Rare Earth & Critical Minerals Weekly Review: The Erosion of China’s Monopoly begins
The prices of high-tech metals have long been on a roller coaster ride. The near-monopoly of the People’s Republic of China in this space caused prices for these commodities to spike in 2011 at the culmination of a two year trend when shares virtually doubled only to drop over the past year due to concerns of a prolonged period of economic stagnation. However, it seems that rare earth prices might be preparing for some new lift. Last week, Prime Minister Medvedev of Russia launched a state program to develop the rare earths industry. “The Russian economy needs rare earth metals, which is a very important condition for national security and for the modernization of the industry,” said President Putin. For the time being, China produces 97 percent of the rare earth metals, and Chinese companies control 42 percent of the world’s stocks.
Russia currently has no real industry for rare earths, although in terms of its reserves, Russia ranked second worldwide, but domestic demand is not being met by Russian reserves, placing excessive reliance on imports. Therefore, Russia wants to create a competitive industry in order to meet the needs of the Russian economy of rare earth metals and order foreign markets. Meanwhile, defying concerns of an over-production of rare earths, last week there were increasing signs that in the near future China would become a net importer of rare earths, a perspective shared by EU officials who are monitoring the WTO dispute over rare earth trade restrictions. Indeed, last week, Inner Mongolia Baotou Steel Rare-Earth (Group) High-tech Co. (IMBREHT), China’s leading rare earth producer, reported its preliminary results on Tuesday. The Company said that 2012 net profit fell about 50%-60% year-on-year due to weakened demand and lower rare earth prices.
China still has a monopoly on production – 97 percent is the question – but there are new deposits are being developed in many parts of the world from Vietnam, Mongolia and Kazakhstan over Namibia, Canada, Australia and the United States and even in Europe, if we consider that Greenland. Rare earths are not rare. Only about 30 to 35 percent of the world’s reserves are in China. Heavy rare earths are scarce, but the WTO ‘blackmail’ situation has disappeared because alternatives to Chinese dominance are coming on tap. China has become increasingly concerned with the environmentally harmful effects of its tremendous pace of coal fueled industrialization.
Europeans and Japanese have also often offer technologies that could help China overcome these difficulties. China is planning a massive increase in the amount of nuclear generated power; however, the Chinese car market is ripe for electric vehicles and this will cause a significant domestic demand for rare earths used in the manufacturing of batteries, electric motors and special alloys. Germany, for instance, which has decided to invest heavily in renewable energy, will need neodymium for its windmills; this is an essential element without which the powerful magnets used to generate electricity from wind turbines cannot work.
One of the new suppliers of processed rare earths, Lynas Corp (ASX: LYC) – which closed +9.4% at the ASX – meanwhile, announced an important legal victory last week as Kuantan High Court has rejected yet another application by environmental activists (seven residents of the Kuantan area to repeal the Temporary Operating License (TOL) for its LAMP rare earth processing plant in Kuantan. The final legal test takes place on February 5. After this date Lynas can start supplying various customers around the world including Siemens, which makes wind turbines, in Germany. In 2011, Siemens announced having set up a joint venture with Lynas and jointly produce neodymium permanent magnets. As a further sign of optimism and confidence for Lynas, Malay Prime Minister Datuk Seri Najib Razak is expected to launch a Malaysia-China Kuantan Industrial Park (MCKIP) in Gebeng, Pahang, which will create 5,500 jobs, a quarter of which considered ‘high-quality’ jobs. The industrial park was made possible after a RM2.2 billion (S$876 million) investment by Lynas Corporation Ltd of Australia, also in Gebeng. Had China thought that the Lynas plant might encounter serious issues or that its environmental or safety standards were less than appropriate, there would have been no investment.
In other developments, Ucore Rare Metals (TSXV: UCU | OTCQX: UURAF) is set to become America’s second producing rare earth elements mine after Molycorp Inc, commencing production in 2016, if all goes to plan, while Avalon Rare Metals (TOR:AVL; NYSE: AVL) released a progress report for the Feasibility Study (FS) on the Nechalacho Rare Earth Elements Project at Thor Lake, Northwest Territories (NWT). Avalon also announced in a progress report that it has signed an MOU for an offtake agreement with an undisclosed Asian buyer its enriched zircon concentrate (EZC), which is made up by a combination of about 80% zirconium, tantalum, niobium and 20% of the rare earths.
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Overall, the ProEdgeWire Rare Earths and Critical Minerals Sponsor index had a minimal fluctuation in January, +2.01%. However, there were some companies that had very noticeable gains. Pele Mountain Resources Inc. (TSXV: GEM; OTCQX: GOLDF) announced results from the recent 13-hole drill program at the Eco Ridge Mine Rare Earths and Uranium Project in Elliot Lake (ON) and it closed the week 40% higher while TUC Resources (ASX: TUC) moved 57% ahead of the Company’s general meeting on February 6.
The following are the monthly share price changes for January 2013: