. So I think meteoric are. I mean, they’ve continued to add to their resource. So I think they’re no longer the same size. I mean, meteoric have essentially a huge district, and their resource is not constrained by size. It’s constrained by how much they can drill, and it’s also constrained by just a discounted cash flow analysis, because at this point, you know, they have more than 100 years worth of resources to process. And when you discount that, essentially adding one more year doesn’t really add any value. Got it. So I think the thing for meteoric The reason I like it is I think when I look at the rare earth market, the thing to understand about these markets is they’re not massive. Massive. So there’s only going to be, you know, two or three new projects that get that can supply the market, right? It’s not like gold. It’s not like if you, on paper, can profitably produce then that’s all that matters in these markets. If you over supply the market, you start moving the price. So there’s only so many tickets to the concert. Let’s say

Trey Reik 25:23

it’s fascinating how sensitive it is. I’m amazed. You know, given the headlines, you would think anybody who has rares would be a gazillionaire, just because we need them.

Justin Chan 25:36

Yes, no, I understand. But I mean, the reason China is able to dominate this market is because it’s a niche market, right? Nobody could dominate even the copper market like that, because it’s just too large of a market. So, so I think the reality is, my view is, I don’t think there’s going to be that many new assets. What we need is a small number of very high quality assets that we get, that get support, that provide us the capabilities and the alternatives to, you know, reduce any of the political, political strength that comes with dominating the market that China currently enjoys, right

Trey Reik 26:17

and Not that their recommendations, but in terms of giving viewers a handful of companies to take a peek at, if they’re interested in learning about rare earth companies, what would be the handful of companies that you think are going to make a difference over the next decade?

Justin Chan 26:34

Absolutely, so I think of just, just take a step back, you know, what are we even looking for? I think when we look at rare earths, there’s really two Achilles heels that we see. One is that China dominates, not just processing, but actual mining of heavy rare earths. And you know, you may have seen the critical the restrictions that they put. They actually put restrictions primarily on heavy rare earths, not, not some of the light rare earths. So, so we’re looking for heavy rare earths. And then the other area of specific dominance is on processing rare earths in general lights and heavies. So, you know, high level, that’s what we’re looking at the most intensely. So we’re looking for projects that can supply heavies and and people that can process rare earths in western jurisdiction. So of those, we like meteoric as a primary producer, compared to most light rare like compared to most hard rock assets. Excuse me, they have a larger component of heavy rare earths in their admixture, and we think that that project has the most chance of surviving even in really adverse market conditions. Really the key challenge there is just getting it funded and built. But I think once in operation, it’s not a project that would need ongoing government subsidy to survive, which is important. And on the processing side, energy fuels are really compelling. I think, I think you interviewed mark their chief executive last week, Mark Chalmers, what? What makes them really interesting is really two things. One is that they the history of their asset was it’s a long serving uranium processing asset, which means that they actually have a lot of the key skills when it comes to wet chemistry producing a high purity product, high spec for very detail oriented customers. They have a lot of experience with that. There still will be a learning curve with rare earths, but I think we’ve seen in in their conversion of the facility, the ability to learn very quickly, because they just have they start from a more experienced place than most other companies. And then the other thing that’s really interesting about white Mesa is it’s already permitted to treat radio nuclei bearing material because, of course, it’s a uranium processing mill. And if you look at the history of rare earths before China came to dominate the market, the main source of rare earths for the West was monazite sands, assets, and the reason why the West stepped away from processing them was there’s high thorium, and thorium needs to be treated very carefully and disposed it very carefully. And I think from from a zero starting very hard, right? Yeah, yeah, it’s radioactive from a standing start, it’d be very hard to permit a facility to handle this, this material in the United States, it’s hard enough permitting a gold mine, as we talked about the start of our call, right? They already have these permits. They’ve started separating at 1/6 of their planned long term scale, which they did well under budget. So I think, you know, they’re really compelling in terms of the kind of large caps who are already producing in the market. There’s MP, Linus and in Australia. Company called Iluka, who are mineral sands producer, who are building a facility that’s being very heavily supported by the Australian Government. So those are the other ones to look at. I think they’re interesting. They trade more per day, but I think they’re also quite more expensive, quite a bit more expensive, and you’re paying a lot for the option value relative to mediocre Energy Fuels,

Trey Reik 30:20

that’s that’s our your broad advice would be that if, I think that’s five companies, if, if they develop and have a good decade, we’re going to be okay in rare earths, and you don’t need to take more risk in the other two or 300 that are out there saying they have a discovery, right?

Justin Chan 30:39

Yeah, I think that look and when, when the market does recover, and you’ve seen this, I’m sure, Trey, over many years, in gold and every other commodity there’s, there’s a voting machine, to quote Ben Graham, or to paraphrase Ben Graham, there’s a voting machine aspect to the market right in the short term, where, if a commodity is doing well, you know, every stock that has an asset that has that commodity in the ground will do well, but in the long run, it’s more of a weighing machine scenario. And I think when we look at the rare earth space, there’s only going to be so many assets, given the market is only so large. So yeah, I think you know, a couple more assets, a decent, reliable, long term, heavy rare earth supply and midstream processing capacity is what we need to diversify ourselves. Got it. And I think beyond that, you know, there still is a lot of supply coming out of China. So

Trey Reik 31:36

interesting. One last rare earth point, I think when you read the articles about rare earths, they almost all say, you know, the top five uses are drones, jet engines, you know, airplanes, etc. And I must admit, I thought that that meant that rares would be used for lots of different parts of those like, you know, the skin of the airplane, or, you know, the middle of the tail, and I only recently recognized that it’s the magnets in all of those things. So like, on a scale of one to 10, how much is magnets of the whole story?

Justin Chan 32:19

You mean, of like the EV supply chain, or of the

Trey Reik 32:23

rare earth rare earths is really a magnet story, isn’t it?

Justin Chan 32:27

Yeah, absolutely. I mean, look, some of the, some of the lights are used for phosphors, and they used to be used, you know, for things that give you color on television and and other things. So there is a range of uses. But I think as it relates to the critical metals and understanding the geopolitical significance, it is all about magnets. Yeah, when you look

Trey Reik 32:47

at interesting point, because it’s just the one part of all these things which rare earths, you know, is really all about. I mean, it’s just interesting that it’s all about coding magnets.

Justin Chan 32:59

They do have other uses, but you’re right in terms of, well, if you just, if you’re looking at where the economy is going, and where I think science and technology are going, right, you know, everything is being electrified. A lot of things are becoming electrified, right? And even even robots, is probably a different angle to that. But if you can take, if you have charge, and you want to turn that into strength or motion, which, you know, vehicles, turbines are the other way around. I guess you’re turning motion into charge. But essentially, if you want to do that efficiently, that’s, you know, the strongest possible magnet is what you want. And so, yeah, I think there’s, there’s more and more uses for those capabilities. Interesting

Trey Reik 33:49

and just going to skirt up to a semi political question, but more of a sort of comic relief. We’ve read a lot about the US Ukrainian. I think they call it a critical mineral steel. They don’t really say rares, but there’s certainly this implication that that’s going to help, you know, solve some of our shortages. Do you? Can you talk a little bit about your and Dave’s knowledge of the geology there, and what the chances are that this is going to amount to much?

Justin Chan 34:21

Yeah. I mean, we’ve Dave and I have been scouring the world for for reasonable rare earth assets. And unfortunately, Ukraine wasn’t, wasn’t on the list. So yeah. I mean, there are, there are hard rock uranium deposits in a lot of places, but I think most of those are light, rare earth heavy. And, I mean, some of them are North America. So I don’t think we need to go to Ukraine for that ionic clays. You’re not going to get there, you know, you’re going to get those in tropically weathered places. And from what I know of Ukraine, it’s not very tropical. So, no, I don’t think it’s you. Words,

Trey Reik 35:00

the ionic clay is the type of deposit where the rarer show up, correct,

Justin Chan 35:07

in a way. So, yeah, it’s essentially the ionic clays are, are, you know, the rares have been weathered by weathering processes and read and redistributed and redeposited, essentially. But from what we know that needs that that really only works in tropical zones. Interesting.

Trey Reik 35:25

So switching topics a bit, because we have talked about rare earths for a few weeks now, I know that SCP has done a lot of work and has followed, on a long term basis, the uranium segment of the mining space. And while I’m not exactly sure the details, I think uranium went from 30 to 105 or six and is now back to 60. So obviously a pretty cyclical market. What? What’s your current view of, you know, opportunities in the uranium sector. Is it too early to get involved? Or no,

Justin Chan 36:06

I think it’s, I think right now uranium is in the stock pickers environment. So, you know, five years ago, when I started at what was then sprock Capital Partners, uranium was very much like rarest are now. There were world class assets that were shut down because of low prices. And, you know, there was a huge amount of cost curve support, you know, the price was at, was coming off of $20 a pound, which is, is now the entire cost curve would be below, below water at that price now. So, you know, it went from there, it went up very significantly to, you know, the spot price went above $80 a pound. And it’s given a little bit back over the last year. So, you know, the spot prices, it touched 70 today, the long term price is at 80. I think that’s a, that’s a price where well operated, you know, well operated assets can generate cash, but it’s been a challenging ramp up for the vast majority of new projects coming online. So so that’s where we’re sitting at the moment. So I think it’s, it’s it’s a stock pickers market, and it’s really understanding which assets are ramping up, hitting that inflection point where they’re producing enough to bring unit costs down. And I think a few of them are starting to get there. And then, you know, quite a few of the stocks were quite heavily sold off because they were in that ramp up phase and and they didn’t hit their study numbers immediately. So, so, yeah, it’s, I think there’s definitely opportunities. It’s a stock pickers market in the longer term, the factors, I think, for uranium are still very positive. The challenge is that uranium demand isn’t going to come up, come in all at once, because, you know, it takes the lead times for for reactors are quite long. So it’s been more of a restocking, de stocking market than a new React, React just coming online, pulling, pulling demand through dynamic

Trey Reik 38:06

and so, if I’m reading you correctly, you’re, I think, suggesting that the sweet spot in the uranium sector is not explorers and developers, it’s Folks that are nearing mid tier production level. Is that fair?

Justin Chan 38:23

Yeah. So I mean, to be specific, uranium has has a unique dynamic where there’s, there’s really two very large, long term producers, Cameco and kazatomprom, and then you have a lot of projects that have, at various points in prior cycles produced, and so the assets are known, and they’re being essentially redeveloped or or refurbished into production. So quite a few of those were hitting the market over the last two years. In response, price was 100 bucks. Yeah, when, when conditions were better, and execution has been a challenge for quite a few of them. So a lot of the sell off has actually been, I would say, due to due to guidance revived, you know, revisions and such. But I think you’re starting to see some of the early wave stabilizing production. And as they produce more, the fixed cost component of their operating costs falls per pound because production is climbing. And so, for example, a couple names out of Australia, Paladin and boss, were quite sold down earlier this year, and have actually done well in the last couple of months on improved March quarterly production. So I think some of the other names in North America could see that dynamic over the next six months. That’s why I say it’s a stock pickers market. It’s more, it’s more, company by company, then

Trey Reik 39:47

and again, while this wouldn’t constitute a recommendation for purchase, what’s the handful of companies that viewers might take a look at if they want to understand interesting value? In the sector,

Justin Chan 40:00

sure. So we’ll just start with the very large names are came because Adam prom, similar to, as I said, with rares, you’re paying, you’re paying more, and they’re certainly more expensive, but they’re perhaps the steady state stable names next gen are developing an absolutely world class asset, and they’re in. They’ve just received their permits this year, and it’s a question of really just funding and building the asset, and what their strategy is there, and or potential m&a, then you’ve got a couple, a couple names in, in the Athabasca basin, where Denison are that are also advancing. So there’s, there’s Denison, and then there’s, there was a company called fission, was just acquired by Paladin. Then in the in the restarting and ramping up, you know, portion of the market, there’s UEC, who are starting production in or restarting production in Wyoming. They’ve also have assets in Texas and the Saskatchewan. So they’re a very liquid stock, big portfolio, I think, very savvy management in terms of timing the cycle. There’s Paladin and boss out of Australia, who are two of the first to restart. I think they were two of the first to restart. They were two of the first to sell off as they ramped up. And perhaps they’re the two first to start recovering. And then also in Wyoming, there’s, there’s encore energy, there’s and then there’s, you are energy, and then there’s energy, fuels, which, which we talked about earlier. They’re pursuing a more diversified strategy, between between mineral sands and rare earths, which the mineral sands really provide steady through the cycle cash flow. Rare earths are quite torquey, and they also are a long standing uranium producer, but I think within the larger company, maybe more like 20 to 30% of asset value, so less, less pure play, than than the uranium names I just mentioned, gotcha.

Trey Reik 42:02

So I read in your gold industry report earlier this week that SCP is up its long term gold price modestly from 2300 in January to 3000 just reflecting the strength when you look at uranium, does SCP maintain a long term uranium price prediction or not? Yes.

Justin Chan 42:26

So, so we’re currently at $80 a pound, which, which is quite interesting, that because the long term contract price has reached $80 a pound, the spot price went above 80 and below 80. But actually the long term price has been quite consistent at 80. So that’s where we’re at currently. I think there’s, it’s, it’s a good level where well operated assets should be profitable. But it’s, it’s not a million miles that you know it’s, it’s basically above the cost curve, but not way above so, and unfortunately, the cost curve seems to be moving upwards. So we’ll, we’ll have to keep an eye on

Trey Reik 43:07

that. And outside uranium and gold and rare earths. We’ve given copper and platinum a little bit of a short trip. But is there, are there any other sectors of mining that SCP is sort of particularly pumped up about.

Justin Chan 43:23

I think everyone’s bullish on copper, and the challenge for our end of the space is that it’s copper really favors the majors and large. New discoveries happen fairly infrequently, whereas, you know, a lot of supply growth is really just capacity expansions at existing mines. So, you know, we wish we had more copper exposure, I think, in our, in our, you know, portfolio of companies we cover and companies we work with, but certainly we like copper. It’s where the world seems to be going with electrification. So, yeah, we quite like copper. I think lithium is really interesting at this price. Probably mentioned the word cost curve support a lot today. And lithium is one where, you know, if you look at the price of spod bean or lithium carbonate, you know, they they peaked at 8000 a ton of spot, 80,000 a ton of carbonate. And the cost curve was probably, you know, like five, five to 10% of that. So they undersupplied, went to a price way above the cost curve, no cost curve support. And, you know, they had a very spectacular unwinding period. And now, you know, prices are more or less where the cost there’s a lot of cost curve support. So I think in general, when you see commodities that are priced off the cost curve, it’s pretty hard for things to get much worse for much longer.

Trey Reik 44:47

Just adding a footnote for viewers, the cost curve support that Justin’s talking about, I refer to as the feedback loop. So if a commodity price is falling, you know, below. Low the cost of production, you start to shut down producers, which theoretically stops it from, or at least slows it from going down and like, isn’t that the whole thing the you know, the solution to low prices is low prices or something like that,

Justin Chan 45:16

yes. And the solution to high prices to high prices, right? That’s especially true for for industrial commodities, because the there’s there’s only so much demand, essentially, so you can’t oversupply the market. But equally, if the market’s under supplied, then you know the price should come back up, right?

Trey Reik 45:34

And gold is the opposite. There’s a very large above ground supply, so there’s not as much of a feedback loop, because if you know the price falls below production cost, there’s so much gold above ground that that’s the more relevant variable, correct?

Justin Chan 45:52

Yeah. Well, I mean, I think you’re more of an expert than me Trey on this, but it feels like gold is, I don’t know how well supply and demand has ever explained gold,

Trey Reik 46:04

right? It doesn’t seem to be what drove us to 3500 last week. So last question for Canadian investors who would like to get involved in what SCP does. This is sort of a silly question, but how would you recommend people learn more about your firm?

Justin Chan 46:27

Well, I suppose it depends what your status is, or accredited or institutional, but certainly you can visit our website at SCP, rf.com, I think I’m not sure if I’m allowed to mention people, but, you know, got my colleagues on the on the wealth management side that that certainly are worth talking to and interacting with so that you can get exposure to to what we’re working on. And yeah,

Trey Reik 46:54

for the institution that wants to open an account, I bet you’d be happy to have them. Yeah,

Justin Chan 46:59

absolutely, yeah. And then, then, you know, my colleagues in institutional sales handle that side of things.

Trey Reik 47:05

Terrific. Well. Justin, thank you very much for your time. You’re very polite to put up with this low, high, low IQ inquisition of what you do. I’m very impressed with the depth of your knowledge every day. I’m more and more amazed how much you guys know about this business. So we look forward to checking in with you, say, in six months or so, and see how rare uranium have progressed.

Justin Chan 47:33

Absolutely. Thanks so much for your time, Trey, and it’s also a pleasure hearing and getting your views on the market. So thanks. Thanks so much for your time. Thanks Justin, bye, bye.


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