EDITOR: | July 6th, 2014 | 43 Comments

Jack Lifton debunks the Lynas and Molycorp rare earth leader myth

| July 06, 2014 | 43 Comments
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LYNASI note that the Australian press is reporting today that Lynas Corp. (‘Lynas’) will move its administrative headquarters to Kuala Lumpur, Malaysia, from Sydney and close down its other two administrative centers in Australia to consolidate operations in Malaysia. The company’s mine, the Mt Weld deposit, of course cannot be moved, but it is not expected to be called upon to produce any new material until the end of 2015. It has accumulated an above ground inventory sufficient for at least one year of full production by the LAMP operation in Kuantan, Penang Province, Malaysia. I believe that the Mt Weld ore concentrate is now shipped to Malaysia for all downstream processing beginning with roasting.

I think, as a cost savings, this administrative consolidation is a very good idea. Malaysian infrastructure overheads and office costs are far lower than those anywhere in Australia. In addition shipping costs from Malaysia to existing Lynas’ customers in Japan and elsewhere in Asia are lower cost, which is anyway one of the reasons that the LAMP was built in Malaysia. I would also say it was a good move for Lynas’ public relations in Malaysia except for two things:

  1. Given this new target location for Lynas HQ it must be noted that the those Malaysians who vehemently oppose Lynas operations in Kuantan, Penang Province, at the LAMP are always going to be much more likely to stage their protests in Kuala Lumpur than in Kuantan, because Kuala Lumpur is Malaysia’s capital and is a far more pleasant venue for protests than what the Australian news media unfairly, in my opinion, call the “peat swamps” of Kuantan, and
  2. Because the new CEO of Lynas is a woman making 1.2 million dollars a year.

I was leaving Kuala Lumpur late last year after attending a meeting of the Rare Earth Task Force sponsored by the Malyasian Academy of Science, and when I stepped up to the check-in counter for KLM, the Dutch owned international airline, I was shown a notice that stated that the senior pilot, the captain, of the airliner I was scheduled to fly that evening from KL to AMS was a woman. I asked the check-in person, a Dutch woman, why this notice was posted, since I had never in my life seen any such notice, and she told me that some Malaysians object to a woman having such a position of authority over them. This was an aspect, I was told, of the Moslem attitude towards women “working in men’s jobs” in general. She pointed out that the airline would offer anyone who objected a seat on another flight captained by a man.

I respect anyone’s right to live their life the way they want to providing that they give me the exact same opportunity to live my life as I want to. As I boarded the KLM airliner I saluted the tall woman at the entry port wearing the uniform of a senior captain for KLM.

Malaysia is a shining jewel of multi-cultural democracy with a strong adherence to the rule of law and a regard for the rights of personal property in a sea of much less developed nations Malaysia is a country where the GDP is growing at 6% a year. Malaysia is a beautiful country with warm charming friendly people. Malaysia is also a country that although officially secular is majority Moslem. To the best of my knowledge it is the only Moslem country in the world that has a large operational rare earth separation facility, and one of only two countries, the other being the United States, where domestic monazite was processed in the past, but is no longer processed due to the co-production of thorium being considered detrimental to the environment. As I told the Lynas operational people in Kuantan two years ago when the Malaysian Academy of Science asked me to participate in a survey of the LAMP the Lynas problem is public relations and is exacerbated by a  bit of tone deafness. The Mt weld deposit is principally monazite. The low thorium levels and the safe disposal of what thorium is produced is what needed to be emphasized to the Malaysian public from day one.

Good luck to Lynas in becoming a Malaysian company in all  but name.

Next topic: A recent Reuter’s analytical article, “Rare earths industry teeters as Australia’s Lynas heads to full ramp-up” posted on InvestorIntel on July 3, 2014, struck me, in some particulars, as misleading for investors of all sizes, and in other particulars as just plain wrong.

I was struck by two quotations, in particular, in the article:

  1. …“The pressure is on Lynas and Molycorp to demonstrate that rare earths is a viable business,” said Dudley Kingsnorth, a rare earths expert at Curtin University in WesternAustralia, whose forecasts are widely used in the industry…”
  2. And — A sub-headline of the Reuters’article that reads “[Lynas CEO] Says project profitable even at current depressed prices”

This “projection” of profitability s only mentioned again in the body of the article as follows: “…But more than two years later it [Lynas] has yet to hit stage 1 capacity of 11,000 tonnes a year, racked by opposition to the project on environmental grounds and by technical problems. Once it reaches that rate, Lynas will be cash flow positive, CEO Amanda Lacaze, who took the role in June, said on Wednesday….”

Let’s first look at Mr Kingsnorth’s statement.

I would say that:

In fact the pressure is on both Lynas and Molycorp, which are two different companies with two different deposits and two different business models, to demonstrate that either their own particular or, in fact, any business model that projects a competitive edge in the production and further downstream processing of the light rare earths against the existing Chinese producers in the Bayanobo region of Inner Mongolia can, in fact, be profitable under current conditions of price, existing supply and current and future demand.

Note that I am not saying that the Chinese projects have to be profitable but that, to survive, any non-Chinese light rare earth based project MUST be profitable while selling its own products at or below the delivered cost of Chinese products in whatever market they are being offered for sale. In short, prices are set by the producers of the majority of the products, who are today the Chinese. We assume that we know Chinese costs but in fact we only know their selling prices. We therefore MUST target their selling prices.

As I said here on InvestorIntel earlier this year (click here) I believe that both Lynas and Molycorp are too big and in the case of Molycorp, too congested by non-core, irrelevant, inefficient, or non-performing “assets” for etiher company to achieve competitive advantage over the existing Chinese producers unless security of supply is taken into consideration and heavily capitalized by long term customers. Now as to the statement attributed to Ms. Lacaze, the new CEO, of Lynas, it does not follow, logically, from the statement printed in the article that a positive cash flow equals profitability in the sense of ongoing profitability, or more importantly that such positive cash flow would be or could be sufficient to cover existing debts, working capital, or retained earnings in the foreseeable future picture of rare earth prices and demand.

The attempted (so far) revival of the rare earth industry outside of China got its impetus  in 2007 when Chevron divested itself of the moribund Molycorp that it had acquired in 2004 when it bought Unocal.

Molycorp’s new owners were financial managers with one exception, Traxys, which is a large resources trading company. I believe that they, the new owners of Molycorp, chose to promote the story that military demand for the rare earths was critical, large, and growing. They may even have believed it. It turns out that this story is not true. The US Military, which by itself, accounts for at least one-half of the world’s military budget and is the most technologically advanced military in history has published figures showing that it uses about 150 tons a year of neodymium iron boron rare earth permanent magnets all of which are modified by dysprosium. By contrast, just the US OEM automotive industry uses 7,500 tons per year of that type of rare earth permanent magnet.

The fact is that today the world supply of the light rare earths that are the only products of the mining operations of both Molycorp and Lynas is in surplus. The Chinese company, Baotou, has said publicly that by itself it could supply the entire global demand for light rare earths indefinitely. Of course it would ONLY continue to be able to do so if it remains the lowest cost producer and if the Chinese government allows export volumes to be determined by market forces.

If China adheres to the recent WTO decision then Baotou’s cost structure at the moment, as reflected in its pricing, will allow it to continue to dominate the global market. Note that In the last reporting year even though prices for the rare earths fell dramatically from their previous year’s levels Baotou still made a small profit.

In fact though it has become obvious that the future geography of the global rare earth supply chain will depend on deposits that can produce mid-range (SEGs) and heavy rare earths (HREEs).

[SEG is shorthand for Samarium, Europium and Gadolinium — the mid-range rare earths all of which have product uses: magnets, phosphors, and medicine.]

Molycorp-VisionI am going to predict that those non-Chinese deposits being developed to produce the most SEGs and HREEs, as a percentage of their total production, have the best chance of also becoming profitable producers of LREEs.

Almost all of the HREE developments can or would produce some LREEs. The critical nature of the HREEs, even in the Chinese domestic markets, makes it likely that SEG/HREE producers will also be able to sell their LREEs to their customers using the time-honored Chinese developed sales method of “if you want dysprosium you must also take neodymium. If you want a better deal or an assured supply then you must take lanthanum as well.”

Molycorp’s original business model took no account of HREEs; this flaw has dogged the company all along. Acquiring (or as seems more and more likely being acquired by) Neo materials gave Molycorp some Chinese HREE processing capability but no HREE new material sourcing capability whatsoever. For whatever reason this flaw has not, even now, been fixed although it could have been easily fixed many times. It is probably now too late, financially, for such a fix to rally the market.

Lynas is in a similar predicament. The company has, however, among its Mt Weld properties significant HREE bearing deposits. Even the Mt Weld material contains 5% of SEG/HREEs. At 11,000 tons per annum the output of the LAMP would include 550 tons per year of SEG/HREEs. Neither Molycorp nor Lynas has any non-Chinese capacity for downstream processing of SEG/HREEs. But only Lynas would immediately have any to process in any case.

Therefore I predict that end-users looking for non-Chinese materials will focus on the total output of the right sized producers now in late development. I think that North American domestic demand for ALL rare earths will be filled by the operations of one of or all of Rare Element Resources, Texas Rare Earths, and Ucore. A successor-in-interest to today’s Molycorp may well produce some light rare earths from its dedicated mining operation if the separation facility at Mountain Pass can be stripped of its global overheads and accumulated debt. The facility there would be an ideal location for tolling without those global overheads. It would of course have to be upgraded to be able to process HREEs.

I think the LAMP, shorn of debt and global overheads, would also be ideal as a central LREE tolling operation, but it would, as would Molycorp, by the way, have to add a hydrometallurgical engineering group to adjust the plant’s operations for different feed stock compositions. Ideally a Malaysian group might take over the LAMP or partner with existing management and build a SEG/HREE downstream processing facility on the property. In fact a total rare earth supply chain could be constructed on the basis of the LAMP to serve all of non-Chinese (Austral) Asia with hydrometallurgy, separation, metal and alloy making, and magnet and specialty alloy and chemical production. Australian HREE juniors such as Northern Minerals might and should look towards a Malaysian central processing facility I will go out on a limb and predict that one or the other of the above scenarios will come to pass. Perhaps even both.

I don’t want to leave out Europe, so let me say that it is possible that Solvay might turn La Rochelle into a central processing operation anchored upon the production from Tasman in Sweden and from AMR in Turkey. It is more likely today than in the recent past that a third party will set up a central European processing (tolling) operation using not only Tasman and AMR feed stocks but also some from Russia or Central Asia. The common problem for all toll refiners is “normalizing the feedstocks.” This is not a trivial problem, but it is not insurmountable. It does, of course add cost. Lastly, my Canadian friends (and relatives) might wake from their slumber and promote the creation of a central Canadian tolling facility for the rare earths. This would completely change the dynamics of costing most of the Canadian located rare earth junior mining ventures.

Did I mention that both Africa and South America can produce the lowest cost LREE ore concentrates, and, in at least two instances already do so as a consequence of existing very profitable operations?

There’s a whole lot going on in the non-Chinese rare earth sector that has nothing to do with the mining operations at Mountain Pass or Mt Weld.

I think that the non-Chinese world is on the cusp of putting into place the right ideas to process the right amounts of rare earths from right-sized and right-proportioned rare earth deposits. I won’t be too surprised if Chinese investors make the first credible overtures to achieve this goal. I will be surprised if non-Chinese governments make such investments easy.

Please, please stop thinking that either Molycorp or Lynas have the “right” model and that the entire rare earth industry outside of China will rise or fall with their survival or lack of it. In fact both companies are stuck in a rut. The rare earth business model has not been static.

Disclaimer & Note from the Publisher: In addition to our Disclaimer that is easily accessed underneath all of our articles, we have had all of our writers edit and update their bios listed underneath all of their InvestorIntel articles to disclose any Directorial roles or consultancy agreements with any public companies. For further questions or inquiries, please send to info@investorintel.com.

For instance, 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.


Jack Lifton

Editor:

Jack Lifton is the CEO for Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. Technology metals ... <Read more about Jack Lifton>


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Comments

  • Klingklong

    Why is he not commenting on CCE and its breakthrough in metallurgy? Just because he is not paid by CCE or why the ignorance? Whats the issue I just dont get it?

    July 6, 2014 - 2:20 PM

    • Jack Lifton

      What is CCE?

      July 6, 2014 - 2:25 PM

      • Tracy Weslosky

        Commerce Resources — TSXV: CCE

        KlingKlong — you know it was just this morning I was wondering what’s happening with CCE…left a message there a few weeks ago: haven’t heard back. Maybe you can tell us?

        July 6, 2014 - 3:12 PM

  • Jack Lifton

    KlingKlong

    Metallurgy is not destiny. All that the term, metallurgy, usually means in junior mining is the extraction of the desired values from the ore. For the rare earths this means that the company has gotten out as much of the desired material as is economically and practically possible from the ore. But simple maximization of extraction doesn’t mean that metals or ions that interfere with further separation were not also carried through. Perhaps we should use a term such as “ideal metallurgy” to describe a chemical and/or physical series of processes whereby the maximum of the desired species are extracted along with the minimum of species that will interfere with the further downstream processing to isolate and purfity the desired species.
    Using the definition above (of an “ideal metallurgy”) and based on publicly available information I would say that the best junior rare earth results I have seen in North America so far metallurgically have been Avalon, Rare Element Resources, and Ucore. Metallurgies are not usually chemically comparable. It is the results that should be compared.
    I do not know what CCE has achieved metallurgically. I will look into it.

    Jack

    July 6, 2014 - 4:26 PM

  • Jim

    I would think long term Quest Rare Minerals QRM has the right mix of rare earths (medium to heavy) to satisfy future demand and be profitable. The big question is whether they can obtain financing during this junior miner bear market. Short term Tasman has good advantages.

    July 6, 2014 - 4:26 PM

    • freethinking

      Jim, Quest has a huge deposit, but “in the current environment” why would anyone pour big money into Quest, when you could bring say four or five other (medium to heavy) projects into production for the same money or less, and in the process diversify your investment, and spread your risk.

      I would prefer to be pouring the money into Tasman, however I remain sceptical about Tasmans allowance for “other infrastructure costs at $10M” in the PEA, …. and how is Tasman progressing with their metallurgy test work?

      July 6, 2014 - 6:03 PM

      • Tracy Weslosky

        Update just posted on how the sector is doing: InvestorIntel June month-in-review: Electric car materials jet fuel market and uranium gains a pulse http://shar.es/Nnbmy

        July 6, 2014 - 6:34 PM

  • Bill Keenes

    in the reuters article Jack referred to above Kingsnorth also said:-

    “companies that can extract heavy rare earths, like dysprosium and yttrium, will have an advantage over those with light rare earths, as supply is tighter”

    July 6, 2014 - 6:11 PM

  • Fred

    Jack, any opinion on the future of Molycorp’s Silmet to toll process REE miners? Any thoughts on Geomega’s research? (I don’t own shares of either, but I do own shares of a couple of companies that you work for.)

    July 6, 2014 - 6:32 PM

    • Jack Lifton

      Fred,

      I do not think that Silmet has ever processed HREEs. As to Geomega I do not have enough information to make a judgement, but I am right now looking at ion exchange and chromatographic technologies for rare earth separation, so I expect to have some comments at the end of this quarter on the probability of scaling either or both of them up. Both technologies work and have been used for years by analytical chemists to prepare small samples, but no one has made a full scale plant based on either technology. Rare earth separation technology may soon be able to make some leaps that sharply reduce costs. Those operating the existing technologies will be the biggest naysayers to this, because it would mean that their huge expenditures on Traditional SX could be obsolescent. Among those most affected would be the Chinese. The rare earth global supply chain of 2020 may be quite different from today’s. I for one expect it to be.

      I don’t work for anyone. I am a consultant to several junior miners, a platinum group metals refiner, and a major miner. A consultant is at best an at will employee; one who gets no benefits and may be terminated on short notice. I do NOT consult with companies the management and business models of which I do not respect. I have been a technology metals sourcing and refining specialist for more than a quarter of a century. I am always looking for credible potential sources of technology metals.

      Jack

      July 6, 2014 - 7:06 PM

      • Fred

        Hello Jack

        No offense meant by “work for”.

        On Molycorp’s web site they advertise the availability of the regular REO’s. Perhaps they’re mostly just wholesalers of these?

        July 6, 2014 - 7:40 PM

      • hackenzac

        Is ion exchange and chromatography an either/or? SPE as Ucore is investigating is a combination, ion exchange column chromatography which in itself seems to be a redundant term. Column chromatography as it is generally used IS ion exchange separation. As for using analytical chemistry techniques for production level separation, SPE has been used to my understanding in pharmaceutical production for some time but this electrophoresis thing that Geomega is looking at seems new fangled and I’m curious as to how it works production scale and if it fouls up from build up. Electrophoresis and column chromatography seem to be the two major analytical chemistry techniques being adapted for large rare earth separation. If either one of them proves superior to SX, why the big emphasis on building new SX plants for tolling? Wouldn’t it make sense to toll through an SPE operation? Or is this idea still a little too futuristic to comment on at this time? It seems that if SPE proves out, Ucore and partners are seemingly going to have an outsized say on the adoption of this technology for other rare earth players

        July 7, 2014 - 11:59 AM

        • Fred

          Chemistry isn’t my specialty, but Geomega is trying to isolate the REE’s on a micro scale. I’m of the understanding that their researchers are largely being paid in stock options or similar. This isn’t grunt work, but nobody’s going to win a Nobel Prize doing this. The real question is whether or not this can sanely be scaled up to an industrial level to process a mine’s worth of production. It’s too early in the game for solid answers, and it’s anyone’s guess as to whether Geomega will profit from it. The folks who make the big bucks aren’t always the ones who had the original clever ideas, and sometimes only the lawyers make money from patents. I have yet to see any other companies make announcements concerning this type of research.

          July 8, 2014 - 2:21 AM

  • George

    Mr Lifton

    I am interested to know what your understanding is of the following statement made by Lynas new CEO, Amanda Lacaze that was published in the recent Reuters analytical article; “”Demand is not the thing which is driving our current production profile. A number of our key customers would happily take significantly more product from us than they are doing today,” she said.”

    July 6, 2014 - 9:05 PM

    • Jack Lifton

      George,

      I’d have to guess, since without any further context the statement is nonsensical. I think she means that their current production is being driven by a desire (need) to bring the plant to full production to burn it in and debug it. It is now more than a year since this should have happened, so i suspect that Ms Lacaze considers this a top priority.

      Jack

      July 6, 2014 - 10:52 PM

      • George

        In true Lynas style, we are left to decifer what is meant by the rather ambiguous statements made by management.

        From the recent Lynas market update:
        “each of the major stages of the Phase 1 plant – Cracking & Leaching, Solvent Extraction and Product Finishing – has individually been operated at target capacity during the quarter.
        “We are now working on delivering the optimal balance of volume, finished product quality and REO yield – the volume of Rare Earths recovered through our process from mining to finished product. Higher quality output attracts premium pricing. Increasing the proportion of production that meets individual customer specifications maximises sales revenue and promotes customer loyalty. By addressing this and by seeking to minimise the amount of Rare Earth lost during processing of Mt Weld ore, we create better value for shareholders,” said Ms Lacaze.

        Possibly suggests that Lynas are only in the business of producing individual customer spec REO rather than a commodity that can be sold on the spot market or to multiple customers.

        It looks to me like Lynas are trying to gain a competitive edge over there Chinese peers by providing a sustainable, secure supply of REO through long term contracts that meet individual customers specifications. Time will tell if this is a viable business plan.

        July 7, 2014 - 12:17 AM

      • Tim Ainsworth

        Jack, given your earlier commentary on scaling plants (at least 2yrs ago) which has totally proven correct with both lab rats I would have thought you’d have a better comprehension of the current agenda.

        July 7, 2014 - 6:41 AM

  • Dean

    As Mr. Lifton said previously before, Avalon Rare Metals is one of the leaders in Canada for rare earth production. It does have “ideal metallurgy” as Mr. Lifton commented in the Comments.

    July 6, 2014 - 10:49 PM

    • Jack Lifton

      Dean,

      What I said, and what I would still say is that Avalon has done a first class job in metallurgy. It is certainly not in production.

      Jack

      July 6, 2014 - 10:53 PM

      • Dean

        Sorry, Mr. Lifton. I meant- Avalon is one of the leaders to get into production one day in the future.

        July 7, 2014 - 1:41 PM

  • Andrew

    Why both lynas and molycorp did not design any HREE facility before there plants built? HRE are always far more expensive than LRE even many years ago and they should know that very clearly.

    July 6, 2014 - 11:17 PM

  • jack cummins

    Jack—Why don’t you even mention Stans Energy? Seems Stans now has everything, including the Kyrgs government, ready for production of HREE..

    July 7, 2014 - 6:50 AM

  • Jamea

    Jack, do you think that Lynas may get away with charging more than the Chinese but offering customers the security of a rare-earths company from a Western nation, as opposed to the mercurial Chinese?

    July 7, 2014 - 9:53 AM

    • Jack Lifton

      James,

      For a supplier to ask for a premium from a Global1000 company in any case it must first have a record of on-time delivery, to specification, and at the agreed price. It also must be solvent and sound (solvency to continue). Therefore before anyone can discuss moving Lynas to the major leagues it must first build a record. I think that neither Lynas nor Molycorp is today ready to present itself as a supplier qualified to be considered for a premium due to security of supply. This is a laudable and smart goal, but both have a long way to go.

      Jack

      July 7, 2014 - 10:17 AM

  • Michael

    So any thoughts about the WTO case? The win-win answer for the rare earth situation is new supply and removal of the tariffs. If the export quotas are lessened again, a pricing environment above cost of production would support new ROW supply, allowing less production in and exports from China, which is a win for them. The rest of world wins because the difference between China and FOB prices will converge, albeit at higher levels than currently. With new supply the quotas become virtually irrelevant and standardized world pricing prevents manufacturing relocation. The catalyst for this though, is ironically a reduction in the export quota.

    July 7, 2014 - 11:26 AM

  • slava Ukraina

    Mr Lifton,

    Appreciate your experience and knowledge base.CCE (Commerce Resources) supposedly has demonstrated ability to produce>40% concentrate, and has a decent HREE component. You never know how objective some authors are, but here’s the link if you’re interested in this comparison between REE developers.
    https://ca.finance.yahoo.com/news/rare-earth-deposits-simple-means-comparative-evaluation-185300425.html

    July 7, 2014 - 2:01 PM

  • Alan Levy

    Jack:
    I am perpetually impressed by the extent and quality of the discussions that result from the Investor Intel articles that you publish.

    Maybe not a big deal, but a clarification. You mention that:
    “The attempted (so far) revival of the rare earth industry outside of China got its impetus in 2007 when Chevron divested itself of the moribund Molycorp that it had acquired in 2004 when it bought Unocal.”

    Not 100% sure, but I believe that the sale of Mountain Pass was an asset sale, and not a stock sale. What confuses the issue, is that the acquiring company also purchased the name “Molycorp.”

    July 7, 2014 - 5:27 PM

  • Steven King

    All this talk regarding Lynas has me wondering if PEK is wasting its time in Africa. Big resource, so much promise yet years later still trying to rustle up some finance while the industry seems to shuffle along. Any comment on PEK.AX please?

    July 8, 2014 - 8:53 AM

  • Dudley Kingsnorth

    I am not sure what Leader Myths with Respect to Lynas and Molycorp that Jack has debunked, but the facts are:
    1. Mountain Pass and Mt Weld are the only non-Chinese rare earths projects that have been constructed in the last 10 years. No other project has achieved full approval (financial and environmental), let alone have the funding in place and commenced construction. So, by my reckoning Lynas and Mountain Pass are Leaders.
    2. LREEs also include neodymium and praseodymium, for which supply is tightshort supply. So, while acknowledging that there are large surpluses of cerium and lanthanum, the potential shortages of these ‘magnetic’ rare earths cannot be ignored. No comment from Jack.
    3. I chose my words carefully in stating that to restore confidence in the rare earths sector in the immediate term Molycorp and Lynas have to demonstrate that rare earths production is viable in terms of generating a positive cash flow. Whether this cash flow represents an acceptable return on the capital invested or is adequate in terms of paying off debt is another issue. There are many instances in which the early pioneers of a ‘new’ project have gone out of business due to large debt, but have subsequently been taken over/purchased by an organisation at a fraction of the debt and then been turned around.
    4. Molycorp has been in the rare earths business for over 50 years, while Solvay/Rhodia (who are providing technology to Lynas) have also been in the business for over 50 years. Rare earths processing is a complex business as shown by the extended start-up times at Mountain Pass and the LAMP at Gebeng. 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.
    5. Similarly, Molycorp and Lynas are selling/shipping product from their operations; in total in excess of $500 million. This would seem to contradict Jack’s comment that that they are not qualified suppliers; the issue of a ‘premium’ is all part of negotiating a supply agreement which are confidential and is therefore irrelevent as the majority of sales are B2B. To my knowledge none of the projects identified by Jack have any contracts of supply in place that would underwrite financing, let alone sold $1 worth of rare earths to an industry specification. This would seem to indicate some leadership by Molycorp and Lynas.

    For a while Jack has been trumpeting the ultimate demise of Lynas and/or Molycorp. I fail to see how the demise of one or both companies would encourage investors to invest in other projects. Furthermore, can Jack identify anyone, apart from the major Chinese rare earths producers, who could takeover Lynas and/or Molycorp and ‘turn them around’. If there were such people available they would be leading producing rare earths companies and available to ‘assist’ Molycorp and Lynas..

    I have visited both operations in the recent past and remain in regular contact with the companies. While, we are all disappointed with the time taken to start-up their respective operations I remain confident that both Molycorp and Lynas will achieve regular production for extended periods at their respective Stage 1 design capacities in the not too distant future. Furthermore, I believe that they should both generate positive cash flows from their operations in 2015 at average prices for the year to date. These conclusions are based upon public information and tours of the respective facilities.

    Jack is very fond of making predictions based on mis-information. Myself and several others recall him stating at a rare earths conference in China a few years ago that “Molycorp will never produce a kilogram of rare earths”. Undoubtedly, his knowledge and understanding of the industry has improved since then, so perhaps he could provide us with some ‘guidance’ as to when his favoured five rare earths companies are likely to be in production

    Yes, the rare earths sector is still experiencing uncertain times, but now is not the time to conclude that ‘we are all doomed’. The current journey to the start-up of Mt Weld commenced some 20-25 years ago and Mountain Pass some 5-10 years ago. Unfortunately, they still need more time. Rome was Not Built in a Day.

    Regards,
    Dudley Kingsnorth

    July 9, 2014 - 9:14 AM

    • Tracy Weslosky

      Due to the sizable interest in Professor Kingsnorth’s reply to Jack Lifton — his commentary has been posted separately for further debate at the following link: Kingsnorth responds to Lifton’s Lynas and Molycorp update http://shar.es/NrKlG

      July 9, 2014 - 12:44 PM

  • Kingsnorth responds to Lifton's Lynas and Molycorp update | InvestorIntel

    […] “I am not sure what Leader Myths with Respect to Lynas and Molycorp that Jack has debunked (click here to access Jack Lifton article), but the facts […]

    July 9, 2014 - 9:43 AM

  • Jack Lifton

    Dear Readers,

    Pace, Dudley

    I don’t remember that I ever said that Molycorp would never produce a kg of rare earths either in China nor anywhere else. But I well recall Dudley Kingsnorth saying publicly in Washington, DC, 4 years ago that Molycorp costs were then not at the $10/kg that it was “trumpeting” and were more likely to be in the $16-18/kg range. Is this still true? Molycorp this year stated that at one point THIS YEAR it then had a $34/kg cost.

    If someone says that I said that Molycorp would never produce a KG of rare earths profitably I might believe that I did say that.
    As to the rest there are several large light rare earth projects underway in the world that DO or will produce feed stock at far less cost than it is produced at Mountain Pass. What the non-Chinese world now seems to need is toll refining capacity for both light rare earths and heavy rare earths.
    In addition there are now in sight some rare earth separation and refining technologies that could obsolete TRADITIONAL SX for rare earth separation. Until such technologies are demonstrated the SX plants of both Molycorp and Lynas are attractive assets. If, and as I now believe, when the newer separation technologies are demonstrated by pilot plant there will be a true revolution in rare earth processing and the costs of doing that will decline considerably. It will do little good for Molycorp and Lynas to continue in non-competitive operation until that day since if there is a processing revolution then they might only be able to convert to a new technology with a large expenditure of cash, which neither will have or have access to.
    As I said two years ago Molycorp’s facility might make a great light rare earth toll refinery if its debt burden could be eliminated. The same is true to a lesser extent for Lynas’ facility.
    If there is a heavy rare earth toll refinery built in the next two years it will not be using traditional SX technology.

    Jack

    July 9, 2014 - 9:49 AM

    • motherearth

      Goodmorning Jack could I please get your view on the possible backdoor takeover happening at Moly? thanks

      July 9, 2014 - 10:12 AM

      • JJ Beswick

        Jack if a new HRE tolling facility is built in the next 2 years it won’t be on this planet, whatever tech is used.
        Nothing funded or fully approved. No designs completed. Five years maybe.
        But really the future is in the magnet metals: Nd, Pr and (perhaps) Dy.
        Especially if the RE phosphor market tanks and Dy thrifting in magnets becomes routine.
        And of course the commodity La (and some Ce) for catalysts etc.
        So much for the ‘HREs rule’ mantra IMO.

        July 9, 2014 - 11:55 AM

    • hackenzac

      Thanks for answering my questions Jack albeit in a roundabout way.

      July 9, 2014 - 11:55 AM

  • Bill Keenes

    Professor Kingsnorth has responded to the above article:-

    http://investorintel.wpengine.com/rare-earth-intel/kingsnorth-responds-liftons-lynas-molycorp-update/

    Now it’s your turn Mr Lifton to answer his questions … and we are all waiting.

    July 11, 2014 - 6:49 AM

    • Tracy Weslosky

      Thank you Bill – Please note that Jack Lifton wrote his position in the above article, and Dudley replied. Jack replied in Dudley’s commentary and then responded in another article titled: “Is there to be life after Molycorp? You bet there is.” http://shar.es/NulPU — which is where this discussion/debate then moved to. Let’s not suggest that Jack is hedging your question for our readers when he has easily answered over 3 dozen questions in the last 72 hrs, including a video interview with me for 20 minutes — which we should have edited and online by Tuesday at the very latest. Dudley has written me in the last 24 hrs and he has an update on the industry which we are also trying to get written up for your reading pleasure — as soon as possible.

      Please send me a high voltage coffee, so we can keep up with your questions…again, thanks for the question, but indeed Jack, Dudley, Chris, and everyone in between is on it (smile).

      July 11, 2014 - 8:52 AM

  • Bill Keenes

    thank you Tracy,

    I read the article you referred to and it appears Mr Lifton has still not answered the question asked my Professor Kingsnorth, and that is …..

    for Mr Lifton to provide some ‘guidance’ as to when his favoured five rare earths companies are likely to be in production

    we are all waiting

    July 11, 2014 - 6:59 PM

  • Tim Ainsworth

    “Because the new CEO of Lynas is a woman making 1.2 million dollars a year.”

    Jack, in case you haven’t noticed the year is 2014 and as much as it may surprise you there are a number of women that have proved their ability to add considerably more to an organisation than they take out.

    Before passing the prevailing judgement of your generation do you not think it wise to sum what the skirt may deliver?

    July 14, 2014 - 1:51 PM

    • Tim Ainsworth

      “Neither Molycorp nor Lynas has any non-Chinese capacity for downstream processing of SEG/HREEs”

      Jack, have you totally forgotten Lynas’s relationship with Rhodia, their foundation offtake (SEG/HRE), tech exchange, the fact that La Rochelle was active solely to reprocess Chinese Ce & La into usable material downstream, in competition with Chinese domestic IP legal stoushes, versus blended to supply direct from LAMP?

      What quotient the value add?

      July 14, 2014 - 2:30 PM

      • Tim Ainsworth

        Interestingly Eric Noyrez vindicates a lot of Jack’s earlier commentary, with some current perspective (auto translated from French):
        “Eric Noyrez Lynas and will leave her baby ‘LAMP’ grow.
        Eric Noyrez did his job in setting up the LAMP in Malaysia. His experience in China with Rhodia has achieved this company, which was impacted by a turbulent campaign and a major technical problem on a kiln. Today all production units have reached their design capacity.

        Eric was also able to conclude a refinancing of $ 40M including a deferral of debt in mid 2016.

        Following a telephone conversation, I took Eric to ask his views on the feasibility of a separation plant. In fact, many refer to the announcement effects will develop separation plants or new extraction process.

        The development of separation unit is not an easy undertaking. Even if access to the (liquid-liquid reaction) technology standards possible, needs expertise and trained human resources are much more complicated to obtain. Lynas appealed to Rhodia for its expertise and a training program supervised by Chinese knowledge. This transfer of skills is now essential and must be integrated into any project. This transfer of expertise represented Lynas for four years Working today and allows you to manage all operational issues.

        Added to this, a separation plant requires specific infrastructure type of chemical industrial complex, the location must be favorable and competitive.

        Understand here that the desire to develop such plants is not only dependent on a proven technology, but skills that are unfortunately still being held in France, and the largest number in China.

        This barrier of knowledge also implies a cultural barrier that is essential to reduce to benefit from this expertise Chinese operational.

        The consolidation of the Chinese RE industry should, according to Eric Noyrez take another 3 years. Cost of $ 2 to $ 3bn is not exorbitant in view of the benefits of reducing waste. Note that Baotou has spent $ 450M for Clean effluent. So in terms of costs and waste, the production units of small size do not reflect economic reality. Optimizing the management of costs and impacts can only be done by creating 2-3 super production platforms for the northern part of China. To the south part, the problem is more complicated, said Eric Noyrez, since deposits are low and the volume of waste represents 90% of the volume processed.

        On the topic of price, Eric believes that basket price less than $ 15 or $ 20 generates problems of profitability and does not tolerate any drift operational (standard recovery). An REO basket price of $ 30 – $ 50 is economically feasible and has no impact on the production costs of the industry; it would also help to restore confidence and increase new product development. The basket price froze thinking investors for REE sector, however the market is always changing and the industrial manufacturing of finished products is more sensitive to securing its supply of REE at the price of raw material.

        On the ‘smuggling’ (smuggling), it is interesting to know that the big producers have a significant influence since local governments do not strictly enforce quotas and allow a tolerance of 30% or more on production levels. The trading company take advantage of this situation and the price of lanthanum p, ex does not reflect the demand that can be offset by “extra” production. So the Chinese government is facing a problem of enforcement and quotas. Some sanctions have been taken against officials in industrial and provincial level.

        And by increased and given the reduced profitability of Chinese companies control the price of REO should have a upward correction in a future.”

        July 14, 2014 - 2:51 PM

    • Veritas Bob

      Tim, in case you haven’t noticed, Jack noted ‘some Malaysians object to a woman having such a position of authority over them. This was an aspect, I was told, of the Moslem attitude towards women “working in men’s jobs” in general’. Jack did not claim that this was his own view. In fact he said ‘As I boarded the KLM airliner I saluted the tall woman at the entry port wearing the uniform of a senior captain for KLM.’ While he didn’t explicitly say so, I will give Jack the benefit of the doubt that he would “board” a company captained by a woman, if it were the right company and the right woman.

      July 14, 2014 - 3:18 PM

  • Tim Ainsworth

    Just recently had the pleasure as a guest of Veuve Clicquot, no one should under estimate skirts in business without a study of Madame Clicquot, true study in market orientation.

    July 14, 2014 - 3:49 PM

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