The past ten months have been an exciting yet tumultuous time for Ucore. I’d like at this time to reflect on Ucore’s past and to provide you with an update as to where the Company is today, where we are going, and why it is important.
Since 2007, when I took the helm at Ucore, the goal of the Company has been to maximize shareholder value by pursuing the mineral resources most critically required by today’s technology-centric economies. Ucore started on this path by acquiring the Bokan Mountain Complex in Southeast Alaska, U.S.A. (“Bokan”). The asset has a remarkable pedigree. During the Cold War Era, from 1958 -1973, Bokan was one of the highest grade producing uranium mines on U.S. soil. The Bokan U3O8 deposit (located approximately a mile away from the Bokan rare earth deposit) remains open both at depth and along strike and continues to be a highly prospective target for future development.
Ucore’s initial exploration work at Bokan commenced in 2009, and almost immediately uncovered unusually high concentrations of rare earth elements (“REE”). More specifically, the area was found to be enriched in heavy REE (“HREE”), metals that are among the most valuable, sought after, strategically important, and hard-to-obtain in critical concentrations at a world level. The discovery prompted a change in focus for Ucore, the timing of which proved to be highly fortuitous. Rare earth prices were set to soar on an interim basis between 2010 and 2012, in the wake of an increasing threat of a retraction of supply from China, the world’s near-monopolistic supplier of REE. Years later, in 2019, the situation would rear its head yet again, with Chinese supply in serious doubt, and the U.S. now taking extraordinary measures to rectify that threat (more on this below).
As of 2015, Ucore’s unyielding focus on REE development at Bokan had borne two significant assets for the Company: (i) An Established Mineral Resource 1 – The highest grade NI 43-101 compliant HREE resource on U.S. soil; and (ii) High Quality Long Term Financing – An undertaking by the State of Alaska, unanimously approved by the State Senate and House of Representatives, to support financing of up to USD$145 M in development costs of the Bokan REE project via low-interest long-term debt.2 This latter development was a highly unique and valuable feature of the Bokan development proposition. To our knowledge, no other REE development enterprise has secured such a magnitude of government funding support, in the U.S. or beyond. Today, that financing mechanism remains in place and awaiting use, subject to the completion of engineering and planning information by Ucore and due diligence by the Alaska Industrial Development & Export Authority (“AIDEA“).3
With an advanced resource and a highly respected financing partner secured, Ucore turned its focus to a missing component that would complete its “development trilogy”: an effective and permittable REE separation technology. At that time, as today, the go-to technology for REE isolation at a world level is known as Solvent Extraction (“SX“). While SX is effective at recovering REE, it was our belief that this technology could be improved upon, both in terms of cost and efficiency. After a widespread search, we identified a small Utah-based scientific company known as IBC Advanced Technologies, Inc. (“IBC“). The objective was to jointly develop IBC’s molecular recognition technology (“MRT“) specifically for individual REE separation. There was good reason to anticipate success. MRT had met with prior commercial acceptance within the PGM sector, a metals group which, like the lanthanide group (REE), was known for the resistance of its constituent metals to effective individual separation.
As with our resource development and financing initiatives, Ucore again met with success. By 2015, the development work had culminated in a scientific milestone: the first-ever near-quantitative recovery of dysprosium (“Dy“) derived from U.S. feedstock and without the use of SX methodologies. Beyond Dy, the MRT process additionally proved to be successful in separating the entire commercial lanthanide suite plus yttrium and scandium with promising efficiency.4 This little known technology platform, already in use in industrial applications around the world, prospectively offered savings across many fronts, including plant construction cost (“CAPEX“), plant production cost (“OPEX“), and overall plant footprint. The ensuing period (2015-16) was occupied with delivering an equally successful REE pilot plant, which proved that REE/MRT could be effectively transposed to industrial scale, as well as contributing to the engineering knowledge for the construction of a full-scale commercial MRT REE separation facility.
Notably, Ucore had at this point orchestrated what appeared to be an American “grand slam” of REE development: an advanced U.S. resource, an advanced financing source, and an advanced separation technology partner, all fully contained on U.S. soil. The promise of U.S. domestic independence from Chinese REE supply was not only real, but highly financeable, with the backing of the very influential partner, the State of Alaska. What’s more, the Company had effectively secured a “mine to metal” infrastructure that could readily form the basis of a wholly self-sufficient U.S. HREE supply chain. Such a plan for American critical metals independence was in keeping with the ambitions of the U.S. Critical Materials Institute, the U.S. Department of Defense, as well as legislators in Alaska and Washington, D.C. alike.
By 2018, the stage was set for Ucore to exercise an Option to Purchase Agreement (“OTP“) with IBC, a document that was set in place and agreed to years earlier. The OTP included a valuation for IBC established in 2014, well before the MRT-based rare earth separation breakthroughs, and the international attention that these noteworthy feats thereafter attracted. Ucore’s decision to exercise the OTP pivoted on a foundational conclusion: that MRT held immense commercial potential not just for REE, but for multiple metals and other highly profitable extractive and separation applications (a conclusion upon which both Ucore and IBC apparently agree).
Unfortunately, as has become widely publicized over the past several months, IBC has claimed that it is no longer required to honor the OTP, for reasons and motivations that have come under dispute. Today, the matter is under the consideration of a very capable judicial system. The arguments and the respective supporting documents are now on the public record and available for open review. To date, all significant rulings and decisions in the action have gone to Ucore’s favour.5
However, we recognize that the ongoing legal proceedings have presented a significant distraction to you, our shareholders. This is especially true, given the substantial prize now available to Ucore by simply staying the legal course, and by seeing the IBC acquisition proceedings through to their logical conclusion. With this in mind, Ucore has undertaken some very effective internal measures to minimize and compartmentalize the litigation proceedings. The process is now being actively managed by our COO, Mike Schrider, under the guidance of an Independent Committee of Directors and overseen by Ucore’s Chairman, Pat Ryan. This very capable team is additionally being advised by two of the finest law firms in North America – Cox & Palmer in Nova Scotia, and Dorsey & Whitney in Utah.
The remainder of the Company’s week-to-week activities are insulated from these proceedings, so that business growth and development remain the focus. We do not expect an over-night resolution to the dispute and the related acquisition of IBC. We do, however, fully expect Ucore to carry the matter to fruition and to harvest a significant return on our investment in the transformative capabilities of MRT.
With the foregoing fully compartmentalized, Ucore has once again embarked on focusing on Bokan and the associated impending needs of the U.S. Federal Government (“USG“) regarding the dearth of a U.S. domestic REE supply chain. Current global events suggest that the West is on the threshold of yet another significant disruption, akin to the events of 2010, pertaining to a REE supply chain which remains utterly dominated and manipulated by China.
The Trump Administration has undertaken a number of escalated measures in recent months to fast-track domestic REE production and to avert a looming crisis. The Defense Production Act of 1950, as amended, requires the U.S. President, under circumstances of sufficient national need or crisis, to make one or more presidential determinations in order to authorize the U.S. government to invest directly into privately-owned manufacturing capabilities (the “Determinations”). On July 22, 2019, the White House issued a series of five (5) such Determinations, concluding that domestic REE processing capabilities are essential to U.S. national defense.6
Those Determinations identified important strategic shortfalls in the entire REE supply chain in the United States. Specifically, these include the capacity of separation and processing of HREE to meet the needs of modern U.S. military platforms – critical materials available at Bokan, and capabilities that Ucore is in the advanced stages of developing in Southeast Alaska. The Determinations resulted in a request for information (“RFI“), issued under the Defense Production Act (“DPA“) Title III Office. The DPA Title III program authorizes the Federal Government to procure and install equipment within plants, factories, and other industrial facilities which are owned by private entities, with the RFI representing a rapid initial step toward realizing this goal.
Significantly, on August 22, 2019, Ucore announced its formal response to the RFI.7 The response document proposed the expedited development of Bokan in combination with REE processing and separation facilities to be located in Ketchikan, Alaska. Ucore was presented as one of very few entities capable of advancing such a separation facility (due to the significant financial support of AIDEA), and possibly the sole proponent capable of accessing HREE in critical concentrations on U.S. soil in the near term.
Today, Ucore defines itself as the premier near term source of HREE oxides within the United States, by virtue of its Bokan mineral resource property. The property is a significant lynchpin in the elimination of American reliance on foreign jurisdictions for these critically important metals (defined as any jurisdiction beyond U.S. borders, including Australia, China and other locations in Asia-Pacific and beyond).
Fulfilling this role will involve a two-step parallel process, a more detailed discussion of which will be issued in the days ahead:
With this in mind, a singular remaining “deliverable” of the Alaska SMC plan remains outstanding: the sourcing of a competent and permittable separation platform for the construction of the SMC — one capable of scaling and expanding in-step with a burgeoning U.S. REE supply opportunity. This technical and engineering priority is particularly important, given the intermediate impasse with IBC, and the likelihood that MRT will not be available for the near term engineering advancement of the Alaska SMC.
Nevertheless, the DPA Title III program delivered a unique opportunity to Ucore in July 2019, one that would open avenues of rapid development for the SMC. Prior to this, Ucore had every expectation that SX technology would be subject to a cumbersome permitting cycle within the U.S. Our concerns on this front were largely offset by the USG itself, with indications to the Company that an already commercially proven REE extraction technologies would receive the highest consideration for USG funding. Such a limitation makes sense, since a history of fast deployment and widespread use would be logical constraints, especially given the urgency of establishing a U.S. based supply chain without further delay. It also meant that on a practical basis, SX based configurations would be given front-of-the-line status for approval under the DPA Title III program.
With this information, Ucore has since been encouraged to deliver an SX-based proposal for early stage development, commencing immediately, without the involvement of IBC. Such an approach effectively mitigates the current impasse, but does not preclude the use of MRT in the mid term. MRT, once legally liberated for use in REE applications, holds substantial promise as a complementary separation stage, potentially taking output product from SX circuits to otherwise impracticable levels of purity. The combination of SX and MRT suggests a layering of nanotechnology on top of traditional SX, delivering a derivative technology (“Hybrid SX”) that is theoretically the best of all worlds.
Significantly, with the migration to an SX-based platform for the SMC, Ucore aims to simplify and expedite its anticipated ramp up, to put the Company on a very short list of players with an advanced (PEA-stage) domestic HREE resource, an advanced financing source, and a largely “off the shelf” technology which can be deployed with little or no delay. This strategic move has gained the support of the Ucore board, and our team of Alaska and Washington-based advisors alike, happening very quickly, and as a means breaking the development deadlock of the past several months. We encourage you to look for the announcement of our SX development alliance, in keeping with DPA Title III expectations, in the weeks ahead.
Over the past ten months, our senior executives (Pat Ryan, Chairman; Jim McKenzie, CEO & President; Peter Manuel, Vice-President & CFO; and Mike Schrider, COO) along with the rest of our management team and our major shareholder, Randy Johnson, have aligned Ucore with potential commercial partners in support of these planned initiatives; and additionally continued to work with the State of Alaska, the Alaskan congressional delegation, and the U.S. Department of Defense to soon unlock the value of the Bokan HREE Project and the expected Alaska SMC for the emerging and necessary American REE supply chain.
While it’s taken longer than anyone would have expected during the initial commodity based mania of 2010-12, U.S. market dynamics have now crossed a threshold whereupon an independent domestic REE supply chain is not only possible, but exceedingly likely. Events of the past several years have escalated into action, a culmination of a heightened Sino-American trade war, critical metals supply issues, concerns for U.S. defense and technological independence, in concert with increasing American geo-political willingness to meet the crisis head-on. At Ucore, we’re excited to be at the forefront of this resurgence of Western leadership in technological materials production and the establishment of a wholly independent critical metals supply chain, and we encourage you to stay tuned to this remarkable story.
Yours very truly,
President & CEO
Ucore Rare Metals Inc.