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Hexagon Energy Materials’ rare earths strategy will be a core value driver: Independent Investment Research

Recent years have seen the development of what could be termed the ‘New Age in Energy’, largely driven by increasing demand for batteries, high field strength magnets and related items.

Hexagon Energy Materials Ltd - Hexagon Energy Materials’ rare earths strategy will be a core value driver: Independent Investment Research
Hexagon is focused on advancing a rare earth element downstream processing technology

Hexagon Energy Materials Ltd’s (ASX:HXG) activities are focused on the development of downstream production of rare earth element (REE) products, with these targeted for production in North America.

The company has partnered with Canadian-based Innovation Metals Corp Inc (IMC) to advance the RapidSX technology for the separation of mixed REE concentrates into various rare earth products.

RapidSX REE processing has the potential to be a major disruptive technology, delivering substantially lower operating and capital costs than the current alternative REE separation processes used in China.

Following is an extract from a research note by Independent Investment Research on Hexagon:

Capturing the downstream opportunity

Recent years have seen the development of what could be termed the “New Age in Energy”, largely driven by increasing demand for batteries, high field strength magnets and related items, for use in electric vehicles, wind turbine generation and consumer electronics amongst others.

This has seen increased demand for raw materials, with graphite, lithium and rare earth elements (REEs) being the headline grabbers over recent years. There is also the need for downstream processing of the raw materials, with this providing the best opportunity to capture value, and avoiding being a ‘price taker”, as raw material producers are (and has been seen with recent oversupply in lithium and graphite causing issues for the miners). What we have also seen is China take control of the downstream supply chain, and in some cases, the upstream as well, with China controlling close to 100% of the markets in some cases.

Therefore, there is the need for diversification of downstream supply in what are considered strategic industries, with, in addition to civilian use, several commodities being critical in military applications. In particular, the US is taking a pro-active approach in supporting development of alternative sources of supply, and there is also a strong drive for increasing domestic content in manufacturing with the “Made-in-USA” push.

Hexagon Energy Materials Limited (“Hexagon” or “the Company”) has identified and acted upon this opportunity and is now focused on advancing REE downstream processing, looking to commercialise new technology with the potential to disrupt the Chinese domination of the global REE processing market and increasing diversity into the supply chain. Hexagon intends to fast track to cashflow and considers the downstream market segments and North America as the means to achieve this goal. The most recent advance has to become a 49% partner in a new incorporated joint venture with Canadian-based Innovation Metals Corp Inc (“IMC”) through funding the construction of a commercial demonstration plant (“CDP”) using IMC’s proprietary RapidSXTM technology for the separation of mixed REE concentrates into various rare earth products. IMC has successfully completed pilot scale test work of RapidSXTM, with the financial support of the US Department of Defense (“USDOD”).

The pilot scale test work demonstrated the capability to separate REE concentrates into commercial quality rare earth oxides (“REOs”) at a substantially lower operating cost, and significantly lower capital cost than current operations, whilst using proven solvent extraction (“SX”) technology. Subject to the successful operation of the CDP, this presents an opportunity to commercialise the RapidSXTM process through licencing and potentially construction of a plant to treat 3rd party feedstocks.

Our view is that Hexagon represents an excellent ‘ground-floor’ opportunity for investors to gain exposure to REE through a lower-risk, more commercially advanced business strategy than a typical upstream REE exploration/development play. The initial commercialisation strategy, targeting licencing the technology, will require relatively limited capital (and thus result in less dilution for shareholders), and will be located in North America - a business friendly jurisdiction with deep markets.

Given the Company’s focus on the REE strategy, we consider this to be the core value driver for Hexagon in the near term with strong news flow expected. However the Company also holds other important assets such as IP in regard to downstream graphite processing, upstream graphite exploration projects (including Mineral Resources) as well as the highly prospective Halls Creek gold-base metals project in Western Australia – we have included descriptions of these in our report for completeness.

Quick facts: Hexagon Energy Materials Ltd

Price: 0.058 AUD

ASX:HXG
Market: ASX
Market Cap: $16.96 m
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Hexagon Energy Materials: Takeover of partner is 'strong signal of support'...

Hexagon Energy Materials Limited (ASX:HXG) managing director Mike Rosenstreich discusses with Proactive's Andrew Scott the takeover of its partner IMC and how they're set to benefit from the option to acquire 49% of their RapidSX technology. RapidSX is a unique accelerated form of solvent...

on 1/5/20

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