SUPPLY SECURITY
The security of access to rare earth elements continues to be
uncertain in 2012, as the vast majority of global supply
remains under Chinese state control.
Chinese export quota restrictions
were a key factor behind the surge in rare earth oxide (REO)
prices in the 12 months up to July 2011.
However, the second half of 2011
brought with it lower demand from importers such as Japan and,
by the end of the year, many Chinese exporters did not use up
their allotted quotas.
The Chinese Ministry of
Commerce’s (MOFCOM) rather ambiguous announcement on
exports for 2012 still leaves a lot of confusion in the supply
situation for this year.
MOFCOM reduced export limits by 27%
year on year for the first half of 2012 to 10,546 tonnes, but
said it expects the annual quota to be roughly the same as in
2011.
The ministry withheld quotas from
over 20 companies, representing most of China’s production
capacity, pending environmental reviews.
Regardless of the amount of
material exiting China over the coming years, the unreliable
nature of its exports will create a gap for secure supplies
from elsewhere.
In its Critical Minerals Strategy,
the US Department of Energy named five rare earths as the most
critical supply risk minerals to the US economy between now and
2015: dysprosium, europium, neodymium, terbium and yttrium.
Rare earths cerium and lanthanum
joined rare metals indium and tellurium among the minerals
assessed as ‘near critical’.
Aside from China and some smaller
amounts being produced in India and Brazil, it will be largely
up to new projects to fill the supply deficit opened by growing
global demand (see table).
The most prominent new projects
fall into two categories: those which had existing
infrastructure or exploration work in place before 2009 when
the rush to develop rare earth mines gathered steam; and
projects backed by companies with major financial clout -
namely from Japanese keiretsu companies - that do
not need the market to raise exploration and development
financing.
New projects
In the first category, Lynas Corp. and Molycorp Inc. continue
to lead the pack. The former has a development timeline
spanning over a decade and the latter owns what used to be the
world’s biggest rare earth source.
Lynas started its Mount Weld mine
in Western Australia in 2011 but is yet to enter the market due
to delays in commissioning its 11,000 tpa rare earth oxide
processing plant in Malaysia.
The Lynas Advanced Material Plant
(LAMP) became politically sensitive in Malaysia as local
interest groups protested against the project on health and
environmental grounds.
The Malaysian government requested
a review of the project by the International Atomic Energy
Agency (IAEA), which recommended improvements for Lynas to
meet.
In its most recent release on 5
January, Lynas said it had completed all requirements made by
the Malaysian Atomic Energy Licensing Board (AELB), and a
decision on a temporary licence is expected to be made on 30
January.
Lynas plans to expand the capacity
of LAMP to 22,000 tpa REO in 2013, which will require increased
output from the Mount Weld mine.
Also expected to start up in 2012
is Molycorp’s Mountain Pass project in California, US. The
company has already started mining ore at the site, which will
be fed to an under-construction 19,050 tpa REO processing
complex.
Mountain Pass dominated the global
production of rare earths until the 1980-90s, when China’s
burgeoning industry undercut Western producers, forcing much of
the world’s capacity to close.
At the start of the year, Molycorp
said it had secured customers for 78% of its rare earths
production, including 20% for its own in-house production of
XSORBX, a cerium-based water treatment product.
Dahlman Rose & Co. analyst
Anthony Young believes Molycorp’s business model could
herald a fundamental change in the way rare earths are
traded.
“Historically, the
overwhelming majority of rare earth sales were transacted on
the spot market. With Molycorp entering into off-take
agreements with its customers, Molycorp will only need to place
approximately 4,200 tonnes of initial production on the spot
market,” Young said.
“Given the relatively small
size of the rare earth market... this will still likely have a
dampening effect on prices, in our opinion, but should not have
the crushing impact that the company’s full production...
would have on the spot market,” he added.
After initial start-up, which is
expected in the second quarter, Molycorp plans to expand
capacity to 40,000 tpa, which could represent over a fifth of
global REO production.
The vast majority of production
from LAMP and Mountain Pass will be of the light rare earths
lanthanum, cerium, praseodymium and neodymium.
Companies claiming the potential to
produce significant heavy rare earth volumes include Great
Western Minerals Group (GWMG) and Stans Energy Corp. Ð
which both fall into the first category of having pre-existing
infrastructure.
GWMG is refurbishing the former
Steenkampskraal mine in South Africa and plans to build a 5,000
tpa REO processing plant with China’s Ganzhou Qiandong
Rare Earth Group Ltd.
In a very different project, Stans
Energy is restoring a former Soviet mine and processing complex
in Kyrgyzstan, and aims to start processing heavy REO this year
from outsourced feedstocks.
Japan, the world’s biggest
importer of rare earths, has been actively funding the
development of deposits overseas and has three advanced
projects under development.
Expected to start up within the
next two years are Toyota Tsusho-backed projects in Orissa,
India, and Dong Pao, Vietnam.
At the same time Sumitomo has
backed a project in Kazakhstan, which is expected to be a
significant source of the heavy rare earth dysprosium.
MARKET DEMAND
Between now and 2015, the main demand driver for rare earths is
expected to be in neodymium-iron-boron (NdFeB) magnets which
use both neodymium and dysprosium.
According to a recent report by
UK-based consultancy Roskill Information Services, production
of NdFeB magnets is forecast to grow by 11-13% a year “as
potential markets expand to include applications in permanent
magnet motors for electric vehicles and wind
turbines”.
Roskill believes magnets could
account for nearly a third of total rare earths demand, with
strong demand growth also coming from nickel-metal-hydride
batteries, phosphors, optical glass and ceramics.
Due to the inconsistent makeup of
deposits, there will be an imbalance between the demand growths
for certain rare earths and the relative rate at which capacity
is increased.
Rare earths expert Dudley
Kingsnorth, executive director of Industrial Minerals Co. of
Australia (IMCOA), has addressed this imbalance in a study
showing that some rare earth elements will be more critical
than others in terms of supply deficits.
By 2015, Kingsnorth has forecast
supply deficits for rare earth elements including neodymium,
europium, terbium, dysprosium and yttrium. At the same time,
there is likely to be oversupply in lanthanum, cerium and
samarium.
This is likely to have a strong
bearing on prices as new supply comes on to the market and, as
a consequence, impact the value of deposits based on the
concentrations of ‘in-demand’ elements.
Roskill has forecast that Chinese
REO demand will increase from about 90,000 tpa in 2011 to over
130,000 tpa by 2015, while demand in the rest of the will
increase more marginally towards 50,000 tpa.
This is influenced by the migration
of hi-tech rare-earth consuming industries to China from
developed Asia and the US, and the relatively high economic
growth of China.
PRICE TRENDS
Prices have retreated significantly for all rare earth elements
since July 2011, but remain far above historical levels.
The price of cerium oxide (min.
99%, FOB China) increased by over 20-fold in the 12 months to
July 2011, hitting $140-159/kg up from around $7/kg in the same
month in 2010.
As of 17 January 2012, the material
was trading at $45-50/kg - significantly above market
expectations before the boom of 2010 and H1 2011.
The trend of rare earth prices will
have its own impact on future supply, with exploration
companies basing their investment pitches on future sales
prospects.
The CEO of Molycorp believes the
environment has become tougher for the dozens of companies
trying to develop rare earth projects.
“The pricing environment today
really is not going to help them utilise sales contracts as
collateral for financing purposes,” Mark Smith said in an
interview with Bloomberg in November.
“The debt market is going to
be difficult because banks are not going to let companies use
the higher prices we all saw in July and August,” he
added.
Today’s investment climate
could be the weakest the rare earths sector has seen since
before the ‘gold rush’ of junior explorers emerged in
2009-10.
“The rare earths story is
passing through a bad moment, indeed, a worse moment than the
rest of the market for miners,” Hallgarten & Co.
analyst Christopher Ecclestone told IM.
Ecclestone believes that rare
earths share prices were in a ‘bubble’ even before
the prices started to descend, saying there were already signs
of a lack of confidence in the sector.
“What may happen is that the
leaders of the pack may get into production and be rewarded
therefore while everyone else - the good, bad and
indifferent - die of slow starvation,” he said.
With over a hundred deposits now
being marketed as potential new sources of rare earths, not all
will make it into production, but with global demand expanding,
there is still plenty of room for new players in the
sector.
