China’s new tax to put a fire under the non-China rare earth sector
China’s old export controls are gone, the new resource tax is in place – between 7.5% and 11.5% for light rare earths and 27% for medium and heavy rare earths (and 6.5% for tungsten and 11% for molybdenum). George Bauk of Northern Minerals Ltd. (ASX:NTU) sees it as the light at the end of the tunnel. “The resource tax could be the beginning of the rare earth sector coming back,” he said during an interview in Sydney today.
Like most people in the industry outside China, Bauk is trying to get to grips with the policies now regulating Chinese rare earth exports. His hunch is that the high resource tax on the heavy elements suggests China is increasingly concerned about running out of those rare earths and is trying to encourage a global level playing field. Beijing wants to see HREE production coming on stream in the rest of the world because it sees the future need to be able to use imports as its own domestic mines run out of HREE. Naturally Bauk sees this as a huge opportunity for Northern Minerals; the company’s West Australian project is heavy in HREE, especially dysprosium.
But, at this point, we run into the old problem with the REE sector: the lack of transparency. Bauk sees this as the sector’s greatest weakness. “No one can tell what it costs to produce what is coming out of China”, he adds. (In other words, we don’t even know what the level playing field should be.)
The other issue is dysprosium itself. There is talk that some magnets can be developed without using this particular rare earth, but that should be seen in the context that some magnets may not need Dy. Bauk uses the analogy of match boxes: once they had striking strips on both sides of the box, but now they usually have only one after companies realized that only one was needed. Same with magnets, but overall dysprosium will continue to be in high demand for many magnets. Yet, importantly, he believes that consumption of Dy. per magnet is not as low as some manufacturers would have us believe, and that these companies are keeping levels of use a closely guarded secret – they don’t want China and other new suppliers to hike the price if it is disclosed that the demand is greater than suppliers now think.
He also has a query on the lights needed for magnets, specifically neodymium and praseodymium. Presumably these are in the same critical basket as dysprosium, but the tax on them is much lower.
Here’s another point he makes about the tax: the money goes to the provinces, not the central government in Beijing. Perhaps this is an incentive for those provinces to try harder to clamp down on illegal production.
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Should this encourage more non-China production of HREE, Bauk feels it may have the effect of promoting the belief that supply of HREE are secure. That is, if end users can be assured they will be able to obtain the elements they need, in a competitive price environment, then they will develop more products using these elements – a sort of scandium situation, writ large. Give them HREE, and they will come.
The problem is with the repercussions of the post-2011 REE slump: too many companies have, most through no fault of their own (low prices, inadequate sources of new capital), been to some extent treading water. Add to this fact that greenfield exploration has pretty well evaporated. For the LREE that is not so much a problem given the quantity of known deposits, but it will be an issue for the heavies a few years out as China’s HREE resource shrinks.
This writer can’t help thinking of the 1990s. I was writing about junior resource sector and, as anyone who was around then will remember, it got to the stage where many small explorers ran out of money, and effectively exploration slowed to a dribble. The result when, first, gold and then other metals began their stellar run post-2003? The mining industry was caught flat-footed and it took several years to get projects back on track.
The same problem may confront HREE. However, if George Bauk’s feeling that China’s latest move will put a fire (or at least a warm glow) under the non-China rare earth sector, then that sector might be able to meet the supply challenges of the future. Certainly, Northern Minerals’ advanced stage now (it has raised nearly A$90 million over the past five years) will put it a good position.
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