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Daily KRO 2024 Favorites Report Publisher: Kaiser Research Online Author: Copyright 2024 John A. Kaiser
Daily Kaiser Research Favorites Report for April 17, 2025
(0:19:28): Why did Sunrise Energy Metals jump this week?
Sunrise Energy Metals Ltd was made part of the 2025 KRO Favorites Collection because it owns the biggest and richest scandium deposit in the world, is controlled by Robert Friedland who raised an spent over $200 million on the Sunrise nickel-cobalt project as an energy transition strategy that is dead for now, and showed signs last year that is was pivoting back to developing the Syerston scandium deposit within the Sunrise project. The stock had sunk to bottom-fish levels because the market understood that clean nickel cannot compete against dirty Indonesian nickel supply bankrolled by Chinese money, and that cobalt was being pushed out of lithium ion batteries even as Congo was ramping up supply, again with the help of Chinese money, to such an extent that Congo suspended exports last month to allow global inventory to be drawn down and the price to rebound.
KW Episode January 15, 2025 provides an explanation why I think Sunrise Energy is the best candidate to emerge as the dominant global scandium producer despite Rio Tinto's efforts to achieve that goal, but the "missing piece" remained, how do you crack the chicken and egg problem, namely, how do you bankroll a scalable primary scandium mine without binding offtake orders to make funding CapEx justifiable, and who would sign a binding offtake agreement for a metal that has never been produced at primary scale?
This past week the price of Sunrise started to rise on modest volume toward $0.30, and on Friday volume jumped to 1,032,126 shares with the price peaking at $0.472 before closing at $0.43. I checked Hotcopper, Australia's stock forum, but the audience there was mystified about what might be driving the stock price. It is unlikely the market interest is due to some development involving Sunrise Energy's other projects because the company would have announced such news. The most significant news took place on February 5, 2025 when Sunrise updated the Syerston scandium resource, but that did not move the needle because the market already knows the deposit is the richest and biggest in the world, and that did not change.
On April 7 Sunrise announced scandium assay results for historical holes drilled in 1997 that were never assayed for scandium and were drilled on the periphery of the mineralized system. The pulps from some of these holes had grades comparable to the resource estimate, and Sunrise plans to drill another 5,000 m as part of a new feasibility study, but that hardly changes the fundamentals which are rooted in the chicken and egg problem. But it is something management can point at when the stock exchanges calls and asks "why is your stock no longer trading like a piece of shit?"
There has been rumbling that some party may plan a takeover bid for the company, which leads one to wonder if Friedland is preparing to sell Sunrise Metals for $100 million as happened when Peregrine Diamonds Ltd was sold to De Beers in 2017 after Eric and Robert Friedland gave up and acted to get their investment back. That would result in a nice payout at around AUD $1 per share, but Sunrise and Peregrine are two entirely different stories. Peregrine's Chidliak diamond asset was small and unimportant for the future of diamond supply, and natural diamond demand is under pressure from synthetic diamonds. Sunrise's Syerston is world class and could become the foundation for an entire new generation of aluminum alloy materials. What is happening is a market awakening to the possibility that the timing is right for the chicken and egg problem to be smashed.
When you look at the recent corporate presentation there are substantial differences from past presentations which were larded with all sorts of clean energy blah, blah, blah like one sees in the presentations of juniors which include the word "battery" in their names. The latest presentation is down to earth and provides facts about scandium supply and demand, the fundamentals of the project, and the geopolitical conflict with China.
During the past week China has added scandium along with the heavy magnet rare earths dysprosium and terbium to a restricted export list that isn't a full-fledged export ban as it did in 2010 when it got into a skirmish with Japan over the disputed Senkaku Islands, but more of a paperwork bottleneck ostensibly to prevent these metals from being acquired for US military purposes. Given that metal purchases can travel through shell companies before reaching a final destination, and the fact that military usage is generally a fraction of total usage, this is a de facto throttling of export of metals whose total monetary value is a drop in the bucket.
It is estimated that annual scandium oxide production is about 50 tonnes, of which 80% is produced by China, mostly through stripping scandium out of the waste water generated in the production of TiO2 pigment for the paint industry. Apparently this works only for an outdated process which is gradually being phased out (it is the reason Rio Tinto could no longer sell titanium slag from its Sorel-Tracy facility in Quebec and which forced it to develop a circuit to upgrade to rutile grade equivalent, during which it figured out how to extract scandium as a by-product, as a result of which it decided to move into the scandium supply business). The rest comes from a nickel laterite operation in the Philippines and red mud reprocessing by Russia in the conversion of bauxite into alumina. Supposedly at one time scandium was recovered from seams within the Bayan Obo rare earth deposit but that may have stopped. The Soviets recovered scandium from 120 ppm seams in the underground Zovti Vody iron mine in Ukraine.
Sunrise estimates that 75% of global scandium supply is used by solid oxide fuel cells, of which Bloom Energy is the primary producer. About 20% is used by aluminum alloys and 5% by semiconductors. If the Chinese are serious about restricting the export of scandium, this is a serious problem for Bloom Energy which has used thrifting to reduce how much scandium its fuel cells need, but scandium remains a critical input. The chicken and egg problem exists because scandium has never been a critical input for other potential end users.
Rio Tinto bought the Owendale property from Platina for $14.7 million which it now calls Burra, but unlike Sunrise which has a mining lease for Syerston, Rio Tinto is bogged down in permitting Burra and has a water rights problem to solve. It is conceivable Friedland would sell Sunrise to Rio Tinto, but that seems unlikely given the bad blood between them over Turquoise Hill and Oyu Tolgoi. Bloom Energy may now have no choice but to do a solid offtake agreement with Sunrise.
The real upside potential for Sunrise Energy would lie in following the Materion model which has turned its Spor Mountain beryllium mine in Utah into an internal supply for downstream applications it has developed or licensed. This also appears to be the Chinese rare earth model where rare earths supply is priced at production cost and sold to related entities which control magnet production where they make a profit. The old model pursued by juniors has been to be a supplier of a commodity to parties who have no demand competition and thus try to grind an offtake price down so low there is no point building a primary scandium mine. Trump's trade war is destabilizing global assumptions about everything, which does create conditions for disruptive decisions.
Scandium has always fascinated investors because it is so easy to see how many applications would benefit from aluminum-scandium alloy if only a stable, scalable supply could be established. The Europeans are now looking hard at weaning themselves from dependency on American military hardware, which will cost an awful lot of money. Why not embrace fighter jets made with Al-Sc alloy? The location of Syerston in Australia's New South Wales means Sunrise could be a supplier of downstream scandium enhanced materials to anybody in the world. Best of all, so far it does not appear that China has any comparable scalable scandium supply potential. The other deposits are smaller or lower grade and will have to sell at the price set by the owner of the future Syerston Mine. The resource is a hundred times bigger than the initial proposed processing scale. The nickel-cobalt play was never going to be worth more than the NPV as defined by the global nickel and cobalt prices, but the Syerston deposit has huge usage defined growth potential. That is why Robert Friedland is not going to do a capitulation deal similar to that done with De Beers for Peregrine Diamonds.
Supply and Price charts for Nickel and Cobalt
Syerston Scandium Resource
Plan View of Syerston Scandium Resource categories
Drill Plan showing location of 1997 holes assayed for scandium
Grades for existing scandium by-product sources and Syerston
