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, Chinas dominance of the supply
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
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
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
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
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. Ltds 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
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.
Mackays five key elements are
neodymium, europium, terbium, dysprosium and yttrium, which
have all seen large year-on-year price rises in Q1 2010.The
worlds 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, Chinas
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
Regardless of whether these quotas
will rise or fall in the second half of the year, the
unpredictable nature of Chinas 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
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
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
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
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 IMs sister
publication American Metal Market: Some experts
say that there is no crisis, that its 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
Between 1965 and 1985, Mountain
Pass produced a large chunk of the worlds 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 GAOs
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, Molycorps Mark Smith
As Chinas 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
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 bills 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 Molycorps 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 races winner, said
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
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
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
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.
Molycorps 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 todays 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.
IM: The market is so small that
its 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
Rare earths are not commodities.
Each value-added end user, whether it be a magnet manufacturer
or cracking catalyst engineer, has unique requirements and
Supply and demand is going to
be tight, so for a company to purchase 25% or whatever
production from a new producer, its going to have to be
pretty sure its going to produce. Because if it
doesnt it will have to go back into the market, [possibly
after burning bridges with a Chinese supplier], said
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
resources concentration of heavy rare earths.
Some commentators have predicted
that at todays rates, Chinas 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
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
The biggest price increases were
for neodymium, praseodymium, dysprosium and terbium, according
to advanced Australian rare earths developer Lynas Corp.
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)
Source: Lynas Corp. Ltd
The fourth lightest lanthanide element and second most abundant
in the earths 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
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.
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 is critical in high strength permanent
magnets, used in hybrid electric vehicles, home electronics and
wind power generation. No effective substitute has been
The element is of high importance
to Japanese technology in particular, as it improves the
performance of micro-electronic components.
Japans complete dependence on China for dysprosium
imports will drive Japanese groups to invest in developing
alternative supplies elsewhere.
Selected rare earth projects outside China
||Proposed REO capacity (tpa)
||Target start up
||Mount Weld, Western Australia mine and plant /
Kuantan Malaysia plant
||11,000, rising to 22,000 (2013)
||Started construction of concentration plant and
advanced materials plant
||Project cost A$339m. Raised A$450m. in late 2009.
Some sales contracts in place
||Mountain Pass, California, USA
||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
||Great Western Minerals
||Steenkampskraal, Western Cape, South Africa
||Closed, waiting for updated mining licence
||Manufactures rare earth end products in the UK. 8%
||Hoidas Lake, northern Saskatchewan, Canada
||Pre-feasibility study underway
||Dubbo, New South Wales, Australia
||Definitive feasibility study results expected in Q3
||Operational pilot plant. Aims to separate LREO from
yttrium-HREO. 70%/30% split. Possible expansion to 6,500
||Vietnamese govt./Toyota Tsusho/Sojitz
||Dong Pao, Lai Chau province, Vietnam
||Nolans, Northern Territory, Australia
||Bankable feasibility study results expect by end of
||Avalon Rare Metals
||Nechalacho, Northwest Territories, Canada
||Pre-feasibility study expected in H1 2010
||Starting feasibility study in June 2010
||Developing processing technology
||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
||Greenland Minerals and Energy
||Kvanefjeld, Narsaq, south-west Greenland
||Completing pre-feasibility study
||Expected investment of $2.3bn. required
||Rare Element Resources
||Bear Lodge, Wyoming, USA
||Pre-feasibility expected in Q3 2010
||Pele Mountain Resources
||Eco Ridge, Ontario, Canada
||Quest Rare Metals
||Strange Lake, Quebec , Canada
||Completed resource estimate, exploration stage
||Renamed from Quest Uranium Corp.
||Bokan Mountain, Prince of Wales Island, Alaska,
||Primarily a uranium project
||US Rare Earths
||Diamond Creek, Idaho / Lemhi Pass, Montana, USA
||Kipawa, Quebec, Canada
||Lofdal, Kunene region, northwestern Namibia
||Wigu Hill, Morogoro, central Tanzania
||Nine prospects in Sweden and Finland
||Neo Material Technologies/Mitsubishi
||Pitinga, Amazonas, Brazil
||Exploration stage. Funding from Japans
||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