No respite for rare earths

By IM Staff
Published: Thursday, 27 October 2016

A commodities market rebound in 2016 left the rare earths sector largely untouched, but some companies are still determined to bring new mines online, writes IM Correspondent, Rose Pengelly.

The apparent rebound seen in many commodity and speciality mineral markets so far in 2016 appears to have passed over rare earths.

The group of elements, which five years ago were the poster child of the "critical minerals" hysteria which swept through much of the western mining world, have followed the familiar commodity cycle of boom and bust and rare earths prices today are lower than they were in 2010 . 

The rare earths boom benefitted and ultimately suffered from the added spice of political sensitivity over supply concentration in China, the ascendance of rare earths-consuming green energy applications and some well publicised investment scams in which fraudsters coldcalled members of the public in the UK and the US offering to sell "buckets" of the minerals as a financial speculation.

In the last few years, rare earths have been eclipsed in terms of exploration and investment fervour by other so-called critical minerals – first by graphite, then lithium – and the pool of mining companies that still own up to wanting to mine them has dwindled significantly from the 2010-2012 peak.

A quick glance through the websites of rare earths producers and explorers reveals a number of zombie companies, with "latest news" feeds last updated in 2014 or earlier. Those that are still active (see table) are generally keeping up appearances, with slick, user-friendly websites and well-populated media and investor relations sections and informative links.

But most of these companies are hedging their bets. Less than half are pure play explorers, with the majority now numbering other speciality, industrial and precious metals and minerals in their portfolios. 

"A lot of companies want to keep their hand in the rare earths game, for if and when the up-cycle comes round again," one Canada-based analyst, who preferred not to be named, told IM. "Lots have done the same with lithium, graphite and vanadium – in many cases this has paid off. Every dog has its day".

Of course, predicting the cycle is near enough impossible, although that doesn’t stop many from trying. In October, industry consultants IHS issued a note saying that rare earths prices are now at their lowest point and therefore must be due for recovery. 

"Rare earths prices appear to have hit bottom," wrote KC Chang, a Toronto, Canada-based senior economist at IHS Global Insight. "[We] forecast prices to rise slowly over the next 24 months. The current demand environment remains quiet, but production cutbacks and industry consolidation limits further downside price risk," Chang continued. "Stronger demand, accompanied with inventory restocking, could quickly tighten markets and send prices higher in 2017".

Chang notes that Chinese firms continue to dominate heavy rare earth element production such as dysprosium, while non-Chinese miners are now responsible for a significant portion of the output of light rare earths like lanthanum.

IHS notes that a slight strengthening of demand is starting to put power back in the hands of rare earths suppliers. "With producers withholding sales and asking for higher prices, the shift in the market towards a more balanced condition will be supportive of heavy rare earth elements," Chang said. 

But IHS warns that consumption growth driven by rising demand for rare earth magnets in electronics and green energy applications will not be enough to boost the market, noting that Chinese policies such as production quotas and export restrictions will also be key in dealing with excess capacity. 

Producer discipline is vital to rebalance the market and return pricing leverage to suppliers, but for non-Chinese companies looking to turn a profit from rare earths mining, producing significant volumes is necessary to bring down costs and few expect China to cut its output, just so western companies can gain a foothold in the market.

Still active non-Chinese rare earths companies
**List of active, non-Chinese rare earths mining/exploration companies based on their recent stock exchange activity and corporate announcements (not exhaustive). 

Neo beginning for Molycorp

The most prominent casualty of the rise and fall of rare earths was Colorado, US-based miner Molycorp Inc. After struggling with what ultimately became a $1.7bn debt burden, engineering faults and the strangulation of cash flow from its Mountain Pass rare earths mine in California, Molycorp finally filed for Chapter 11 bankruptcy in June 2015.

The company won approval to exit Chapter 11 in March this year, before finally emerging from bankruptcy in September under a plan that will see the firm controlled by its major creditor, Oaktree Capital Management. Molycorp is being rebuilt around the Neo Materials processing arm of its business under the new name, Neo Performance Materials. The mineral rights to the Californian rare earths deposit and associated intellectual property have been sold to Molycorp bondholders, but the mine itself remains up for sale.
In September this year, Neo Performance Materials won a case against Belgium chemicals manufacturer, Solvay Special Chem, in a German federal patent court which invalidated a number of REO patent claims made by Solvay.

The ruling by the court in Munich related to patent number EP0605274, which covers a method of producing a mixed zirconium-cerium oxide. It reversed a finding by a Dusseldorf court in March that Neo, then called Molycorp Chemicals and Oxides Europe, had infringed two European patents belonging to Solvay’s Rhodia subsidiaries. Solvay now has the right to appeal the later judgment.

Molycorp’s Mountain Pass mine in Colorado, US is now up for sale
after the company filed for bankruptcy in June 2015. (Source: Molycorp.)

It now looks as though Neo Performance Materials will try to quietly rebuild itself, shunning the limelight it received as Molycorp. Having relinquished Mountain Pass, the company will have to source its rare earths from outside the US, meaning that it can no longer beat the national security drum which some thought might see the US government sling the ailing Molycorp a lifeline.

The demise of the US miner left just Australia-based Lynas Corp. and Indian Rare Earths Ltd (IREL) as the only non-Chinese rare earths producers of any significance. IREL’s main income is from its mineral sands business but its side line in rare earths appears to be performing steadily.

Lynas, which is a pure play rare earths producer, has seen its cash flow suffer considerably from the decline in rare earths prices and also spent significant sums fighting legal opposition to its processing plant in Malaysia.

In October, Lynas reported a loss of Australian dollar (A$) 94.1m ($71.6m*) for the financial year ending 30 June. This was down from a loss of A$118.6m the year before.

The Lynas processing plant, LAMP, has faced
considerable opposition in Malaysia, where groups
such as Stop Lynas, Save Malaysia have a large
gathering and support from the local community
and opposition politicians.  (source: CC Food Travel, via Flickr )

Lynas said its operations continue to face challenges from the weak rare earths market and warned that it may have to renegotiate the terms of its debt repayment schedule, having already delayed repayments once this year. The company had around $203m in debt outstanding as of the middle of 2016.

The company said it was confident of rearranging its debts, but its future looks uncertain. Lynas produced 12,630 tonnes rare earth oxide (REO) in the 12 months to 30 June 2016, which according to various estimates, represents anything between 5% and 10% of global consumption in 2015.

*Conversion made October 2016