Asian Metal: Hello Bernhard, it is great to speak with you again and thank you for agreeing to this interview. The origins of the Seltenerden Storkwitz AG project date back to the 1970’s. Would you mind elaborating upon the history of the project and explaining how you came to discover this unique RE opportunity?

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Bernhard: The Storkwitz deposit was discovered in 1973 by SDAG Wismut, a German Soviet Union entity that was doing extensive drilling for uranium throughout the German Democratic Republic (GDR). Rare earth elements were also an important raw material for the GDR, so Wismut chose to conduct an extensive drilling program on the ore body from 1973-1985. We have a wealth of historical data, graphics, and geometric size estimates from this time period. Nevertheless, after the German reunification further efforts towards exploration were abandoned due to financial issues and the project, as well as development for the necessary separation technologies, was halted in 1989.

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In 2007, Deutsche Rohstoff AG rediscovered the Storkwitz ore body. Deutsche Rohstoff is always looking for formal projects or exposures which were previously identified and/or partially developed but for economic or other reasons were abandoned. After taking a strong look at the Storkwitz project, they determined the prior exploration work indicated the project may be worth considering again. They then applied for the prospecting license, which they received from the province of Saxony in 2007, and proceeded to conduct two years of preparation work, primarily focused on extraction development and cost analysis. The rare earth crisis in 2011 and the resulting spike in price prompted Deutsche Rohstoff to form a single company solely focused on the development of the Storkwitz project, leading to the eventual creation of Seltenerden Storkwitz AG. Since then we have basically picked up where Deutsche Rohstoff left off.

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Asian Metal: I understand a drilling program is currently underway at the Storkwitz deposit, primarily hoping to verify but also hoping to expand upon historical data. Would you mind providing a brief summary of progress to date?

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Bernhard: The extensive exploration work during the GDR period meant the Storkwitz project was already well advanced beyond the green field exploration stage before we began drilling. The recently completed drilling program was primarily designed to help verify the results determined by previous GDR drilling programs in order to establish a basis for a JORC estimate. The initial drilling program began in April and finished in July. The results are in line with our expectations and provide confirmation of the geometric size of the ore body to a depth of 700 meters. We are working towards a JORC report and while JORC estimates will primarily be based off of the drilling results up to this depth, GDR drilling data will also be taken into consideration. In the historical GDR reports, another 300 meters are safely included in the geometric model and these estimates appear to be reliable. Our initial analysis of drilling samples is very promising and we are confident any further analysis will yield similarly strong results.

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Asian Metal: The recent explosion of growth in the rest of world (ROW) rare earth mining sector was driven by the need to transition from China’s near monopoly status on RE upstream production towards a more diversified global RE material supply chain. At present, there are hundreds of hopeful rare earth mining ventures distributed throughout six of the seven continents. What do you think the global RE industry, particularly the European RE industry, needs to accomplish during the next few years to lessen dependence upon Chinese production and how is the Storkwitz project uniquely positioned to handle these challenges?

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Bernhard: If you look into the landscape for rare earth exploration, you will often find a figure claiming there are roughly 400 rare earth mining projects hoping to reach production. This number is tough to verify as the majority of these companies are not real contenders and some are already in the process of exiting the market. Even if you look at the 10-15 leading junior mining ventures, there is still no guarantee many of these companies will be successful as the majority still have a long way to go before they reach production. The fact remains that many of these ventures are still in the early development phases and industry participants, the major end users, remain uncertain about the feasibility of their respective projects. The critical considerations continue to be project location, the geological mineralization situation, the political situation, and perhaps most importantly, demonstrated proof that the project has the technology and know-how to produce rare earth materials on a large scale. Only a select few projects are in the late stages of their development timeline, meaning there is still a lot of work that must be done before the rest of world can effectively reduce its dependence on Chinese production and there is still some uncertainty about which remaining projects are best suited to fill this position.

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A German rare earth deposit is of huge strategic importance to German industry and has the potential to become one of the important global sources for rare earths in the future. German companies will not rush into agreements with mining ventures in remote areas like Canada and Alaska without assurance that the mines will be able to actually reach production. Many of these mines have yet to reach that stage of production, and a project like Storkwitz, which is located in Germany, becomes an increasingly attractive option for many of the major German end users.

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Asian Metal: Deposit location plays a huge role in the success of a project, particularly in the realm of local mining legislation and polices as well as regional politics. While projects in politically unstable countries frequently fail to reach production due to security and continuity issues, the recent delays to the approval of the Lynas LAMP facility’s temporary operating license highlight the environmental concerns facing hopeful mining ventures. Please elaborate on the advantages of Seltenerden Storkwitz AG’s location in Germany.

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Bernhard: Location is our equity story. We want to be the first and only rare earth mining company in Germany. Even when we were in the early drilling stages, we immediately established our strategy as a German rare earth company. Germany is in the middle of Europe and is the fourth largest consumer of rare earth materials. Aside from being one of the industrial manufacturing hubs for Europe, Germany is also a global centre for cutting edge technology development and production, meaning the German industry will continue to require access to all of these rare earth materials. The Storkwitz project is located in the centre of an industrial zone and has instant access to a number of large chemical and mining industry partners. Our location enables us to work closely with many of the leading German manufacturers, and by developing specific rare earth element solutions we hope to acquire many of these customers at an early stage. We are already in touch with end users about developments at our project and they are showing a lot of interest in what we are doing.

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The situation for a German rare earth mining company is much more compelling for German industry, even in the case of a small company. Germany has a wealth of profound knowledge as far as rare earth materials are concerned and the Storkwitz project is a great opportunity for German industry to build up strength in this field again.

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Asian Metal: The environmental impact of mining projects and their respective processing facilities has repeatedly proven to be an issue of concern for surrounding communities. Prior to China’s recent push towards more sustainable mining practices, lax environmental standards along with severe resource overutilization led to prolific environmental degradation throughout various parts of China. What measures do you plan to implement in order to assure a safe and sustainable RE mining operation?

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Bernhard: Sustainability and safety are both defining development guidelines for the Storkwitz project. As far as the regional requirements are concerned, we are stringently adhering to all of the environmental standards set by Germany. We are developing all of our processing technologies with the highest environmental standards in mind and plan to utilize only the most sustainable and environment friendly mining practices. Ultimately, we would like to develop a fully closed supply chain process.

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We are currently working on two projects with the Fraunhofer institute in Stuttgart. Both projects are focused on developing new separation processes and technologies that will minimize environmental impact. We also have a joint venture with BRAIN AG, a major German biotech company, to develop pre-mining solutions. They are very enthusiastic about the developments to date and throughout the next two to three years we are very optimistic that we will develop new processes that will set a new global standard for sustainability.

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Asian Metal: The global rare earth sector has seen various junior mining ventures adopt a number of different approaches in terms of production strategy. While some projects are working to develop a vertically integrated supply chain, others are simply aiming to produce a rare earth concentrate that can then be sold to either individual or centralized separation plants. Although Seltenerden Storkwitz AG is still in the drilling stages, are you able to provide any insight into which type of production strategy you will choose to pursue?

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Bernhard: We are not interested in stopping production at the concentrate stage. We are trying to maximize the potential of the Storkwitz project and we consequently plan to produce a finished product that can be sold directly to end users. That being said, it was very clear from the get go that technology would be a key component for our operation. As I mentioned earlier, we are working with prominent universities and companies to develop the necessary technology. Technology is a real value driver for us and pilot production will be a major milestone because it will show end users that we have the technology in place to produce these materials using a sustainable and environment friendly method. The next stage is figuring out the right customers and creating specified rare earth solutions tailored to their needs. We want to be able to put forward a package that is compelling for some of the bigger consumers as strategic cooperation with downstream partners is clearly a huge advantage.

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Asian Metal: Both Molycorp and Lynas are scheduled to reach production before year end, with several other projects, notably Great Western, following close behind in 2013. While many believe the “first to market” advantage enjoyed by these companies will bolster their chances of success, others argue the flexibility of projects still in the development phase enables them to better adapt to the often times quickly changing global RE market dynamics. What are your thoughts on the “first to market advantage” and do you believe a later production timeline could prove to be an obstacle for Storkwitz AG?

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Bernhard: Given our strategy, I do not think the delayed timeline will be a disadvantage. The German industry is not always fast in decision making and the Deutsche Rohstoff Allianz, a consortium of the leading German industrial players, is still working to secure sources of supply. There will be opportunities to make inroads with many of the major end users in the alliance during the next 4-6 years and our production timeline falls well within this timeframe. You need to examine the industry from a geopolitical perspective. Even if Molycorp, Lynas, and Great Western all reach production, Germany, to a certain degree, is still exposed to supply shortages because it will not have access to a domestic supply source.

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Asian Metal: This past month several of China’s largest rare earth producers temporarily halted upstream production, allegedly due to overproduction but also as an effort to help stabilize recent price declines. Meanwhile, easing ROW consumption levels, a likely result of the softening global economy, led to steady price depreciation through the bulk of 2012, particularly for the light rare earth element cerium and lanthanum. Do you believe global production for certain rare earth elements, namely cerium and lanthanum, is already in surplus? How will global production overcapacity for these materials impact the Storkwitz AG model?

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Bernhard: We are not overly concerned about the claims that cerium and lanthanum will face overproduction in the next few years. The sources of supply will still differ from country to country and individual end users’ access to projects will remain a crucial variable. As discussed earlier, only a small number of the many hopeful rare earth junior mining ventures will reach production in the next 4-5 years. These projects will have to compete over end users’ business, but demand will eventually recover which will help to absorb a large amount of added production capacity. In terms of price, many of these ROW projects are based on certain price models that do not enable them to offer material at levels much further below current market rates. Likewise, industry consolidation and improvement to safety and environment regulations will raise the cost of production in China. Therefore, we believe the mid-long term market for these materials is still promising and think Storkwitz will prove to be an important source of supply for the German market.

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