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Philip Broughton of the Financial Times discusses the phenomenon of Tesla whose $28 billion market valuation is far ahead of current Tesla sales. In fact, it is half that of BMW which sells 35 times as many cars and is profitable. He argues that in buying Tesla stock one is not so much making a bet on future revenues and profits, but more so a bet on Tesla's potentially transformational role in the future of energy, cars and technology under the visionary leadership of Elon Musk. He does not say Tesla is destined to become another Amazon or Apple, but he does emphasize that Musk "thinking big" out loud is what attracts hedge fund managers and other speculators who to some degree own the stock simply so that down the road if it has become a glorious success they can say they were on board. I thought the article interesting because it reminds me of the current situation with scandium where global supply of 10-12 tonnes scandium oxide is worth only about $20-$50 million. It is used either in irrelevant stuff like sporting goods, or obscure classified military applications. Two companies, Scandium International Mining Corp and Clean TeQ Holdings Ltd, are conducting feasibility studies on production scales which together would boost global supply 10-20 fold to about 100 tonnes, potentially churning $40-$50 million annual cash flow for each company for decades. That could earn these two juniors market valuations in the $300-$500 million range, which would constitute 5-10 fold increases from current levels. The story has attracted market skepticism from investors who cannot understand that demand in the case of scandium is a function of supply that has been forever constrained because scandium does not easily concentrate to form mineable ore. They also do not understand the transformational impact a potentially unlimited supply of scandium oxide at a stable price, such as is currently the case for niobium, would have on demand for aluminum-scandium alloy materials. The Nyngan and Syerston deposits are large enough to each produce 200-300 tonnes of scandium oxide annually. So imagine future production capacity expansions to this level supporting $200-$400 million annual cash flow for each operation? What would that make each company worth? Back in 2010 when Tesla went public I suggested during a radio interview with a gold bug host that an electric car of Tesla's nature rather than the pitiful Volt represented the future of car transportation. Naturally the host scoffed at the idea, as well as my other idea that Molycorp, which had just gone public at $14 and sunk to $12, represented a major revival of non-Chinese rare earth supply. The whole idea of renewable energy and the electrification of the car industry subsequently took a hit when the Tea Party gained control of the American House of Representatives and pounded a stake into the heart of climate change policy. But something changed in 2013 after Obama managed to get re-elected. Tesla represents the re-awakening of optimism about a different, better future displacing the sorrowful moans and groans of the doom and gloomers, many of whom think a fist full of gold cures all ills. With scandium one can think big, much bigger than currently contemplated by either George Putnam or Robert Friedland through their initial operational plans. By-product producers cannot think big; they can only hope a big market evolves into which they can feed their by-product scandium. Gold bugs have a hard time understanding the scandium story because with gold, if you have a gold deposit, you develop it for optimal depletion. You build the company by finding other deposits, or using the cash flow or market cap resulting from your initial profitable mine to acquire other gold deposits, growing your company incrementally through M&A. What SCY and CLQ will be able to do is grow their companies by simply adding production capacity to their existing deposits which at the initial proposed production scales would produce for over a hundred years. These deposits in New South Wales appear to be uniquely enriched; a handful of juniors control them. They have the equivalent of an intellectual property protecting patent. Their product ties into enhancing energy efficiency, mainly as a transformational alloying agent for aluminum. Scandium piggybacks on the Tesla dream, but even better, for the Tesla dream could one day still evaporate, scandium piggybacks on Ford's more mundane and thus robust dream of the F-150 pickup truck. In the beginning the market will use textbook methods to value Nyngan and Syerston based on initial production scales, but somewhere along the way the market will telescope the capacity expansion potential into the current market valuation. That potential is a key reason a retired executive director of Bechtel Group, one of the world's biggest engineering and construction firms, personally invested CAD $1.9 million in Scandium International to purchase just under 10% of the company. Andy Greig also happens to have been the former head of Bechtel's global mine development unit. How long before the charts of Scandium International and Clean TeQ explode on the upside in the manner Tesla did in 2013?
