EDITOR: | March 22nd, 2015 | 13 Comments

Lifton on Rare Earths and American Security: 60 Wasted Minutes?

| March 22, 2015 | 13 Comments
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The telejournalists of CBS’ iconic 60 Minutes have done a genuine dis-service to American security by failing miserably to do any investigative reporting on the just broadcast segment with the theme: How Did China Corner The Market On A Critical Resource Nearly Every Electronic Device We Use Depends On?

60 Minutes broadcast ‘article” is about their perception of one company, Molycorp, which the network has decided is the sole attempt by US free enterprise to reverse the current Chinese domination of the global rare earth supply (and, as CBS doesn’t seem to have discovered) as well as China’s domination of the global demand for rare earths. Once anyone other than a mainstream teleprompter reader has noted and understood that fact of demand as well as of supply China’s current status in the rare earths space is self-explanatory.

Molycorp, as CBS would have us believe, set out to single-handedly to reverse this situation. Not mentioned (and apparently unknown to CBS) is the fact that the predecessor in interest to the current Molycorp (with no relationship at all in personnel to the current Molycorp) brought about the very situation being complained of by moving its excess mine production to newly built Chinese separation (refining) capacity beginning in in the 1980s. Magnequench, managed originally by General Motors, was an early adopter of the “increase the “spend” in China mantra then prevalent in US OEM automotive procurement (Forget Walmart it was looking for cheaper underwear and toys not rare earth permanent magnet motors). Since more and more of the magnet metals were being produced as well as refined in China Magnequench started itself moving its manufacturing to China well before 2000. The short-sighted procurement “specialists” of General Motors and Molycorp at the time were lionized for lowering their costs of goods sold. it was considered a “genius move” at the time to not only procure low cost manufacturing overseas but also low cost raw materials. The US had those pesky safety and health rules and those damn craft unions to deal with. The Chinese well hell they’re just rice eaters who can never improve or even learn anything about high-tech was what I heard in automotive purchasing offices over and over again. This was short-sighted stupidity and it was the common attitude of both industry and government. Most of the industrialists from that period are now long gone along with any memory of those events, but government bureaucrats don’t seem to ever die or lessen in number. They do have poor memories though. Almost as poor as those of infotainment personalities masquerading as “journalists.

To be fair the mass production of rare earth permanent magnets was the result of the pioneering work in the late 1970s of Sagawa’s group in Japan that allowed Sumitomo in collaboration with General Motors to create America’s Magnequench to produce REPMs and REPMMs for the OEM automotive industry so as to allow dramatic weight and volume reductions in consumer vehicles that allowed previously unacceptable designs such as “thin doors” and significant weight reduction in the vehicles themselves (REPMs are as much as 100 times lighter than iron cored magnets of equivalent strength.)

In those early days “smart” weapons were only on the drawing board, and any savings in weight, if sought, would have been solely to either increase the amount of high explosive carried or the range of a flight-capable weapon. The main impediment to smart weapons was the lack of computing power and programs and communications and sensing devices to control and guide them not any shortage of REPMs.

The DoD then as now felt that its small use of REPMs could be accommodated by the market no matter what. And by default if they weren’t available ferrite or alnico magnets could be used except in situations where samarium cobalt REPMs were specified due to their laboratory proven resistance to degradation by an EMP attack. To this day the only REPMs made in the USA from basic raw materials are the samarium-cobalt types made in the USA with Chinese samarium and Canadian cobalt. The demand is relatively small and the Us DoD has a dedicated supper. CBS was apparently unable to find this out.

I got involved with the DoD’s concerns in the late noughties of this century. The matter was addressed at a meeting of the Office of Net Threat Assessment in the Pentagon in 2009 to which I was invited as a rare earths “expert.” I was asked how I would address the problem. I answered then that I would first set up a private company to recycle military scrap containing rare earths and then we could address the downstream needs for separation, metals/alloys making and magnet making after a supply of raw materials had been established. “How much would that cost?” I was asked. My reply was a few million dollars. I recall that some of the people present snickered and the group leader, the then 86 year old, Mr Andy Marshall, said that “millions’ are what we spend to “study” the problem. It was then pointed out to me that this might well be a billion dollar venture that will require study and political involvement. I said to the group that they were “nuts” an that even the Four-star general present sounded like problem makers rather than solvers. I was not invited back but even so I still maintain a cordial relationship with some individuals, not directly in government, who I first met at that meeting.

Just so you’ll know I will state here that i tried very hard after that to get funding for a recycling program as a first step in re-establishing the total American rare earth processing chain. I am still trying. But the buzz for a billion dollar “deal’ had infected the capital markets, and no one would listen to any low cost pattern of re-establishing the processing supply chain on a step by step basis.

Molycorp was saluted as a “Manhattan project” that would single-handedly re-establish American dominance in the rare earth industry. No one paid any attention to the fact that this sentence should have read: ..that would on its own, without any downstream metal making or fabrication capability, re-establish the American dominance in the total rare earth supply chain that never existed, or existed if at all only in the production and use of light rare earths for a brief time in the 1980s! The new Molycorp’s total lack of competence downstream beyond low quality separation of the light rare earths was of no interest to Wall Street. Unlike CBS I was astounded by the ignorance of the capital markets (You can imagine how my proposals to create an industry with “only” tens of millions of revenue and a 30% margin looked to the titans of greed as they salivated over multi-billion dollar market capitalizations and threw money at any geologist who walked through the door with a grab sample.)

The institutional investor based in London of which a recent very environmentally conscious American Vice-President was then chairman told me after my presentation there: “You only want 15 million dollars. We don’t do deals that size. Come back with a 50 million dollar proposal.”

So what have some of the other serious people in the rare earth space been doing for the last 8 years? First of all most of the grab-sample entrepreneurs are gone away or bankrupt. The survivors are entirely those who have significant amount of heavy rare earths in the distribution of total rare earths in their deposits. (Molycorp, Mountain Pass deposit has at best a “trace” of heavy rare earths-50,000 tons of production at Mountain Pass (This amount is the ENTIRE allotment by the way of Chinese rare earth production for 2015) would yield at 100% efficiency just 7 tons of dysprosium!). The survivors are also pretty much finished in developing their methods of extracting the desired rare earths (all together) from the minerals in their ores and in removing the unwanted elements that come along.

The best of the survivors are advancing downstream by several strategies for separation. Among these are:

  • Toll refining at Solvay, France, or at existing solvent extraction facilities outside of China,
  • Using an alternate technology requiring less CAPEX and OPEX than SX to separate the rare earths and purify them,
  • Creating J/Vs with Global1000 manufacturers or miners with the ability to refine, or to get refined, the rare earths, or
  • Acquiring a modern SX separation facility from a Chinese vendor willing to design, pre-fabricate, supervise re-construction of the prefabricated system, and manage the start-up

What the survivors have in common is that they are the right size-with an understanding of their break-even needs in cost of goods sold and of overall production limits. In addition the survivors are well aware of their need to establish strong connection with the global rare earth metals/alloys industry and the magnet fabrication industry so as to be able to support an approach to the global customer base that itself deals primarily with the magnet makers only. The survivors have finally realized how important marketing and customer acceptance is to any industry. China’s current president has strongly supported the modernization of the rare earth industry in China. Readers of InvestorIntelReport know well that the Chinese government has sharply reduced its allowed rare earth production for 2015 so as to be able to adjust both the types of rare earths to be produced and to smother the price killing illegal production that has so long distorted global rare earth pricing.These Chinese actions have highlighted the supply issues in the world’s dominant user of rare earths. China needs magnet metals. it needs Praseodymium, Neodymium, Terbium, and Dysprosium in amounts well beyond its current capacity to produce ethically, legally, and efficiently!It will soon be, if it isn’t already, profitable to make REPMs in the USA, if we bring our hard rock REEs into production and re-establish our total processing and fabricating supply chains. All the technology is present in the USA, and Japanese and now yes Chinese companies are ready able and eager to sell prefabricated facilities into North America. Even though 60 Minutes isn’t aware of this the Molycorp saga has been an example of creative destruction and the American rare earth industry won’t make the mistake ever again of being too big to succeed and obsolescent from the first day. I have been involved with the rare earths for more than 50 years, and i hope in the ten minutes it took you to read this your perspective has broadened. Your welcome for the 50 minutes I saved for you of the 60 Minutes in the title of this piece.


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

  • Jeff Thompson

    I think that the most we may reasonably expect to come of this 60 Minutes piece was that the investors, scientists, and engineers who tuned in tonight will dust off their old chemistry books (if they even kept them), do some research, and dig deeper than the piece went. Most will be led astray by the surface-treatment rare earths, as lumped category, received in the program and never get past Molycorp, but some mainstream media attention on the subject may have a regenerative effect and spawn other mainstream interest, such that a subset of those who listen (perhaps 5-10%) will begin to uncover the crucial distinction between the critical rare earths and the light rare earths, and thus uncover the North American companies that endeavor to produce them.

    March 23, 2015 - 12:22 AM

  • Simon_Strauss

    One of the REE space’s enduring mysteries is why hasn’t America protected itself by investing in the very large heavy REE resources owned by very small market cap companies that are listed in very safe jurisdictions. At the moment here in Australia we are seeing quite a few off-take deals and the setting up of downstream alliances by countries other than the USA. You can easily assess the Australian REE space and as Australia has around one third of the world’s known economic to mine L & H REEs resources, perhaps you should. Either Google Australian Rare Earths or visit http://www.australianrareearths.com and then consider taking a bite for yourself.

    March 23, 2015 - 2:33 AM

  • What 60 Minutes Got Wrong About Rare Earths And China – funnybuzzfunnybuzz

    […] As Jack Lifton (a journalist very wise in the ways of this industry) has pointed out: […]

    March 23, 2015 - 6:37 AM

  • Mr.jimmy

    I’m sure you read Tim Worstalls piece. He makes it sound like we’re all spinning our wheels with these junior REE plays. Heavies and their growing demand never mentioned? China’s quota changes never mentioned?And what’s this about him not agreeing with you on recycling Jack ? Cheers

    March 23, 2015 - 9:38 AM

  • hackenzac

    60 Minutes raised considerable awareness last night about the the state of Christianity under the IS in Iraq and about what a cool guy Neil Degrasse Tyson is but rare earths, not so much. The heard mentality of today’s pump it up trading is interesting however.

    March 23, 2015 - 10:17 AM

  • Alvarita

    Hackenzac can you explain what a “heard mentality” is? Something to do with hearing?

    March 23, 2015 - 10:28 AM

  • Jack Lifton

    Hackenzac,

    I noticed that also, although I would call it a lemming effect. All of my personal domestic American favorites did benefit, and this gives me some hope that investors at least know that some good HREE ventures are in the junior space yet.

    Unrelated: Can the Pope preach a Crusade against just specific Muslims, or would it have to be against all Muslims, which would not be popular? If he can be specific in his targeting I say bring back the Knights Templar!

    Jack

    Jack

    March 23, 2015 - 10:32 AM

  • hackenzac

    That’s right, ‘heard mentality’. I like that typo if you came to play “gotcha”. The lemming herd heard that a few sheep looked up and that the lion will lay down with the lamb.

    March 23, 2015 - 10:44 AM

  • Jack****

    Could Mr. Lifton please explain the numbers he used to arrive at 7 tons of Dy?

    March 23, 2015 - 12:34 PM

  • Jack Lifton

    Jack****,

    The Journal of Resource Geology, Vol. 58, Issue #4, dated Dec 1 2008 has an article entitled “Rare Earth Deposits of North America by Stephen B. Castor. Page 340 of that number of the journal which is page 4 of this article has a table denoted as Table 2 REO analyses of North American REE concentrates and ores (normalized to approx. 100% REO+Y2O3.

    The table cited above shows that the Mountain Pass bastnasite contains 0,034% Dy. So therefore last year’s total production of rare earths by Molycorp, which was around 5,000 tons, would have yielded at 100% extraction efficiency and 100% separation efficiency around 1.75 tons of dysprosium. At its current targeted capacity of 20,000 tons it would yield 7 tons. NOTE HOWEVER that in the real world the overall recovery through both extraction and separation is unlikely to exceed 67%, so that less than 5 tons would have been recovered (if cost were no issue).
    Mountain Pass bastnasite is simply not a feasible source of commercial rare earths with atomic numbers higher than 64, gadolinium.

    March 23, 2015 - 4:09 PM

  • Jack****

    Thanks Mr. Lifton. In addition, this number is on an oxide basis, so the actual amount of metal available to alloy into a magnet would be about 80% your number, including metal content of the oxide and recovery.

    There is more to say about the Castor analysis, but that is a long and interesting story. Later.

    March 23, 2015 - 5:10 PM

  • Tim Ainsworth

    “the Chinese government has sharply reduced its allowed rare earth production for 2015”

    Jack, according to Hongpo’s piece here China have actually increased “first”, presumably half year, mining and production quotas by approx 10%. You may want to clarify with him but I’d suggest China are not planning to sacrifice too much of their advantage in the total NdFeB suply chain by going without the 15ktpa illegal NdPr production.

    They have a delicate balancing act to execute in returning value to primary production of RE, and ROW producers may have a role to play anchored off the bulk of the catalyst market remaining outside China.

    March 28, 2015 - 5:06 AM

  • Peter Epstein

    Jack,

    As far as I can tell, you’re the #1 expert commentator on Rare Earths. I love your work. Keep it up!

    April 1, 2015 - 8:26 AM

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