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Index Member Comment - December 17, 2009: Rare Earth Metals Inc newest addition to KBFO Rare Earth Index
 Rare Earth Metals Inc was added to the KBFO Rare Earth Index on December 16, 2009 following the acquisition of a private company with the same name by East Energy Corp, a Wade Dawe controlled junior with about $7.2 million working capital left over after an abandoned foray into the coal sector. The private company was formed by Michael and Stephen Stares along with Gordon Fretwell on June 19, 2009 by issuing 3,600,000 shares for $3,600. One month later they agreed to acquire the Clay-Howells property from a numbered Ontario company for $350,000. On September 4 East Energy was halted to announce it was in negotiations to acquire an undisclosed private company, which on September 10 completed a seed financing of 16,030,000 shares at $0.05. The next day the private company optioned 90% of the Lackner property, and on September 15 East Energy announced that it would be acquiring Rare Earth Metals on a 1:1 basis and conduct a private placement of 20 million units at $0.25 brokered by Sheldon Inwentash affiliated PowerOne. Each unit included a half warrant exercisable at $0.35 for two years. On December 15 East Energy was halted to complete the name change and acquisition, and resumed trading on December 16. The resulting company has 73,422,134 issued and 85,737,134 fully diluted, including a private placement of 20 million units of which 9% was spread among 26 brokers and the rest taken down by 28 undisclosed placees, for which PowerOne received $400,000 and 2 million warrants. Only 315,000 insider options existed upon completion of the name change; additional options will likely be set in coming weeks. 5.7 million shares are escrowed according to a 36 month release schedule, most of which are owned by the Stares brothers, Fretwell and Dawe. There are no insiders disclosed by virtue of the 10% rule. The new company has about $11.2 million working capital, of which $3.8 million has been earmarked for exploration of the company's three rare earth projects. What we have here is a well structured and financed, rare earth branded vehicle with a private placement timebomb that comes free trading during Q2 of 2010, possibly earlier depending on when the four month hold period started. So the obvious question is why does this company qualify for membership in the KBFO Rare Earth Index and not the dozens of other juniors which have announced rare earth values or staked ground near more advanced rare earth projects?
 Well, the company has gone to the trouble to get a generic name approved which brands it as a rare earth company, but wisely avoided the "Mega" prefix which worked well for a certain uranium junior but not so well when it was attached to other metal juniors. Secondly, the Stares brothers are part of a team of shrewd and enterprising prospectors and geologists which not only has the ability to generate additional rare earth projects for REM, but which can execute competent exploration programs. Thirdly, one of our criteria for inclusion in the Rare Earth Index is that the company own a project on which a reasonable amount of work has been conducted in the past and which shows potential to be a significant rare earth project. The Clay-Howells property located in Ontario 180 km west of Timmins hosts a large carbonatite dyke which contains significant light rare earth values. The Clay-Howells carbonatite was discovered during the fifties and drilled as a potential iron deposit. Previous operators drilled 36 BQ holes representing 6,123 m to outline a body of magnetite with a strike of 1,050 m and a width of 90 metres which Roman Shklanka in 1968 estimated to represent 10 million tonnes as part of an Ontario Mines Department study of "Iron Deposits in Ontario". Most of the holes were drilled to vertical depths of 100-200 metres, though one deeper hole achieved a vertical depth of 300 metres. The carbonatite dyke is described as still open at depth. It was emplaced into the roughly 10 km x 10 km Clay-Howells Alkali Rock Complex, a "relatively homogenous intrusion of syenite to monozonite composition" which itself intruded Kapuskasing gneisses at about 1,072 +/- 16 Ma. The 10 million tonne carbonatite footprint contains magnetite grading 10-80%, but the rare earth content was not recognized until 1988 when R. P. Sage as part of an Ontario study of alkalic rock complexes tested 25 small core samples and obtained interesting rare earth values. It turns out much of the core was still being stored in Timmins, which enabled REM to split the remaining core halves from 5 holes and have them tested for rare earth metals. The Clya-Howells technical report filed with SEDAR contains the assay results for 245 samples representing 5 ft intervals (the core box size - about 1.6 m). The results show continuous REO mineralization with variable grade throughout the holes, most of which were drilled vertically into the carbonatite dyke. REM proposes a 10,000 m winter drill program to delineate the carbonatite in terms of its rare earth content.
In order to get a feel for the grade and relative REE distribution of the Clay-Howells carbonatite I selected the highest grade interval from each of the five holes and averaged their grades which I plotted to produce the pie charts above. As the company emphasizes, the rare earth mineralization at Clay-Howells is similar to that of the iron ore hosted rare earth mineralization at Bayan Obo in China, though at a lower grade. However, the Clay-Howells carbonatite does have a better smattering of the heavy rare earth elements than Bayan Obo. I should also point out that the technical report does not include any grades for yttrium, which Sage described as being present in the 25-1000 ppm range, which might explain why the heavies are present to a modest degree. REM has no information about the rare earth mineralogy, though the technical report does suggest the mineralization is fine-grained. While the average value worked out to $177 per tonne, to get a sense of the maximum value potential I ran the assay values of the highest grade interval using the 4 year price average as of February 2009 and it came to US $266 per tonne at a grade of 3.54%. While it is wise to wait until REM has drilled off the Clay-Howells carbonatite and reported grades, on an initial basis this carbonatite appears to be an inferior cousin to the Bear Lodge deposit of Rare Element Resources Ltd which recently reported the highest grades ever over significant widths from Bear Lodge whose rock value ranged in the $400-$700 per tonne range. Nevertheless, the Clay-Howells project has sufficient scale and past work to qualify Rare Earth Metals Inc for membership in the KBFO Rare Earth Index, especially given the apparent commitment to promote and finance the company as a rare earth junior. The other two rare earth projects appear to be early stage plays. Based on the fundamentals so far on display, I regard Dawe's other rare earth company, Ucore Uranium Inc, as much more interesting from a future buyout and development perspective; however, from a machine play perspective, nimble fingered speculators will likely experience much more upside gratification during the next six months for the simple reason that REM at this stage is largely form not bogged down by much content. In other words, it is the cards REM management may still have up its sleeve, for which to play the company is well financed, that are the key to higher prices.
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