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TORONTO — As RB Energy Inc. flamed out and fell into creditor protection during the past couple of weeks, investors were shell-shocked.
Despite some start-up problems in recent months, Vancouver-based RB seemed to be in an ideal position. It was emerging as North America’s only serious lithium producer, just as demand for the metal is set to soar because of its use in electric vehicle batteries. Its management team was linked to the legendary Lundin Group, a resource conglomerate with a fantastic track record of success. Lundin companies do not just melt down like that.
But RB did. It filed for protection last Monday after its stock price collapsed and it could not raise capital under reasonable terms.
“I can tell you it’s been a long time since I’ve seen the resource capital market crash as quickly as that,” chief executive Rick Clark said. “I would say the last time was back in the ‘90s.”
There was a time when RB, formerly known as Canada Lithium Corp., had a much easier time raising cash. The company has tapped the capital markets for about $268-million since 2009, according to Financial Post data. RB also received $92-million of debt financing from Bank of Nova Scotia and Caterpillar Financial Services that was partially guaranteed by the Quebec government.
RB is one of several companies that capitalized on an investor frenzy for lithium, rare earth elements and other rare metals. Prices for these specialty commodities went berserk between 2009 and 2011 due to concerns about tight supply and rising demand from industries like green energy, consumer electronics and electric cars. Lithium production was limited to a handful of players and rare earth production was almost entirely in China, where the government put restrictions on exports. Investors bet there would have to be new sources of supply.
They started pouring money into junior mining firms that were fortunate enough to have the words “lithium” or “rare metals” in their name. Indeed, some companies shifted their focus to lithium or rare earth firms to take advantage of the frenzy.
In retrospect, a lot of these financings were disastrous for shareholders. For example, Avalon Rare Metals Inc. raised about $92-million in public offerings between 2009 and 2011 at prices between $2.30 and $5.81 a share. Today, the stock is worth 30¢ and the company’s total market value is $38-million. Rare Element Resources raised $57.5-million at a staggering $9 a share in 2010. It is now down to 70¢.
For the rest of this article, click here: http://business.financialpost.com/2014/10/17/rb-energy-meltdown-highlights-tough-times-for-lithium-rare-earth-firms/