RE SPECIAL: Shock & Ore

By
Published: Tuesday, 25 May 2010

Fears of a supply shortage outside China have triggered a global rush to develop alternative sources of rare earth elements, critical to defence and clean energy technology. Mark Watts looks at the sweeping changes facing the industry.

Over the last year the rare earths industry has been propelled from obscurity to the fore of international media, sparked by fears of a Chinese stranglehold on the supply of these strategic minerals.

Rare earth elements (REE) have always been useful, and while the role they play has not changed, their importance has, driven by the rise of green technology and, crucially, China’s dominance of the supply chain.

China began to take control of the industry in the late 1980s and early 1990s when its producers slashed prices, eventually driving out nearly all overseas competitors.

At present the Asian powerhouse accounts for over 95% of production, but its export policy over the last 18 months has caused reason for alarm.



Rare earths are critical components in a wide
range of military equipment such as missiles
and guidance systems


The Chinese government is now considering the restriction or total ban on exports for certain rare earths, creating a wave of global exploration activity as mining juniors anticipate supply shortages that could hit the rest of the world.

REE are a group of 17 elements including the non-lanthanides, yttrium and scandium which have very specific uses in a multitude of markets. For example, neodymium is the core magnetic component of high-strength, high-temperature magnets used in electric car batteries, wind turbines and hard disk drives, and has no substitutes for many applications.

Lanthanum is strategically important in its use as a catalyst braking down crude oil to produce gasoline, diesel and jet fuel.

To complicate things further, REE can be split into two groups: heavy and light.

Light REE are easier to extract and are generally of lower value than the heavy elements, such as dysprosium and terbium, which require a higher level of expertise to separate.

If the world outside China does not already have its work cut out with the simple issue of supply, new entrants to the market will have to focus on the most in-demand elements to achieve profitability.


Forecast for global demand and supply for individual rare earths in 2015 (±15%)

Based on total REO demand of 197,000 tonnes and an adjusted supply of 225,000 tonnes
Data sourced from IMCOA


Balancing act

Total rare earth oxide (REO) production was estimated at only 124,000 tonnes for 2008, dropping to 96,500 tonnes last year as demand for hi-tech goods dived during the global recession.

However, demand is expected to reach 197,000 tonnes REO in 2015, surging ahead of production capacity, driven by growth in clean technology end markets such as wind turbines and electric vehicles.

Dudley Kingsnorth, a leading rare earths expert with the Industrial Minerals Co. of Australia Pty Ltd (IMCOA), believes supply will in fact have to surpass demand due to the lack of balance in production of the separate elements.

“Demand in 2015 I believe will be about 197,000 tonnes REO but because of the lack of balance there will actually have to be about 225,000 tonnes of production,” Kingsnorth told IM.

“In 2015 I think that China will produce about 175,000 tpa REO. The rest of the world will need to produce 50,000 tonnes. India and Russia are now producing somewhere between 4,000-8,000 tonnes,” he added.

Even with production exceeding demand by 15%, the supply of dysprosium, terbium and neodymium could still fall short, while europium, erbium and yttrium could also be tight (see chart).

The shortfall of neodymium used in permanent magnets could be at least 4,000 tonnes, and even as high as 7,000 tonnes by 2014, according to the projections of UK-based consultancy group, Roskill Information Services.

One problem rare earth producers might face is an oversupply of lighter rare earths, specifically cerium and lanthanum, which tend to make up a large bulk of rare earth deposits. For example, 72% of Lynas Corp. Ltd’s Mount Weld deposit in Western Australia is composed of these two elements.

An oversupply of cerium is widely expected by industry experts, but lanthanum could find an emerging end market in lanthanum-nickel-hydride car batteries, which could potentially rival the lithium-ion battery in powering the impending fleet of hybrid and electric vehicles.

Robert Mackay, CEO of Stans Energy Corp., which is developing a rare earths project in Kyrgyzstan, told IM: “Out of the 15 [main] rare earth elements, we estimate that there are five that you can make a lot of money on, five you break even on and five you have got to find a use for”.

Mackay’s five key elements are neodymium, europium, terbium, dysprosium and yttrium, which have all seen large year-on-year price rises in Q1 2010.The world’s light rare earths supply is dominated by the Bayan Obo bastnasite deposit in Inner Mongolia, operated by Baotou Steel Rare Earth High-Tech Co., where they are extracted as a by-product of iron ore mining. The deposit produced about 66,000 tonnes REO in 2008, according to data from Roskill.

Heavy rare earths and yttrium are largely extracted from ionic adsorption clays in Jiangxi and other southern provinces, which produced 36,000 tonnes REO (including light) in 2008. Together with production from bastnasite in Sichuan and some illegal mining, China’s production makes up an estimated 97% of global REO supply.

While there is little reliable data on remaining production, it is thought that the remaining 3% comes from India, Russia, Malaysia and Brazil.

The rush to secure rare earths supply from outside China was triggered by a gradual decrease in Chinese export quotas, which dropped from 65,609 tonnes in 2005 to 50,145 tonnes in 2009, according to IMCOA data.

However, the first-half 2010 quotas actually show a rise of 2.54% against the same period in 2009.

Regardless of whether these quotas will rise or fall in the second half of the year, the unpredictable nature of China’s export policy is enough to set off alarm bells overseas.



Molycorp plans to bring its Mountain Pass, California,
project on stream in 2012, producing 20,000 tpa
rare earth oxides. The project is designed to not
only extract rare earth oxides, but refine them into
pure rare earth metals and finished components
such as magnets. Molycorp plans to extract nine
of the rare earth elements, including the higher-value
europium, terbium and dysprosium.


US government takes action

Only in recent months has the US government showed signs of addressing the vulnerabilities in rare earths supplies for industries of strategic importance.

A report released in April by the US Government Accountability Office (GAO) warned that rebuilding a domestic rare earth supply chain could take 15 years and require large investments in processing infrastructure.

The supply situation has also caught the attention of the US military with the Department of Defense planning to issue a report on the risks of relying on Chinese imports.

The GAO said: “The future availability of materials from some rare earth elementsÊincluding neodymium, dysprosium and terbium is largely controlled by Chinese suppliers.”

“While China is currently exporting rare earth oxides and metals, some rare earth industry officials believe that in the future China will only export finished rare earth products with higher value” it added.

Rare earths are critical materials in defence systems technology, with applications including precision-guided munitions, lasers, communications systems, radar, avionics, night vision equipment and satellites. This is the crux of the issue for the USA.

The GAO names several specific examples of important US military equipment which depend on Chinese materials for vital components. The M1A2 Abrams tank, for instance has a reference and navigation system that uses samarium-cobalt permanent magnets. All the samarium metal is sourced from China.

Edward Cowle, CEO of junior explorer US Rare Earths, told IM’s sister publication American Metal Market: “Some experts say that there is no crisis, that it’s overblown, that by 2015 supply and demand will match. But what if there is a crisis in China? Do you really want your weapon systems in this country dependent on China?”

By far the most important asset for rebuilding a US rare earth industry in the short term is the Mountain Pass mine in southern California, owned by Molycorp Minerals LLC.

Between 1965 and 1985, Mountain Pass produced a large chunk of the world’s supply and US industry was capable of all stages of rare earths material processing. But the subsequent dominance of China, which undercut the prices of Western producers, caused US groups with rare earth processing knowhow to shut down or relocate, destroying the supply chain.

Molycorp disputes the GAO’s 15-year outlook and plans to develop a fully-integrated mining-to-magnets facility by 2012, able to process nine rare earth elements including the heavier elements: europium, terbium and dysprosium (see page 41).

“All of the US Department of Defense applications for rare earths are using Chinese feedstocks that could be pulled at any point in time. There should be diversity of supply,” Molycorp’s Mark Smith told IM.

“As China’s internal consumption is also growing, we are going to need to make sure we have alternative supplies out there,” he added.

US rare earths development certainly has its supporters in Washington DC, where Smith has been lobbying for the reestablishment of a domestic supply chain.

New proposed legislation, known as the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2010 (RESTART Act), has been introduced to the House of Representatives.

The bill’s main advocate Mike Coffman, a Republican Congressman for Colorado, stated in March: “The US needs to support and encourage the development of a competitive, domestic rare earth supply chain to support American jobs and manufacturing and ensure our national defence interests.”

“This legislation is critical to creating a competitive, domestic rare earth supply chain in the USA over the next five years. We have ample resources, just not the ability to access and process them. That must change; our national security depends on it,” he added.

The race is on

As the potential “rare earths crisis” hit the headlines in 2009, there was seemingly a new project being announced every week, with the bulk made up of Canada-based juniors.

While every project has its pros and cons, the industry has seen a handful of frontrunners emerge led by Molycorp and Lynas Corp.

The two companies are the first sign of any significant capital being pumped into the industry outside of China, with Lynas raising A$450m. ($404m.) in equity late last year and Molycorp’s impending IPO attracting attention from investors.

Christopher Ecclestone, an analyst at New York-based Hallgarten & Co., likens the emerging rare earths industry to a horse race where the field is crowded near the starting post but thinner near the finish line.

“The Molycorp IPO, with initial indications of a potential market capitalisation of $1bn. to $1.5bn., shows that the rewards shall go, probably disproportionately, to the race’s winner,” said Ecclestone.

Ecclestone believes most of the present field of rare earth prospectors could feasibly succeed, as virtually none of the new mines are likely to supply over 5% of world supply.

If REE production remained dominated by China, Ecclestone believes the industry could see “peak rare earths”, taking on the oil industry concept, where depleting resources can no longer meet growing demand.

“Unlike the lithium space, the race is not one in which a few will finish and the rest are destined for the ‘glue factory’. There is more than enough space for the current field of REE wannabes to all be winners,” he added.

Whether or not there is room for a new generation of REE miners outside of China, question marks hang over the ability of these junior companies to commercialise production.

There exists a distinct lack of expertise in rare earths extraction outside China. A costly and complicated process, the knowhow has been all but lost in the West since China began to dominate the industry over two decades ago.

Kingsnorth is sceptical about the abilities of many rare earths prospectors achieving commercialisation within the next five years.

“All of these companies have to be able to demonstrate to customers that they can produce a product which is fairly sophisticated,” he said.

“With the exception of Lynas, Molycorp and Alkane Resources, none of the other projects have a proven process. None of the projects have even selected a [proven] processing plant or have carried out an environmental impact assessment,” added Kingsnorth.

Molycorp’s CEO Mark Smith is confident that the vast majority of rare earth exploration projects have little chance of starting commercial production under present market conditions.

Speaking to IM, Smith said: “Almost every rare earth resource company out there comes to Molycorp to talk about how we can work together on the resources they are locating and we have no interest in any one of those resources to date.”

“Almost everything else you look at ranges from 0.1% to about 2% [concentration]. We know enough about processing rare earths after 57 years to know that it would be virtually impossible for deposits that are 2% or less, under today’s market conditions, to be economic,” added Smith.

As well as the problems in extraction and processing, another major issue for rare earth juniors is likely to be funding.

Lynas’ project, which includes a concentration plant in Western Australia and an advanced materials plant in Kuantan, Malaysia, is expected to cost A$339m. ($302m.), with higher engineering costs forcing the group to raise its estimates.

There are a number of options available to raise this sort of cash but, as in the lithium industry, securing off-take contracts with end users can ensure both financial backing and supply avenues.

Kingsnorth told IM: “The market is so small that it’s not worth all the big companies getting into. All the new companies are single-project companies and the only way these projects are going to get funding is through sales contracts.”

Rare earths are not commodities. Each value-added end user, whether it be a magnet manufacturer or cracking catalyst engineer, has unique requirements and specifications.

“Supply and demand is going to be tight, so for a company to purchase 25% or whatever production from a new producer, it’s going to have to be pretty sure it’s going to produce. Because if it doesn’t it will have to go back into the market, [possibly after burning bridges with a Chinese supplier],” said Kingsnorth.

Ironically the only country willing to pump millions into viable projects seems to be China. State-owned China Nonferrous Metal Mining Co. Td (CNMC) dropped a $400m. bid for a controlling stake in Lynas last September after the Australian government imposed strict conditions on the proposed deal.

Another factor in the perceived success or failure of an emerging rare earths player is a resource’s concentration of heavy rare earths.

Some commentators have predicted that at today’s rates, China’s heavy rare earth resources could be depleted in 15-20 years, leaving a large supply gap to fill for essential elements such as terbium and dysprosium.

With frontrunners like Mountain Pass and Mount Weld weighted towards light products, the establishment of a significant heavy-focused mine could be a different race entirely.

Demand rebounds, prices rise


Rare earth prices spiked in Q1 2010 driven by a large increase in Japanese imports and growing demand for permanent battery applications.

The biggest price increases were for neodymium, praseodymium, dysprosium and terbium, according to advanced Australian rare earths developer Lynas Corp. Ltd.

The average Q1 neodymium oxide price rose 90% against Q4 2009 to $27.56/kg, while praseodymium oxide was up 80% to $26.13/kg.

Lanthanum and cerium, the lighter rare earths which are mined in higher abundances, saw relatively marginal increases against Q4 2009, but were lower than the same period last year.

The global economic downturn resulted in a significant drop in demand starting from Q4 2008, with the market remaining weak until the end of 2009.

“Japanese import statistics for rare earths showed a six-fold increase in February 2010 compared to a year earlier, which was the low point of demand,” Lynas said.

“The Chinese export quota is reportedly becoming tight and the price per tonne of export quota is increasing, representing another indicator in increased demand,” it added.

Neodymium is seen by many industry commentators as the element destined to experience large prices increase, driven by supply shortages and increased demand for wind turbine applications.

Shortfalls in demand could also drive hikes for dysprosium, terbium and yttrium, but these heavy elements are sold in much smaller volumes than neodymium and the lighter elements.

On the other hand, cerium and lanthanum prices are likely to stagnate if many new projects come on stream. The two lightest elements are the most abundant in nearly all rare earth deposits, but end markets are unlikely to grow fast enough to absorb a large spike in production.

Rare earths prices FOB China ($/kg)

Rare earth oxide (purity 99% min) Q1 2009 Q4 2009 Q1 2010
Lanthanum 7.28 5.43 6.08
Cerium 4.58 4.11 4.46
Neodymium 14.5 18.38 27.56
Praseodymium 14.5 17.91 26.13
Samarium 4.75 4.75 3.4
Dysprosium 96.46 112.31 156.5
Europium 448.85 490 512.4
Terbium 370.77 360 478.9

Source: Lynas Corp. Ltd


In demand

Neodymium

The fourth lightest lanthanide element and second most abundant in the earth’s crust, neodymium is the key high-volume product for rare earth explorers.

Its principle application is in high strength neodymium-iron-boron (Ne-Fe-B) magnets, which are used in a large range of products including electric motors in hybrid vehicles, wind turbine generators and portable electronics.

Forecasts show that neodymium supply will struggle to keep up with the growing demand from hi-tech industries (notably wind power), which could lead to a spike in prices over the next five years.

Terbium

One of the rare earth elements that can truly be called rare, terbium is mined and used in tiny amounts, with demand only expected to reach 480 tonnes by 2015.

However, with little new production likely to come on stream in the near term and China looking to restrict exports, the heavy element will become much sought after by those looking to enter the rare earths market.

Terbium is used with zirconium dioxide as a crystal stabiliser for high temperature fuel cells, in energy efficient fluorescent lamps and colour TV tubes, as well as in naval sonar systems and sensors.

Dysprosium

Dysprosium is critical in high strength permanent magnets, used in hybrid electric vehicles, home electronics and wind power generation. No effective substitute has been found.

The element is of high importance to Japanese technology in particular, as it improves the performance of micro-electronic components.

Japan’s complete dependence on China for dysprosium imports will drive Japanese groups to invest in developing alternative supplies elsewhere.


Selected rare earth projects outside China

Map Owner Location Proposed REO capacity (tpa) Target start up Status Notes
1 Lynas Corp. Mount Weld, Western Australia mine and plant / Kuantan Malaysia plant 11,000, rising to 22,000 (2013) Q3 2011 Started construction of concentration plant and advanced materials plant Project cost A$339m. Raised A$450m. in late 2009. Some sales contracts in place
2 Molycorp Minerals Mountain Pass, California, USA 20,000 Mid-2012 Processing ore from reserves. Seeking investment to restart mining. Completing DFS Plans to raise $350m. through IPO. Aiming to manufacture end products such as magnets
3 Great Western Minerals Steenkampskraal, Western Cape, South Africa 2,500 2012 Closed, waiting for updated mining licence Manufactures rare earth end products in the UK. 8% HREO
4 Hoidas Lake, northern Saskatchewan, Canada 3,000-5,000 2013 Pre-feasibility study underway
5 Alkane Resources Dubbo, New South Wales, Australia 2,600 Mid-2012 Definitive feasibility study results expected in Q3 2010 Operational pilot plant. Aims to separate LREO from yttrium-HREO. 70%/30% split. Possible expansion to 6,500 tpa
6 Vietnamese govt./Toyota Tsusho/Sojitz Dong Pao, Lai Chau province, Vietnam 3,000-5,000 2013 - -
7 Arafura Resources Nolans, Northern Territory, Australia 20,000 2013 Bankable feasibility study results expect by end of year -
8 Avalon Rare Metals Nechalacho, Northwest Territories, Canada 5,000 H2 2014 Pre-feasibility study expected in H1 2010 -
9 Kazatomprom/Sumitomo Ust-Kamenogorsk, Kazakhstan 15,000 2015 Starting feasibility study in June 2010 Developing processing technology
10 Stans Energy Kutessay II, Kemin,   Kyrgyzstan 2,000 in rare earth metal - Confirming JORC-compliant resource. Expects to start feasibility study by year-end Option to buy former-soviet rare earth processing plant; able to extract all 15 elements
11 Greenland Minerals and Energy Kvanefjeld, Narsaq, south-west Greenland 43,700 2015 Completing pre-feasibility study Expected investment of $2.3bn. required
12 Rare Element Resources Bear Lodge, Wyoming, USA - - Pre-feasibility expected in Q3 2010 -
13 Pele Mountain Resources Eco Ridge, Ontario, Canada - - Exploration stage -
14 Quest Rare Metals Strange Lake, Quebec , Canada - - Completed resource estimate, exploration stage Renamed from Quest Uranium Corp.
15 Ucore Uranium Bokan Mountain, Prince of Wales Island, Alaska, USA - - Exploration stage Primarily a uranium project
16 US Rare Earths Diamond Creek, Idaho / Lemhi Pass, Montana, USA - - Exploration stage -
17 Matamec Explorations Kipawa, Quebec, Canada - - Exploration stage -
18 Etruscan Resources Lofdal, Kunene region, northwestern Namibia - - Exploration stage -
19 Montero Mining Wigu Hill, Morogoro, central Tanzania - - Exploration stage -
20 Tasman Metals Nine prospects in Sweden and Finland - - Exploration stage -
21 Neo Material Technologies/Mitsubishi Pitinga, Amazonas, Brazil - - Exploration stage. Funding from Japan’s Mitsubishi Corp. Focused on heavy elements. Already a producer of Nd-Fe-B magnetic powders

 

(1) Lynas Corp., (2) Molycorp Minerals, (3) (4) Great Western Minerals, (5) Alkane Resources, (6) Vietnamese govt./Toyota Tsusho/Sojitz, (7) Arafura Resources, (8) Avalon Rare Metals, (9) Kazatomprom/Sumitomo, (10) Stans Energy, (11) Greenland Minerals and Energy, (12) Rare Element Resources, (13) Pele Mountain Resources, (14) Quest Rare Metals, (15) Ucore Uranium, (16) US Rare Earths, (17) Matamec Explorations, (18) Etruscan Resources, (19) Montero Mining, (20) Tasman Metals, (21) Neo Material Technologies/Mitsubishi