Bottom-Fish Comment - July 15, 2011: Rare Earth Metals drilling Lavergne light rare earth prospect
Rare Earth Metals Inc has been a disappointment since I recommended it as a medium priority bottom-fish buy in the $0.30-$0.49 range on December 31, 2009 as part of the 2010 Bottom-Fish Edition, and it certainly has not delivered much justification for being included in the KRO Rare Earth Stock Index on which it has largely been a drag during the past couple years. The Clay-Howells deposit that had Mick Stares excited in 2009 has faded into a possible magnetite mining scenario after a scout drilling program in April 2011 failed to turn peripheral targets into significant new rare earth zones. In Labrador Rare Earth Metals is now conducting a 2,500 m drill program on the Two Tom and Dory Pond prospects within the Red Wine Complex where the goal is to establish heavy rare earth enriched grades within eudialyte mineralization. Eudialyte is a zirconium silicate which is often associated with heavy rare earth enrichment such as is the case at Matamec's Kipawa project in southern Quebec and Tasman's Norra Karr project in southern Sweden, but the grade is typically less than 1%. Eudialtye has historically posed a processing problem in that the mineral dissolves readily in acid, but the silica turns into a gel that stymies selective extraction of the rare earth elements. The metallurgical engineer Les Heymann, who recently passed away, achieved a breakthrough on behalf of Matamec in late 2010 by developing a flow-sheet that brought the eudialyte at Kipawa into solution without creating the gel state. Heymann also consulted to Tasman which has also reported bringing Norra Karr mineralization into solution without the gel problem. Drilling by Rare Earth Metals last year at Two Tom established a decent sized zone grading in excess of 1% TREO, but the HREO content was less than 10%. Although Rare Earth Metals will likely establish a modest resource for Two Tom as a result of this season's drilling, this resource is unlikely to be a development candidate. The junior achieved higher sampling grades at the Dory Pond zone which was considerably more HREO enriched than Two Tom; if Rare Earth Metals is to deliver any good news from the Red Wine Complex it is most likely to come from the Dory Pond drilling. Rare Earth Metals has started to look like one of those several hundred rare earth juniors its advisory board member Jack Lifton frequently worries about in the media as being too many, but which in reality pose as much of a threat to flooding the rare earth sector as do the thousand gold exploration juniors to the gold market. However, Mick Stares thinks that he has latched onto a play which will enable Rare Earth Metals to catch up with the supply contenders and justify its membership in the KRO Rare Earth Stock Index.
In early June 2011 Rare Earth Metals negotiated a deal with several groups to acquire 100% of a cluster of claims covering 839 hectares initially called the Springer project but now called the Lavergne project. The vendors, which include Dave Hodge's Zimtu Capital Corp, will get $567,000 and 2 million shares over 3 years, and retain a 2% NSR (half can be bought for $1 million for each of the three claims). The Lavergne property was last explored in 1969 when a company drilled two holes into a zone that has been traced for at least 600 metres. The three reported intersections were 112.7 m of 0.98% for hole 69-01, and, 27.43 m of 1.36% and 19.8 m of 1.33% TREO within hole 69-3 (the northernmost hole). The other 2 holes were drilled to the east. Continuous assays are not available - apparently only intervals deemed to be potentially interesting were assayed and the core has disappeared. Assays for the heavy rare earth elements were not done, but assays by Rare Earth Metals for surface samples indicate less than 2% HREO. Roger Mitchell has established that the dominant REE bearing mineral is synchisite, a member of the bastnaesite family that is also a key REE contributor in Rare Element's Bear Lodge deposit, based on what management hopes are representative samples. Subsequent work by Tony Mariano using samples from the current drilling program apparently support the view that synchiste is the main rare earth mineral within this system consisting of a carbonatized, hematized and brecciated syenite within a gneiss envelope as shown in the geology map above. The main zone is partly surrounded by swamp and so nothing is known about the bedrock geology to the north and northwest.
What attracted Mick Stares to this prospect was the location 80 km east of Sudbury very close to infrastructure, a low thorium content in the 150-200 ppm range (less than 0.02%), and the fact that more than 90% of the rare earth content reports to a single mineral which does not pose serious cracking challenges. The junior initiated a 1,200 m drill program in late June which Stares indicates will likely be expanded to 2,000 m during the first round.
On July 6 Rare Earth Metals reported that the initial drill hole had encountered 250 m of carbonatite including "heavily carbonatized, hematized and brecciated granitoid rock with pyrite and fluorite mineralization". Since then the 45 degree angled hole has been completed to a depth of 400 m, and a second hole drilled at 60 degrees from the same setup has been completed to a depth of 500 m. These holes weres drilled near the 1969 hole that yielded 112.7 m of 0.98% TREO. A third hole is now underway about 400 m to the north undercutting hole 69-3 which yielded the two other intervals. The original results are interesting, but not very exicting for a light rare earth deposit. However, the new holes have caused management excitement to go up a significant notch, though at this stage the market is paying no attention. What seems to be driving management's excitement is the considerably longer intervals of apparent mineralization than previously encountered, and the wide range of readings the field crew has obtained running their NITOM XRF unit along the core. Because the core contains coarse grains of mineralization these readings are unreliable, so the company is waiting for assays to see how grade behaves along the entire core before banging the drum loudly.
Based on my assessment of the geological context and the new insight deeper and longer holes are generating, I think bottom-fishers should take a second look at Rare Earth Metals Inc at current prices that are below the original $0.30-$0.49 buy range. During the past year we have seen significant discoveries emerge from a couple known carbonatites, Commerce's Eldor complex in northern Quebec and Geomega's Montviel project in south-central Quebec, both of which have yielded very long rare earth intersections, 1.5%-2.0% in the case of Eldor, and 1.4%-1.6% in the case of Montviel.
Both of these zones have tonnage potential in hundred million multiples, and both appear to have potential for sub-zones with 10%-20% HREO enrichment (ie 10%-20% of the TREO are heavy rare earths). But Eldor is remote and Montviel is semi-remote with a grade that should be better. Lavergne is not likely to solve anybody's heavy rare earth supply problem, but the mineralization appears to be at surface, the tonnage footprint large, and the rare earth mineral the type that should lend itself to simple metallurgy. What we do not know is the grade, but we do know that grades in excess of 5% TREO have been observed at surface, and the word from the field is that the NITOM readings are all over the map. There is thus a good chance that the first batch of assays expected at the end of July will yield hundreds of metres grading in excess of 2%. This is not what anybody would expect looking at the historical results, which is why Lavergne is carrying an implied project value of only $28 million based on a $0.26 stock price, 97 million shares fully diluted and a 100% net interest. If we get assay confirmation that Lavergne is a major large tonnage light rare earth discovery with potential to deliver a starter pit grading in excess of 3% TREO, Rare Earth Metals will undergo a rapid three to fourfold price increase to achieve partial parity with other light rare earth projects. The junior has the ability to launch an expanded drill program that can carry on into the swampy area through winter, and with $8 million working capital as of the end of 2010, it will not need to conduct any dilutionary financings to fund the program. I am confirming Rare Earth Metals Inc as a medium priority bottom-fish buy below $0.49, with a contingent upgrade to top priority if initial drill results yield intersections in excess of 100 metres of 1.5% TREO.