Good News From Stans Energy

Position Sold 2/5/2011

As you know, I have owned Stans Energy since June 2010, and so far the investment has done well. Today we got some more good news from the company. Stans announced that it has optioned the chemical processing facility for $5,500,000. This represents a critical step for the company because the hardest part of mining rare earth elements is extracting the minerals from the ore. It can take a company years to solve all of the problems and refine the technique. Furthermore, the company also acquired a rail terminal which will allow it to ship the finished products to Asia. Stans made a point in the press release of mentioning South Korea and Japan as potential destinations for the final product. 

This follows recent news reports that South Korea is interested looking to invest in rare earth mines in Kyrgyzstan. I expect news of a financing agreement to be announced in the next few months, which should elevate Stans Energy into the top-tier of rare earth companies. No other company (except Molycorp) can boast having a past producing mine and a rare earth processing facility where the metallurgy has already been solved. More importantly, Stans Energy is a HREE play compared to Molycorp, which is heavily reliant on LREEs (low value). If you look at the pricing of rare earth elements you will know that HREEs is where the big money will be made.

Regarding the processing facility, it was used previously to process output from Stans' Kutessay II mine back in the days when the Soviets were still around. According to a independent study, most of the equipment (97%) is in either good or satisfactory condition. This means that Stans should be able to keep capital expenditures relatively low (always good for shareholders). However, Stans will need additional capital to get the processing facility ready for operations, especially because they intend to increase capacity.

The only knock against Stans Energy right now is that it still trades on the American pink sheets, which keeps US institutions away from the stock. I would encourage the company to try to get a listing on a US exchange such as the American stock exchange. In fact, I have looked at the listing requirements, and Stans is eligible, so it definitely could be done. This is the only way to open up Stans Energy to large US investors, which would further support the stock price. Currently, US investors only consider Molycorp, Rare earth elements, and Avalon. No one outside of Canada has even heard of Stans Energy, and this needs to change, considering the company's attractive fundamentals and promising future. The cost of listing on an exchange would be minimal compared to the increase in market cap achieved through greater exposure to the investment community. A higher market cap will also allow the company to finance operations while minimizing dilution to shareholders.

Overall, I still like Stans Energy and have no intention of selling my shares.

Black Swan Insights

Related Articles:
My Investment in Stans Energy

Update on Stans Energy

Another Update On Stans Energy

China's Plan To Use Rare Earths As A Weapon

Full Disclosure: I own stock in Stans Energy and am naturally talking my book.

Legal Disclaimer:

I am not an investment advisor and nothing on this site should be interpreted as investment advice. Please consult with your own financial advisor before investing in the stock market or any financial asset. This blog and its author are not responsible or liable for any misstatements and/or losses you might sustain from the content provided. (I know this is a stupid statement, but for legal purposes I have to say it. Thanks)

  

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Good News From Stans Energy

Another Update On Stans Energy

After the huge run up in Stans Energy, I would like to take time to review the investment and its future prospects. Back in June I took a position in Stans and so far it has done well thanks to investor excitement surrounding the rare earths sector. This is certainly a welcome development, but the only thing that matters is what happens next.

I think the next major catalyst for Stans Energy is the release of their JORC resource estimate. The number is expected soon (within the month) and will finally confirm the Soviet's historical estimate of the size of the deposit. There is a good chance the number will be considerably higher than the historical resource due to the drilling of the Aktyuz ore field, situated  near Stans' flagship property Kutessay II. The Aktyuz ore field has similar geology to Kutessay II and more importantly is double the size, which leaves open the possibility of Stans Energy dramatically increasing their resource. This would be an important development for shareholders as a larger resource substantially improves the economics of the mining operation.

Once the company completes a JORC estimate, the next catalyst will likely be the announcement of an off-take/financing agreement with a major user of rare earths. The company noted that it has already been approached by interested parties. This step will help de-risk the project and show the investment community that the company can finance the development of the mine without massive dilution to shareholders, which is always the fear for development stage companies.

Overall, I still think Stans Energy is attractive compared to other rare earth companies based on valuation. I am going to continue to hold shares despite the large run up in price over the last few weeks.

Black Swan Insights

Related Articles:
My investment in Stans Energy
Update On Stans Energy
China's Plan To Use Rare Earths As A Weapon

Legal Disclaimer:
This is not a reccomendation to buy or sell the stock. I am not an investment advisor and nothing on this site should be interpreted as investment advice. Please consult with your own financial advisor before investing in the stock market or any financial asset. This blog and its author is not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

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Another Update On Stans Energy

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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Update On Stans Energy