China’s dominance of the rare earths has caused significant distortions in the market. The result has been a collapse in prices of rare earths, which has led to the bankruptcy of at least one North American producer.
China accounts for more than 90% of the global rare earth trade. A few years ago these minerals were in great demand, driven by the increasing use of smartphones and tablets. A few years ago, China placed restrictions of rare earths, which led to a sharp rise in prices. More importantly, it hurt the supply chains of manufacturers of products such as smartphones and tablets. Many saw China’s move as a way to give an advantage to local manufacturers.
The sharp rise in rare earth prices created an incentive to look for rare earths in North America and Australia. But just as the North American rare earth industry took off, prices of rare earths collapsed due to a range of factors. One factor was that manufacturers of smartphones and tablets found substitutes for rare earths. Another factor was the World Trade Organization’s (WTO) ruling against China.
Despite the collapse of the rare earth market, some North American producers are still trying to compete. One such North American producer is Halifax, Nova Scotia-based Ucore Rare Metals Inc. (TSX-Venture:UCU). The company is focused on exploration and development of rare earth element properties. UCU’s exploration activities are focused on its Bokan Mountain/Dotson Ridge property in Alaska.
This morning, Ucore announced that it has entered into an agreement with a high net-worth U.S.-based investor. As per the agreement, the investor will pay UCU $1 million in consideration for a royalty on the sale of products and services related to the processing of rare earth elements and other specialty metals and critical materials using SuperLig(R) Molecular Recognition Technology (MRT).
The Royalty has two components; a Gross Royalty equal to 5% of gross sales from UCU’s first
MRT installation or installations payable until the recapture of the initial investment; a Net Smelter Royalty equal to 0.5% of the net sales from the company’s first Tier 1 production client.
The investor has the right to convert the total amount of investment (minus royalty amounts already then paid by Ucore) into common shares of UCU. In case the investor decides to convert such amount, then UCU’s Royalty obligations shall cease.
Despite the troubles of the rare earths market, shares of UCU have been on a nice uptrend since the beginning of 2015 and currently are trading at $0.31 per share mid-way through the trading day.
