Texas Mineral Resources (TMRC) is a unique play in the rare earth space, which has been developing a new methodology to extract these elements from waste coal products in Pennsylvania. The company has been operating under grants from the Department of Energy (DoE) as well as the US Defence Logistics Agency (DLA). In 2015 the company was awarded a grant from the DLA and a year later successfully demonstrated a proof of concept which then led to the application of a DOE grant. Just recently in April of this year, the company announced a successful completion of phase 1 of the two phase DOE grants. Minerals including Scandium, Neodymium, Dysprosium, Cerium and Lanthanum were purified to 99% from coal waste, meeting the study goals. On February 28th of this year, the company had applied for the second phase of the DoE grant for the award of 20 Million.
The second phase of this grant would be used to build a pilot plant in Pennsylvania consisting of a self-contained, modular and mobile ion exchange/continuous ion chromatography (CIX/CIC) system. The company has been operating within a consortium with Penn State University, Inventure Renewables, and K-Technologies. What’s differentiated in this approach is its relatively small environmental footprint, whereas rare earth extraction typically comes with significant issues with radiation. Penn State has developed a process with the company to generate a high recovery rate of 90% using a benign pH of 5. On a relative basis this concept can be scaled quickly with the right funding. Given the nature of these strategic elements in defence applications, continued trade war pressure from China will likely accelerate the scale-up.
For those interested, you can view the company’s presentation it sent The DoE here.
Additionally, as of today it’s being reported that The Pentagon just submitted a report on REE to Congress as it seeks to reduce reliance on China for REE’s
So, what does this all mean? We can honestly say that this play is a highly speculative one that carries a considerable amount of risk, especially when viewing it as a speculative investment. However, we think the odds are favorable that the company receives the $20M grant from the DoE, and headlines matter when it comes to these OTC stocks.
- Insiders own roughly 30% of the float which comes in at around 26M, with 46M outstanding shares
- The shell itself is ‘clean,’ with only 1% warrant coverage
- China is likely if not now, at some point to escalate the current trade war narrative as their communist government is not in the practice of ‘saving face’ so-to-speak, as this would show weakness to an already splintered populace.
- Likeliness of receiving grant from DoE is high – game changer
- Political expedience for President Trump – the company would be primarily using coal from Pennsylvania, a key swing state for Trump in 2020 and a large coal mining producing state, especially in Northwest region of the state where the company’s pilot facility is located.
- Company trades on the OTC, which is not direct access to NASDAQ market – this means there is a ‘middleman’ between buyers and sellers routing orders manually to the NASDAQ.
- China could de-escalate the current trade war narrative and take the rare earth metal supply chain threat off the table.
- Company may not receive the grant they have applied for.
Price Target Scenarios:
- If China escalates trade war further by even threatening to cut REE supply chain and company receives the DoE grant in the near term, we think we will be over $1
- If China backs down on REE threat, yet company receives grant, then 50 cents a share or so
- If China escalates trade war and company does not receive grant – 50 cents a share or so.
- If China backs down on REE threat, and company does not receive grant, then 15 to 20 cents a share.
All of the above defines the short-term trade here. Long term success or lack thereof is very hard to determine at this time. An up listing to The NASDAQ would certainly be a game changer, but even then, long term success is too hard to predict. At best, its long term chances here would be highly speculative
Disclosure: We have a long position in Texas Mineral Resources stock