Chinese show confidence in Northern Minerals — and dysprosium
One month we hear that Honda is engineering heavy rare earths out of engines for its hybrid cars, which made all the headlines — fortunately InvestorIntel Senior Editor Jack Lifton was ably to see through what he called a “craftily” written press release and pointed out that this applied to hybrid engines (a transitory, interim technology), not those in electric vehicles. Moreover, Jack added, “Honda does not want the electrification of cars, if it ever happens, to happen soon, because it has a huge investment in the design and manufacturing of internal combustion engines”.
A few weeks later (on Tuesday August 2, to be precise) a Chinese company decided to invest A$30 million in an Australian project that will be producing one of those heavy HREE, namely dysprosium — which handily reminds us of all those reports in recent years forecasting that China would be facing a heavy rare earth crunch in coming years.
The news this week that Huatai Mining will take up new equity worth A$30 million in Northern Minerals (ASX: NTU) received surprisingly little attention in Australia’s financial media. This is particularly astonishing since it was a further signal that interest is beginning to flow back into the rare earths sector. This week saw we saw not just the promise of A$30 million for an emerging REE player but, on the news, NTU shares jumped by 30.8% — both the size of the raising and the market response being trends you’re more likely to find in the lithium space these days.
Also, we have seen Lynas Corp. (ASX: LYC) complete its ramp-up to full capacity, a good boost to the share price for Arafura Resources (ASX: ARU) and a recent steady improvement in the share price for Hastings Technology Metals (ASX: HAS) after it earlier this year raised A$9.6 million at a premium to its then share price.
For those who have not caught up with the NTU development, Huatai is a subsidiary of Shandong Taizhong Energy Co, a private company that acts as an intermediary between suppliers and end users of coal. Another arm, Taizhong Energy was established to secure coal assets in Australia.
But now Taizhong is following a new strategy of diversying into strategic metals — and Shandong’s move into Northern Minerals is part of that strategy. Once the transaction has been completed, China-associated interests will hold 58% of Northern Minerals; Huatai will own 31% and the Australian Conglin International Investment Group another 27%. Australian Conglin has been a long-time shareholder in another Australian-listed rare earth explorer, Orion Metals (ASX: ORM) but there have been board changes last month after 57.95% of the company was taken up by Excellence Holdings (Hong Kong) Ltd.
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While picking up the Wall Street Journal report and running hard with the Honda story this week, The Asahi Shimbun makes this point: “Neodymium magnets, used in drive motors for hybrid vehicles, lose their magnetic force under high temperatures. A heavy rare earth element such as dysprosium is often added to compensate for a lack of heat resistance”.
For the moment, I’ll put my money on Jack Lifton being correct. Which means we can all remain relaxed about the magnets-dysprosium story.
Northern Minerals recently produced some facts on EVs: that the German government and automakers have committed to spend €1.2 billion on electric vehicle production; China is targeting having five million hybrid and electric vehicles on the road by 2020. I would add the point that Chinese automakers have access to dysprosium for magnets; by contrast, as Jack pointed out, Honda has no REE supply chain on which it can depend.
Northern Mineral’s Browns Range project in Australia has dysprosium making up 60% of its valuation, with neodymium-praseodymium contributing 2.5% and terbium 11%. The company quoted forecasts that dysprosium prices are expected to double to $400/kg within 12 months.
As the presentation also notes, dysprosium is critical in high-end permanent magnets, and for which there are limited substitutes. It allows optimal performance at high temperatures; EV and hybrid vehicles require between 2kg and 10kg per car, standard vehicles 1kg and wind turbines 550 kg per megawatt.
In the end, though, you only have to ask yourself one question: would Huatai be parting with $30 million if it did not see a secure future for dysprosium demand?
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