EDITOR: | April 9th, 2018 | 12 Comments

Expect new twists to rare earths story as U.S.-China trade dispute escalates

| April 09, 2018 | 12 Comments
image_pdfimage_print

The current trade dispute between China and the United States will almost certainly influence the rare earth elements (REE) market in the not-so-distant future.

First, let’s consider that U.S. President Donald Trump has threatened to raise tariffs on steel and aluminum imports invoking Section 232 of the Trade Expansion Act of 1962, which permits action based on a threat to national security.

Demand for key REEs dysprosium and neodymium as magnets is expected to rise sharply as they come into favour among designers of electrical vehicles (EVs).

Tesla announced it will switch to permanent magnet motors in the Model 3 Long Range models, given their smaller size, higher torque density and improved efficiency, according to research group Roskill. This is a steep change in Tesla’s strategy, having previously used asynchronous reluctance (induction) motors in its Model 3 RWD standard and Model X AWD vehicles. Chevrolet is already using permanent magnet motors in its Bolt EV model.

On the supply side, China controls 95% of REE supply. This percentage would be higher were it not for the start-up of the massive Lynas mine in Western Australia, basically the only initiative to see the light of day from the clutch of projects that arose the panic of 2011 when China reduced export quotas to a minimum.

The only rare metals mine in North America belonged to Molycorp Minerals LLC, which operated the Mountain Pass (MP) mine in California until 2015 when it entered bankruptcy proceedings because of prolonged low prices of rare metals. The boom-to-bust cycle in the REE market has ironically served the purposes of ensuring that non-Chinese REE deposits stayed in the ground.

This is where it starts to get interesting. A consortium of investors backed by China’s Shenghe Resources Holding Co. won access to the mining rights to MP through an auction process last year. ERP Strategic Minerals, the runner-up in the auction, suggested that the sale might be blocked by the Committee on Foreign Investment in the US, a government body that can stop a sale of assets deemed of strategic importance. ERP is allied with Oaktree Capital Management LP, the owner of all processing equipment at the mine site, according to Bloomberg.

Trump issued an Executive Order (EO) in December classifying a host of non-fuel minerals as essential to the economic and national security of the U.S. The list included rare earths, with a 100% import dependence. An article by the National Review highlighted the importance of several REEs on this list, including dysprosium and neodymium in hybrid electric vehicles (HEVs), and indium and tellurium in thin-film solar panels.

Aside from cars and solar panels, REEs make magnets 40 times stronger. They improve the strength and heat resistance of metals and silicon. They filter harmful light in glass, improve the color in TVs and computer monitors, and cut greenhouse gas emissions in catalytic converters. In sum, essential to industry.

Taking aside geopolitics and just looking at the supply and demand fundamentals, Roskill sees sales of HEV/EVs rising to 9.4 million units by 2020 from 3.2 million units in 2016. Prices rose across the REE spectrum in 2017 in anticipation of greater demand for new use industries. REE supply will be critical to the future of the US automotive sector.

This confluence of events is likely to draw investor interest once again to companies who have advanced projects in jurisdictions outside of China. Keep posted for a soon-to-be published article for Search Minerals Inc. (TSXV: SMY), one of the companies that has been advancing a project in Newfoundland since the REE rush of 2011. Look also at Peak Resources Ltd. (ASX: PEK), which is developing a project rich in neodymium-praseodymium in Tanzania.


Matt Craze

Editor:

Matt Craze has covered commodity markets for more than 20 years, working as a researcher at CRU International, and for over 10 years as a ... <Read more about Matt Craze>


Copyright © 2018 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • Tim Ainsworth

    Tracy, why do you do RE 1.01 – 1 incessantly?

    April 9, 2018 - 10:17 AM

    • Ann Bridges

      Tim Ainsworth, probably because most people have absolutely no idea what REE are, nor of their importance to technology, national security, energy. Even investors in the mining space tend to follow the larger commodities with sexy stories (gold, silver). One of the reasons I wrote “Rare Mettle” was to bring the arcane into the fold of the average reader of business fiction. After researching much of the geology and chemistry, I tossed away 95% of the detail to focus on the implication. Without resources such as Tracy’s, any investment in REE would quickly fall away. Thanks to Tracy, more people than ever are following REE, mainstream media is starting to understand its significance, and the potential exists for a boom in the future instead of yet another bust.

      April 10, 2018 - 9:52 AM

      • Tim Ainsworth

        Yes, I could have phrased that better, perhaps > Why don’t we see more written on the Middle Supply Chain, the critical value add stages that turn what’s in the ground to functional product. Without the ability to engage a range of MSC’s no primary producer has a business, except perhaps low value concentrate to China. After following the RE story since early 2010 appears to me the vital value add stages remain a mystery to most. These are the immediate customers, who are they, where are they, what do they do?

        May 6, 2018 - 6:43 AM

  • Bruce Smith

    Where do you place Alkane in this supply situation.
    I understand that they should commence construction of their processing plant 2018/19 with mining commencing in time to supply the completed plant?

    April 10, 2018 - 4:23 AM

  • Ric Wilson

    Let me tell you all, one company that is very quietly moving forward with Heavy REE’s is Ucore Rare Metals with most likely the largest deposit in the world 100% owned in SE Alaska. Go to their site and get informed. Will be producing in 2020 with 99% purity!!

    April 17, 2018 - 9:50 PM

  • joe o

    Would love a nice breakdown on Bokan (ucore) I know my friend Tim A hates the company and thinks MRT is magic pudding Someone besides Tim chiming in would be appreciated.

    April 17, 2018 - 10:07 PM

  • JJ Beswick

    If Ucore do have good technology- certainly not a given- it would be wasted on the 2nd rate Bokan deposit.

    May 4, 2018 - 2:36 AM

  • Joe o

    Re: ucore. I believe bokan is basically mothballed. Main focus are two strategic metals complexes to process tailings coal ash etc. hopefully funding from Alaska and doe /hv partner to build them. Some kinda jv re: mosp. Oil sands. Mrt for lithium brine with Lexi. Obviously the technology needs to scale and be cost efficient. Nothing is a given. Actually a tech company now instead of a minor. Need to purchase ibc (mrt) also. Within a yr

    May 4, 2018 - 10:26 AM

  • joe o

    JJ If I remember correctly you are a Lynas shareholder too. Right now they are like $2 US I am a shareholder too what kind of price appreciation you guesstimating once Lynas Next is up and running Thinking it could double over next few years if demand keep going strong Possibly a buyout candidate too as they convert more debt in equity and clean up balance sheet

    May 4, 2018 - 11:41 AM

    • Tim Ainsworth

      Remembering the current Lynas expansion, funded from CF, will deliver +40% production volume you just need to factor the increased operating costs of an optimised LAMP at a scale of 25ktpa. Perhaps +17% production volumes at static costs H2 2017 indicative.

      May 6, 2018 - 7:01 AM

    • JJBeswick

      Hi Joe,
      I hold Lynas and feel very good about that.With the Lynas NEXT expansion and several clues that a 2nd LAMP may be announced in the next year or 2 I currently have a sell target of US$10 in the next year or 3. Won’t mind holding if that’s overly optomistic.

      May 6, 2018 - 10:07 AM

  • Joe O

    Alkane _seems like every yr is the yr of alkane lately until its not
    Whats happening with these guys or is Lynas just gonna devour the aussie/pacific rim?

    May 7, 2018 - 6:19 PM

Leave a Reply

Your email address will not be published. Required fields are marked *