The rigours of rare earths

By James Sean Dickson
Published: Thursday, 22 October 2015

After yet another trying twelve months for rare earths companies, the future for the industry remains uncertain. James Sean Dickson, Reporter, looks at recent market developments and the prospects for Western and Chinese producers amid conditions of oversupply and soft demand.

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 demand. 

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 Survey. 

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, 2014

RE1  

Source: USGS 

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 Brazil.

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, 2014 

RE2  

Source: USGS 

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

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 mineralogy. 

Table 1: Industrial Minerals REE prices

Rare earth minerals

Price

Cerium oxide, min 99%, FOB, China, bulk

$2-2.5/kg

Dysprosium oxide, min 99%, FOB, China, bulk

$235-250/kg

Europium oxide, min 99%, FOB, China, bulk

$200-225/kg

Lanthanum oxide, min 99%, FOB, China, bulk

$2.1-2.5/kg

Neodymium oxide, min 99%, FOB, China, bulk

$41-46/kg

Praseodymium oxide, min 99%, FOB, China, bulk

$57-63/kg

Samarium oxide, min 99%, FOB, China, bulk

$2.1-3.1/kg

Source: IM Prices Database, October 2015

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 success.

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 term.

Processing technologies

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 (Figure 4).

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 Mountain Pass 
and Mount Weld

RE3  

Source: Technology Metals Research LLC

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

RE4  

Source: Industrial Minerals Co. of Australia (IMCOA)

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 value, 2011-2014

RE5  

Source: IMCOA

Western worries

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 appreciated.

**Conversions made October 2015

References

Bogner, S., 2014. The Knock-Out Criteria for Rare Earth Element Deposits: Cutting the Wheat from the Chaff. Rockstone Research Ltd.

Connelly, N.G., Damhus, T., Hartshorn, R.M., and Hutton, A.T., 2005. Nomenclature of Inorganic Chemistry UPAC Recommendations 2005. The Royal Society of Chemistry, Cambridge.

Fraden, J., 2010. Handbook of modern sensors: physics, designs, and applications. Springer Science & Business Media, Berlin.

Haque, N., Hughes, A., Lim, S., and Vernon, C., 2014. Rare earth elements: Overview of mining, mineralogy, uses, sustainability and environmental impact. Resources.

Hatch, G., 2010. Comparative Value Metrics for 13 Advanced Rare Earth Projects. Technology Metals Research LLC. 

Hurst, C., 2010. China’s Rare Earth Elements Industry: What Can the West Learn? Institute for the Analysis of Global Security.

Jacobsen, J., 2014. Analysts: Chinese consolidation of rare earths sector to have limited impact on global market. North Square Blue Oak Ltd. 

Jones, A. P., Wall, F., and Williams, C. T. (1996). Rare earth minerals: chemistry, origin and ore deposits (Vol. 7). Springer Science & Business Media, Berlin. pp 2, 11.

Kanazawa, Y., and Kamitani, M., 2006. Rare earth minerals and resources in the world. Journal of Alloys and Compounds.

Morrison, W.M., Tang, R., 2012. China’s Rare Earth Industry and Export Regime. Economic and Trade Implications for the United States. Congressional Research Service. 

Simandl, G.J., 2014. Geology and market-dependent significance of rare earth element resources. Mineralium Deposita.

Winter, J.D., 2001. An Introduction to Igneous and Metamorphic Petrology. Prentice Hall, New Jersey.

Xie, F., Zhang, T. A., Dreisinger, D., and Doyle, F. 2014. A critical review on solvent extraction of rare earths from aqueous solutions. Minerals Engineering.