A labourer works at the site of a rare earth metals mine at Nancheng county, Jiangxi province in this photo from October, 2010.Reuters
Talk about going public at just the right time.
In the fall of 2010, a little known company called Frontier Rare Earths Ltd. decided to cash in on the emerging commodity boom by going public through a $65-million offering.
The pitch was straightforward, but convincing: metals and minerals prices were bound to soar, and the likes of BHP Billiton Ltd. were already bidding for companies such as Potash Corp. of Saskatchewan Inc. to get ahead of the boom. Rare earth substances were also the new hot thing. These rarely talked about minerals are used in the production of items such as smartphones to hybrid vehicles. As the smartphone market exploded, everyone assumed we would need more of them.
But the future wasn't so rosy. Global demand for commodities has fizzled, and the rare earth market has fallen off a cliff. China controls much of the world's production, and they became very protective of their minerals. In 2010, they banned exports of them to Japan following a diplomatic fight. Initially that prompted interest in companies such as Frontier, which is exploring in South Africa, but many rare earth miners now face major production delays and investors have lost confidence.
With so much uncertainty around the market, manufacturers started to look for other minerals to use, not wanting to be at the mercy of the Chinese. As sales fell, China implemented subsidies to help its struggling rare earth producers.
The plunging demand has been disastrous for junior companies like Frontier whose stock has plummeted by more than 80 per cent since the initial public offering. And the explorer even has deep pockets behind it. In December, Frontier signed a joint venture agreement with state-owned Korea Resources Corp. to develop its Zandkopsdrift project in South Africa, and last month South Korea raised its stake to 50 per cent, and is now responsible for arranging project financing.
On Tuesday, Frontier said its partner will send a $24-million cheque next month, but the money hasn't instilled much hope in investors.
Tim Kiladze