I like this story, no, really, I do
In fact I love this story that Idaho Strategic Resources (NYSE:IDR) is telling about its thorium and rare earths prospects. I’m seriously impressed with it in fact. Not, perhaps, impressed enough to buy it as a value enhancer but I do love the story.
As to why, well, I’ve told the story a couple of times around here about how I once traded a piece of thorium. An absolute nightmare of bureaucracy. As far as I’m aware that was pretty much the only trade in thorium in the US economy in that year (the estimate by US Govt of how much Th was traded that year is about the value of that piece I traded).
The other reason is that back a decade I pointed out that the thorium price had turned positive. That was picked up from something Lynas had said. But the implication of the thorium price going positive is that someone must be trying to fill up a molten salt reactor. Which is indeed true, the Chinese have announced, more recently, that that’s exactly what they’re doing.
Now, I mention this not (well, not just to) prove my omniscience and all ’round special industry knowledge. Rather, to show that these metals markets really do all work rationally. Thorium has been, for some decades, a pollutant which imposes vast costs on those unfortunate to have it around. In these past few years someone has started to use it again, thus it now has, or can have, a positive value.
But we need to recall that it is still tightly bound by all those rules over its radioactivity and possible pollutant effects.
Idaho’s story
The point of the above is to tell why I believe this part of the story from IDR:
Thorium is substantially safer and serves as the more climate friendly alternative to Uranium. With a paradigm shift underway and the current landscape having changed considerably, the U.S.’ focus is now shifted toward a low-carbon future. We feel the time is right for our country to re-discover Thorium as the preferred component of nuclear fuel and a source of high output/low risk energy to work in concert with wind, hydroelectric, and solar power.
Yep, great, don’t doubt any of that. I’ve arrived at the same conclusion independently – there’s no overlap at all of our relevant information sources.
IDR has, by the standards of these things, a good thorium deposit. Thorium is likely to be used more, so that deposit is of great value, right?
Well, no.
Rare earths
IDR also tells us that they’ve got lots of rare earths out there. Which is also great and I don’t doubt that either. We often do find rare earths in association with thorium – if we’ve a thorium deposit we’d expect rare earths. Which is all therefore of great value, right?
Well, no.
Thorium and rare earths
A sadness is that pretty much all rare earth deposits are thorium contaminated. That’s why that Lynas refinery is in Malaysia, on the site of an old tin smelter. Because tin is often so contaminated, so the RE refinery is working on an already polluted site. That’s why we don’t get our rare earths from the Florida fertiliser wastes – the phosphogypsum is Th contaminated (although Rainbow Rare Earths might solve that). That’s why the Mountain Pass (which became Molycorp, is now MP Materials) RE mine closed around the turn of the millennium – thorium leakage into the surrounding environment. That’s one of the reasons the Energy Fuels RE experiment is so fun – they’re about the only people in the US who have the licences to process thorium contaminated material (to the point that they take in Th contaminated waste and make it safe).
That’s why we tend not to use the plentiful monazite which is a near inevitable byproduct of minerals sands operations for zircon and rutile. Because while monazite contains rare earths it also – almost always – contains considerable thorium. We mine bastnaesite instead, which has fewer rare earths but less thorium
We can recast the Idaho story
So, what they’re telling us is that they’ve this thorium deposit which has lots of rare earths in it. Great. We can also tell that very same story the other way around. Like many people they’ve got rare earths which are thorium contaminated. And all those other people find that the Th means the rare earths are worth nothing. It’s therefore possible to make the leap to the idea that the thorium deposits with rare earths in it is worth nothing.
We might think, well, not so fast. Because what if we do decide to go with molten salt reactors? Something I think is a really great idea. Therefore that deposit will have value, right? Except I think not. Because we’ve all these other places we can get thorium from. Those mountains (really, the phosphate waste piles are the highest points of at least southern peninsular Florida) of waste, all that monazite lying around mineral sands operations. Heck the Back 40 at Energy Fuels has appreciable amounts that could be extracted. We’ve piles and piles of the stuff exactly because we’ve been regarding it and treating it as a radioactive pollutant for decades now.
Even if we do start using thorium in reactors it’ll be many, many, decades – I think at least – before we try to open a new mine to get more. If we ever do open a new mine to get more.
Dr. Seuss
The Idaho story is, to me at least, a bit like the ham and eggs story. If we had some ham we could have ham and eggs for breakfast if we had some eggs. We’ve got some lovely rare earths if only we could find a use for the thorium. Just like everyone else with thoriated rare earths then.
That is, I don’t find the story adds value. That’s even with me agreeing about the background, I still don’t think it adds value. Those rare earths are – as they themselves say – so heavily thorium contaminated that with current processes and thorium usage they’re valueless. If we move to significant thorium usage then we’ve so many other sources of thorium – not least from all those other rare earth sources – that I can’t see a primary thorium mine being opened.
This is before the screaming of the environmentalists if anyone actually tried to open a thorium mine. I can’t see – absent an actual shooting war – that gaining permits. When perfectly decent copper mines (Bristol Bay say) can’t gain permits over theoretical damage to salmon runs, no, can’t see thorium being mined directly in the US.
Note that that last is only a side issue. I don’t think this idea works economically, whether permitted or not.
So, what really is Idaho Strategic Resources?
Once we take out that thorium issue then it’s really a gold mine. Which is a perfectly respectable thing to be. They’re not very large. The accounts are here. Revenue of $10 million a year (-ish). Gross profit of $1.5 million, net loss of $2.5 million. Sure, the gold grade might get better. Other prospects might improve matters.
But that’s a pretty weak base for a $70 million market capitalisation. My assumption is that there’s some significant value being attributed to that thorium and rare earths property. Which I don’t see as actually being there.
I just can’t see a primary thorium mine – or a heavily thoriated rare earths deposit – as having any value without decades of change in societal reaction to radiation – and of course the net present value of something decades in the future is small to non-existent. And if that does happen I can see other likely sources of the thorium anyone would want – and sorting out the problem with thoriated rare earths makes many more rare earth ores available for us.
I just can’t thread the needle through to where this has a current value. The thorium property that is. The gold mining should be valued on whatever the gold mining should be valued at – that’s not really my field and so not something I’m really going to touch upon.
Why I could be wrong
It could be that the US government will have one of those spasms of insensibility and try to have a thorium mine. But I do seriously doubt it – there are enough people out there who would be shouting that we can gain all the thorium we need by cleaning up other processes – so we just don’t need a new mine. Other than that – a strategic decision which would face massive political opposition – I can’t see that thorium property having value.
My view
Idaho Strategic Resources is arguing that they’re – well – a strategic resource. I don’t think they are. I think they’re a small gold miner with another project on the side but that side-project has no present value. Thus I think IDR is overvalued.
I reach this conclusion despite my agreeing with their basic story – molten salt reactors might well be coming, thorium is getting toward having a positive value in bulk and so on.
The investor view
I would not recommend going short partly because I near never do. The risk reward ratio of retail investors just doesn’t work out for me. I also think that this story of that thorium deposit having value is going to be believed by enough people for long enough that I don’t forsee a price collapse.
However, I don’t see that thorium deposit as having value currently. So, IDR is a small gold miner – value it as that. At which point there’s really no bull case for the stock either.
Effectively, the answer here is be elsewhere.
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