In the news: KEFI Minerals, Neodymium & Praseodymium (Nd/Pr) & Peak Resources

2017-08-09 08:07:00

FROM THE BROKING DESK

KEFI Minerals (LON:KEFI)† has highlighted the Ethiopian parliament’s vote to end the country’s ten-month state of emergency. This began in October 2016 in response to some violent anti-government protests. While this is obviously a positive development for the country, whether a complete peace can be maintained without the emergency measures remains to be seen. The website Human Rights Watch has reported that the changes the protesters were calling for have not been fully addressed and that thousands of people detained during the state of emergency have yet to be released. We’ll keep a close watch on this.

Should stability be maintained, we would look to adjust our risk assessment of KEFI. An improved operating environment would lower the development/operational risk, and should also translate to a lower cost of capital for a potential equity raise. For reference, our target price of 9p (the current price is 5.075p) assumes an equity raise of 490m shares at a price of 5p/share for US$32m, representing 147% of the outstanding share capital. For full details on this please see KEFI Minerals — Tulu Kapi Financing Package Takes Shape, 17 July 2017.

Elsewhere, the world’s press is getting very excited about the first deliveries of the new Tesla Model 3. The Model 3 is regarded as a ‘step change’ for electric cars and the choice of name has clearly been carefully considered. The Model 3 is set to be for Tesla — and the wider automotive industry — what the Model T was for Ford. This is the car that is designed to move Tesla into the mainstream. With its previous Models S and X, Tesla has been a niche producer of around 70,000 rather expensive cars, which have basically only been available to affluent early adopters. The Model 3 will increase production up to around the 500,000 level, and it is priced to compete with rivals such as the BMW 3-Series, the Audi A4 and the Mercedes-Benz C-Class. OK, so it’s still not exactly a ‘people’s car’, but it is affordable on a monthly PCP scheme.

As regular readers of this column can probably imagine, I have some doubts about this. It’s a competitive marketplace, so while Tesla owners — like early Apple iPhone users — are very excited about their new toy, going mainstream means production must be millimetre perfect each time or buyers may drift away. Also, production numbers remain pretty low, and this will have to be addressed in the near term. Tesla has never turned a profit (it’s just gone to the bond markets to borrow some more dosh), and it’s burning through cash at an alarming rate. Its scale is nowhere close to its immediate rivals Ford and GM, yet it has a larger market cap. What’s that about? Finally, while Tesla has made electric cars sexy, everyone else is catching up; Volvo has just announced that it will only offer fully electric and hybrid cars by 2019. Everyone is going down this route, and they’ll need to. Recent announcements by the French and UK governments that fossil fuel cars will be outlawed by 2040 tell us all we need to know. The reality is that the tipping point for electric cars will come well before that.

What’s most interesting to us about all this is the motors. The Model 3 will have a 258-horsepower AC 3-phase permanent magnet motor. And what magic metals will these motors use? Well, that would be neodymium and praseodymium (or Nd/Pr for short), and this is a pretty strong signal for what all these types of cars will use going forward. We looked at Nd/Pr in an issue of The Alchemist last year; the prices of these metals have rocketed up some 60% over the last 12 months, and this announcement can only help them further. This is also excellent news for Peak Resources (ASX:PEK), which is developing the Ngualla Rare Earths Project in Tanzania.

One-year Neodymium Oxide Price (Shanghai)