Neodymium and Praseodymium: A Century of Demand
Australian rare earth favourite Peak Resources Ltd. (ASX: PEK) (“Peak”) this week released a white paper highlighting a significant industry blind spot regarding Neodymium and Praseodymium (“NdPr”), the magnetic rare-earth elements (“REEs”) required for the construction of modern electrical windings as part of the advancing energy revolution.
The report was compiled from the most accurate material and knowledge currently available in the public domain to provide interested parties with a comprehensive understanding of the NdPr business as well as clarifying how Peak intends to distinguish itself as a supplier of choice in the rare earth industry.
The report highlighted the fact that the prevailing megatrend affecting commodities over the next century will be the gradual shift to low-carbon living, supplanting the combustion of fossil fuels with a broad spectrum of minerals held together in such a way as to generate electricity without setting fire to everything.
However, and very generally, a modern electronic device contains around two thirds of the periodic table, the majority being metallic and therefore highly diffuse, whereas less than a quarter of the elements were present in dinosaurs and they had the good grace to puddle together once dead.
The REE separation problem is therefore one of the most challenging in the resources industry. Tiny quantities of valuable material are contained in what might as well be an ocean of ore. But increasingly, NdPr is the literal driving force behind the majority of automotive electric motors and the heart of the upcoming global electric revolution.
Thankfully, Peak’s deposit has peer beating metallurgical properties allowing for a less complex separation process compared to its competitors. In fact, Peak’s bankable feasibility study utilised only 22% of its JORC resource, yet yielded a 26 year mine life – the expansion potential of this operation is enormous.
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Magnetic motors are undoubtedly a key part of our future, and NdPr features in practically all of them. In addition to the existing positive sentiment towards electrification in the market, Peak anticipates additional acceleration of demand due to tighter global emission standards and stricter legislation on environmentally harmful technologies.
For these reasons, we share the view that Peak will operate as a core raw material supplier in one of the most attractive growth segments of the next industrial revolution. In addition to the strong growth forecast from the EV sector, automation, robotics, AI, sustainable wind energy and electric mobility are supporting this extraordinary growth story.
The at-surface and high-grade deposit equates to a low strip ratio and therefore, very low OPEX. Other than Lynas, no other NdPr producer or developer has the ability to have a fully integrated supply chain and complete the final separation themselves. (Peak aims to produce 2,810 tpa of NdPr oxide) Crucially, NdPr currently face no substitution threat whilst offering greater torque than competing technologies at the same current and voltage values, giving more power by weight. There may be potential to reduce the usage of NdPr in NdFeB permanent magnet motors by adding cerium, but there is no case in which NdPr can be 100% replaced.
Estimates by leading industry observers expect a shortage to materialise by 2025 in the range of ~20,000 – 30,000 tpa, which is equivalent to current legal production levels. This will be further exacerbated by Chinese production cuts that will limit NdPr production to a maximum of ~27,000 tpa, meaning China will likely become a net importer of NdPr by 2020.
Peak’s timing is perfectly aligned with the overall market dynamics. Notably, the market forecasts that by around 2023, the cost of owning an electric vehicle will be lower than that of an internal combustion engine, thus allowing Peak to take full advantage of what is likely to be an enormous gap in supply versus demand.
Already in 2017, several major government announcements have been made regarding future plans for these technologies. The Netherlands aims to ban the sales of new internal combustion engines (“ICE”) vehicles entirely by 2030. France and UK announced the same by 2040, and the EU requires 95% decarbonisation of road transport by 2050.
China, the largest single electric vehicle market worldwide, recently announced a new law which will introduce regulations to require car manufacturers who produce more than 50,000 conventional fuel driven vehicles per year to meet the New Energy Vehicle (“NEV”) budget requirements.
This will be represented by a credit system with minimums of 8%, 10% and 12% for 2018, 2019, and 2020 respectively. The credits are transferable from car manufacturer to another. Furthermore, the Chinese Government confirmed in 2017 that they are working on a deadline for the complete cessation of combustive vehicle sales into the Chinese market.
The Indian government has also recently announced significant investment into the EV industry and wants to see electric vehicle use reach 100% by 2030. Against the backdrop of a demand cycle underpinned by Government legislation, it seems a foregone conclusion that the momentum behind e-mobility electrification is here to stay.
In comparing the various rare earth development projects, the market is not comparing apples-to-apples. Other than Lynas, an existing NdPr producer, Peak’s development peers all aim to produce an intermediate concentrate which they will export to a third party Asian refiner.
Given the strategic significance of this commodity, not having the means and expertise to separate the final rare earth elements means losing ultimate control over the pricing and supply chain. At its planned UK separation refinery, Peak will be producing the final rare earth elements which can be exported directly to the integrated magnet manufacturers.
Whilst other developers are working on pilot test programs to attempt the final separation themselves, no developer, other than Peak, has yet been able to demonstrate their ability to be fully-vertically-integrated to a Bankable Feasibility Study (“BFS”) level. This is due to Peak’s exceptional in-house expertise as well as the simple metallurgy of the deposit.
Peak has deliberately designed the refinery process to reject cerium from early on, therefore allowing the planned UK refinery to operate on a much smaller scale with most of the focus being given to Peak’s champion product, NdPr, enabling Peak to run the UK refinery process with a low corrosion risk (plastic is cheaper than steel).
So far, the NdPr price hasn’t seen much demand side pressure as the supply chain is holding off on purchases of new material in favour of consuming stockpiles. This short-term focus on maximizing profits and the fact that the magnet industry still operates on fixed price long term contracts will amplify the future price trend (new capacity takes 3 years).
In mid-2017, the first investors from capital markets entered the rare earth space to speculate, adding more complexity to the market environment. In the last 12 months, between February 2017 and February 2018 the NdPr price performance was +30% reaching ~52 USD/Kg.
With these facts in mind, we project an overall sustainable continuous uptrend for NdPr prices, despite the classic short-term pull backs as seen recently (Q4-2017), as NdPr represents a core pillar of this new century of electrification and is likely to be in continuous use throughout.