Great Western Minerals Group LTD. (TSXV:GWG OTCQX:GWMGF) CEO Interview

Great Western Minerals Group LTD.
(TSXV:GWG OTCQX:GWMGF)
CEO:James Engdahl

Great Western Minerals Group LTD. is an integrated Rare Earths processor. Its specialty alloys are used in the battery, magnet and aerospace industries. Produced at the Company’s wholly-owned subsidiaries Less Common Metals Limited in Birkenhead, U.K. and Great Western Technologies Inc. in Troy, Michigan, these alloys contain aluminium, nickel, cobalt and Rare Earth Elements. As part of the Company’s vertical integration strategy, GWMG has signed an Off-take Agreement for 100% of the Rare Earth Elements produced at the former producing Steenkampskraal mine in South Africa and holds 20.8% ownership in Rare Earth Extraction Co. Limited, the owner of the Steenkampskraal mine. GWMG also holds interests in eight Rare Earth exploration and development properties in North America and Africa.

Interview Transcripts:
Juan Costello: Good day from Wall Street. This is Juan Costello, senior analyst with The Wall Street Reporter. And joining us today is Jim Engdahl, the Chief Executive Officer and President for Great Western Minerals Group. The company trades on the TSX Venture. Their ticker symbol is GWG. As well as on the OTCQX, ticker symbol is GWMGF. Thanks for joining us today Jim.

James Engdahl: Good to be here Juan.

Juan Costello: Great. Always good to have you on. Now starting off, give us a brief history and overview of GWG for some of our listeners that maybe new to your story.

James Engdahl: Sure. Well GWMG is a rare earth company. And we’ve designed our company around being a fully integrated rare earth operation right for mining to producing alloys and dealing with the full chain of the rare earth industry. This is one of the things that we felt was really critical getting involved in an industrial type mineral or element was to ensure that you understood your market and understood what the risks were. And we felt the major risk was just in the rare earth sector which not if you were just involved in mining that would be a fairly significant risk.

So ten years ago, our decision was to become a fully integrated mine to market model. We started obviously with the properties to develop them into production. And while we were doing that, we started looking for the value-added chain downstream which we did over the last five years.

We acquired two different facilities, one in Troy, Michigan, Great Western Technologies that manufacture alloys down there. But the key asset was our acquisition in 2008 in England called Less Common Metals. That’s an alloy plant that’s been making alloys and providing rare earth magnet material to most of the major magnet manufacturers around the world for the last 18 years. And they’ve been buying their rare earths out of China for that period of time as well. So we felt that was a real key asset to get involved with and to own and complete our mine to market model particularly on the value-added side.

After we acquired that particular asset, the urgency to find production because of the supply demand issue and the controls that China has been putting on the export became much more of an urgent matter for us well. We had our flagship property in Canada called Hoidas Lake which was looking very good but it looked like it was going to be longer than we anticipated getting it into production.

So we started looking elsewhere around the world and we found one in South Africa that was an old producing mine in the ‘60s that was already permitted and ready to go back into production. And so we entered into an agreement with them at the beginning of this year where we got 100% of the off-take agreement of all that is produced there in terms of rare earth. And we have subsequently since then acquired 21% of the company that owns that as well. So we’re in that particular operation plans to be in production in the two to three years.

That will be very good timing for us. It is the richest rare earth deposit in the world. It’s got a ten year mine life based on historical information that the company has owned it called Rareco had provided to us in 2,700 tons a year but an overall grade of 17% which will make it one of the low cost producers as well. But because of that grade, it will produce a lot of the heavy rare earths as well as a lot of the late rare earths but very, very low cost producer. That really will complete our integrated model, mine to market once we get that in production.

Juan Costello: Well certainly. So before we get a little bit more of an overview on some of your main projects, can you talk to us about what exactly the mines to market approach is?

James Engdahl: Well the mine to market approach is to explore and find rare earth deposits that will be a primary production outside of China. Once you found production to ensure they’re economical, to make them into an element and into a condensed product, total rare [indiscernible][0:05:10] product. From there, move it into a separation facility. From there, move it into a metal making facility. And from there, move it into our alloy making facility. And from the alloy side of it, then it goes into the final product which will be sold to various companies that make the end product.

And what we make is magnet alloys for the magnet industry. We also make some alloys for the aerospace sector and some other super alloys as well for other various industries including the nickel metal hydride battery industry which is the battery of choice at the moment for hybrid vehicles in the Toyota hybrids, Honda hybrids, and Ford hybrids.

So that’s really the type of produce we make and what we’re working towards as a full integrated model. We will never get involved into actually making magnets or batteries but we will make the alloys right from the mine, right up to that stage though, and that’s what we mean by mine to market.

Juan Costello: Certainly. So bring us up to speed on some of the operations in South Africa, Labrador and New Brunswick.

James Engdahl: We overall have, we’re involved in eight properties, South Africa being the one main focus right at the moment because it’s the quickest to production. And again, as I earlier stated, we acquired the rights for the off take of that particular mine in March of this year. Also in early this year, that mine received it’s new mining license which was a critical milestone. And with that, we hope to be in production sometime in 2013 based on our schedule right now.

That will be our flagship and that will be producing. It will be one of the first mines outside of China producing any amount of heavy rare earth. It will be in the top three in terms of overall production as well in terms of the first being into production so very much attention is being focused on the companies that are first to market right now.

Our other seven properties are involved in North America. Hoidas Lake again as I mentioned earlier is our flagship property in North America. It’s looking exceptionally good. We had some metallurgical issues that we’ve been working towards resolving. And we have made some significant progress there. But also at the same time, the price of rare earths had doubled and tripled and the economics and the different types of processes that we can now use have broadened because of that. We are working towards production on Hoidas Lake sometime around 2015-2016. And we’ll be the only company that has two properties that will be in production within the next five years. And that’s very significant as well.

Our property in Labrador, joint ventured with Search Minerals, we just finished the summer drill program there. We’re waiting on results but we’re very anxiously waiting on them. We’re very positive about what could potentially happen there.

Our one other property we have in Saskatchewan here in Canada called Douglas River which is totally enriched only in heavy rare earths which is rather unique in itself. So that is creating a huge opportunity and we just finished that drill program as well. It’s enriched only it yttrium and dysprosium which is very unique in the rare earth world.

Our other properties that we have are potentially of less significance at the moment. However there is still some with potential. But the ones with the most potential or the ones that I mentioned at the moment, Deep Sands in Utah. We own 25% of that. And we’re just finally assessing what the drill program that we had for that last year and putting that together. But all in all, we got a very diversified property portfolio as well as our fully integrated model.

Juan Costello: Well good. So what else would say, now you mentioned several factors. Is there anything else Jim that you fell makes GWG and Great Western Mineral unique from some of the other players in your sector?

James Engdahl: Well, there are several things that make us a little unique and very significantly unique I should say. One of them is we are the only one that at the moment is capable of becoming fully integrated right from the mine to the market model as we do have the alloy making capabilities right now.

The metal making and the separation technology is very readily available and we’re in discussions with parties to provide that as we speak. And we hope to have something to announce on that. Hopefully before the end of the year but certainly by the end of the first quarter of 2011, that will then complete all of the steps we have to the alloy phase and tie into what our production will be in South Africa.

The other part of our uniqueness is that we do have multiple properties. Two of which could be in production within the next five years. And we have a unique management team. We have a team that’s been involved in this industry for over 18 years.

Our facility in England is unique with the expertise that’s there. It’s the only plant like it in the Western world. There is a couple in Japan but all of the rest are in China. Our facility is absolutely unique and the capability that we have there and the client base that we have there is all of the major magnet makers of the world. And so that was one of the key things that really does make us stand out over and above the rest of the players in the industry because most of the rest just star a one property company with no downstream capabilities. And that’s the big difference. And we think that will be the eventual company maker and put us into the lead in this industry. Certainly make us one of the best in the game.

Juan Costello: Well very good answer Jim. Once again for our listeners that are maybe new to your story, walk us through your background and talk about some of the management team there. I know you had some recent shifts in the advisory board.

James Engdahl: Yeah. My background, historically, I’ve been in the banking and financial world. However, I used to be the CEO of Gold Mining Company, Goldshore Gold. Put that into production but when it ran out of gold, I went back into the corporate finance world and dealing with mergers acquisitions and capital raising.

And five years ago, I joined an old colleague of mine, Gary Billingsley, the Executive Chairman. It was his vision on this company. Gary is a geologist, an engineer, and an accountant, and exceptionally knowledgeable about the whole sector. So it was him and me that teamed up to develop the company to where it is today.

We have subsequently brought on Russel Grant who is our Senior Vice President, Corporate Development. He’s stationed in London, England. He’s been buying and selling rare earths for 30 years inside of China, Russia, etc, and was the former owner, one of the former owners of Less Common Metals, the company we bought in 2008. David Kennedy who is our manager of and director our manufacturing facility was Russel’s partner and he is key to the whole manufacturing side of our operations.

We have added more members to our advisory board. Mohamed Madhi in South Africa and he also sits on the board of Rareco, representing our ownership position there. He’s a former Chairman of Areva South Africa, former CEO of Safika which is a large South African mining group. And is now a consultant as well as an advisory board member to our ourselves, former adviser to Nelson Mandela, and has real strong knowledge of the South African politics and process in that particular area.

We have all added Kaz Machida who has been a consultant of ours for many years but we put him on our advisory board more recently. He’s very, very knowledgeable about the whole, not only the rare earth industry but the critical metals industry in China, Japan, and he represents us in Asia in all those particular markets.

So again, we just have a very strong network of people and all capable of helping us execute our business plan.

Juan Costello: Well great and speaking of which, what are some of those plans and goals that the team is hoping to accomplish over the next year?

James Engdahl: Well, we have a couple of significant goals. One of which will be to complete the feasibility study on Steenkampskraal by November of next year and have the facility built out and hopefully in production by the end of 2012.

We’re also expanding our plant, our alloy plan in Birkenhead, England. We’re going to double the capacity. We’ll increase capacity by 50% this year by adding a new furnace there. That’s on order and will be installed over the next ten to twelve months.

Once that one’s installed, we’ll be putting a second one in and this is at the request of our clients that want more and higher quality type alloy material. That is very, very exciting as they’re all very interested in getting a source of material outside of China and very anxious to ensure and assist us in anyway that we can to get to production with our facilities as soon as we can.

That’s probably our two key milestones in the mining side. On the exploration side, we certainly want to identify where our opportunities lie on Douglas River and Red Wine property in Labrador. And we want to move ahead in advance Hoidas Lake as quickly as possible this coming year as well.

[pause]

Hello?

Juan Costello: Yes, and when it comes to, sorry I accidently didn’t get the first part of my question. When it comes to investors and the financial community Jim, do you believe that the Great Western Mineral story, your message and ultimately the company’s upside potential are completely understood and appreciated by members of the financial community?

James Engdahl: The financial community and the industry in itself has still got a long ways to go in terms of understanding what the risks are, who the good companies are, what the risks are with each one of the companies. I always say there’s four things that you really want to understand about a mining property in particular, one of which is the grade. The second which is the distribution of the rare earth elements. The third is the metallurgy and the fourth is the location of the property and the geographics and the political situation where the property is located.

If you understand all of those things very well, you’ll understand whether the property will be economical or not. But that doesn’t necessarily mean even if it’s economical, what the risks are, and you also need to under- when I say distribution, you need to understand the light rare earths, heavy rare earths. Right now because of the excitement in the industry, a lot of the prices of the rare earths have gone very, very high. And a lot of it’s due to the export duties and the tariffs that China has put on. And in particularly Cerium and Lanthanum which are two of the major light rare earth elements that are in most deposits and the most significant part is anywhere from 50 to 75% of deposits could be Cerium and Lanthanum. And those prices are extraordinarily high and depending on the model that the companies are using to make their economics, you really want to be careful.

In China, you can buy Cerium and Lanthanum for 7-8 dollars a kilo, maybe even a little lower. But outside of China when you add the duties and tariffs on which you have to do, you’re looking in the 35-40 dollars a kilo range. Well the risk there is if China drops the duties and tariffs on Cerium and Lanthanum which they may very well, as there could be a surplus of that if all these mines get into production, then you’re dealing with what the prices of rare earths would be in China. And that’s a significant difference. So depending on the economic model, you really need to understand that.

Juan Costello: Certainly and yeah, which you actually answered my next question which was what do you think investors are missing from the story which uhm, you know if they better understood will result in a possible higher valuation.

So once again joining us today is Jim Engdahl, the CEO and President for Great Western Minerals Group which once again trades on the TSX Venture, ticker symbol is GWG. As well as on the OTCQX, ticker symbol is GWMGF. Currently trading at 41 cents a share. We were discussing the company’s recent corporate update, update on their operations in South Africa, Labrador, and New Brunswick as well as some of the trends in the rare earth metals industry.

So before we conclude Jim, to recap some of your key points here, why do you believe investors should consider Great Western Minerals Group as a good long term investment opportunity?

James Engdahl: I think we’ll be one of the first outside of China to get to production. We’ll certainly be one of the first that’s a fully integrated operator. We’ll certainly be one of the first that produces significant heavy rare earths. We’re diversified in terms of our property portfolio and geographics of where they’re located.

And we believe we’re exceptionally undervalued where a lot of the other companies we believe potentially are overvalued. We don’t believe there’s a lot of upside value. I’m not saying anyone of the other companies aren’t good but I don’t think there’s a lot of value left in it when you look at the top six or seven companies in this industry, the market caps are around six, seven or eight billion dollars on any given day. And the whole industry is worth less than three billion in terms of upside values being produced.

So I think there is some inflated market caps and there’s some that aren’t. There are two or three of us that aren’t where we believe where we should be. So I think that’s one of the reasons and the key reason why you would look at a company like ours.

Juan Costello: Well we certainly look forward to continuing to track the company’s growth as well as report on your upcoming progress. I like to thank you for taking the time to join us today Jim and update our investors on Great Western Minerals. It’s always a good to have you guys on.

James Engdahl: Thank you Juan.

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