Like many mineral sectors in the mining industry, rare
earths explorers and producers are unlikely to look over the
first three quarters of 2015 favourably. It has been a torrid
year, with abortive pricing rallies, the bankruptcy of one of
the only non-Chinese miners and stubbornly weak
Changes are afoot, however, both in China, and in the West,
where advances in processing technology offer a faint but
perceptible hint that a more positive future lies beyond the
immediate, disheartening horizon.
Rare earth elements (REEs), as defined by the International
Union of Pure and Applied Chemistry (IUPAC), include yttrium
(Y), scandium (Sc), and the lanthanides, comprising lanthanum
(La), cerium (Ce), praseodymium (Pr), neodymium (Nd),
promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd),
terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er),
thulium (Tm), ytterbium (Yb), and lutetium (Lu) ). Subdivisions
into light (LREE) and heavy (HREE) categories are based on
electron configuration. In this context, LREE include La, Ce,
Pr, Nd, Pm, Sm, Eu, and Gd and HREE include Y, Tb, Dy, Ho, Er,
Tm, Yb, and Lu according to Connelly et al.
Industry commonly refers to LREE as the lanthanides from
lanthanum to samarium, and to HREE as lanthanides from europium
to lutetium, plus yttrium, according to George Simandl,
speciality metals and industrial minerals specialist at
Canada’s British Columbia Geological
World mine production of rare earth oxides (REO) for 2014 is
estimated by the US Geological Survey (USGS) at approximately
117,000 tonnes, including yttrium oxide, which accounted for
7,000 tonnes of the total. The main producing countries for
rare earths excluding yttrium in 2014 were China, with 86% of
worldwide production, followed by the US, India, Australia,
Russia, and Thailand (Figure 1).
Figure 1: REE Production by Country,
The US historically dominated production, however, its
position declined throughout the late 1990s and 2000s. China
reached the peak of its dominance in 2007, when it produced
just under 97% of the world’s rare earths output,
excluding yttrium, according to the USGS.
China has a greater proportion of resources than other
countries (Figure 2), but not to the extent that it
dominates production. The country’s monopoly was
facilitated by its low production and labour costs and lax
environmental regulations, not because has a unique abundance
of rare earths.
According to Yasuo Kanazawa and Masaharu Kamitani, writing
in the Journal of Alloys and Compounds in 2006, rare
earth deposits are restricted to interior and marginal regions
of continents, particularly Precambrian shields and cratons and
rift structures. They add that the main areas of rare earth
deposit concentration are the East African rift zones, the
Scandinavia-Kola peninsula, eastern Canada and southern
Boom and bust
In 2010, China temporarily banned rare earths exports to
Japan following a territorial dispute over the
Japanese-administered Senkaku Islands. Between 2006 and 2012,
the Chinese government also placed stricter export quotas on
rare earths, reducing shipments by nearly 60% from 2008 to
2012. Both actions precipitated a surge in prices and
mass-media coverage, alerting the world to China’s
monopoly over the minerals.
These events invited speculative investors with little
sector knowledge into the market, contributing to the rare
earths investment bubble. The average price of cerium oxide
increased by 2,400% (from $6/kg to $149.5/kg) from June 2010 to
August 2011. The price of neodymium oxide increased by 991%
(from $33/kg to $360/kg) and the price of dysprosium
increased by 700% (from $300/kg to $2,400/kg) during
the same period.
Figure 2: REE Resources by Country,
Many rare earths customers switched to less expensive, more
reliably sourced, and less price-volatile substitutes during
the high price period and a number of consumers increased
research into alternative materials. Cerium, in particular, was
replaced by other polishing powder materials, or was recycled.
This substitution reduced demand, pulling selling values down.
Prices which had previously encouraged existing and new
producers to mine more rare earths resulted in substantial
oversupply, deflating prices further.
In 2014, the World Trade Organization (WTO) passed a ruling
requiring China to abolish its rare earths quotas, removing
another barrier to oversupply on the world market. Illegal
mining in China stood at 40,000 tonnes in 2014 according to
multiple sources, adding to the problem.
The market corrections that followed the price spike, as
oversupply took hold and demand dissipated, were as steep as
increases had been leading up to 2011. In some cases, prices
fell back by 98%, according to the IM Prices
Database. While intermittent rallies have occurred
since 2011, the downward trend in pricing has continued into
2015. Recent rare earths oxide prices from the IM
Prices Database may be viewed in Table 1.
Investor interest in rare earths has cooled, but remains
significant, despite the sharp market correction and many
projects that were being planned in 2010 remain active, albeit
at a subdued pace.
Some of the parameters critical to understanding economic
viability of rare earths projects, as identified by industry
experts, are: proprietary or licenced processing technologies;
the relative proportion of each rare earth in a deposit and
thus projected rare earth basket prices; overall grade; and
Table 1: Industrial Minerals REE
Rare earth minerals
Cerium oxide, min 99%, FOB, China, bulk
Dysprosium oxide, min 99%, FOB, China,
Europium oxide, min 99%, FOB, China,
Lanthanum oxide, min 99%, FOB, China,
Neodymium oxide, min 99%, FOB, China,
Praseodymium oxide, min 99%, FOB, China,
Samarium oxide, min 99%, FOB, China,
Source: IM Prices Database, October
Even with the decline in prices of recent years, rare earths
(with the exceptions of cerium and lanthanum) are of
sufficiently high value per unit mass to largely exclude
logistics specifications as an indicator of future project
Lanthanum, used in polishing powders and catalysts, and
cerium, used primarily in alloys, are both in oversupply.
Accordingly, many junior explorers, such as US-based Texas Rare
Earth Resources Inc. (TRER), for example, are seeking to remove
the two elements from the processing chain at an early stage to
minimise processing costs. They hypothesise stockpiling the
material, once in production, in anticipation of sales if and
when markets improve.
Although it remains unclear whether new sources of demand
will appear in the future, cerium and lanthanum are likely to
be in greater supply than demand from mines in northern China
and from potential and existing Western sources in the medium
In a co-authored paper published in 2014, Feng Xie et al
note that rare earths are similar in their physical and
chemical properties. Incremental changes in ion size mean that
traditional methods of elemental mass and density-based
separation are inadequate, according to Cindy Hurst, in a paper
published in 2010.
Chemical methods of separation are also difficult, as the
similar ion size and the electron properties of rare earths
that typically make up the 2+ ion form most favoured, result in
behaviourally similar chemical species, with europium a notable
exception for its ease of transitioning to the 3+ state. The
similarities of rare earths that cause separation difficulties
also ensure that the elements are found collectively in
deposits – magmatic fractionation and related
processes do not strongly segregate rare earths, being subject
to the same chemical principles – though in mineralogy
and genesis-dependent proportions.
Recognising the technological and financial hurdles
represented by on-site processing, junior companies are
increasingly looking to established rare earths processors and
specialist chemical companies for joint venture and offtake
opportunities. US-based Rare Earth Salts and German explorer
Tantalus Rare Earths AG are two examples, though the latter has
recently applied for insolvency proceedings in Munich. A number
of innovative processing technologies are also progressing from
the bench scale to pilot plants, including molecular
recognition technology (MRT) and free flow electrophoresis
technology (FFET), where charged particles are migrated through
a solution in the presence of an electric field, as championed
by Canada’s Geomega Resources Inc.
The case for development
HREE market conditions are more positive than LREE market
conditions. Both of the West’s new mines, Lynas
Corp. Ltd’s Mount Weld in Australia and Molycorp
Inc.’s Mountain Pass in California, are
carbonatite deposits, with high proportions of LREE compared to
HREE (Figure 3).
HREE that are supplied almost exclusively by southern China
remain in tighter supply. Most deposits have a LREE bias
– LREE have smaller averaged partition coefficients,
resulting from their larger-than-HREE ion sizes, thus
concentrating them in highly derived melts typical of igneous
ore deposits – therefore, naturally less accessible
HREE continue to command better prices (Table 1).
Additionally, with venture capital flowing into batteries
and high-tech companies, interest in rare earth permanent
magnets – mostly neodymium-iron-boron (NdFeB) magnets
– has become increasingly prominent, as has the focus
of juniors on marketing their projects based on neodymium and
praseodymium concentrations. The proportion of rare earths
consumed in the magnet sector is rising, as is the share of
value derived from neodymium and other magnet metals
Permanent magnets made from rare earths are used in
high-efficiency electric motors and high-tech products and a
projected shift towards electric vehicles is driving optimism
that this market for rare earths could grow. NdFeB magnets are
currently the strongest type of permanent magnet, according to
expert consensus. Neodymium demand is expected to rise, owing
to increasing magnet consumption (Figure 5).
Figure 3: Grade of in situ REE oxides at
and Mount Weld
Source: Technology Metals Research
Optimism for magnet demand is tempered, however, by reports
that despite expanding consumption of rare earths by the magnet
industry, extra neodymium supply is now making it difficult for
suppliers to sell stockpiled material. Dysprosium also faces
demand challenges. It is used in NdFeB magnets to prevent
denaturing at high temperatures and could be replaced by
lower-priced cerium co-doped with cobalt. In percentage terms,
the value of dysprosium consumed is likely to fall against
other rare earths used in magnets.
Demand for europium, one of the higher-priced rare earths,
has the potential to recede as alternative products and
processes emerge. Previously used in cathode ray tube (CRT)
television sets before the appearance of modern plasma and
light emitting diode (LED) screens, today europium is consumed
in fluorescent bulbs and strip-lights to increase the warmth of
the light emitted. The emergence of even more energy efficient
LEDs could see europium prices fall in the medium term,
although tightening supply may offset this effect.
Recent developments in China
Toward the end of the 2000s, China began to plan and
implement a policy of consolidation, whereby small regional
rare earths companies are being merged into larger operators.
It is hoped that this will reduce the environmentally damaging
effects of rare earths production in China, simplify regulation
of the sector and conserve resources. By the end of the
consolidation drive, the only companies permitted to mine rare
earths in China, including via their subsidiaries, will be:
China Northern Rare Earth Group High-Tech Co. Ltd (formerly
Baotou Steel Rare Earth Group High-Tech Co. Ltd); China
Minmetals Corp.; Aluminum Corp. of China (Chalco, via its
subsidiary China Rare Earth Holdings); Ganzhou Qiandong Rare
Earth Group; Guangdong Rising Nonferrous Metals Group Co. Ltd;
and Xiamen Tungsten Co. Ltd.
China Northern is by far the largest group, accounting for
57% of China’s production quota. However, its
Baotou, Inner Mongolia production base contains mainly LREE,
reducing potential returns.
The Chinese government also hopes that the consolidation,
combined with stronger local government regulation and
crackdowns on illegal mining and smuggling, will alleviate the
supply of black market rare earths.
Tim Worstall, an economist blogger and rare earths dealer
quoted by Forbes, earlier this year questioned if
China’s rare earths monopoly should matter, given
that it was quick to bow to pressure from Western competitors.
He argued that: "If Beijing wants to raise its prices and start
using supplies as geopolitical bargaining chips, so what? The
rest of the world will simply roll up its sleeves and ramp up
production, and the monopoly will be broken."
Figure 4: Value of REE consumed by sectors,
% of total
REE market, 2011-2014
Source: Industrial Minerals Co. of
Furthermore, Worstall believes that media coverage of the
role of rare earths in the defence industry is lacking and not
always accurate. For example, yttrium used in the coating
material on the US F-35 military jet’s engine
blades does not require an expensive and complex lanthanide
separation plant for production, despite a recent television
news report in the US suggesting that supplies are limited and
that the US defence industry lacks resilience to potential
Chinese supply restrictions. A US Department of Defense
spokesperson told the Wall Street Journal in July this
year that the US has a large stockpile of the metals and does
not have any plans to offer Molycorp, which filed for Chapter
11 bankruptcy the preceding June, a bailout, despite numerous
newspaper reports implying otherwise.
The WTO’s October 2014 order to China to remove
export taxes on rare earths resulted in a policy shift from
export quotas and taxes to production quotas and resource
taxes. On 1 May 2015, the resource tax rate for LREE was pegged
at 11.5% in Inner Mongolia, 9.5% in Sichuan province and 7.5%
in Shandong province. Middle-heavy rare earths resource taxes
were set at 27%.
China is also attempting to introduce higher-value
production into its domestic rare earths industry. Although the
country dominates in terms of volumes, the production of many
patented and highly complex products remains the preserve of
Western companies. In efforts to move up the value chain,
China’s government awarded Chinese renminbi (Rmb)
1bn ($157m**) to the Baotou region’s rare earths
industry and gave Rmb 458m ($72m) to Ganzhou province to
develop high-tech, high-return rare earths products.
Wide-reaching optimism concerning the shift from export
tariffs to production quotas and resource taxes led to
temporary price increases in the first half of May 2015.
However, this soon subsided as international buyers pushed for
lower prices, despite increased demand.
Figure 5: REE by proportional consumption
In the West, the rare earths industry is also in a fragile
situation. Of the two main producers outside of China, Lynas
appears to be the more secure business and recently started to
generate positive cash flow. Lynas is not encumbered with the
same debts as Molycorp, which purchased Neo Material
Technologies Inc., a rare earths processor and distribution
company, in 2012 for $1.3bn. Lynas’ debts stood at
Australian dollar (A$) 650.8 ($463.1m) at the end of 2014.
Molycorp, in contrast, filed for bankruptcy protection after
voluntarily deferring a number of interest payments on its
loans. As of the date of the filing, it had declared total
liabilities of $1.7bn. A restructuring process is now underway
and the company is receiving legal and financial advice from a
number of partners. Analysts do not anticipate the winding down
of Molycorp following the bankruptcy and believe that once its
debt and production bottlenecks at Mountain Pass are resolved,
the business may prove to be successful. Molycorp also
announced a deal this year to supply magnet materials to
Germany-based Siemens AG for its wind turbines.
However, the bankruptcy filing follows a $400m
recapitalisation by Molycorp’s most senior
noteholder, Oaktree Capital Management, as recently as
September 2014, illustrating the scale of
Molycorp’s quarterly losses and problems.
*This is a modified excerpt from "Rare earths: Global
market overview", a paper due to be presented by James Sean
Dickson to the Symposium on Strategic and Critical Metals
conference held 13-14 November in Victoria, British Columbia.
The contributions of Carlee Akam of the British Columbia
Geological Survey to the original document are
**Conversions made October 2015
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