What initially attracted
you to focusing on the rare earths industry?
When I did my initial research in
the rare earth industry a few years ago, several things became
clear. First, rare earths are being used in a high percentage
of new technologies, and often have no viable substitute. This
gives the market tremendous upside potential.
Second, the market is relatively
small a value of only about $1,250m. I foolishly thought that
small meant easy to understand it turns out that this is, by
far, the most complex resource industry I have ever studied.
Although this complexity makes it very difficult to fully
comprehend, it also makes for an exciting area to research.
How have you seen the rare
earth landscape change over the past five years?
The most significant change in rare
earths is that they have entered the spotlight in 2009. The
mainstream media has begun to take notice, US politicians are
beginning to pay attention, and new exploration companies are
sprouting daily. There used to be just a handful of companies
concerned with the rare earths outside of China mainly
end-users, processors, and a small group of potential
Rare earths have become a hot topic
because they sit right in a unique sweet spot: They are used in
green technology, some defence applications, and they are
presently controlled by China. Recently, it was rumoured that
REEs might be included in a WTO complaint filed by the EU and
the US (they werent ). Then a draft proposal by the
Chinese Ministry of Industry and Technology suggested some
changes in export policies, and that set off alarm bells for
some who follow the industry outside of China. It turns out
that many of the concerns were based on somewhat misguided
interpretations of the draft.ÊÊ
How do you see the industry
This is a very tricky question. The
REE market has a history of dramatic and abrupt change. There
are 15 elements, and the focus of the industry tends to shift
between them with frightening speed. When colour television was
developed, europium (Eu) became king.Ê In the 1960s,
samarium (Sm) took center stage with the development of
samarium-cobalt magnets. Another shift occurred in the early
1980s when the neodymium (Nd) magnets were invented. Now
dysprosium (Dy) and terbium (Tb) are in high demand.
The industry could take a number of
different directions, but the focus outside of China has been
to find new resources to diversify risk for the end-users.
Where do you see the best
opportunities for future growth?
Demand growth will come from the
expansion of current applications as well as a number of new
applications. One area that seems to be continuing its
expansion is that of magnets. Super-strength REE magnets are
used in computer hard drives, small motors, MRIs, toys, and
some military applications. Rare earths are also increasingly
used in alloys to give strength, improve melting temperatures,
and for hydrogen storage. REEs, especially lanthanum (La), are
used as fluid cracking catalysts (FCCs); as the world turns
increasingly to alternative sources of crude oil, these FCCs
may play an increasingly important role.
Green technology will have to rely
heavily on the rare earths in order to be successful, with uses
including wind turbines, hybrid and electric vehicles, and
energy efficient lighting.
Of course, there is always the
unexpected. There are many new uses being explored right now
for the REEs. My guess is that we will get blindsided by some
fantastic use in the not-too-distant future.Ê However,
many R&D shops are becoming more cognizant of the REE
supply issues and are careful not to develop applications that
will absorb the worlds supply of a given element.
Production growth can come from a
variety of sources. The market tends to focus on several
high-profile projects in the USA, Canada, and Australia. These
may come to production, but it is just as likely that the
market will be surprised by a new, unexpected source, as it has
been repeatedly in the past.
It is important to keep in mind
that as the world searches for new resources, China is not
stagnant, and they will continue to develop their rare earth
resources and look for new ones. They are also making concerted
efforts to become more efficient and environmentally
What are some of the
challenges facing the industry?
First, lets look at the
challenges within China. There is a substantial effort underway
to consolidate the Chinese rare earth industry into several
manageable areas. China faces the challenge of cleaning up its
environment and streamlining operations while maintaining its
economic edge and keeping the world happy with supply of rare
China needs jobs, and increasing
the amount of manufacturing creates much-needed jobs. China has
offered foreign manufacturers unlimited access to rare earth
supply if they build and operate facilities inside China.
Foreigners can thus avoid tariffs and export quotas. Many
foreign companies are willing to manufacture within China, but
they are very selective as to what they will manufacture there
and what they retain outside of China.
The ion adsorption clays in South
China are unique and supply the bulk of the worlds HREEs.
The clays are a finite resource and the sustainability of
production at todays capacity is often debated. There are
efforts underway to consolidate these operations. The world
needs an increasing amount of these HREEs, and there is a great
need to find another HREE resource.
Cerium (Ce) - element #58, is the
most plentiful of the rare earth elements, so an abundance of
Ce has to be processed in order to get to the other REEs. If
new technologies can be developed to absorb the Ce supply and
push the price up, it would help the profit potential of the
projects with light rare earth (LREE) dominance.
To expand on the cerium issue,
there must be a general balance maintained in the marketplace.
There is no rare earth mineral that perfectly matches
marketplace demand (which is also in constant flux), so there
is always going to be both scarce and excess elements as they
come out of the ground in unequal distribution. Because it
takes approximately 7-10 years for mines to come to production
in the West, it is difficult to choose REE projects with
mineral distribution that will match a future market that is
Finding funding for rare earth
projects is a challenge, although this has become a bit easier
lately with recent media coverage. But because of the
complexity of the sector, it is a bit more inaccessible to
Can a non-Chinese rare
earth source really compete with China?
Maybe. Recently, the Russians were
supplying the market with small amounts of REEs, so it can be
done. However, supplying the industry with a large sustainable
source that will impact the market this is more difficult
to assess. The Chinese have very favourable cost structures for
their projects such as REEs as a by-product of iron
mining at Bayan Obo, and clays which are easy and cheap to
One of the big questions here is
whether or not end-users will pay a premium and what that
premium would be Ð for a REE source outside of China.
Many of the projects being
investigated right now have been known for years. There are
some new projects as well. Some of these may have potential,
but many will face challenges that will prevent them from
If prices go up, it may allow for
higher cost producers to enter the marketplace - but these will
also be the first to shut down when prices fall back.
What are some of your key
criteria when looking to invest in a rare earths
First, we start with the typical
mining criteria such as: the experience of management team,
location, access to power and water, indigenous interests,
environmental issues, and permitting to name a few.
Then, we look at matters
specifically relating to assessing the rare earths
Grade expressed as percent rare earth oxide, or REO
Tonnage the final product oxides are measured in metric
Target mineral its element distribution and processing
Economics how much will it cost to produce a tonne of
Historically, rare earth minerals
that have been mined economically are monazite, bastnosite,
xenotime, loparite, and ion adsorption clays. However, many new
projects that are being considered contain minerals that have
never been processed, and so metallurgy may be an issue.
One of the most complex components
of dealing with REE minerals is that of distribution. Each REE
mineral will include at least trace amounts of all 15 elements.
However, usually minerals will skew towards the heavy rare
earths (HREE) or the light rare earths (LREE). Each rare
earth-bearing mineral also has its own basic distribution, but
can vary widely between geologic settings. For example, most
monazites may have between 15-20% neodymium (Nd), but there are
unique locations that have over 40% Nd.
Of course, there are other metrics we use, in-house, but the
key metrics are those listed above. That said, we are still
looking for an investment that we feel comfortable with.
REM rare earth
REE rare earth
REO rare earth
LREE light rare
earth elements (La-Sm)
HREE heavy rare
earth elements (Eu-Lu)