METC - Ramaco Resources: It Ain't $37 Billion That's For Sure

2023-11-16 07:28:43 ET

Summary

• Ramaco Resources has discovered rare earths in their coal mine, causing their stock price to rise.
• However, the value of the rare earths is not as high as claimed, as the costs of extraction and purification must be considered.
• The concentration of rare earths in the coal mine is low compared to traditional mining scenarios, making it unlikely to have significant economic value.

Mining doesn't work that way

Ramaco Resources (METC) (METCB) is well in the news right now. They've discovered rare earths in their coal mine. How exciting. Well, except for a number of things. Quite a few things in fact.

This piece is not about metallurgical coal, the coal mine or the market for that. This is simply about those claims of lots and lots of very valuable rare earths in that coal mine. As announced and as has pushed the Ramaco stock price up from $11.70 to $17.70 or so at my time of writing.

The Wall Street Journal coverage says : "The $2 Million Coal Mine That Might Hold a $37 Billion Treasure" and then goes on to make a number of less startling claims. This is then being repeated across the media - NY Post : "Here's why a $2M coal mine in Wyoming could be worth $37B"

Aaaaand, no. Tosh in fact.

The first issue is that they're counting wrong. Add up all the value of all the rare earths there - of those rare earths were processed out, separated and made available for sale at current market prices. OK, that could be $37 billion. Willing to accept that for the point of argument at least.

OK, what's the cost of extracting them? Then purifying them?

The value of a mine is not the value of the metals in it. It's the value of the metals in it minus the costs of extracting those metals. By example, it's a standard mining industry claim that the North Sea (the wet bit between Britain and Germany) contains $5 trillion in gold. It would also take $20 trillion to extract it. Thus the value of the North Sea as a gold mine is a negative $15 trillion (don't believe those actual numbers too much there, the idea stands).

So, no, that $37 billion is a dead in the water number. Because yes, they are counting the sales value of purified oxides as that valuation, not including any of the costs of extraction or purification. As we've noted before, when talking about Energy Fuels , the separation of rare earths is where the big costs come in. It's also not just those costs themselves. It's that there's a big loss on the cerium and lanthanum, a profit on the neodymium and praseodymium. It's the revenue from the mixture, when separated, that has to cover costs.

Now, in one sense, Ramaco is safe here. Their claim is of an ionic clay deposit (we'll come to this) and that is normally high in the magnetic metals (Nd, Pr, Dy, Tb) which have the value.

Actually, we can prove that :

Those Dy and Tb levels are ionic clays. That's just the way it works. They're also why China has such an advantage in those two metals. We used to think that ionic clays were specific to South China. We now know that's not true - I've a little list of a dozen companies claiming deposits from the Australian stock exchange alone over the past 10 months or so. We also looked at ionic clay rare earths here .

OK, so coal and rare earths, right?

Well, no, that's not what Ramaco is actually claiming. From their own report :

The majority of REE deposits outside of China are associated with "conventional" mines and found in igneous hard mineral deposits, which makes them both difficult and expensive to mine and process. In contrast, the REEs from the Brook Mine are characterized as "unconventional" because they are largely found in softer clay strata located above and below the coal seams themselves. It is expected they can be mined using normal surface mining techniques and perhaps deeper in-situ forms of mining, and processed in a more economic and environmental manner than conventional REE mines.

I have no reason to doubt this at all. They've ionic clays above and below their coal.

Ah, but how rare are ionic clays around coals?

Here we come to the next level of problem with the valuation. Ionic clays around coals are not rare .

From the literature, the average REE abundance in coals around the world is about 69 ppm. However, some coal deposits have registered values exceeding 300 ppm (Seredin and Dai, 2012, Zhang et al., 2015) compared to 1000 and 5000 ppm obtainable in traditional mining scenarios. Mastalerz et al. (2020), recently reported REY concentrations of 200 ppm to more than 3000 ppm (ash basis) in Pennsylvanian coals and shales.

And in a presentation format here . Or a report to Congress here .

The basic geological idea is that ionic clays around a coal deposit are pretty regular, even normal. Now, true, we didn't know this. I recall in the Trump years there was a definite push to find valuable minerals in coal. Really quite specific too - grants for finding something, near anything, in coal, or associated with coal mining. The only one you couldn't get a grant for was getting germanium from fly ash as everyone already knew how to do that - 50% of the world's germanium comes from that route (OK, depends on exactly the year, but about).

A definite push to please the base by spending some Federal money was my opinion, others might think it an appropriate use of tax money to beat the Chinese threat. We can have that discussion elsewhere.

But the point to take from this section is that this idea of rare earths and coal is not new in the slightest. What would be exciting is finding a much higher concentration than normal somewhere. Or, alternatively, a new extraction method.

So, is it a high concentration?

We've been told that there are vast tonnages of those rare earths there. No doubt - except when thinking like a miner. Tens of millions of tonnes of coal, that adds up to lots of trace minerals and elements. But it's the concentration that matters - the N Sea again. At which point we get told :

Ah. No, that's not a high concentration. As we've said about Aclara , with a more usual ionic clay deposit. Or, as Nature says :

They account for c. 35% of China's total REE production and roughly 80% of global HREE supplies despite being low grade (0.05-0.2 wt% total RE2O3, incl. Y2O3)

Well, yes, but 0.05% to 0.2% is 500 ppm to 2,000 ppm. So this Ramaco ionic clay is already one tenth what we generally describe as a low grade rare earths ore.

No, we can't make it up with volume.

Our N Sea story about gold again. The cost of extraction rises - often swiftly - with lower concentration. This is the difference between something being ore and it being dirt. Sure, everything - the N Sea - contains gold but it ain't ore. Ore is when the value extracted is greater than the costs of extraction.

Which is the thing that isn't obvious about the Ramaco claims.

So, sorry for the length of the set-up here.

From the above you should be able to figure out my decision tree here. But, to make it obvious.

Does Ramaco Resources have rare earths? Sure, so does my back garden. Does Ramaco have lots? Sure, it's bigger than my back garden.

And to be less facetious, sure, rare earths and coal. Levels of 100 to 300 ppm are normal enough. It's an interesting finding - but not particularly new - that there's some leaching into ionic clays above and or below the coal bed.

So, is it worth any money? I think not. Note, now, that we've moved from what I can prove, as above, to what I think, which is what follows.

Ionic clays containing rare earths around a coal bed? Sure, why not?

Q1) What's the extraction cost? Well, when we look at other ionic clays like Aclara we look for RE contents about 10x higher. Just because the extraction method uses solvents (ammonium sulphate often enough, which is cheap, but costs rise with lower concentrations). So, well not doing well there.

Q2) Are there rare earths there? Sure, happy to agree to that. Lots of 'em too. But see Q1. Is this dirt or ore?

Q3) OK, but what if they've a cool new extraction method? Sure, willing to believe that. But two answers. Firstly, a cool new extraction method would be advertised as a cool new extraction method. Secondly, if we all agree (and we should because it's true, as above) that these low grade RE ionic clays are common enough around coal beds then this particular deposit ain't worth spit. Because America isn't short of coal beds, that we do know. So, if the tech can be applied to this then to also all those others and while the tech might be worth money this coal deposit isn't.

Do note something about Q3. The claim here is of decades' worth of rare earths in this one coal deposit. Which isn't, in fact, a particularly large nor impressive one. So, if there are many deposits that can be exploited then the value of any one deposit is low.

My view

I end up thinking that the claims of vast value here don't quite add up. As I say I'm entirely willing to believe that there're rare earths there. But the concentrations they're claiming just don't look economic to me. And if they've a new extraction tech which makes them economic then there's no scarcity value left to the deposit. For if you can extract from that at a profit then you can from near any coal bed.

I just can't navigate my way through the information here to a real and substantive value for those rare earths.

So, why might I be wrong?

Well, given the current fuss about China and rare earths I could be. As with the funding of those investigations into rare earths in coal. Politics could direct money to this. If there's a river of that then shareholders could make money.

The investor view

Now, I'm old enough to have been wrong sufficient times to accept that I might be again. But I take this run up in Ramaco Resources to be evidence of claims that might not turn out to be entirely and wholly substantive. Perfectly willing to agree that there are rare earths there, but I'm really down on the idea that they've any economic value. If there's a new extraction method then that would, but then this specific mine wouldn't for exactly the same reason. I think the current run up in the price is a result of a few newspaper articles that don't quite consider the details.

No, I wouldn't recommend a short largely because I never do. I would suggest though being somewhere else, doing something else.

Rare earths in coal? Sure. Economic rare earths in coal - unlikely. But if true because a new extraction method then no one coal mine gains economic value from rare earths in coal mines.

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