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Message: Memo from HUD President
This was posted on the other board:
Memorandum To: Hudson Shareholders
From: James Tuer, President
Date: January 5, 2011
RE: NEW INFERRED REE RESOURCE AT ST1 - GREENLAND
As a follow-up to our recent 43-101 compliant resource estimate, this note adds additional commentary to explain why we are extremely pleased with the resource model and why we think the company’s share price represents exceptional value within its peer group.
At current FOB China prices, the ST1 Zone has US$12 billion in gross contained rare earths (after assuming 80% metallurgical recovery), as compared to our current market cap of approximately $109 million. Included within that is about US$3.75 billion of contained neodymium and praseodymium. Neodymium (and praseodymium) is one of the most sought after REEs due to its use in green energy applications. The price of neodymium has skyrocketed from $15/kg to $88.50/kg in the past 12 months. The experts are predicting a potential shortfall of 5,000 to 10,000 tonnes of neodymium per annum as early as 2015 with 10-12% annual growth in demand. Molycorp CEO, Mark Smith, announced yesterday on BNN that they are very confident that these FOB China prices are sustainable in the midterm.
If you subscribe to the Kaiser Bottom-Fish newsletter, you will have seen that John Kaiser sent a note around this morning on Hudson in which he concluded:
As a result of Hudson achieving the key milestone of a meaningful initial 43-101 resource estimate for Sarfartoq and in consideration of the project's relative cheapness compared to peer projects, I am upgrading Hudson at $1.78 from a Fair Spec Value Hold to a Good Relative Spec Value Buy with a short term $3 price target reflecting an implied project value of $200 million.
SORRY, THE TABLE THAT GOES HERE CANNOT BE PASTED
In order to put some perspective into the resource estimate, we have provided the table above of market caps of various rare earth companies. Currently, Hudson’s market cap is 20% of Rare Element Resources (RES) and 40% of Tasman’s (TSM) market cap. We feel strongly that, with our resource model in hand and the mineralogy completed to date, our project compares well with the Bear Lodge project of RES and demonstrates superior value to many of the companies trading at significantly higher market caps.
RES is probably the best REE company to compare Hudson with since both projects are hosted in a carbonatite, which has a proven metallurgical recovery process (i.e. Molycorp has been processing fluoro-carbonatite material for decades).
Other deposits such as those owned by Quest, Tasman, Ucore, Matamec, GGG and Avalon are silicabased and up to now there is no commercially proven economic recovery method. Because of this, comparing gross contained REE oxides per tonne of rock can be misleading because recovery grades are likely to be lower and/or processing costs much higher than a carbonatite based resource.
That being said, Hudson still has higher gross dollar per tonne rock values in comparison to Tasman’s (market cap - $252M), Quest’s (market cap - $348M) and Stans Energy’s (market cap - $180) projects. In fact, we calculate that the ST1 rock values are 35%, 140%, and 280% higher, respectively.
With respect to expanding the project, we are very confident that we can increase the tonnage of the ST1 Zone through additional drilling this year. There is also a good chance that further drilling will encounter some higher-grade zones based on previous surface sampling results.
Hudson has also been successful in identifying new, potentially economic deposits such as the ST40 and ST19 zones. At ST19 we drilled our highest-grade material to date, which was very similar to the Bear Lodge higher grade material (NR2010-15 dated November 10, 2010). At ST40 we consistently sampled, through drilling and prospecting, material that likely contains the world’s highest proportion of neodymium to total rare earths (at 45% Nd2O3:TREO) (NR2009-13 dated November 4, 2009). We intend to follow up on these targets and others in our spring/summer drill program and we are very optimistic that the Sarfartoq Carbonatite Complex will be home to a number of exciting projects.
The final point that I will leave you with is that we continue to believe that our property location in Greenland will provide us with significant competitive advantages. The government of Greenland is on record for wanting to see mineral projects like ours developed so we expect that our permitting process will be relatively fast. Also, with our property being close to tidewater, we are well situated to ship REEs to Europe and North America.
Please feel free to contact me (604-688-3415), or Jim Cambon (VP Project Development; 604-505-2157), if you wish to discuss this further.
Hudson Resources Inc.
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