Update On Stans Energy

As you know one of my investments is a little rare earths company called Stans Energy. I wrote it up a few months ago which is available here. Since then there has been a lot of news concerning China and its reduction of export quotas for rare earths. The stocks have all moved up significantly so it is a good time to review the investment.

A few days ago Stans Energy CEO Robert Mackay gave an interview with Theinvestar.com, which covered important aspects of the rare earths market and in particular Stans Energy. In fact it answered most of my concerns regarding Stans. Here are a few excerpts.
From theinvestar.com

Theinvestar.com: What does the timeline look like to get to production?

Robert Mackay: This is the big question. Time is a function of money and right now we’re progressing our project as fast as we can while conserving the money we have. Our plan is to have all the pieces for a feasibility study at the beginning of January, 2011, one year after the purchase of the mine. From there, with debt financing and some upgrades, best case scenario would be production in late 2012.

Theinvestar.com: How much is it going to cost to refurbish the mine, buildings and surrounding infrastructure?

Robert Mackay: The other big question… That is for a feasibility study to determine, and we are currently in negotiations for the processing facilities, so I cannot comment on the buildings. As far as infrastructure is concerned, it’s all there; roads, rail, power and water. You can drive a Cadillac into the bottom of the pit. There are even many knowledgeable people still living in the area who used to work at the mine. On a relative basis, it is safe to say that Kutessay II will require a fraction of the capital necessary for many other REE properties.

Theinvestar.com: Will you need to raise any funds over the next 6-12 months?

Robert Mackay: We may need to raise money for the feasibility study, and possibly for additional acquisitions, however over the past couple months we’ve been contacted by a number of institutions including a bank who are interested in our project, so we will have financing options.

Theinvestar.com: Are you going to go it alone on this project, or could you take on partners?

Robert Mackay: We are a growth oriented company, and so we will try to stay nimble. We believe that end-users are going to determine which REE projects are successful and which aren’t. A partner in Japan would be ideal as they are the biggest importer of HREEs in the world.
Full interview: Click Here

I really believe that given the strategic nature of Stans deposit, they will be able to arrange some sort of off-take/financing agreement with a major user of rare earth minerals. This should keep dilution much lower than if they were forced to rely exclusively on equity financing.

My only real concern after listening to this interview was Mr. Mackay's reference to possible acquisitions. For a company with no cash flow and no mine until late 2012 (best case), it is way to early to get distracted with acquisitions. Furthermore, this course of action would lead to severe dilution. I really hope Stans does not make any acquisitions until the mine is in production and cash flow positive. Then you will have all the money required and will not have to dilute shareholders. The primary concern has to be the rare earths mine.

Black Swan Insights


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