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Frontier Rare Earths Ltd (FRO -TSX)

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Frontier Rare Earths Ltd (FRO -TSX)
Emerging rare earths producer - Zandkopsdrift deposit
===========================================

There are at least 26 publicly traded companies in Canada that have rare earth projects at some stage of development. But good quality, economically feasible deposits are scarce.

 

( FRO.t - delisted, but not dead... yet)

Molycorp (MCP) vs. Frontier (FRO.t) ... update

ea5bdbf9706d19c735e25243089e8182.png

 

- MCP went BK, so I am showing instead: FRO.t vs the KRO Rare Earth Index

TI10024M1018A.gif

Frontier Rare Earths is an emerging rare earths producer, the company's objective is to become one of the leading producers of rare earths outside of China and one of the first new producers of rare earths after Lynas Corp. and Molycorp (MCP). Frontier's principal asset is the Zandkopsdrift rare earth deposit in the Namaqualand region of the Northern Cape Province of the Republic of South Africa, which is believed to be one of the largest known rare earth resources outside of China classified under international resource reporting standards. The company believes that the combination of deposit size, grade, rare earth distribution, geological setting and favourable location gives Zandkopsdrift the potential to become a significant producer of rare earths. Frontier plans on completing a pre-feasibility study on the Zandkopsdrift Project by the end of 2011; subject to the outcome of the pre-feasibility study, completing a bankable feasibility study by the end of 2012; and, subject to the results of the bankable feasibility study, commencing production of rare earths by the end of 2014.

The resource at Zandkopsdrift is considered by the company to be large enough to target supplying up to 20,000 t/a of rare earth oxides, which is broadly comparable to the largest non-Chinese rare earth projects currently under development, namely, Mount Weld in Australia and Mountain Pass in the U.S. The estimated mineral resources at Zandkopsdrift as at September 28, 2010 are approximately 22.92Mt containing 532,000t of TREO at an average grade of 2.32% and an additional inferred resource of 20.81Mt containing 415,000t of TREO at an average grade of 1.99% applying a 1% grade cut-off.

FRO.t / Frontier ... update
KBFOXCADTFRO.png

On November 17, 2010, Frontier completed of its $60 million initial public offering (17,650,000 units of Frontier at a price of $3.40 per unit - share and one-half warrant). Each warrant entitles the holder to purchase share, at a price of $4.60, for a period of 24 months. The half warrant had a deemed value of $0.055 at IPO. The company's shares have traded as low as $2.80 since its debut. Meantime, Frontier's peers have rallied hard with the recent Chinese policy decisions. Based on relative size of deposits, stage of development and grade quality, the core comparables to Frontier have been identified as: Rare Element Resources (RES), up 51.3% since November 17, 2010 (Frontier's IPO date); Arafura Resources (ARU-AU) up 25.8%; Avalon Rare Metals (AVL) up almost 100%, and; Quest Rare Minerals (QRM) up 32.2%. In comparison, Frontier is trading relatively flat to its IPO price.

Frontier's warrants trade under the Thomson One symbol FRO'-T.

== ==
LINKS:
-------
The Rare Earths thread :: http://www.greenenergyinvestors.com/index.php?showtopic=4174
RE stock charts - - - - - :: MCP : http://www.advfn.com/cmn/fbb/thread.php3?id=24246974

FREFF, otc quote - - : http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=&symb=FREFF&x=51&y=16&time=8&startdate=1%2F4%2F1999&enddate=5%2F8%2F2017&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=1&maval=76%2C+252%2C+377&uf=0&lf=268435456&lf2=0&lf3=0&type=4&style=320&size=3&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=15

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LOW RISK Trading in a Hot Sector - Rare Earths

 

I was luck enough to get some shares in Frontier Rare Earths (FRO.t) at a "discounted price" by participating in a pre-IPO financing about 9 months ago. The shares are now trading, and the Rare Earths sector is as hot as a pistol.

 

I want to look in some profits before this sector cools off. So How am I managing my position?

 

I think the sector is "too hot", and so I want to de-risk my position. So when FRO popped up over the $3.40 IPO price, I let some go, just over 25% of my position, and I decided to "hedge" a big chunk of the rest. How did I do that?

 

The first thing that I have noticed is that FRO has barely participated in the lastest jump in Rare Earth stocks.

 

Frontier RE / FRO.t versus Molycorp / MCP and RareEarthElements / REE ... update

reeb.gif

 

Molycorp / MCP ... update

mcpu.gif

 

MCP has been especially strong, thanks to some aggressive promoting by its CEO, who has been appearing on many financial broadcasts, such as Bloomberg. Why is he doing it? One theory is: so he can push the stock up, and sell some of the MCP stock that he holds. The restricted period on his stock* ends within a few days, so this theory makes good sense to me.

 

Yesterday, I took (some of) the profits I made on selling 30%+ of my FRO (at near C$3.60 versus my cost of about C$2.50), and bought a Bear Spread on Molycorp, when MCP was trading near $62. What does that Spread look like?

 

Bear Spread on MCP

==============

I bought Puts : Feb. $55p : at $ 5.50 : 100% : $ 5,500 per 1,000 shs

and sold Puts : Feb. $45p : at $ 2.20 :: 40% : $ 2,200 per 1,000 shs

= = = = = = = :

This costs / 55p/45p spread : $ 3.30 :: 60% : $ 3,300 per 1,000 shs

 

If Rare Earth shares collapse, I am expecting the slide in MCP to give me back up to 3x my original investment on that spread (ie: $10,000: $7,700 profit potential on $3,300 cost per 1,000 MCP shares.)

 

And if RE shares hold up or push further up, I am expecting a rise in FRO which should allow me to more than recover my investment in the Bear Spread. Another possibility is that MCP may be weak relative to FRO, and if that happens I may make money on both sides of the "hedged" trade.

 

(Do people like this "real life" examples of how I trade? If so, I will post more of these examples from time-to-time.)

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Thanks for sharing, i also was thinking Rare Earths looked a bit frothy but am keeping a very close eye on them.

 

Mark_Smith_Molycorp_Minerals.jpg

If MCP's CEO, Mark A. Smith * , starts selling his shares within the next few weeks, this share could come down hard.

 

Others seems to have picked up on this today:

 

Charts : 10d :

MCP: $ 56.28 Change: -4.42 // Percent Change: -7.28%

Open: 59.49 High: 59.49 Low: 56.23 // Volume: 3,123,984

 

FRO is basically unchanged.

= = =

 

MCP at $55.47 - considering locking in profits on Puts

Jan

45c : 11.00 -4.70 v28.00 (10.60 - 11.10) 45.00

50c : $6.50 -4.90 v367.0 ($6.50 - $7.00) 50.00

55c : $3.80 -3.70 v851.0 ($3.60 - $3.80) 55.00

 

But I am thinking there is a better way to do it.

 

== == ==

*Mark Smith has: 1.1 million shares, and can start selling Jan. 20th (according to Tom Obrien)

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STEPS IN MANAGING A RARE EARTHS POSITION to protect profits

====

1/ Buy FRO.t / Frontier in pre-IPO placement (15,000 shs at say: C$2.50)

2/ See FRO go public at 50%+ uplift

3/ Sell 33% of my position, leaving a MktCap in FRO at above my original cost

4/ Invested profits realised from step#3 in Molycorp MCP Bear Spread (Feb 55p/45p) with potential to 3x cost

5/ ??? next ???

 

(note: Size not actual - for illustration only.

Strategy: I am reducing my risk at various steps, and then using prior profit to take next step.)

 

My position below ... (some no.s are approx. & no. of shares not exactly right magnitude):

 

RARE EARTH PORTOLIO w/ Hedges:

========

Cash profit /(loss) realised=: $ 5,000

Capital returned/invested .... $ 9,200 ($12,500-$3,300 invested)

FRO.t 10,000 shs xC$3.19 = $ 31,900

FROws 7,500 shs xC$0.65 = $ 04,875

Long 10x Feb $55p x $8.10 = $ 8,100 : : cost: $5.50

Short 10xFeb $45p x $3.00 =($ 3,000 ) : recd: $2.20

===========================

Portfolio Value . . . . . . . . = $56,075 :: versus cost of $37,500 : +49.5%

 

 

Nice timing on the MCP trade, -12.92% in 24 hrs!

I do still occasionally get it right. But I have to say the speed of that drop arriving surprised even me.

 

My actual return was higher than 12.9%, since I used options:

 

COST:

Bear Spread on MCP

==============

I bought Puts : Feb. $55p : at $ 5.50 : 100% : $ 5,500 per 1,000 shs

and sold Puts : Feb. $45p : at $ 2.20 :: 40% : $ 2,200 per 1,000 shs

= = = = = = = :

This costs / 55p/45p spread : $ 3.30 :: 60% : $ 3,300 per 1,000 shs

 

VALUE- yesterday:

Long Puts : Feb. $55p : value $ 8.10 : $ 8,100 per 1,000 shs

Short Puts: Feb. $45p : value $ 3.00 : $ 3,000 per 1,000 shs

= = = = = = = :

Value 55p/45p spread : value $ 5.10 : $ 5,100 per 1,000 shs

 

$5100 / $3300 = + 54.5% profit in one day !

 

Where from here? I want to capture some profits without risking loss

Notice this:

If MCP were to fall to zero, then for each 1,000 shares worth of options:

 

My: $55p would be worth: $55,000

My: $45p would cost me- : $45,000

That is a ratio of : $55 / $45: 1.222

 

So 8 puts on MCP, will nearly cover the cost of 10 puts in a "worst case" situation. And in a best case situation: with MCP closing at 45p in Feb., then my 55p would be worth $10 per share, versus $0 for the 45p.

 

So I shall plan to sell off about 2-3x 55p contracts for every 10cts I hold - at prices like $10-12 per share, and this will allow me to capture some profit now on the spread, in case MCP bounces. I could see MCP dipping to $45 or so before then next rally.

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I know that Dr. Bubb mentioned Rare earth investments in another thread, and I thought it would be interesting to get all of your thoughts on all things rare earth (including the Van Eck ETF).

Said ETF (symbol REMX) ...

Rare earth/strategic metals are industrial metals that are typically mined as by-products in operations focused on precious metals and base metals. Compared to base metals, they have more specialized uses and are often more difficult to extract. Currently, approximately 49 elements in the periodic table are considered rare earth/strategic metals. They include such elements as cerium, manganese, titanium and tungsten. Strategic metals are used in a variety of technologies including jet engines, hybrid cars, steel alloys, wind turbines, flat screen televisions and cellular phones. Rare earth metals, a subset of strategic metals, are a collection of 17 chemical elements that are essential in many of today’s most advanced technologies, with particular applications in electronics.

 

http://www.vaneck.com/funds/REMX.aspx

 

Current constituents are:

REMX

9.79% : LYC.AU Lynas Corp Ltd LYC AU 13,579,035 27,880,909

7.67% : ILU.AU- Iluka Resources Ltd ILU AU 2,486,436 21,864,040

6.63% : MCP --- Molycorp Inc MCP US 357,325 18,888,200

6.58% : TCM --- Thompson Creek Metals Co Inc TCM CN 1,309,964 18,744,734

5.74% : HK-3993 China Molybdenum Co Ltd 3993 HK 17,080,000 16,342,285

5.66% : TIE ---- Titanium Metals Corp TIE US 910,854 16,131,224

5.55% : KMR.L-- Kenmare Resources PLC KMR LN 31,778,831 15,820,547

4.40% : JP-5726 OSAKA Titanium Technologies Co 5726 JP 263,700 12,529,792

4.32% : NEM --- Neo Material Technologies Inc NEM CN 1,606,897 12,294,434

4.28% : MM ---- Cia Minera Autlan SAB de CV AUTLANB MM 4,643,450 12,202,276

Hmm. There are many Moly co's there, that have nothing to do with Rare Earths.

 

Frontier Rare Earths (FRO.t) should be on that list.

It has a better deposit that most of those other companies listed.

The fact that it is missing could be an opportunity. If it gets added, then the fund would have to buy quite a few shares.

 

SECTOR funds like this can work. But sometimes they do not. The Moly fund set up by Sprott (?) did not work out. And when it got liquidated, many of the Molybdenum co's got driven down to very cheap prices

 

REMX / Market Vectors Rare Earth/Strategic Metals Index ... update : vs-MCP

remx.gif

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MCP at $47.80 -$1.07

 

Vols are collapsing on MCP for some odd reason??

 

Yesterday, I sold some MCP Feb.$55puts at $ 9.80 (when the stock was $1 higher)

And now with the stock down about $1.00, I am seeing:

 

Feb$55p: $9.50-10.00

 

Feb$45p: $3.40-$3.60: $3.50

Feb$45C: $5.90-$6.10: $6.00

Straddle $9.30-$9.70: $9.50 (19.87%)

 

Feb$40c: $8.80-$9.50

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=========

FRO.t was delisted from the Toronto exchange (in late 2015) - to save money, & gain time

 

FREFF / Frontier Rare Earths -- update - They still have a listing on the US OTC market / bloomberg :

FREFF_zpsjornnlpm.gif

 

At last price of: $0.012 x 89.56 million shares, FREff had a Market Cap of US$1.07 million

 

Latest report (April 24, 2017 Circular) has some interesting info, which I will summarize here

 

+ Delisted Sept. 30, 2015. and since then, no active trading in Canada. Only on US otc market

+ Shares will be consolidated as 1 new share for every 9 million old shares

+ Partial shares will be acquired at C$0.05 each

 

My reading is that only the following will be left with a stake in the company:

 

Name----------------- : No.shares : Pct -% :

Moka Limited-------- : 16,017,432 : 17.88%

Goldrose Limited---- : 14,294,000 : 15.96

Sunshine Innovation : 13,790,000 : 15.40

Omega Corp. Ltd.--- : 8,182,677 : 9.08

Santello Limited------ : 8,128,666 : 9.08

PIFM Nominees One : 8,128,667 : 9.08

James Kenny, CEO-- : 2,362,527 :

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Within the same April report were some interesting updates on the Rare Earths industry

 

== coming ==

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