EDITOR: | May 12th, 2014 | 16 Comments

Rare Earths: What Is To Be Done?

| May 12, 2014 | 16 Comments
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What Is To Be Done? was the title of a pamphlet published by Lenin in 1902 which was intended to provide a road map for Russian Marxist revolutionaries. It was a seminal work and laid the groundwork for what lead to the 1917 revolution.

While that title could well be adopted for a consideration of the present situation in the rare earth sector, perhaps I should call mine How Did It Come To This? For those of us who have been following the rare earth for some time (I first began writing about the business in 1996), the rare earths sector was until recently a shining example of the promises of the future. Now it seems to be in survival mode.

Let me note early on in this post that I am not providing any sweeping solution. There is one idea I float below but, generally, what I am saying is that it is in the industry’s interests that something be done, and my suggestion is (I hope) one that could provide a good starting point. I write about all sections of the mining business, and none has seen the investment destruction that has occurred in REE.

Two developments have started me thinking we really need to stop and consider just where the rare earth sector is going. One of those was Jon Hykawy’s latest posting here on InvestorIntel; the other is the weekly chart of share price performance for InvestorIntel members (see below). Add to that the pasting that Lynas Corp took in Australia last week after announcing it was going to raise another A$40 million and the market performance by Molycorp. Lynas was today trading at A13.2c, a dismal look for a rare earth producer whose shares were worth around $2.25 back in the heady days of 2011. Molycorp, as reported by Alessandro Bruno on this site, has already taken a pounding on the NYSE. Then on Friday MCP lost another 66c to close at $3.05.

Looking at the chart below of last week’s action provides little comfort. Arafura Resources (ASX: ARU) was a stock selling at just A6.5c on Friday; this a company with a project highly regarded by some commentators. I won’t go through the list but you can see for yourselves from the chart the fact that rare earths is a sector deeply out of favour. Long gone are all the articles in the mainstream business media about REE except, of course, when something goes wrong or the market takes news badly (as it did last week with the Lynas capital raising announcement).

2014-5-12-TechnologyMetals

If Jon Hykawy is right, then there are some trying times ahead. That he can even contemplate a potential scenario where “Molycorp and/or Lynas go bankrupt” says more about the malaise that we are in than just about anything. But it was the figures for certain elements that really shook me.

Take Praseodymium. It now seems astonishing that in 2011 it was worth $204,067/tonne. Last year Pr was worth 91,385/tonne. But look at what Jon sees for 2019: $70,178/tonne. His chart has similar patterns for all the rare earth elements. True, the forecast chart shows an uptick by 2025 but a minimal one and one that is a mere shadow of 2011 prices.

Perhaps the most encouraging fact we have is that, even with all this negative atmosphere, the rare earth companies have not given up. No quitters there.

Yes, I do have one suggestion. An industry organisation. Yes, it will take the rare earth companies to work together; and, yes, it will cost money that many of the explorers can ill-afford.

Let me cite two examples. And both relate to small sectors of the mining industry. The first exemplary example is ITRI, the International Tin Research Institute. It sends out weekly news bulletins, it helps organise tin conferences, its chief Peter Kettle travels widely talking about tin. It is an organisation to which small tin companies can look to promote their industry.

Then there’s the International Tungsten Industry Association. I have here an impressive book on tungsten produced by the ITIA, and glossy bulletins arrive in the post from time to time. Now tungsten has something in common with rare earths: its production is dominated by China and non-Chinese companies are trying to get footholds in this business. Also, interestingly, it has as supporters a raft of large Chinese companies; the Japanese and Germans are also well represented. Why could not this be a blueprint for the rare earth sector; after, Jack Lifton has argued that China will keep calling the REE shots, so see if we can work with them. It seems to work with tungsten.

Both these organisations have good websites that are real go-to sources for information about in and tungsten.

As I say, this could be a good starting point: you know that thing about “united we stand”. Something has to be done.


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Comments

  • Tracy Weslosky

    Thank you Robin.

    This morning Jack, who is in Brazil today; and I were discussing several emails we had received over the weekend — and your article is perfect timing for providing me with how I should respond to these individuals: I will ask them to read this. Also, I have a few more companies being added to a 2nd list like Avalon, Quest, Greenland Minerals, Great Western Minerals and Lynas so we can evaluate the market pressures as a whole on these sector players as well.

    As you know, I follow this market everyday and I would like to thank you Robin for your most superior coverage of our sector and the InvestorIntel members who consistently rally together to provide education, information and work around the clock for the good of the overall sector. This very topic will be discussed today between Jack and I in our weekly InvestorIntelReport commentary. He has some fascinating perspectives — and I assure you that I continue to support our sector.

    May 12, 2014 - 9:17 AM

    • Tracy Weslosky

      The above chart has been edited to include the aforementioned equities.

      May 12, 2014 - 10:12 AM

      • Tracy Weslosky

        Some good news @ market close today —
        US Rare Earths closed +21%
        Matamec +9.63%
        Arafura +9.23%
        Alkane +6.56%
        Medallion +6.25%

        May 12, 2014 - 5:12 PM

  • Allen Kruse

    Interesting article and read – very well put together.

    It should be interesting to see what happens within the REE space for the remainder of 2014.

    May 12, 2014 - 11:47 AM

  • Daniel

    I would advocate for a cartel to control prices however if Mr Lifton’s theory is right Molycorp and Lynas are so small in the real supply chain whether they exit or not is irrelevant. The consolidation and competition within China is affecting world wide prices and the primary reason would be the WTO ruling. The Chinese want to reduce the number of producers and eliminate illegal smuggling which would reduce production hence worldwide supply.
    I disagree with Jon in his estimates of future prices if he excludes the premise that REE prices is only due to market supply and demand within China while the rest of the world demand finished products.
    I would predict the 5 year plan to change the economy of China from manufacturing to consumption would redraw the consumption of finished goods in the world. The 8 trillion dollar required by Asia to facilitate future grow by building infrastructure can only be contributed by China who is allocating 2 trillion to this in the next 2 years. With an estimated 1 trillion in FX accumulation per year they can do this by replacing the world bank and other institution like the IMF originally created the US. There is now 50 billion of new funding to this new institution.
    The increase in demand from Asia will make the economy of the US and Europe irrelevant in the next 10 years creating demand that exceed all available supply in the world.

    May 12, 2014 - 11:53 AM

    • Venture capitalist

      It has to be a dead end, this investment for growth strategy. They tried until now, only resulting in towering debt loads for banks and local governments. I read things about massive social housing, new infrastructure as you say. With their fragile financial system about to collapse (illegal credit, commodities as collateral for debt, housing bubble, inflation), it will be an interesting period of time.

      May 12, 2014 - 5:51 PM

      • Daniel

        The New 5 year plan just started. Consumption replacing manufacturing hasn’t been even a year. Internal Debt is in their own currency they can print as much as they like and for each country that bypass the USD they can print the same eg Russia now they can print 10 trillion.

        May 12, 2014 - 6:21 PM

        • Daniel

          That’s 10 trillion USD that is now unused to buy oil.

          May 12, 2014 - 6:23 PM

  • Kevin Moran

    In reference to your suggestion that the rare earth industry form an association I have good news for you — one already exists. The Rare Earth Technology Alliance (www.rareearthtechalliance.com) has been in operation for a little over a year and our membership includes rare earth producers, processors, and original equipment manufacturers that utilize rare earths in their products and technologies, as well as academic and research leaders who study rare earths and help develop new applications for them. We recently issued a report that demonstrates the economic benefits of the North American rare earths industry. I encourage your readers to check out our web site (which also includes RETA membership information) and to contact us if they have any questions.

    Kevin Moran
    RETA Director

    May 13, 2014 - 8:40 AM

    • Daniel

      Hello Kevin,
      I think you may have misunderstood my request for a cartel. We need stable prices to reform a supply chain outside of China where producers can earn a profit otherwise market theory does not work.
      So in terms of academics: no free market theory
      In terms of producers: You need Chinese producers
      Cartel as in an Oil Cartel to set world wide prices for base material.
      We haven’t even gotten into financing and who gets it on what continent.

      May 13, 2014 - 2:05 PM

      • Veritas Bob

        Let’s follow that up with tariffs and government price controls on sugar in order to ensure a free market in sugar. Etc.

        May 13, 2014 - 2:23 PM

        • GoBucks

          By now everybody surely knows that governments can’t run a popsicle stand. So why should we let them form a cartel?

          May 22, 2014 - 10:22 AM

          • Veritas Bob

            Do you not recognize sarcasm?

            May 22, 2014 - 8:35 PM

    • Robin Bromby

      Kevin

      Thanks for that information. But, while a welcome move, RETA is not quite what I had in mind in terms of an international organisation. One possible parallel with RETA is the World Series in the US – where only U.S. teams play. As you say yourself, “we recently issued a report that demonstrates the benefits of the North American rare earths industry”.

      What I was arguing for was a truly international organisation; and the more I think about it, the more I feel it could work only if Chinese producers were part of the deal (as in tungsten). We have tended to have a them-and-us attitude to China; we talk about ROW rare earth production. Certainly Jack Lifton has done much to change our thinking with his views on new western producers having China as part of their business plan.

      May 13, 2014 - 9:13 PM

      • Veritas Bob

        No, but it truly is a World Series. Since 1969, Canadian teams can play, so it’s not just the U.S. As for Japan and South Korea, they can play in the Little League World Series, although I don’t think North Korea can (although, I hear junior is more interested in basketball than baseball). Perhaps after the Castro brothers meet their reward, things will change enough so that there would be a Cuban team in Major League Baseball, giving Havana a chance to win the World Series.

        Now back to your regularly scheduled rare earth programing.

        May 14, 2014 - 1:01 AM

    • Tracy Weslosky

      Kevin – I grew ‘challenged’ with RETA over the years. Free passes to the Technology Metals Summit, links on my 30+sites (REEHandbook, REEFacts etc.) having to do with rare earths: so I am honestly, delighted to see that you have found InvestorIntel, as we have been dedicated to rare earths since 2009. Call me sometime as there are many synergies. Tracy

      May 14, 2014 - 10:53 AM

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