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First Class Metals Up 1% On REE Find – Why So Little?

Tim Worstall
Tim Worstall trader
Updated 15 Sep 2022

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Key points:

  • First Class Metals announces rare earths in Canada
  • However, it's very preliminary findings, very early indeed
  • The net present value, even if there is a decent deposit, is very low

First Class Metals (LON: FCM) shares are up only 1% (actually, 0.81%) on their announcement of interesting rare earth metals occurrences at their site in Canada. Given that rare earths are quite the thing these days why is there such a small movement in the FCM share price to this welcome news? The answer being that the announcement itself is very small. In fact, so small that it's something of an oddity that it has even been made. Stripped of all of the verbiage, they've 10 pieces of rock with rare earths in them and some decade old survey data. Which is not, when we come to think about how mining works, all that terribly exciting.

It is true that rare earths are quite the thing. We're going to need many more of them to power that renewables revolution, especially electric vehicles. But it's also possible to note how small the industry currently is. 200k tonnes a year is about right for current output. So we expand that by a factor of 5 – just to use some number – and we've still, by global standards, a pretty small industry. Even then it would be about one twentieth the size of the primary copper industry.

But perhaps rare earths are rare, rarer than copper? That's not true either – in fact one of the rare earths alone (out of the 17 of them, or the 15 lanthanides) is more common in the Earth's crust than copper. We're not going to face any formal shortage of rare earths that is, even with the expected expansion. Finally, at this stage, the real money isn't in mining for rare earths, it's in separating the 15 lanthanides from each other.

First Class Metals share price
First Class Metals share price from IG

Also Read: The Best Copper And Mining Stocks to Watch in 2022

Then on top of this we've the basic financial cycle of mining. The results they've announced today are very early, very preliminary. There's some evidence of some rare earths. And that's about it. We've little to nothing on how much there is in that occurrence. So no information about whether it's worth mining given capital costs of mining anything at all. Such occurrences of rare earths really are not that – umm – rare. It'll also take a decade, at least, to get from here to production even if the decision is made to do so. In a 10% inflationary environment like today's revenues a decade out are worth pretty much nothing in today's terms.

We've also the manner in which minor and rare metal mining tends to work in cycles. Waves even – there's a burst of exploration for a specific one or set. This, fairly inevitably, leads to overproduction as those new mines come on line. Prices collapse at that point.

The end point of all of this is that the announcement of some outcrops of rare earth bearing rocks just isn't a grand piece of news. Thus the terribly minor movement in the FCM share price as they make that announcement.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.