Frontier Rare Earths, the South Africa-focused rare earths developer, will apply to de-list its shares from trading on the TSX should its shareholders vote in favour of the decision. This follows the completion of a company strategic review initiated in Q1, 2014.
A shareholder meeting will convene in 16 September to vote on the delisting.
Rare earths prices hit five year low
Sentiment in relation to the listed rare earths sector has been negatively affected by the significant financial and operational challenges that have been encountered by the two leading western rare earth producers, of whom one, Molycorp Inc., filed for Chapter 11 bankruptcy in June 2015 with debts of approximately $1.7 billion.
Rare earth prices have also recently hit five-year lows. These issues have resulted in a loss of confidence by the markets in the ability of any of the junior rare earth developers to secure the finance required to develop their respective projects through the conventional listed equity and debt capital markets.
As a consequence of these market conditions Frontier’s share price on the TSX has remained low, with a market capitalisation close to or below the company’s net cash balance, for an extended period of time, effectively attributing minimal value to the company’s assets.
Frontier has undertaken several initiatives over the past three years with the objective of ensuring that the trading price of the shares better reflected what the board believed to be an appropriate valuation of the company and its assets.
These included two normal course issuer bids (share buybacks) and various public relations, investor relations and other marketing campaigns. These initiatives have had very limited and only temporary positive impacts on the trading price of the shares, and have been insufficient to overcome the considerable negative sentiment in the junior resource sector.
Conclusion of the strategic review and proposal to de-list
The strategic review was concluded in July 2015. The principal conclusion of the review was that the most likely sources of the requisite funding to enable the company to advance its Zandkopsdrift project into production was from sovereign and/or strategic investors that:
(i) have the ability to take a longer term view of the opportunity provided by and potential financial returns from the Zandkopsdrift project; and/or
(ii) consider access to or gaining control of a secure, low cost supply of rare earths to be a strategic long term imperative.
With significantly reduced liquidity and very limited equity capital available for junior resource companies on the TSX and other markets, Frontier has focused much of its recent corporate development activities on developing relationships with potential sovereign and/or strategic investors, certain of whom have signed confidentiality agreements with the company.
In the course of discussions with potential partners and investors, it has become clear that the low market capitalisation of the company is a significant impediment to being able to progress discussions in relation to valuation on a basis that the company considered to be fair, reasonable and in the best interests of all shareholders.
Considering this point, and the company’s view that the prospects of securing the level of funding required to advance and develop the Zandkopsdrift project from conventional financial investors in junior resource stocks are very low, the company has concluded that developing and continuing discussions with potential sovereign and/or strategic investors should continue to be the focus of its corporate development activities, and that such discussions would be better conducted for the benefit of all shareholders as an unlisted company.
Accordingly, the board has resolved that Frontier should apply to the TSX to de-list from the TSX. Subject to the proposed delisting being approved by shareholders, Frontier plans to develop and continue discussions with those investor(s) who could potentially provide the requisite funding to support the continued development of the Zandkopsdrift project and/or acquire a shareholding in the company and/or the project which could also potentially facilitate a liquidity event for shareholders.
These discussions will include the company’s existing strategic partner, Korea Resources Corporation, which acquired a 10% fully participating interest in the Zandkopsdrift project in 2012 and continues to be supportive of the Zandkopsdrift project and remains actively engaged with Frontier.