Processing, not just Production, is the Key to Survival for a Rare Earth Junior

Rare Earth RPMs, Reaching Production Mode versus Reaching Profitability Mode, which metric is more important to investors?

What are the critical rare earth companies, and are there any such companies? These are not supply chain questions; these are existential questions for the rare earth markets of the near future. The critical rare earths are those used in the mass production of consumer devices or devices designed to facilitate mass consumer demand (For example, yttrium ceramics are critical to the safe and long lived operation of jet engines for mass production). Today in 2014 the critical rare earths for the civilian market are neodymium/praseodymium, terbium, dysprosium, and yttrium. The supply of each of these today is either entirely or almost entirely from and thus under the control of China. By critical I mean both:

  1. The technologies enabled by the above critical rare earths, used individually or in combination) cannot be enabled as efficiently or, in some cases, at all by any other elements single or in combination, and
  2. The current supply of each and every one of them is inadequate to allow further growth in the mass production of the technologies enabled by them.

RPMFirst, for those of you younger than 50; i.e., those one generation younger than I am. “RPM,” was once a common acronym for the phrase “revolutions per minute,” the measure of the speed of rotation of analog plastic discs used to record sound by mechanically impressing the vibration patterns (wavelength and intensity) that sound produced onto a malleable medium which was then made solid and fixed. The recording speed and the playback speed were important metrics of the quality of the “recording,” which was pathetic when compared to our contemporary digital sound recording technology which transforms the same mechanical audio data into digital, magnetic, signals with fidelity (faithfulness to the original sounds) orders of magnitude better than the “vinyl discs” of yore.

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“Video,” likewise went through a recording technology revolution. Kinescope, the recording of the image on a cathode ray tube onto cellulose nitrate backed silver halide coated “film” was the first way and it was replaced by transforming audio/video signals directly to magnetic signals recorded on moving mylar tapes covered with a film of magnetic iron based particles, the size of which particles was critical to the fidelity of the recording as was the speed of the “tape” past the recording “head.” Today we have modern direct conversion of solid state sensor audio and video signals (replacing “film” for that use) to charges distributed through solid state electronic memories.

If you’re still with me I am trying to say that “RPM” no longer has any meaning in contemporary  audio and video (and computer memory) recording so I am going to appropriate the term for use in due diligence analysis of junior mining ventures for the small investor, i.e., you, dear reader. The following discussion is about contemporary rare earth juniors and producers but it applies to all of the technology metals.

Let me define an RPM1 and an RPM2 as business operations goals:

The business operations goal, RPM1, is to be defined as Reaching Production Mode. By this I will mean that the company has begun to produce or has the existing capability and capacity to produce commercially saleable materials that meet customer specified metrics of quality, on-time delivery, reliability, and agreed PRICE.

RPM2, a separate business operations goal, is defined as Reaching Profitability Mode, and means that after achieving RPM1 a venture can produce revenues sufficient to meet ALL of its existing obligations.

The use of terms such as “positive cash flow,” in recent “announcements” by rare earth juniors which seems to be used to mean that for a given window of time the company has produced more revenue that its “cash burn” for that period is an emergency, misleading, response to a bad situation, in my opinion.  A positive cash flow means only that for the period covered the patient is stabilized; it does not mean that he is assured to survive, not at all.

RPM1 is often used by juniors to argue that they have achieved a level that ensures RPM2; this is patently untrue.

Sustained and Regular Profitability  – SARP is the only important goal and metric to watch for.

Molycorp and Lynas have both reached RPM1, so they tell us, and Lynas says its goal is to reach RPM2 while Molycorp keeps promising that RPM2 is just another quarter away. But only SARP can stave off bankruptcy once a company’s ability to raise capital through equity and debt are exhausted after reaching RPM1.

This is how I look at both Lynas and Molycorp:

Is there enough open market demand and firm and growing pricing that will allow either of them to achieve SARP in a defined time beginning now? I, for one, do not think so, but I admit there are some potential new uses for the light rare earth magnetogenic materials, praseodymium and neodymium, that could dramatically change all of that. The bad news is that this new demand is still several years away and that it will be necessary in order for that new demand to crystallize that substantial non-Chinese production of the heavy rare earths occur. In fact the prior production of heavy rare earths beyond current levels necessary for contemporary demand is itself necessary to kick off the demand for the new uses as well as to sustain any growth in existing ones.

There will be no demand “spurt” for the light rare earths unless and until an additional supply of heavy rare earths is brought to the market.

This is why there are Critical Rare Earth CompaniesCRECs, whereas the light rare earth, only, producers are just companies.

Did I mention that widely available cost effective downstream processing of the critical rare earths is the remaining barrier to the rare earth sector’s survival and its revival outside of China? It is, you know.

We already know the costs of rare earth separation by solvent extraction (“SX”), processing by traditional means; it is high and it is too high to allow for competitive growth in many otherwise reasonable models of the future of rare earths demand.

But there is hope from existing solvent extraction separation technology due to the development in the USA and France of:

  1. New more efficient and more selective extractants, and of
  2. Accelerated processing through mechanical manipulation of existing technologies

In addition there are in advanced development and even deployment in the USA, Canada, the UK, France, and Australia for the separation of the rare earths:

  1. Newly applied existing technologies used in separating and purifying other technology metals, and
  2. New Technologies showing great promise and in beta testing (and beyond) already

The REMB, rare earth markets boom, has created many new processing schemes based on the above. Surprisingly the best of these technologies are American, European, and Australian.

This is because Capitalism both with and without Chinese characteristics has entered the phase of resistance to new ideas based on the inertia of the capital already invested in traditional technologies. This is the main barrier in China to the lowering of costs through developments in the four areas above.

It is also the principal barrier to the development of a viable heavy rare earth supply chain outside of China. But resistance to building plants using advanced or new separation technologies is not the same as resistance to replacing expensive plants based on existing technologies.

I predict that over the next one to two years most of the existing rare earth juniors will cease development and operation due mainly to the lack of the possibility of their achieving RPM1. Those that do achieve RPM1 must then achieve RPM2 rapidly after attaining the first goal, REPM1.

In any case it is unlikely that any of the current contenders for survival will do so by constructing and operating a “traditional” solvent extraction separation plant.

It is possible that one or more of the 3 large scale SX plants outside of China, Molycorp’s, Lynas’, or Solvay’s, will convert to full time tolling operations, but even so only one of the three has the capability of separating the critically necessary SEGs and HREEs, and even that one, Solvay’s La Rochelle facility in France, has only 9,000 tons per annum of capacity.

Therefore in order for any of the non-Chinese juniors with SEG/HREE themed deposits to come into production there will have to be built SEG and HREE separation capacity outside of China sufficient to create the additional supplies of SEGs and HREEs that the rare earth global supply chain needs to increase the supply of the truly critical rare earths.

Therefore the advanced SX or the newly applied or new separation technologies mentioned above MUST become the basis of lower cost specialized separation facilities for producing SEGs and HREEs outside of China.

And a junior’s survival must now be measured by how it intends to reach RPM2.

When you read or hear an explanation of how a junior is going to achieve RPM2 note carefully the downstream separation technology it says it will build or toll with. The cost and efficiency of that technology will be the key to the survival of the junior that has achieved RPM1 being able to achieve RPM2.

Next week I’ll look at the rare earth juniors that I think are going to achieve RPM1 and that are on the right track to RPM2…


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About Jack Lifton

Jack Lifton is a Founding Principal of Technology Metals Research, LLC. He is also a consultant, author, and lecturer on the market fundamentals of the technology metals, the term that he coined to describe those strategic rare metals whose electronic properties make our technological society possible. These include the rare earths, lithium and most of the rare metals. Jack Lifton is currently a non-executive Director for Texas Rare Earth Resources Corp. (OTCQX: TRER) and AMR, a private Turkish mining venture. He is a paid business operations/marketing consultant to Rare Element Resources (TSX: RES | NYSE MKT: REE), Ucore Rare Metals (TSXV: UCU | OTCQX: UURAF), Tasman Rare Metals (TSXV: TSM | NYSE MKT: TAS), and NovX21 (TSXV: NOV). He is also the founding co-principal of Technology Metals Research, LLC. His consulting is done through Jack Lifton, LLC, a consultancy he began in 1999 upon his retirement as the CEO of an OEM automotive supply company specializing in process chemistry and metals trading. Jack Lifton, LLC is a member of the Minor Metals Trade Association (www.mmta.co.uk) and Jack is an advisor to the Malaysian Academy of Science in Kuala Lumpur, and he is a member of that Academy’s Rare Earth Task Force.
  1. I would like to thank Lifton Stones for his ‘spin’ on what undoubtedly will be the track he will be taking towards his next round of chart climbers in the REE junior sector…:-)

  2. Critical for rare earth juniors going forward, cost of SX and downstream processing and the associated know-how.
    Transparency in this are is what most of the rare earth juniors lack. Most analyst, by now, are smart enough to start asking these questions.
    New technologies/development in downstream processing is the h9oly grail for are e3arth juniors going forward.
    Why is this article not the main story Tracy? With the biggest heading possible and drums beating around!

  3. Molycorp has to keep operating for at least a couple of more years so the mismanagement team can continue to cash absurdly bloated paychecks.

  4. In order to spare the readers a week of teeth grinding suspense waiting for the list of rare earth juniors which Jack Lifton thinks are going to achieve RPM1 and that are on the right track to RPM2, I will hazard a guess: Texas Rare Earths, Ucore Rare Metals, Rare Element Resources, and maybe Tasman Metals. We’ll have to wait until next week to find out why they have achieved this exalted status.

    • VB
      Maybe it has to do with the “advanced or new technology” that Mr Lifton mentions.
      We already know Mr Kingsnorth’s thoughts on these new technologies.
      Quote Mr Kingsnorth:
      “I am not aware of any technology arrangement in place at this moment in time by any of the companies/projects identified by Jack that would provide the confidence required for investors to consider investing in them. So, in terms of technology Molycorp and Lynas/Solvay are Leaders.”
      See more at: http://investorintel.com/rare-earth-intel/kingsnorth-responds-liftons-lynas-molycorp-update/#sthash.0Rrq6Vvr.dpuf

      • Chris,

        Over the last decade I have been seeking out and reviewing advances in “traditional” solvent extraction, new applications of existing technologies, and new technologies for the separation and purification of technology metals. I began my career as a scientific researcher with projects in the ultrapurification of the metaloids and metals being used to create the modern “chip” industry, and I have been a student of such technologies ever since.
        I recognized at the beginning of the rare earth revival in 2007 that junior miners had little knowledge of downstream processing issues, much less of the specific technologies involved.
        Just twice in the last seven years has a junior rare earth client brought to my attention a separation technology vendor with which I was not familiar. In all other instances it was I who introduced the junior to the technology vendor. This includes vendors of traditional technology as well as of promising new applications of existing technology and completely new technologies.
        Molycorp, Lynas, and Solvay use very similar, and in the case of Solvay and Lynas, identical traditional solvent extraction technologies.
        It is unfair to class Solvay with either Molycorp or Lynas, since Solvay Rare Earths is not in the mining business .
        Where I disagree with Prof Kingsnorth is that I think the problem with both Molycorp and Lynas is their dependence on traditional technology. Both designed their core businesses to process only the light rare earths by traditional solvent extraction methods. Neither planned to include the further expansion of their facilities to process SEGs and HREEs. This I think that they viewed as too expensive and unnecessary. This was a mistake. I sincerely believe that the next generation of rare earth juniors will get to RPM2 by either a combination of traditional and new separation technologies or by new separation technologies alone.
        Professor Kingsnorth was a manager at Lynas and has long been an advisor to Molycorp as is well known. Therefore he may have knowledge of their internal operations that I do not have. I have not seen Mountain Pass’ operations since 2009, but I have seen the LAMP several times. I assume that the one and I know that the other is an excellent state-of-the-art traditional solvent extraction faciilty. The Solvay facility at La Rochelle, France, is probably the best total rare earth separation by “traditional” solvent extraction plant now running on the earth; it is certainly the longest running one.
        The need for SEGs and HREEs is too great for the bottleneck to be expensive traditional separation. We are on the cusp of major changes in the separation technologies becoming possible and practical. This work has been pioneered in the non-Chinese world. I think that “the times they are a-changing” as one of my contemporaries sang first 50 years ago.

        Jack

        • I am not involved in setting up a tolling facility in Canada. I have no involvement in IMC, the project to which I think you refer. I am neither a shareholder or an option holder in that venture. I am a partner with Dr Gareth Hatch in Technology Metals Research, LLC, which Metal Events views as a competitor-This is the reason they used to deny me the opportunity to speak at a Roskill conference where I would have been paying for my slot-and I operate my consulting company, Jack Lifton, LLC, as a sole proprietorship (since 1999).
          The smooth bore bronze muzzle loading cannon of the UK’s Royal Horse Artillery are state-of-the art for their technology. The LAMP is state-of-the-art in chloride based solvent extraction technology for separating rare earths using TBP type extractants.
          I do not think that anyone should build any more large scale rare earth separation facilities based on traditional extractants. Research on improved, and economically practical, extractants that has been going on for the better part of a decade is now bearing fruit. In addition technologies designed to dramatically increase the contact times among the phases in mixer-settlers is getting ready for the market. And new technologies based on nano-technologies and continuous ion exchange, both of which have been deployed in the separation of closely related metallic ions from each other are now being targeted at rare earth separation.
          Molycorp and Lynas deployed mature technologies. The next generation will creatively destroy the advantages of the now mature technologies, and bring about cheaper and more efficient production from lower grades to make such deposits economical.

  5. The ones with polymetallic resources that are readily separated seem to be the most likely to survive and prosper along with the ones with high 50%+ H-REEs. Perhaps a look at ANSTO’s work might be of use.

  6. ….. and Ucore have developed their own unique process in relation to the metallurgy – perhaps you can provide an update in your follow up story

    also you might find this analysis interesting … then again you may not !

    Top 10 Signs of a Bogus NI 43-101 Study By Tim Oliver

    http://www.stocksandspeculations.com/i/pdf/268b_Mar3014_Tim_Oliver.pdf

    Item #10 New or Exotic Technology

    Beware of breakthroughs or special “proprietary” technology. Mining projects are risky enough without introducing experimental complex processes.

    If the study presumes a deposit’s riches are only recovered using some special recovery techniques, run away.

    Ask if the technology or equipment is, or has ever been, successfully used in a similar commercial operation.

    A common truism applies: “If it seems too good to be true, it is.”

  7. Jack, Shin-Etsu is comparable to Solvay’s? Alkane Resources will be sending their REE-s to Shin-Etsu and I know Ian Chalmers to be a prudent and skillfull person which has done an in-depth due dilligence before signing a MOU. Your opinion please?

    • Shin-Etsu in terms of know-how and capacity is a fraction of Solvay! MOUs are worth only paper they are written on. Ask Lynas how did they go with their MOUs with other Japanese companies.

  8. Boomers Generation! Redefining RPM out with the old and in with the new. What does that say about our generation when there are no other Jack Lifton to guide us with new ideas and concept.
    It takes a decade for new technology timeline.
    Without financing there can not be RPM1 nor RPM2 and that means prices must first go back up.
    It takes a decade for a mine to reach production critical phase requiring financing. All a house of cards that is not in the US, Europe nor Australia’s favour regardless of whether they have new technology because they don’t have the ability to see past the survival within a single year.
    Molycorp,Lynas can produce as much as they pronounce but the more they produce the more they lose at current prices.

  9. I am not sure i would want to be investing in a junior company that is promoting proprietary technology for separation nor would i want to be the company that is the first to have a new technology in a processing or extraction/separation plant. These are major red flags for any Junior to be touting this in my opinion.

    The best method/route to economic extraction and downstream separation is the amount of feed to start the circuit with… thus, reducing your input mass is paramount. Look at all the producing REE mines out there.. apart from the South China Clays they all enter the extraction with a very small amount of the whole rock mass…. keep it simple, keep it industry standard is all a Junior should be focused on.. if you require new technologies to be economic.. run for the hills i suggest..

    • New technology got rare earths where they are now! New technology got us writing and commenting on domains such as investorintel.
      It seems to me that current generation of scientist is less excited about new development than Jack and his pears. I had this few times, not sure what will happened to the world in the next 20 years.

  10. I wouldn’t doubt that there will be new techniques to extract REEs from the ores. The real question is whether these will be scalable to process a whole mine’s production on a cost effective basis. The answer for much, if not all, of new techniques is that they won’t know until they try. Even successful attempts may take years to tweak. Art turns into science and then again into engineering. Then you can crunch numbers that you can have some faith in.

    • exactly… time to scale up and work out kinks is a killer for this space… this is something Juniors will not survive… re-invention of wheel will kill most of the REE projects… few want to be the first to try a new process on the commerical scale in the REE space i argue.. stick with KISS and get to production..

      • Financing for mines is out of favor in the investment community now anyway. A junior REE miner can raise a few million dollars from issuing new shares. If he can do this 3, 4, or 5 times, he can probably see better times in the future. Only the best of the projects will be able to do this and still keep investors interested. And these companies can take this time to develop new technologies. Then they will be able to buy up the moth balled mining projects very cheaply. In the US, a century ago, there were hundreds of car makers. 50 years later it turned into “The Big 3”.

        The REE miners could certainly use some help developing new processing technologies. Governments give a few million dollars at a time for this, but this is often little more than throwing money at a problem (Greenland Minerals using EURARE to set up a duplicate demo processing project). It doesn’t target the creative heart of the issue. If each of the bigger juniors partnered with leading universities, many graduate degrees could be earned doing new research for REE extraction. And, obviously, this takes time.

        If the REE miners want to get into production soon, they won’t be able to use processing solutions that are too futuristic.

  11. In my articles I have been leading a path through the fundamentals. You have been presented with the knowledge to assess the issue of radiation (Th & U). I presented a series on separation that explained that separation is a relatively simple series of processes. Yes there can be a number of them, but the technology is not really all that difficult. It is not the expensive part of the process. LREO separation costs about $5/kg. HREO separation costs about $20/kg. If you are producing Dy the cost of separation is hardly significant. The most significant cost in the REO chain is extraction and purification. This cost is most impacted by the mineralogy of the deposit. Can the REO minerals be beneficiated? What is the mass recovery and REO loss during beneficiation? What is the process to extract and purify the REO in the hydrometallurgical plant before separation? What is the OPEX and what are the REO losses? These are the key success factors in an REO plant.
    In my next series of InvestorIntel articles, I will discuss the mineralogy issue and how this influences OPEX, CAPEX (RPM1) and NPV (RPM2). This will enable the direct comparison of REO juniors. As an avid reader of Jack Lifton’s thoughts, and, for the most part, in sync with his views, it will be interesting to see how aligned we are in the detail.

  12. The cost of $25/kg for separation is significant percentage of the overall OPEX. Mining, beneficiation and hydrometallurgical extraction, depending on the type of mineralogy and location of the plant these costs are between $10-20/kg. Therefore separation cost is about 50% of the overall cost?
    It will be very hard to put an argument that this is not significant.
    Not to mention hundreds of mixer/settlers required for 3-4N purity.

  13. It is amazing to notice how many people are sceptical as soon as someone is talking about new technology/processing advancements etc.

    • perhaps it’s because plenty have lost money investing in the promises that previous “so called” new technologies were said to bring but failed

      • From my perspective, the only reason I’m invested in rare earth and graphite juniors is because of new technology so even newer and better is the trend that’s your friend. If you are privy and can filter information like Jack can, you can see which way the wind blows to allude to another Dylan classic. I think the times are indeed a changin.

        • Mining projects are risky enough without introducing experimental complex
          processes

          do you know if the Ucore technology or equipment is, or has ever been, successfully used in a similar commercial operation ?

          • Ucore will be the first as far as I know and they appear to be the test piece for Intellimet. It remains to be seen whether they can scale it up. These chelating ligands that they claim they have developed and/or isolated from who knows what need to be synthesized and/or isolated in enough volume to supply a full bore separation plant and I have no idea how difficult or not that might be. They’ve made it sound cheap and easy with truck mounted plastic piping but it’s been nearly two years since they announced the breakthrough and I for one would like to see some follow through with a pilot plant that works as advertised. Let’s assume for the sake of argument that the technology is a bust. It doesn’t work. What is Ucore left with? They still have an easily beneficiated deposit that’s easily dissolved to a mixed rare earth concentrate PLS that can be sent to Mountain Pass or Japan for traditional SX separation. That’s worse case assuming rare earth prices don’t just completely collapse. I guess that this is as good as a place as any to discuss rare earth prices over the last few weeks. It’s worth an article Tracy. Why are prices tanking?

  14. In response to Jack Lifton and hackenzac with “the times they are a-changing”, and in honor of the FRENCH rare earth processing facility at La Rochelle, let me complete that.
    Tulipmania 1636-1637
    Rare Earthmania 2010-2011
    La plus ça change, la plus c’est la même chose.

    • Bob,

      I like Rare Earthmania 2010-2011, as a descriptor, but I don’t think it is in the same league as the “Tulipmania.” The Dutch economy and the birth of share market capitalism were severely impacted by Tulipmania. I doubt that the overall US economy suffered during Rare Earthmania.

      Rare earths enable and are indeed critical to many mass produced and miniaturized technologies that transform electrical and electronic signals to where they can be detected and interpreted by humans as light, sound, and heat. But I don’t see them as strategic materials for our national security or well being. We can build magnets from iron and alnico, for example, for our military and medical equipment, and black and white displays on cathode ray tubes don’t use rare earths. For the civilian population rare earths enhance life style, not survival. I will have a lot more to say on critical and strategic metals and materials this coming week. Please read my forthcoming piece on IIR, so you will know why I was not invited to speak at the Critical Resources meeting in Denver that starts tomorrow.

      Jack

      • I’m surprised that you thought a ludicrous of an analogy of tulips and technology metals was even worth the bother of commenting on in seriousness. Why entertain a ridiculous non sequitur?

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