InvestorIntel Report: Rare earth prices plummet; Gold equity action; Chile’s lithium problem; Potash blues
The theory was that rare earth prices would have to rise if for no other reason than – so it was reasoned – most rare earth companies were losing money and the industry simply could not afford to go much longer without getting a decent return. Those hopes were given some encouragement in April when REE prices looked to be going stronger.
Well, those hopes seem to have fallen flat with the Nikkei news service reporting that REE prices have collapsed even further than the low levels that have persisted into 2016. Terbium, which is added to high performance magnets to enhance heat resistance, has fallen in price in June alone by 21%, to around $450/kg. Dysprosium did not fare so badly, but still did not fare well, down 8% in June to $245/kg. Even neodymium, which is supposed to be the star of the REE firmament, lost 5%, and is now fetching $53/kg.
Nikkei says Beijing held an auction in June for nine RE elements but all bids were lower than the production costs of the main six Chinese suppliers. Those suppliers are now reported to be demanding that the government buy their output at between 20% and 30% above what the bidders were prepared to pay.
Nikkei reports that China plans to add about 20,000 tonnes of REE to its stockpiles this year.
Gold outpaces lithium
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If you need to feel the pulse of the mining sector, there are only two places you can do it: the Canadian and Australian stock exchanges. I can’t report on the former, but in Brisbane a research firm Austex Mining keeps track of all the Australian mining and oil companies, looking for trends.
It has just crunched the numbers for stock market performance in June and found that gold is where the main action is: all of 17 gold companies in June enjoyed what Austex describes as “significant share price rises”. However, it has to be quickly added that this was not as good a performance by gold stocks as in preceding months – in April, 30 gold companies had significant share prices rises, and 34 went that way in February.
The lithium sector paused to take a breath in June: only three juniors saw significant share price rises compared with 17 in April.
But the real surprise was that nine coal companies got good share price bounces last month. And haven’t we been told that coal mining is on death row? China has pledged to remove 500 million tonnes of coal producing capacity – about 10% of its total capacity – over the next three to five years, Indonesia’s coal output fell 15% last year and has continued to decline in 2016 and, over the first five months of 2016, US coal output fell 30%.
Apparently investors in Australia think there’s still life there.
Chile’s lithium problem – and how it might be a problem for other lithium players
Chile once had half the global lithium market. Now it has about 33%. But it looks like getting worse with predictions that Chile will command only 24% of world lithium sales by 2020.
The problem, according to a massive analysis across two broadsheet pages in The Financial Times, is an outdated government regulation. In 1979 lithium was designated a strategic mineral by the Chilean government so that companies that want to fully exploit the vast salar in the Atacamba desert are restricted by quotas that have no relevance to growing demand and the lithium-ion revolution.
As the newspaper explains, this has resulted in the country’s largest producer, Sociedad Química y Minera de Chile (SQM) being still controlled by a quota agreed in 1993. SQM is quoted by the paper as saying it could easily double lithium output.
But others say that the government is trying to limit SQM’s control of lithium rather than lithium production itself, and there is an interest in getting other players in the Atacama.
However, there is a danger for the growing band of lithium hopefuls in Canada, Australia and elsewhere. “As the lowest-cost producer of lithium carbonate, Chile could play a role akin to Saudi Arabia in the oil market,” notes the newspaper. It is suggested that, if Chile were to raise substantially its lithium output, there would be a risk of a collapse in the lithium price.
Potash hopes dashed
The price of the fertilizer feedstock is now at its lowest since 2007, which is not a good sign for agriculture output or for the global economy, being just one more sector of concern.
India has managed to negotiate new contracts with Belarus at $227/tonne, a 32% fall. China last year paid $315/tonne and its new contracts are expected to written at $210/tonne.
The optimists are saying these low prices will stimulate demand for potash. But they are hardly likely to encourage development of new projects, especially the ones with high capital price stickers on them.
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