EDITOR: | March 15th, 2016 | 53 Comments

Lynas – the Make or Break Year

| March 15, 2016 | 53 Comments
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If there is one thing you need to know about Lynas, even more important than its bottom line or its debt levels, it is that Japan needs Lynas. After Japan’s atrocious treatment at the hands of the Chinese during the Islands Dispute several years ago, the terms of the Japanese deal with Lynas are to receive the allocation of a minimum of 8,500 tonnes (±500 tonnes) per annum of Rare Earths products for Japan, which currently represents 30% of the Japanese market, over a period of ten years. Without Lynas the Japanese industry would be thrown back at the mercy of the Chinese.

For that reason, and that reason alone, Lynas is a key chess piece for the Japanese.

The Japanese Nexus

The most important part of the Japanese relationship is the JARE facility. JARE stands for Japan Australia Rare Earths B.V. and is made up of Japan Oil, Gas and Metals National Corporation (JOGMEC) and Sojitz.

JARE_lynas

Back in March 2011, Sojitz and JOGMEC announced that they have entered into definitive agreements with Lynas to provide a total of US$250 million through loan and equity and to receive the allocation of a minimum of 8,500 tonnes (±500 tonnes) per annum of Rare Earths products for Japan, which currently represents 30% of the Japanese market, over a period of ten years. In addition, Sojitz signed a distribution & agency agreement with Lynas that Sojitz would be appointed as a sole distributor and sole agent of Lynas in Japan.

In an interesting twist, the parties agreed an interest rate regime which gave Lynas with the ability to reduce the effective interest rate on the JARE facility from an initial 7% per annum to a floor of 2.8% per annum over time. The new framework set specific targets that, if met, would trigger a cascading decrease in the interest rate payable on the facility.

While it’s been five years in coming, Lynas finally exceeded the minimum supply qualification in the December quarter of 2015 and therefore, the interest rate under the JARE debt facility reduced from 7% per annum to 6.5% per annum with effect from 1 January 2016. Hopefully this is the first of many such reductions.

The Japanese clearly drove a pretty hard bargain because even back in 2011, 7% was a rather ritzy interest rate. To compare, at that time, the interest coupon with the Mt Kellett- led bond holder group, is maintained at the low level of 2.75% per annum.

The positive cashflow effects of a declining interest rate are obvious.

Now Prices Need to “Come to the Party”

The key thing lacking from the Lynas equation is good (or at least, better) REE prices. Chinese domestic NdPr prices did not recover as much as expected. Whilst increasing by US$3 from the previous quarter to US$34.40 at the end of December, they remained US$10-$11/kg lower than average levels experienced in 2014 and early 2015. Otherwise on the production front things seem to be going well. In the December quarter, 949 tonnes of NdPr was produced. Production of NdPr for the 6 months to 31st December was 1,916 tonnes which exceeded the JARE debt facility target of 1,860 tonnes (thus triggering the interest rate fall). If anything capacity constraints were holding Lynas back.

Despite continued very low rare earths prices, operating cashflow (sales receipts less production and administration costs) remained positive at AUD$2.97m. On a free cash flow basis (operating cashflow less capital expenditure) the business was within a breakeven range at negative AUD$0.5m. Crucially, the closing total cash balance was AUD$53.6m.

Capex demands are tapering off as the construction of the Tailings Facility Storage 2 at Mt Weld was completed in December, on budget and on schedule. In the current quarter, Lynas will start-up the fourth and final separation train in SX5. This will bring NdPr production capacity to 100% of design.

Sales are running at nearly AU$50 per quarter and might even top AUD$200mn for the full fiscal year. This would be a dramatic surge from the AU$148.6mn in FY14 when prices were higher.

Dudley Speaks

An article last week in the Sydney Morning Herald extensively quoted Professor Dudley Kingsnorth, one of the Two Wise Monkeys still extant in the Rare Earth space (the third wise monkey unfortunately placed all his chips on Eudialyte and is now in a sort of permanent penalty box). Professor Kingsnorth’s view was that, “the problem is the amount of illegal mining, primarily in China, which continues”. He said these producers paid no tax and complied with no environmental controls.

Illegal mining of rare earths in China has undermined anticipated benefits from the forced rationalisation of China’s sector into a handful of large groups that are seeking to reduce accumulated stocks of rare earths, which are estimated at 150,000-200,000 tonnes of material.

He went on, “That [stockpile] needs to be reduced. China’s large operators are producing at around 50 per cent of capacity and by the third or fourth quarter of the year stocks will reduce to 50,000-100,000 tonnes. So I don’t see any movement in the current low price until the third or fourth quarter of the year due to the overhang of stock.”

I must confess to be the last conspiracist standing on China and REEs (and pretty much all else in the metals space). Just because China botched the FANYA exchange and screwed up prices of some associated metals does not mean they are as clueless as many would have us believe. I prefer to think that the prolonged low prices in the REE space have been an attempt to drive juniors and wannabes out of the space. In this they have had a brilliant success. They have brought Molycorp to its knees and made the going very tough for Lynas. To claim that this is solely the result of over-production and disorganization by the Chinese is to give them a free pass in a space where they have shown themselves to be brutally Machiavellian and manipulative in the past.

If one takes our point of view then the process of attrition is virtually over. There remains Lynas on its feet (with its Japanese fairy godmother, JARE) and a smattering of juniors (e.g. Peak). These do not represent anything vaguely like the threat that the 100 plus juniors, all airing grand ambitions back in 2010, did. Can the Chinese live with this level of competition? Yes… particularly if the JARE group makes clear that they will support a non-Chinese producer (i.e. Lynas) come hell or high water. The Chinese must still be holding off to ensure that Molycorp is a corpse well cold in its grave (and thus beyond reanimation) before they return to a bullish tack.

Once the Chinese feel comfortable that the REE universe is well circumscribed to one non-Chinese major and a small clique of specialized players then they can hike prices and the survivors of this attrition can make hay while the sun shines.

Conclusion

When the Rare Earth boom upsurged in the last year of the previous decade, no-one gave the Japanese end-users a course or guidebook in the ways of mining sector entrepreneurs. Little did they know that when a promoter said “this will be a big mine…” he actually omitted to add “…but not if I have anything to do with it”. And that old chestnut “shovel-ready” which meant “I would not know a shovel if I feel over it, but we expect you to do the digging”…. And the other gem “we are working towards a production date… which with any luck will be many years after we are all dead”.

The Japanese then threw their reputation and some money towards a number of projects only to find out that the opaque promotional soundbites would not put REE in their industrial processes. Of all the bets they made the one that has played out best (yes, best) has been Lynas because it is providing the product they need. Will they be prepared to let this go? We severely doubt it. It is not as if there are any other projects (for the next three years at least) even vaguely in prospect and the downfall of Molycorp has accentuated this grim supply outlook.

Calendar year 2016 will be a key one for Lynas. Survive this period and its future will no longer be a subject of discussion and the stock price will react accordingly.


Christopher Ecclestone

Editor:

Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>


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Comments

  • Pennie

    Christopher, thanks for recognising the strategic importance of the only non-Chinese producer to the biggest non-Chinese consumer of rare earths, as demonstrated by the recent ‘interesting twist’ of the interest rate regime and debt deferral. Japan has made it clear that it will not allow Lynas to fail now that Lynas has shown it can actually produce the product Japan needs. Conspiracy theories abound and who knows what the truth is, but what would be really useful, if prices don’t ‘come to the party’ quickly enough, would be for the parties to come to the prices that Lynas would need to charge for reliable supply of quality product made in an environmentally sustainable way. Does the fairy godmother have a wand?

    March 15, 2016 - 10:07 AM

  • Jack Lifton

    Chris,

    I think you are right, but I really do think that the only way that Japan, Inc can be certain of Lynas is to acquire it. Interestingly enough I do not think this would at all be against the wishes of the Malaysian policy makers. The real issue is not World War II’s rather bad behavior by the Imperial Japanese Army, but the immense screw-up made, I believe, by Mitsubishi some 15 years ago when they mined and processed monazite in Malaysia and did not choose well in their technology for disposing of thorium (They chose to encapsulate it in concrete and sink it off shore. Local fishermen then claimed injury to their fishing grounds and themselves). This memory inspired Stop Lynas Save Malaysia, but that never had government backing.
    I will not be surprised to see Japanese companies open facilities in Kuantan to make rare earth metals and alloys before 2020. Interestingly enough this idea has been in the air in Malaysia for at least the last two years.

    Jack

    March 15, 2016 - 10:27 AM

  • Christopher Ecclestone

    Interesting observation from Jack (the other of the Two Wise Monkeys) on the Japanese making the LAMP site into a REE manufacturing pole..

    Of course Lynas only provides 30% of Japan’s Neodymium needs so there is scope for Japan Inc to back maybe one or two other REE projects around the world.. most likely in Africa as the Canadian have burnt their (credibility) bridges with the Japanese, starting with Great Western’s Benjamin River… who remembers that one?

    Logically Lynas could acquire another advanced mine project and ship the ore to LAMP… economies of scale.. who would have thought of that?!

    March 15, 2016 - 10:42 AM

  • Pennie

    Or perhaps Lynas could add to their processing equipment and simply use more of their own ore.

    March 15, 2016 - 7:04 PM

  • Christopher Ecclestone

    Yes, Pennie.. but that would be more of the same as Mt Weld’s mineralisation is unchanging.. It would mean Lynas would be focussed on Nd alone, pretty much… another property (one with Xenotime) could broaden the REE offer in its product range.

    March 15, 2016 - 7:11 PM

  • Investor

    Pennie, one of the reasons for Lynas struggle is the size of the plant. When it goes out of “shape” in takes months to put it back into shape,. adding more equipment will make it even harder.

    I am with Chris on the strategic direction, If you are selling Nd/Pr to Japanese the same buyers must deal with Chinese for HRE.

    March 15, 2016 - 8:15 PM

  • Andrew

    Chinese manipulate the price down to such level will only make other countries more worry. One day all other countries should come to one conclusion “Chinese strategy is unpredictable, it will be very risky to rely on them”.

    March 15, 2016 - 9:10 PM

  • Lok Chong

    Christopher, your started by claiming “After Japan’s atrocious treatment at the hands of the Chinese during the…”
    You obviously have no idea of the atrocities that the Japanese Imperial Army had committed against the Asians including the Chinese, Koreans, Vietnamese, SE Asians etc. etc., and certainly no knowledge of the incident that led the Chinese to react leading to the REE embargo.

    Are you paid by the Japanese to write such an offensive statement by spinning the facts inside out and upside down?

    March 16, 2016 - 4:29 AM

  • Christopher Ecclestone

    Lok Chong…Discussing Rare Earths here in case you had not noticed.. Did you miss the Senkaku Islands dispute?

    https://en.wikipedia.org/wiki/Senkaku_Islands_dispute

    March 16, 2016 - 4:38 AM

  • Lok Chong

    Christopher, do you have any idea how much “corruption’ money have been paid by Lynas (and by the Japs) to Malaysian politicians (headed by Najib) and regulators? Yes get the Malaysians to agree to process plant expansion in Malaysia and corrupt the politicians even more.
    Have you not ask why the processing plant is not built in the hugh wasteland in Mt. Weld backyard (where the mine is located) and/or not in Japan where the backers/end-users are located? Why in Pahang Malaysia?

    March 16, 2016 - 4:54 AM

  • Lok Chong

    Christopher, Have you no idea of the Diaoyu dispute?

    March 16, 2016 - 5:14 AM

  • JOHN ROAKE

    A well written treatise that as a large shareholder I get some comfort from. You at least provide some hope for shareholders to hang in there for another 12 months at least. The future prospects do not spell out as doom and gloom
    I hope you will re-address the situation quarterly from here on.
    Many thanks

    John Roake
    New Zealand

    March 16, 2016 - 5:34 AM

  • Christopher Ecclestone

    Diaoyu/Senkaku – you say tomayto, I say tomahto… what is your point?

    Chinese cut off REE exports to Japan in this dispute.. so that is why the Japanese need an alternative supply so they cannot be held hostage to geopolitical wrangling and China’s REE dominance.. seems pretty clear!

    March 16, 2016 - 7:42 AM

  • Tim Ainsworth

    Chris, do you understand the mineralogy of the Duncan deposit?

    March 16, 2016 - 8:29 AM

  • Jack Lifton

    Lol Chong,

    Lynas’ original idea was to build the separation plant in or near Perth. The outback site you suggest was logistically as well as economically unfeasible from the point of view of reagents, power, water, and skilled labor. The next issue was the attitude of the then state and federal Australian goverments. This was capped by the price of Power and the limited available availabiliy of process water acceptance by the city.
    A site selection then chose Kuantan due to low power and process water costs. The Malaysian government was “bribed” by the promise of up to 400 jobs in a depressed region.
    Stop LynasSaveMalaysia was a political not an environmental play. As even a cursory reading if Malaysian news should tell you allegations of bribery in Malaysia refer to very large amounts of money and very great influence neither of which Nick Curtis ever had in Malaysia.
    Malaysian bias seems to me to be directed against direct investment from China much more than from Japan.
    In fact when I first was asked to survey the LAMP in 2011 I said to the Lynas site manager that the company needed to engage much more with the locals and get positive publicity to counteract SLSM. Note that of the four men who reported to the Malaysian Parliamentary Committee on the safety of the LAMP I, an American, was one; a German nuclear decommissioning expert was a second; a Canadian rare earths trader was the third; and the fourth was a distinguished Chinese professor of separation science. None of us,were bribed and the parliamentary mood though skeptical was supportive.
    The LAMP start up problems were and are common with new chemical engineering works on a large scale. Malaysian contractors caused their share of construction problems, French, Chinese, and Malaysian engineers solved the process control problems, and Australian and Malaysian managers worked through the labor problems. In other words it was a normal startup of its type!
    There is, by the way, only a negative comparison possible with the failed start up at . Mountain Pass.
    Lynas has done very well against all expectations. It has a good chance.

    Jack Lifton

    March 16, 2016 - 8:57 AM

  • Tim Ainsworth

    Ashton’s, the previous owners of Mt Weld, actually had a permit to build a process facility in Australia, and it transferred to Lynas.
    As part of the funding process the initial decision was actually to build the LAMP in China but that was canned when they refused to exempt Lynas from the export quotas/VAT imposition.
    As part of the early funding saga CNMC, China Nonferrous Metal Mining (Group) Co., Ltd, who Nick Curtis worked for in the five year period they were extracting Magnequench from the US, made an offer to provide CapEx in exchange for majority equity in Lynas.
    For once, Australia’s Foreign Investment Review Board wasn’t out to lunch and rejected majority control.
    Jack, you seem very keen to push a Japanese TO of Lynas (mind you I hold more equity than they do ATM) but what do you think the Chinese reaction would be? Particularly given NdPr supply now contracted into China, aka “ice to the arctic”?
    Or the Australian FIRB having rebuffed China previously to retain control of the asset at Mt Weld? Do you expect them to simply yumi to Japan and say FU to our largest trading partner? Or do you think China just won’t care about Japan taking control of the highest grade NdPr resource likely to be in production any time soon?
    As a SH I say “bring it on”, but most definitely NOT why I’ve continued to build my investment in Lynas. So easy to make these simplistic prognostications, divorced from reality, and move on, much like Bay St.

    March 16, 2016 - 9:37 AM

  • Jack Lifton

    Tim,

    What’s your point? Is it that Australia is captive to China’s money? We all know the history you recited. Do you welcome China’s self-interested interest in Northern Minerals and Talison, but consider Japan’s interest in My Weld to be somehow disadvantageous to Australia?

    Jack

    March 16, 2016 - 9:46 AM

  • Tim Ainsworth

    Chris,

    Given “but that would be more of the same as Mt Weld’s mineralisation is unchanging.. It would mean Lynas would be focussed on Nd alone, pretty much… another property (one with Xenotime) could broaden the REE offer in its product range.” I will presume not, and would suggest labeling Mt Weld “unchanging” is akin to believing Chinese central control is all powerful.

    Apart from the Crown Polymetallic & Swan Phosphate deposits there are two distinct RE resources within the Central Zone, now designated CLD & Duncan, both of which have just undergone a unique experience among its peers and actually been marked to market, with remarkably little adverse impact. Perhaps equally surprising was the total absence of any commentary, then again I guess all the magic pudding tech in vogue ATM is far more titillating than any fundamental values.

    https://www.lynascorp.com/Shared%20Documents/Investors%20and%20media/Announcements%20and%20media/2015/151005%20Ore%20Reserves%20and%20Resources%201481136.pdf

    Point being Duncan held up at a grade of 4.7% with a total resource of 8.2MT BUT with a distinct mineralogy to CLD: “Preliminary mineralogy test work has been completed and has identified the minerals associated with the heavy Rare Earths as churchite and xenotime, in addition to secondary monazite.”

    https://www.lynascorp.com/Shared%20Documents/Investors%20and%20media/Announcements%20and%20media/2008/Mount_Weld_Resource_update_-_030308.pdf

    “Other REE-bearing minerals recognised include crandallite, rhabdophane, cerianite and churchite. Churchite contains large amounts of high-grade yttrium (up to 2.5% Y2O3) and is an important host to the HREE. The LREE-bearing minerals monazite and rhabdophane are found in the upper part of the residuum, whilst the HREE and Y are preferentially concentrated at depth as xenotime and churchite (Richardson and Birkett, 1995).

    http://www.portergeo.com.au/database/mineinfo.asp?mineid=mn770

    So while only a short distance apart, Duncan is quite a different mineralogy with greater bias toward HRE, but also requiring a different process route to CLD/LAMP. Now I understand Ce discard has become quite popular 1400km out in third world deserts of late but Lynas first mooted this mid 2012 and got as far as lab work proving up 84% recoveries for non-cerium rare earths to mixed rare earth chloride by direct chemical treatment of the ore.

    Chris, you suggest Lynas should “broaden its offer” and look for xenotime when it is sitting on Duncan with the projected annual output, sans Ce, of:

    5100t NdPr
    180t Eu
    62t Tb
    300t Dy
    100t Er
    40t Yt
    1100t Y

    That volume of “heavies” represents circa 25% of annual demand based on IMCOA data, and probably one of the main reasons it won’t be developed for some time is simply the lack of demand for anything remotely like that volume of additional HRE.

    Much easier to add a bunch of plastic tanks, pipes & pumps, balance front end capacity at the LAMP, and use existing feedstock from CLD to add another 2ktpa NdPr in the foreseeable future.

    March 16, 2016 - 10:45 AM

  • ann bridges

    I do agree with the article’s point that viewing China’s behavior through a “Western” eye of separation of government and business may be deadly. Controlling the price of any commodity is pretty darn powerful in this age of global trade, and China’s Deng made no bones about that being the goal three decades ago. China is following its long-term plan, while our short attention spans, especially Wall Street’s, have ceded control over key elements of our economy. I’m not worrying about a conspiracy as much as checkmate. China wants to be THE global power in the 21st century, much as America was in the 20th. How else do you think they will get there? Population alone? They’ve studied USSR breakup, and the CCP is making sure they stay in control long enough to execute on their strategy. If and when American’s politicians understand what is at stake, perhaps the situation will change…

    March 16, 2016 - 10:51 AM

  • Tim Ainsworth

    Jack,

    I don’t believe I have made any point re China’s interest in Northern Minerals and Talison, and certainly not in this context.

    My point is simply your advocation of a Japanese TO of Lynas with seemingly complete disregard for both recent history and current events.

    Do you honestly believe that would happen without consequence? China would just sit back passively after being denied the same prize just a few short years ago? And the FIRB would just roll on over?

    And you don’t believe Lynas can leverage its NdPr supply into at the worst a metals JV? Much like “ice to the arctic” I suspect.

    March 16, 2016 - 11:04 AM

  • Jack Lifton

    Tim,

    Geology is destiny as China well knows in the age of technology. Compared even to China Japan is barren of natural resources. I am betting on the Japanese if Lynas is to be acquired or enter into a j/v for downstream products. I think that the Japanese are more experienced at dealing profitably with non Japanese cultures than the Chinese. I was 5 when WWII ended. No policy makers in power today were even born during that war. My experience of Japanese businessmen is that they are tough but fair players in the global market. The Chinese are also tough, but there the comparison falls short.

    Enough said

    Jack

    March 16, 2016 - 12:05 PM

  • Andrew

    Consider Lynas major customers are Japanese, jv of downstream products with japanese can immedately let Lynas get away from rare earth price gamble game. jv with siemen can help profibility but Lynas and its shareholders still have to stay gamble with Chinese, the card shark!

    March 16, 2016 - 3:06 PM

  • Investor

    Tim,
    Duncan deposit can not conducive to beneficiation because of its complex mineralogy. So to highlight this again it can not be upgraded. Therefore 4.5% TREO is what you get to feed the plant. Duncan scoping stdy showed that this is another half a billion dollar project at least. Mt Weld does not have infrastructure required for the hydromet plant so one needs to ship large quantities of material elsewhere. On the other hand another HRE hopeful in Australia, Northern Minerals, you can get beneficiate that deposit and achieve 20% TREO.
    Tim, I think you understand what I am trying to say.

    March 16, 2016 - 8:30 PM

  • Christopher Ecclestone

    I concur fully with the view of “Investor”. Why should Lynas persist in banging square pegs into round holes with complex mineralisations when Northern Minerals could be scooped up for $28mn at today’s valuations?

    I am constantly boggled that even after the wrenching experience of the last few years in the mining space, the use of lateral thinking is totally non-existent.

    Lateral thinking is defined as “solving problems through an indirect and creative approach, using reasoning that is not immediately obvious and involving ideas that may not be obtainable by using only traditional step-by-step logic. The term was coined in 1967 by Edward de Bono”.

    March 17, 2016 - 6:57 AM

  • Jack Lifton

    Christopher,

    The “rumor” is that Northern Minerals is now planning to “right size”-Where have I heard that term before?-and produce just enough concentrate to achieve break even at the CAPEX/OPEX for this right size. Imagine now if a lateral thinking investor/investment group were to acquire both Northern and Lynas; add an SEG/HREE separation capability at Kuantan; Add metal and alloy capability at Kuantan; and utilize the existing magnet block machining capability/capacity in Malaysia. Why, there would then be a non Chinese total rare earth permanent magnet supply chain based on Australian-Mystery Financier (but Non Chinese)-Malaysian operations. The OVERWHELMING beneficiaries would be Japan and Europe. Imagine that!

    Jack

    March 17, 2016 - 9:03 AM

  • Tim Ainsworth

    Investor,

    You very obviously have Duncan totally confused with Crown, the polymetal deposit at Mt Weld. Duncan is churchite & zenotime:

    “Preliminary bench top test-work conducted for the scoping study achieved a recovery of approximately 84% for noncerium rare earths to mixed rare earth chloride by direct chemical treatment of the ore.”

    Further to that I understand Duncan was developed beyond that initial stage but regardless you totally miss the point. Chris was suggesting Lynas needed a xenotime “heavies” resource, simple fact is they have one at their finger tips, should the market ever vindicate 300tpa Dy.

    And we’re most certainly NOT talking < 0.6% underground, light years from infrastructure, drip feed by NYC loan sharks.

    March 20, 2016 - 8:22 AM

  • Tim Ainsworth

    Jack,

    The investor in me, sitting on +10M of confetti, would be rooting for your POV, while the strategist finds it naive.

    March 20, 2016 - 8:30 AM

  • Tim Ainsworth

    Christopher,

    Can you point me at any vague outline of an economic rationalisation of NTU given Longnan 92% concentrate is currently offered < $17kg with 8/9% Dy?

    Total lack of evidence to any demand drivers ATM, in fact to the contrary one of China's leading NdFeB manufacturers, part of the Sth RE Group vertical with 9ktpa HRE quota, predicts a 50% reduction in Dy demand 2014/2019.

    Just more cunning Sino conspiracy to roger the White Devils I suspect.

    March 20, 2016 - 8:45 AM

  • Tim Ainsworth

    Jack,

    Lynas already has a total supply chain into Japanese magnetics, the fact they are supporting the 45% of high end NdFeB that the Japanese still retain, 70% Dy free/lite is the only rationale for their existence in the current equity. You’d surely understand the downstream implications into the trillions for domestic industry, rather rare bold effort to keeping the globalisation dragon at bay.

    In fact without 839t of NdPr JQ 15, +94% on previous, we wouldn’t be having this discussion, Freddy would have called it for the current equity. Credit AL, she knew exactly what it would take to find salvation.

    BTW Chris, JQ 15: “NdPr sales to Japan reached over 630tons, setting Lynas above 60% market share, and further strengthening the partnership built over recent years with Japanese industry.”

    Given the half year subsequent NdPr production of NdPr was 1916t would luv to know how you deduce Lynas mkt share Jap NdPr 30%?

    Who else is buying it?

    March 20, 2016 - 9:44 AM

  • Bill

    Only those that don’t have access to Dy, think that Dy free / lite is the way of the future – because they have no other choice.

    Appears many Lynas shareholder want us believe the Japanese are switching to Dy free/lite magnets. Whey then is Hitachi fighting to prevent some Chinese manufacturers from using its Patents to produce NdFeB magnets (Dy magnets).

    http://www.iam-media.com/blog/detail.aspx?g=12dbcdc1-170c-4b1a-b346-463f4257c260

    To quote Gareth Hatch: “what is frequently missed is that the cost of actually producing such magnets(Dy free/lite), is (now) significantly higher than the cost of producing materials with similar magnetic properties, but which rely on appreciable Tb and / or Dy content.

    http://investorintel.wpengine.com/technology-metals-intel/rare-earths-financing-a-contrast-in-fortunes/

    Chinese firms, however, control most of the world’s rare earth mines, and are thus key players in the production of the NdFeB alloy, which accounts for about half of all global rare earth metal consumption.

    March 20, 2016 - 10:29 AM

  • Bill

    Only those that don’t have access to Dy, think that Dy free / lite is the way of the future for permanent magnets.

    Lynas shareholders want us believe the world is switching to Dy free/lite magnets.

    Why then is Japanese firm Hitachi fighting to prevent some Chinese manufacturers from using its Patents to produce NdFeB magnets (Dy magnets).

    To quote Gareth Hatch: “what is frequently missed is that the cost of actually producing such magnets(Dy free/lite), is (now) significantly higher than the cost of producing materials with similar magnetic properties, but which rely on appreciable Tb and / or Dy content.

    http://investorintel.wpengine.com/technology-metals-intel/rare-earths-financing-a-contrast-in-fortunes/

    March 20, 2016 - 10:50 AM

  • Tim Ainsworth

    “Bill”

    Ask Gareth for the substantiation beyond his thought bubble, integral part of the Sth RE Group with a little over 50% of the “heavies” production quota forecasting 50% decline in Dy demand 2014 > 2019. Shock, horror, must be a “myth”, shame it makes perfect sense to Stan Trout, on steroids.
    New paradigm dawning, you’re well in the the dust buddy, NYC loan sharks ain’t big on sycophants, slip sliding to reality, despite the comedy skit: http://hotcopper.com.au/threads/global-dysprosium-market-set-for-rapid-growth.2727586/?post_id=17283163#.Vu7G7-J95hE
    Robotics soon enough, but U won’t be injecting NdFeB into my joints anytime soon buddy, load of facile crap along with the rest of the “heavies” mantra.

    March 20, 2016 - 11:54 AM

  • Jack Lifton

    Tim,

    I note that you seem to not be interested in the use of rare earth “heavies” and neodymium in light weight high strength low corrosion alloys of magnesium and aluminum for aerospace and armor applications.
    Any of these uses for (primarily) Y, Yb, and Nd could literally swamp the demand for magnet modification, but would require a large increase in overall HREE production (actually it could demand as much as possible).
    I think therefore that Dy demand could fall without reducing the need for overall HREE production and since costs need to be distributed I suspect that Dy prices will firm and that Y, Yb, and Nd/Pr prices will rise.
    I also think that Gareth who was the manufacturing manager of a large rare earth permanent magnet machining and design facility knows quite a bit more about the cost structure of magnets than an R&D director or a well read shareholder.

    Jack

    March 20, 2016 - 1:04 PM

  • Christopher Ecclestone

    I come at this from an agnostic point of view. If one regarded REEs as lots of different value fruit coming from the same amazing tree in an orchard might be more helpful. It costs you pretty much the same to pick each one but you get wildly varying prices for them. You cannot leave some on the tree. However, if you end up producing more of the high-priced Kiwi fruit (anyone remember how expensive they were when they first appeared) then – surprise – the price of the Kiwi fruit falls and they become more widely used and less of a luxury item.

    If one thinks about mining in general it is possible to get silver, lead and zinc (and also Indium) out of some deposits or gold and silver (and maybe Tellurium) out of others or copper with cobalt or copper with Moly and maybe some gold or nickel with cobalt. But can anyone name me a type of mine where you get eight to ten different elements of the Periodic Table as sellable “by-products” of each other? That is what we have with REEs.

    Jack is absolutely correct. There are quite a number of specialty metals (going beyond REEs, we might mention Scandium and Beryllium) that if there was greater production they might be more widely used creating a virtuous circle for their production.

    Much of the dialogue in recent days seem to rotate about the current usage and the current price for some REEs without considering that the price (and thus the usage) could be dramatically different in a year or two from now. Increased production may indeed change the usage patterns. We all know the world does not need or want more Cerium or Lanthanum, so what..? We need to get used to the idea that they go into “storage” (a tactful way of saying they end up on the tailings pile).

    March 20, 2016 - 6:40 PM

  • Investor

    Tim,
    It is disappointing when people are not objective and do not stick to the facts. Or simply they do not have education to understand those facts. What is even more disappointing is when these type of people make investment decisions, over 1.2 billion AUD for Lynas so far and Duncan at least 0.5-0.7 billion AUD. I am not confusing Duncan with Crown. Duncan was and still is a scoping study. Duncan is and will forever be a light REE deposit with a greater imprint of heavies compare to CLD. La + Ce in Duncen are about 65% of the REO distribution and LCPrNdSEG all up about 93%/TREO. D2O3 as a % of REO distribution is about 1.3%. TREO grade of Duncan is 4.5-5%. As you also pointed out because of the complex mineralogy you need to feed hydro plant directly in teh case of Duncan. There is no beneficiation. Where will this hydro plant be and what about transport costs.

    I am not trying to push NTU over any company. But the fact is that with 0.63% head grade (8.5-9% Dy2O3) and about 85-90 % HREO/TREO, you can upgrade to a concentrate of 20%. Here is where lateral thinking comes into play. However, I am sorry to point out that you still have blinkers on.
    I sincerely hope this does not become continued trend in the mining industry.

    Otherwise breast milk will firm up as a better and more interesting investment option.

    March 20, 2016 - 10:50 PM

  • Investor

    Tim,
    I forgot to add that I am happy to provide, any time, advice on any geology, processing or metallurgy related questions related to Mt Weld deposits. This is something which needs to be well understood by sales and marketing people. However, this is all available in the public domain but it is the blinkers on attitude which prevents people from extracting the true information.

    March 20, 2016 - 11:02 PM

  • Tim Ainsworth

    I simply raised Duncan in response to Chris’s assertion that they should buy a xenotime deposit. The major problem with Duncan is not the process route but rather what the hell do you do with the primary justification of 300tpa Dy (25% annual demand) when it’s selling < $190kg with no net demand drivers beyond the vague thought it's "cheap".

    March 22, 2016 - 7:14 AM

  • Tim Ainsworth

    Jack,

    Fair points, I don’t have the expertise to analyse them in detail, and I most certainly note the current diversification of previously promoted “rare earth resources” into all manner of wonderful things.

    Which probably vindicates most of what I’ve been saying.

    March 22, 2016 - 7:38 AM

  • Tim Ainsworth

    Chris,

    You should do a little research on Chinese investment into downstream La/Ce app’s and note proportionately they are nowhere near the level of oversupply of M/HRE.

    That’s not suggesting they are going to be net earners any time soon, but without a viable market for La/Ce the entire RE complex grinds to a halt, or borrowing your analogy, that amazing tree shrivels to dust.

    Name me a major demand segment NOT predicated on La/Ce? Remembering there is no NdFeB without concurrent La/Ce production.

    While far from the perfect analogy, Dy easily your Kiwi fruit, seemingly exotic, but in reality just another commodity searching for economic value.

    Larry Nitz, head of GM Hybrid and Electric Powertrain Engineering:

    “We can’t really control the price of these REs, and I’m not sure they’re really market-priced anyway because they’re largely controlled by a Chinese monopoly. So we wanted to reduce the amount of dependency.”

    Frankly we should be celebrating the ROW innovation that has largely neutered that monopoly, particularly with alternate supply of the stuff that matters, or in Larry’s words: “There is the lighter kind we use in consumer goods like ear buds and a lot of other devices. They work great.”

    March 22, 2016 - 8:05 AM

  • Bill

    Tim you pretend to have all the answers in order to pump your beloved Lynas – please be sure to wake me up when they start turning a profit.

    A man convinced against his will is of the same opinion still.

    There is no magic pudding. The massive demand drivers which are emerging from electric vehicles and wind farms dictate that manufactures must have more than one solution available to avoid disruption to their supply chains. We have seen this unfold with the development of many alternative magnet solutions.

    Christopher Ecclestone made the point which appears to have been lost on many – “Much of the dialogue in recent days seem to rotate about the current usage and the current price for some REEs without considering that the price (and thus the usage) could be dramatically different in a year or two from now.”

    Electric vehicle manufacture demand for magnets alone should turn critical rare earth prices into an upward trajectory and re-ignite investor interest in the sector.

    March 22, 2016 - 8:08 AM

  • Tim Ainsworth

    Lol “Bill”, yet another thought bubble to sit alongside your “Dy into batteries & NdFeB injected into joints” BS.

    Simple fact is EV/HEV was 0.5% of Chinese NdFeB demand in 2014, projected 2016 Dy demand at 85t rising to 135t 2020.

    A whole 50t when IMCOA put oversupply 2015 was at 1200t.

    Both Nissan & Ford ann’d Dy reductions 40% v& 50% 2014 models, 2016 Chevy Volt works out around 3.7% which puts them well ahead of the Chinese ATM, but let’s be generous and multiply China’s 30% of the EV market out to a net gain of 150t Dy demand by 2020. Alert the media, around 12% of current excess.

    By the same token Siemens at 0.6% Dy current D7 platform with the objective of 0.1% D10 in development, 70% of NdFeB grades Dy Free or Lite, incl important ones like N35SH into robotics, wouldn’t be counting on a LT career as a Dy salesperson.

    March 22, 2016 - 8:56 AM

  • JJB

    Tim you’re casting pearls before swine.
    Of course NdPr is dominating the RE market with the second tier crackers and catalysts (La Ce) oversupplied, as are the phosphors.
    As for the HRE demand (Dy, Tb) in magnets, seems the market has spoken and they’re not needed except where the application is at extreme temperatures. There they may maintain a niche market if the price is economical. If not there are process alternatives.

    March 22, 2016 - 11:01 AM

  • Bill

    A man convinced against his will is of the same opinion still.

    March 22, 2016 - 11:16 AM

  • Jack Lifton

    All,
    Have any of you noticed that China continues to use dysprosium modified rare earth permanent magnets, since they are best for the purposes for which they were developed, and IT CAN! China following the American and German example from the nineteenth century is PROTECTING its internal markets from the fate that has befallen the “free trade globalization” zone. Since it has the largest and almost the richest single language single government zone in the world it can do that without regard to the whining of bought politicians and incredibly ignorant economic “advisors” who populate the monumental buildings of Washington, London, Paris, and Berlin.
    The Chinese will continue to do as they please with natural resources that they control.
    Our politicians could do the same. Why do they not do so?
    I think it is because they are opportunistic, greedy, and/or stupid.
    Reality is the clown show in Havana and the tragedy in Brussels.
    Do you really wonder why Donald Trump resonates?

    And now back to our regular show

    Jack

    March 22, 2016 - 11:25 AM

  • Gareth Hatch

    Tim,

    I heard it directly from NdFeB magnet manufacturers, who have / are producing NdFeB grades using grain-boundary modification (GBM) and similar techniques (resulting in lower HREE usage), that the cost of the new process to produce those magnets, was ON AVERAGE 20-40% higher than producing magnets made from higher-Dy-containing precursors, via traditional means.

    It is entirely possible that the costs of those processes could or have been reduced, but if a 20-40% additional cost of processing is greater than the cost savings obtained through reduced HREE usage, then these lower-HREE magnets, all other things being equal, are going to cost more to produce. Fact.

    HOWEVER, specific grade usage is going to be a factor, as you’ve alluded to with the comment on N35SH material, with some grades benefiting (cost-wise) more than others, when using GBM and similar methods of production (i.e. there could well be a permanent cost benefit to using GBM etc, instead of traditional higher-HREE content, for particular NdFeB grades).

    And at least as important is the ability to switch (through re-engineering the designs) from higher-coercivity grades to lower-coercivity grades, or re-designing the drive systems altogether, to reduce the need for grades that contained more HREEs to start with (a la Siemens et al). This is especially important in the less-demanding applications where in the past there was often over-engineering of designs, using grades that were basically overkill, because the magnets were relatively cheap at the time.

    At the end of the day, in a market dominated by one actor, even if lower-HREE-content magnets cost a bit more to produce, there are obvious benefits to reducing (or eliminating) dependence on HREEs – especially if the costs of using those processes can be reduced to be competitive with traditional routes.

    March 22, 2016 - 11:33 AM

  • JJB

    Jack I agree; at $100/kg Dy it would make sense to include it in the mix for many NdFeB magnet applications. Sadly, that’s well below the procesing cost according to the likes of NTU.

    March 22, 2016 - 11:42 AM

  • Investor

    Great discussion. Also great outcome as we got Tim to agree on some factual data.

    Question for Gareth or Jack; What is the bottom line, that is, future of HRE in particular Dy and Tb. Will demand increase and will the prices recover in the next 2 years?

    Tim has already provided his view.

    March 23, 2016 - 6:01 AM

  • Gareth Hatch

    @Investor: if there is an excess of Dy product available to the market, then it is unlikely that we will see significant price rises anytime soon. Will demand increase to soak up that excess capacity and then some? Probably depends on a combination of the NdFeB production methods that will be used in the near to medium term, and the effects of relatively low magnet costs on demand for those magnets in new applications.

    This combination will determine what the overall Dy usage will be; while it is likely that average per-magnet Dy usage will continue to be less than in the past – if overall usage of magnets significantly increases, then we could have a situation where overall Dy usage will also increase – per Jevon’s Paradox.

    What might the time frame for that be? Hard to say 🙂

    March 23, 2016 - 10:11 AM

  • Fred

    …. mineralogy (not geology) influences the CAPEX and OPEX. The costs of REO processing are massively controlled by the amount of non-REO that comes through the processing plant. A 50% REO concentrate plant is a quarter of the size of a plant treating 12%. All of those non-REO dissolve to a degree during processing and require OPEX to remove. So the holy grail in any processing is to get a 100% mineral concentrate into the processing plant. The mineralogy shows you if this can be achieved and how. Coarse xenotime in quartz (Northern Minerals) achieves this. Very fine xenotime intricately intermixed with phosphate or iron hosted minerals would not. – See more at: http://investorintel.wpengine.com/technology-metals-intel/northern-minerals-sexiness-xenotime/#sthash.hSsQfhVR.dpuf

    Investor, why isn’t Northern Minerals beneficiating up to a 100% mineral concentrate and simply selling this – ………. surely be a more viable option than their current business plan

    March 28, 2016 - 6:29 AM

  • Investor

    Fred, people who understand mineralogy also should understand the meaning of the word “recovery”. You can take a copper concentrate which is also 20-25% as an example, starting with 0.8% head grade or any other mineral. Also 20% is on a TREO basis so it is theoretically not possible to get 100% TREO. Xenotime is a phosphate mineral after all so in the form of RePO4, e.g LaPO4. By this I mean that PO4 component makes the % in the total 100%.

    March 28, 2016 - 7:52 AM

  • Fred

    “people who understand mineralogy also should understand the meaning of the word recovery”.

    thank you Investor

    So it’s not only about concentrate grade, it’s also about recover …….. and test work determined the optimal recovery and concentrate grade

    http://www.asx.com.au/asxpdf/20130911/pdf/42j98rg3d3bj37.pdf

    March 28, 2016 - 8:42 AM

  • Bill
    March 28, 2016 - 10:50 AM

  • Theo

    Don’t normally subscribe to conspiracy theories but have to now wonder. Rare earth supplies supposed to be tightening with the recent shutdowns at smelters etc. Prices appeared to be ticking up. And then Northern Rare Earth (Baotou) goes and drops it’s listed prices for NdPr, Lynas highest value product, pushing down prices. Definitely smell a rat.

    August 24, 2016 - 8:48 PM

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