The demand just hasn't been there for Frontier Rare Earth since it went public in a $60-million IPO last fall. Since November, the stock had fallen 40 per cent and just couldn't seem to find solid ground.
That changed on Wednesday when the company announced a new partnership with state-run Korea Resources Corp to develop its Zandkopsdrift project in South Africa. After rising about 15 per cent yesterday, the stock is up 3 per cent more this morning.
The deal involves Korea Resources buying a 20-per-cent stake in Zandkopsdrift and a 10-per-cent stake in Frontier itself, as well as the right to purchase up to 40 per cent of the project's production.
"The vetting of a large metals player like KORES that will not only own part of the assets but also provide technical and financial support for the construction is just what Frontier needed and what no [rare earth]junior out there has," noted CIBC World Markets analyst Matthew Gibson.
"Valuation implications are not visible, but we believe it is a big positive."
Frontier went public in November, vying to become one of the top producers of rare earth metals outside of China. Its South African project is one of the largest known rare earth deposits in the world. The company's growth depends on this project's success, which is why it's so vital that a big player has gotten involved.
Rare earth minerals are made up of certain chemical and physical properties that make them highly valuable for use in high-tech products. Because that industry is booming, with the ubiqiuity of iPhones and PlayBooks, these minerals are in high demand.
At the moment, about 97 per cent of the world's rare earth minerals are sourced from China.
Tim Kiladze