EDITOR: | February 9th, 2015 | 45 Comments

Lifton comments on the ‘significant signing’ of Tantalus Rare Earths off-take agreement with Shenghe Resources

| February 09, 2015 | 45 Comments
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Lifton-PresentsI received the press release about Tantalus Rare Earths (“TRE”) signing a commercial purchasing agreement with Shenghe Resources, a leading Chinese rare earth company last night. “Shenghe has agreed to purchase 30% of output or 3,000 tonnes of mixed rare earths oxide from the Tantalus project in Northern Madagascar annually.”

My intent is to provide feedback on the significance of this news release as a courtesy to TRE, a German junior rare earth company with a large property, in development in northern Madagascar, which the company describes as an “ionic clay type.” [Full disclosure: I was a member of the Tantalus Supervisory Board, which is equivalent in the USA to being a member of the board of directors of a public company, until August, 2013. At that time the German industrial group, ThyssenKrupp, took a large interest in the company and asked the board to resign, so that its ThyssenKrupp Metallurgical division could reform the board to reflect its interests. I own no shares in the company nor do I have any consulting or other fiduciary relationship with it at this time.]

The interested investor needs to know that Tantalus has today become the first rare earth junior of which I have direct knowledge to close an off-take agreement with a major rare earth market player. China’s Shenghe Resources, which is a vertically integrated company that mines rare earths, separates them, and produces rare earth metals and alloys. Shenghe in fact operates the third largest LREE mine in China. It has a turnover of (USD$) 227/year and is listed on the Shanghai exchange (SHA: 600392) with a market cap of $1.6 billion dollars, which I should point out is 14 or 15 times the market cap of Molycorp and easily greater than the combined market cap of the first 25 companies on the TMR Rare Earth Index. Shenghe is a large profitable (I think) vertically integrated rare earth company; it is one of several such integrated entities in China. I will bet that none of readers has heard of it before today!

Tantalus is a European company; its rare earths deposit is on the Indian Ocean island nation of Madagascar, which is west of southern Africa. An ocean going vessel loading ore concentrates in a Madagascar port can sail directly to a Chinese ocean port and offload its cargo to a train that will take it directly to a Shenghe facility. The only borders to be crossed will be Madagscar’s and China’s.

I congratulate Tantalus, and I note that it is not constrained by any legal or cultural norms from trading directly with China.

The “deal” calls for first ore concentrate loading in 2016; this is ambitious, but I have no reason to believe that Tantalus will not pull it off.

Finally I need to point out that the very existence of this off-take and its size and scope (3,000 tons per year for 3 years renewable for an additional 7 years) and its component that calls for Shenghe to assume 30% of the development costs of the Madagascar mine providing the company achieves certain benchmarks shows that:

  1. The property and the business model have been thoroughly vetted by a competent Chinese due diligence team, and that
  2. A Chinese company is admitting either that China itself is in need of imported material or that such material can be obtained more cheaply by importing it than by buying it domestically, but in either case or in both cases the Chinese company has clearly gotten clearance from China’s central government to conclude this agreement. This is the first time of which I am aware that such a deal has been concluded.

There is nothing to prevent an American, Canadian, European, or Australian company from now going after a similar deal with a Chinese customer. Nothing physical that is. What is required is EXPERIENCE in metals trading; solid contacts with “connected” Chinese businessmen in the field; and an offer of goods that makes solid economic sense. Tantalus has all of these.

This will not be the last we will hear of this deal…


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

  • Soreass

    This is a game chager

    February 9, 2015 - 10:37 AM

  • Jack Lifton

    Soreass,

    Yes it is, because it means that the Chinese refiners/metal makers have entered the non Chinese market to source feed stocks in a big way. As I have said before the Chinese have been making spot buys of xenotime and monazite concentrates from non Chinese producers, both legitimate and “artisanal” for years. But this type of sourcing is irregualr to say the least. Shenghe is making an investment to insure a regular supply I suspect for two reasons: 1) As a backup; and 2) On behalf of a customer in China, perhaps, ThyssenKrupp. This agreement between Tantalus and ThyssenKrupp is real commerce rather than the MOUs that float around the sector mainly to affect share prices.

    Jack

    February 9, 2015 - 10:47 AM

  • Kristian

    African countries for the win! While the herd is looking at Western deposits, I’m focusing my DD on African rare earth deposits these days. Frontier Rare Earths and Namibia Rare Earths were already on my list. I will add Tantalus.

    Thank you for this article Mr Lifton.

    February 9, 2015 - 10:55 AM

  • Michael

    What’s your opinion of the major decrease in January rare earth exports? I find it difficult to believe demand dropped off that much. It seems to be more of a supply side issue possibly delays with licenses? Metal pages explained it through a tightening of supply and there are reports of a lack of material in Rotterdam.

    February 9, 2015 - 11:32 AM

  • Jack Lifton

    Michael,

    There is already a supply issue IN CHINA. Pay no attention to these short term swings. The Chinese rare earth industry is looking to increase its supplies of magnet materials, such as neodymium, praseodymium, terbium, and dysprosium. It is becoming clear that some of these materials’ production in China cannot be increased ECONOMICALLY or, in the case of terbium and dysprosium, ENVIRONMENTALLY. In the long run China will not only seek but be getting regularly magnet elements from outside of China.

    Jack

    February 9, 2015 - 12:44 PM

  • Aat Oskam

    “Lynas sold 60 tons of NdPr at spot prices in China” as a consequence of lack of demand. According to their quarterly report of trhe period ending 31 of December 2014. What is Lynas doing wrong?

    February 9, 2015 - 5:02 PM

  • Pennie

    I recall Jack’s disbelieving question regarding Lynas selling rare earths into China – ‘can they really sell ice to the arctic’, or something similar. Now it appears the arctic is running out of ice. Yetanother backflip Jack?

    February 9, 2015 - 5:07 PM

  • Jack Lifton

    Aat Oskanm

    Perhaps the price Lynas is asking is limiting the demand.

    Pennie,

    There’s a huge difference between Lynas approach as a foreign seller of goods and that of Tantalus as a participating marketing “partner,” so to speak of a Chinese owned and operated company, which is the customer.

    February 9, 2015 - 8:26 PM

  • Pennie

    Jack you’ve said elsewhere that the signal is that China is running out of NdPr. The arctic running out of ice? In any event I expect it’s good for the row juniors and producers of these critical ‘lrees’.

    February 9, 2015 - 11:48 PM

  • Andrew

    Lynas supports 6.8% magnet industry of the world (40% of Japanese market which represents 17% of the world) and China has most of the rest. If Lynas does not produce a lot more for China, I don’t know how they can make a positive operating cash flow…

    February 10, 2015 - 1:35 AM

  • Steve Mackowski

    Jack.
    Shengue have been involved with Arafura Resiurces for almost two years.

    February 10, 2015 - 2:16 AM

  • Jack Lifton

    Steve,

    Thank you for that information. I think that the CAPEX of the Nolan’s Bore development must be considerably larger than that for Tantalus’ Madagascar project. I also recall that when I visited Nolan’s Bore 3 years ago there and I was told that there was even then a Chinese rare earth group discussing the export of ore concentrates from Arafura to their home country. I was told at the time that the deal did not progress because of opposition within China from the rare earth mining industry that caused the proposed partner to not get an import license.
    So “the times they are a changin,” as the American poet from Minnesota masquerading as an Irish poet has said.
    It looks to me as if there must be noodle shops in Alice Springs along with Sushi and Kimchi restaurants.

    Best regards
    Jack

    February 10, 2015 - 8:41 AM

  • JJ Beswick

    Thanks for the article Jack.
    How do you think the rollout of Dy/Tb thrifting will affect the demand for both Dy/Tb and Nd/Pr?
    For example the progressive elimination of Dy from the generators in Seimens wind generators?
    Will the effect be the same within/outside China?
    Cheers, JJ

    February 10, 2015 - 8:52 AM

  • Jack Lifton

    JJ,

    The “effect” which even has a name has been recently mentioned in another comment string on InvestorIntel by Chris Berry. I quote:

    “Jevon’s Paradox which I’ve followed in the commodity space for some time. Essentially, as technology and innovation engineer “out” or lessen the use of a given material, the resulting demand from more efficient products requires more of the raw material over the long run. – See more at: http://investorintel.wpengine.com/rare-earth-intel/chinas-rare-earth-magnet-exports-hit-record-highs-demand-expected-rise-50-year/#sthash.5if15wgN.dpuf

    This is indeed already happening with regard to dysprosium in rare earth permanent magnets.

    Jack

    February 10, 2015 - 9:20 AM

  • JJ Beswick

    I assume that the corollary is that there is likely to be a modest increase in Dy/Tb demand and a big increase in Nd/Pr demand?

    February 10, 2015 - 11:21 AM

  • Curious Shepherd

    How is this off-take agreement different from the one between Frontier Rare Earths and KORES?

    Is it because it was done with a Chinese company who is a major player in the rare earth market? or mainly because it is a Chinese company?

    February 10, 2015 - 12:38 PM

  • Jack Lifton

    Curious Shepherd,

    Kores is an investment group operating on behalf of Korean industry. Shenghe and China Minmetals, both of which are or have been working with Tantalus, are both vertically integrated producers of rare earths in forms, such as metals, alloys, and high purity salts, directly utilized by end-user manufacturers, such as magnet makers and further downstream operations. There is no comparison. Tantalus is in a much better position with regard to Asian “investment” than Frontier.

    I think also that Tantalus has another advantage over Frontier and that is its deposit geology. Tantalus is a type of ionic clay, and Chinese companies have the most extensive and intensive experience in the world in developing and operating such deposits.

    Neither Frontier nor Namibia. not to mention GWMG, have deposits of this type.

    February 10, 2015 - 1:48 PM

  • Fixed

    So many things come to mind when reading any of Jack’s pieces but I think this as quoted by a consultant, author, and lecturer on the market fundamentals of the technology metals, the term that he coined to describe those strategic rare metals whose electronic properties make our technological society possible as a former CEO of an OEM automotive supply company specializing in process chemistry and metals trading. 1999…so here’s to Jack a legend in his own mind a OEM automotive suplly company CEO masquerading as a metalurgist/mine developer…lol…here’s to you Jack…For the times they are a-changing…lol…

    February 10, 2015 - 2:03 PM

    • Tracy Weslosky

      Dear Fixed. If you ever use InvestorIntel to reprint the entire lyrics of a song again, I will fix you once and for all. Now behave.

      February 10, 2015 - 2:21 PM

  • jakeslicks

    I would caution any potential new investor in the rare earth sector to read the disclaimer below the authors’ article. I’ve copied and pasted it below.
    “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)”.

    February 10, 2015 - 2:25 PM

  • motherearth

    Jack, Steens grade seems to me to be a hundred time better than Tanalus. Ionic clay or not what are the Chinese thinking?

    February 10, 2015 - 3:03 PM

  • Fixed

    O.k. Tracy, but sometimes the words of a song says alot it’s Jack’s fault …he is the one who posted the title “The times they are a- changing” and I was a little insulted in his description of Bob Dylan as as the American poet from Minnesota masquerading as an Irish poet…lol…and did Marc Levier ever reply to your call? My frustration with Jack is his conflicting pionts of veiw one example would be that ionic clay deposits are eviromentally bad and next you hear how they are so good. But again sorry on the whole lyrics thing it’s just after looking at the words for that song it hit home on GWMG and being written off by your experts then looking at their picks and not understanding the reason for their lapse of judgement. Oh well time will tell …time will tell…Right?

    February 10, 2015 - 3:24 PM

  • Fixed

    Here’s another contradition I think also that Tantalus has another advantage over Frontier and that is its deposit geology. Tantalus is a type of ionic clay, and Chinese companies have the most extensive and intensive experience in the world in developing and operating such deposits.

    Neither Frontier nor Namibia. not to mention GWMG, have deposits of this type.
    Jack forgot to mention that his “Fab Four also do not have deposits of this type….but then you hear Jack say…lol.. “ionic adsorption clays exist outside of China but extracting HREEs from them poses the same problems of environmental degradation and remediation everywhere. Waz up wit dat?… lol…

    February 10, 2015 - 4:02 PM

  • Mike

    Hi Jack,

    Thank you for being available to ask questions via this forum. Where else can investors/academics and etc. ask questions and interact with each other. With regards to provable/probable reserves for the majority of the rare earth producers how accurate are these studies/projections? My main point is can any of the rare earth mines have the possibility of having more of the heavy rare earths than previously studied?

    Thank you.

    Mike

    February 10, 2015 - 4:10 PM

  • Jack Lifton

    Fixed,

    The problem with the ionic clays outside of China IN GENERAL is a lack of INFRASTRUCTURE and ACCESSIBILITY. Getting to them is most of the problem. The other problem is getting the extracted materials back out to a processing plant. You don’t seem to understand that the economic issue is not just “grade” but also involves having or creating routine physical access to the site and bringing water, power, and life-support to the site as well as reagents and their disposal. Madagascar presents a unique deposit it is a broad field of surface “clay” (several square miles of it) some 30-50 meters deep which is accessible and to and from which supplies and “concentrates” can be moved to ocean shipping.
    I think you said that you have a mining background, so I’m puzzled by some of the naive things you say.

    February 10, 2015 - 4:35 PM

  • Jack Lifton

    Mike,

    Of course higher grade deposits than those being developed may always be able to found “nearby,” but 43-101 requires a pretty thorough study of the ore bode to be developed. A PEA cannot be based on what “might” be found.

    Jack

    February 10, 2015 - 4:38 PM

  • Fixed

    I would say yes. For instance Steenkampskraal is at present consider small but with the vast amount of land surrounding it has the potential to be much bigger…lol…Highest grade underground deposit known in the world. Imagine if it goes futher then what has been surveyed just saying….lol….

    February 10, 2015 - 4:58 PM

  • wwwater

    Mr. Lifton – by using the insitu numbers provided by TMR on grade and distribution it would cost TRE to process 1,219,660 tonnes of ore annually to produce 1000 tonnes of mixed oxides whereas if SKK would produce an equivalent amount per annum they would only process 7,142 tonnes of ore. Now who causes more environmental damage.

    February 10, 2015 - 5:08 PM

  • Lid

    Jack,
    I believe that “out or lessen the use of a given material, the resulting demand from more efficient products requires more of the raw material over the long run” means nothing. Any given raw material, for instance, if the demand reduce to 10%, and you can stretch the time from 10X long, the result will be par. this is nothing but a simple math game to play. demand high or low directly drives the price high or low in the free market. for RE, Dy maybe see some deflation as it is additive, Nd/Pr may be see some inflation as it is base material of magnet.

    February 10, 2015 - 5:18 PM

  • motherearth

    Wwwater thank you , very little thorium in clay but a messy deal to extract the Rees, so Jack are the Chinese trying to clean up their act or not?

    February 10, 2015 - 5:23 PM

  • JOE O

    GWM has not shot whatsoever in curren form. Yeah maybe its great deposit but C/S is toast.
    100 for reverse split may prop it then debt for equity swap.

    February 10, 2015 - 6:48 PM

  • Mr. kean

    O Joe O. A reverse split would really destroy the current investors. Oh I should sell now. Oh darn

    February 10, 2015 - 7:00 PM

  • wwwater

    Mr. Lifton & all those following the Rare Earth Sector
    If the Republic of Madagascar imposes environmental restrictions on the processing of the ore mined by Tantalus Rare Earth Resources then the costs of mining will increase substantially and the margin per tonne of ore mined will decrease accordingly, possibly hindering the development of the REE project
    The development of a REE project needs a combination of high grades and high-value REEs, such as heavy rare earths (HREEs) and critical rare earths (CREE’s). High value-per-ton ore keeps a project cost competitive. As the market fluctuates and REEs go up and down in price, the low-cost producers will keep operating when rival companies may have trouble surviving.
    Secondly, a low-cost method of extraction is crucial. If the REEs require a lot of chemicals or complicated methods of processing, it just adds cost—not value.
    The third ingredient is metallurgy, which has to be evaluated for each and every deposit. This requires skilled staff, both in exploration and in metallurgy, to find deposits and develop processes to extract them at the lowest possible price. This ingredient will also dictate the CAPEX and the OPEX of the entire project’s viability. Investors should ask questions: What is the technical team’s expertise in REEs? Does the company have an REE advisory board?
    Those are the three critical factors that investors must take into consideration in evaluating a REE company or project.
    Another cost dimension is environmental impact. A recent report from Jacob Securities suggested a $10 billion price tag if remediation measures are implemented to damage caused to the ionic clay deposits in southern China, which were heavily mined for REEs. Is it possible to develop REE deposits in an environmentally responsible manner?
    REEs are part of the green revolution. It’s not only possible to develop deposits in an environmentally responsible way, it’s the path that industry is taking.
    China’s ionic clay deposits yield REEs at a remarkably low cost, which is how China became the world’s source for REEs. Why is it so cheap to mine REEs from these deposits?
    First, they’re mined by open-pit methods. Second, they’re not very deep, so operators don’t have to excavate at great depths. Third, they don’t require blasting. They’re just a pile of weathered clays. Fourth and most importantly, the REEs contained in the clays are easily removed from the clays and taken into solution, so the cost of metallurgical recovery is extremely low.
    Studying the feasibility, prefeasibility and preliminary economic assessments (PEAs) conducted on North American and the ROW REE deposits, could any of the projects even approach the low costs that China’s mining industry thrived off of?
    If China’s government is successful in tightening regulations on its REE mining, then production costs there are going to go up. And there are ROW projects on the horizon that can extract REEs even more cheaply than the ionic clay-based projects in China.

    February 10, 2015 - 7:18 PM

  • Curious Shepherd

    Jack,
    Thanks for the reply to my previous question but I still do not see the difference. I am not asking about the difference in the geology of each of those mines or how those buying the oxides will eventually use those oxides.
    My question was in relation to the actual agreement. Both companies have secured an off-take agreement with a buyer that provides a market for a portion of their production (if/when they start producing). From this point of view I still do not see the difference.

    February 10, 2015 - 7:49 PM

  • Joe o

    Mr mean. Hate to inform you but current investors have been more than destroyed for quiet awhile. I feel your pain. Mcp killed me. Qrm too. Hold out lotsa hope for tas and ucore

    February 10, 2015 - 10:34 PM

  • Springtrader

    wwwaters; Your statement, “…TRE to process 1,219,660 tonnes of ore annually to produce 1000 tonnes of mixed oxides,” sounds astronomical, but I checked your math and it appears true.

    Let me take this a step further and, reading from Jack’s article, I see that, ” Shenghe has agreed to purchase 30% of output or 3,000 tonnes…annually.” This suggests that the projected rare earth output is expected to be 10,000 tonnes. The math leads us to 12,196,600 tonnes of clay have to be processed every year to produce 10,000 tonnes of rare earth oxide.

    Jack; Doesn’t this seem like a lot? Is it feasible to think they can pay for all the acids and still turn a profit? How big will their facilities need to be to accomodate such a huge amount of clay that needs processing? Wow….and I thought Tasman’s 900,000 tons per year sounded like a lot.

    February 11, 2015 - 12:06 AM

  • Andrew

    I blame on Shenghe. As a big LREE company they should go ask the China gov to fix the price first before signing any purchasing agreement with ROW! Be a responsible rare earth leading country.

    February 11, 2015 - 1:44 AM

  • Tim Ainsworth

    “I will bet that none of readers has heard of it before today!”

    To the contrary Jack I’d be very surprised if “pundits” here were unaware of Shenghe as one of Hongpo’s Big Six, particularly as their SP has doubled in the past 7 months despite reporting -20M Free Cash Flow Sept 14 in stark contrast to +200M Sept 13.

    February 11, 2015 - 10:17 AM

  • Jack Lifton

    Springtrader,

    These comments on “tonnage” and “acid” are inapplicable here. An ionic clay is “worked” by heap leaching in place with an AQUEOUS solution of water soluble (mostly ammonium) salts. Very little “ore” is moved. Here’s some data from which you can calculate: Assume that you take a field 100 meters square that is made of “ionic clays” and that the depth of the clay is 50 meters. Assume that the density of the clay is just 1 (it is higher) then you are looking at 100x100x50 = 500,000 cubic meters x 1 ton/cubic meter = 500,000 mt!

    Without going into details of bore holes, bed rock, and underground “reservoirs” let’s just say that this ore field is flooded with extraction solvent, which percolates through the “soil” and collects beneath (gravitationally) the field. Then the solution is pumped up and recirculated. When equilibrium is reached (i.e., no more contact extraction time will add to the concentration) then the solution is concentrated by drying in the Madagascar sun and then treated to ppt the desired product (probably the oxalate mixed salts of the rare earths).

    Thus 500,000 mt of “ore” has been treated.

    Comparing Hard rock mining and this method is an apples and oranges situation.

    February 11, 2015 - 11:55 AM

  • motherearth

    I see, easier and cheaper and then you are left with an environment mess?

    February 11, 2015 - 12:27 PM

  • Jack Lifton

    Motherearth,

    No, you are not left with an “environmental mess.”

    Tantalus, as an example, will run a pilot in situ system for one full quarter with Madagascar officials present. The results will then be reviewed to be certain that they are in compliance with health AND safety laws. Then the provisional permit will be upgraded to an operational permit. This is the same anywhere in the world where such laws are enacted and enforced. China has just recently begun enforcement, and the costs of remediation and then environmental compliance have not only impacted current operations but have made many planned projects not feasible.

    Everyone should stop using the past Chinese experience as a model of what “must” be; it is not.

    February 11, 2015 - 12:48 PM

  • Fred

    REE commentators think of China and “Rest Of World”. In virtually all natural resources, China has aggressively chased ROW resources. When China got tired of polluting its land, I don’t see why anyone should be surprised that it started chasing ROW resources.

    Yes, an agreement with an actual user of the REE output is infinitely better than an agreement with business men who will make their best efforts to sell the mine output.

    My best guess of environmentally sound heap leaching is to underlay the ore with a base of lined cement, or similar. Something to catch the leachings, with piping in it to drain it. When everything useful has been extracted, just blow up the lining and let nature reclaim it. An alternative would be to create giant lined cement (or whatever) boxes, and have earth moving equipment push the ore into the boxes for long term leaching.

    Chemistry isn’t my strength, but I note that Orbite is developing techniques for extracting alumina from ore using acids, rather than the traditional technique of using bases. They expect to additionally pull REEs and other metals with the acids. For heap leaching, I wonder if there’s a way to shift the ph of the ore back and forth with acids and bases, extracting REEs with each process, leaving the ore relatively ph neutral, for environmental friendliness.

    February 11, 2015 - 1:07 PM

  • motherearth

    Thank you Jack, clean and green, I’m all for that.

    February 11, 2015 - 1:13 PM

  • Springtrader

    Jack; Thank you for the description of the heap leaching process. I assume the ammonium solution works its way very quickly through the clay? Are any of the ammonium salts lost in the process? If so, what percentage is lost?

    February 11, 2015 - 1:51 PM

  • Gareth Hatch

    @Tim Ainsworth: Shenghe Resources seems to occupy a unique space in the sector, as it is not one of the “5 + 1” consolidation companies (China Northern Rare Earth Group, Ganzhou Rare Earth Group, Chinalco, China Minmetals, Xiamen Tungsten and Guangdong Southern Rare Earth Group) that have been discussed recently. It appears to be partly owned by a group within the ostensibly non-profit Chinese Academy of Geological Sciences, which in turn is controlled by the Chinese Ministry of Land and Resources. Of course, that could all change.

    Perhaps Hongpo could shed some further light onto the company.

    February 11, 2015 - 3:10 PM

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