EDITOR: | July 4th, 2014 | 13 Comments

The death of rare earths, like Mark Twain’s demise, has been greatly exaggerated

| July 04, 2014 | 13 Comments
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Is the rare earths sector teetering, as Reuters says? Their Asian mining correspondent, Sonali Paul, clearly thinks so, pointing out the problems at Lynas and Molycorp. And the headline on the report claims that “Rare earths industry teeters as Australia’s Lynas heads to full ramp-up”. She throws in the claim that “around 200 rival mine projects in Alaska, Canada, Sweden, Kyrgyzstan, South Africa and Western Australia have been left on the drawing board as investors, lenders and manufacturers watch and wait”.

Really?

On April 8 Tasman Metals announced it was beginning its pre-feasibility study on the Norra Karr heavy rare earths project in Sweden. That sounds as if it has proceeded just a tad beyond the drawing board. This week Arafura Resources appointed Sheng Kang Ning Mining Investment Co to assist with the management of the completion of the Nolans definitive feasibility study. (Note to Reuters: a DFS is way, way beyond the drawing board.) And Northern Minerals, which has long had a resource figure established, has issued a pre feasibility study which claims the company has the potential to be the first non-China significant dysprosium producer (279,000kg a year). Also in Australia, Hastings Rare Metals has recently completed drilling at Yangibana and was about to start at its Hastings project. The sounds like getting on with things. Certainly Alkane Resources is pressing on and has set out a timetable to begin near-term development at Dubbo.

Mark-Twain-death

These are just a few examples; readers will have their favourites which they can cite as up and comers.

The Reuters report (you can read it in full on the Investor Intel news feed) was based on the move by Lynas of its head office to Malaysia, and went on to say that Lynas and Molycorp, as the only two substantial non-China producers, will be closely watched as they ramp up to full production.

Yes, the rare earths miracle of which so many were convinced in 2011 (including most of the general media) has been shattered.

But down and out? Hardly. Just as the general media climbed aboard the REE express at the height of the frenzy three years ago, portraying rare earths as the miraculous 17 elements that were vital to all our modern gizmos, now it seems they are wringing their collective hands and foreseeing tough times. Well, perhaps, but the Lynas and Molycorp experiences are hardly (a) indicative of the sector as a whole or (b) that surprising given what has happened to the market, especially with those companies relying on the lower value lights..

But to the insist that the sector is basically paralysed is simply not the case, as the above examples above demonstrate. And as for investors sitting on their hands, Hastings Rare Metals has just raised A$2,815,035 through a rights issue, shareholders taking up 86.3% of the stock offered. Today Wang Yu Huei of Asian Dragon Acquisitions has become a substantial shareholder with 7.3% of Hastings.

Even if Lynas and Molycorp are faced with further delays and problems, that does not doom the sector as a whole. You cannot extrapolate from companies mining light rare earths to those, for example, which have a suite containing high values of elements such as dysprosium or yttrium.

Apart from that, all mining projects face unexpected challenges in their development stages and even while in production. In the 1990s we had the collapse of several laterite nickel players who faced metallurgical problems. But since then a number of laterite mines have been developed (admittedly rarely on schedule).

A collapse in prices that causes the problems in rare earths we are now seeing does not of itself condemn the rare earths story as a vital cog in technological development. Indeed, it may slow down down efforts at substitution. As for unintended consequences, the move by the U.S. and Japan to take China to the World Trade Organisation as it stands means China might not able to go charging premiums to non-Chinese buyers. That alone sliced about 10% off the price of many elements.

No one denies that the sector has taken a real hammering. But it certainly has not been stopped in its tracks. The reality is somewhat more subtle than the industry teetering.


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Comments

  • Tracy Weslosky

    Robin, I would like to thank you (again) for being not only an exceptional business journalist and commentator, but a knowledgeable player in your understanding of the sector. The poor young journalists do not appreciate what a complex sector that the rare earth industry is…heck, I have been in it for 5+ years now and I still am challenged regularly by the nuances of the often contradictory and complex data.

    Speaking of Kyrgyzstan — David came by to give me the impressive update on the news release that came out post market on Wednesday: Stans Energy Awarded $118M USD in Arbitration Ruling http://shar.es/MBiwS

    Thanks again Robin, and I know Jack sent me an email that he has a follow-up on this matter as well. PS. I have Dudley Kingsnorth’s latest report on my desk, and I look forward to reading this weekend.

    July 4, 2014 - 7:46 AM

  • Tracy Weslosky

    Further to your reference with Alkane Robin, I linked Ian Chalmer’s presentation from the Sydney Mining Club that was done yesterday. With audio so do listen.

    http://www.alkane.com.au/pdf/presentations/20140703/

    His presentation provides an update on TGO, DZP and also his comments on the latest findings on the Chinese market for rare earths and zirconium. Some good new material particularly slide 13 -14 which he hasn’t discussed in detail before….

    July 4, 2014 - 8:13 AM

  • Tim Ainsworth

    High value yttrium? Current price $9.76kg?

    http://www.repe.com.cn/web/index.jsp

    July 4, 2014 - 8:27 AM

    • Robin Bromby

      Ah, price is one thing, availability another. Yttrium supply is tight and likely to remain so, while supplies abound of cerium.

      July 6, 2014 - 11:22 PM

      • Tim Ainsworth

        Not reading a great deal of forward confidence in the phosphors deck ATM, dangerous to presume too much past the current reality, $9.76kg at Baotou does not suggest “tight”, $6.72kg at Metal Pages even less so. As illustrated in Jon Hykawy’s recent commentary future demand is by no means certain: http://investorintel.wpengine.com/rare-earth-intel/lighting-way-rare-earths-lighting/
        One fact seems quite evident, end users have not been standing still while RE worked it’s way thru a little fit of “irrational exuberance”.

        July 7, 2014 - 5:12 AM

  • Veritas Bob

    Robin, I guess it boils down to your having a different definition of drawing board than the Reuters reporter – a study, no matter how “definitive”, can be considered to be a drawing board. As for Hastings Rare Metals having just raised A$2,815,035 through a rights issue, that’s enough money to continue drawing on its drawing board for a while, but orders of magnitude short of what will be required to go into production.

    July 4, 2014 - 8:34 AM

  • Tracy Weslosky

    I am going to dig my oar in deeper here and point out the significance, (in my humble opinion) in the July 2nd Arafura news release “Arafura Appoints Shenghe Subsidiary as Key China Consultant” — from the statement: “Arafura and Shenghe consider the appointment of SKN to be a crucial and important step in formalising arrangements to establish a long term strategic partnership between the parties.”

    July 4, 2014 - 8:40 AM

  • Tracy Weslosky

    I am behind in my month-in-review for June — and want to mention that GeoMegaA (TSXV: GMA) was up 19% for the month — post mid-May with “Geomega Resources: Separation of REE and Impurities from Commercial Mixed Concentrate” announcement http://shar.es/MTgKi

    Speaking of good news: team UCORE’s TSX: UCU was up +41.18% & OTCQX: UURAF +39.04% was up in June: shareholders respond favorably 2 Alaska Governor signing SB99 into law http://shar.es/MIOWB

    Our mutual points? REE sector has rising stars…and the sector is actually seeing a turnaround — and yes, you read this right. See my post tomorrow!

    July 4, 2014 - 10:44 AM

  • Brian Koene

    – Many of these 200 ?, mine projects will never see the “financing-light-of-day”, because they score poorly in regards to; mineralogy, poor grade, remoteness/poor infrastructure, political risk, processors, end-users etc; making them too costly/uneconomic.
    – That said however; a handful do warrant serious consideration, largely because they have been substantially de-risked; c/w confirmed REE reserves; and completed Bankable feasibility studies indicating very robust metrics (ie 50% after-tax IRR ) using credible price models; further enhanced by in-house value-add processing capabilities, and also w. confirmed end-user interest.
    – Yet there still remains this reluctance in the ROW to provide the necessary financing ! …The most logical route being long-term off-take agreements w multinational REE end users; which could then be presented to financiers! …So where are these multi-national corporations requiring long-term sustainable sources of REE; so vital to the products they produce? ..,.I’m talking about the “Siemens / G.E.’s / Toyota-Aichi / Vaccumschmelze / OM Group / Eramet / Phillips” , and others ! … These corporations should take heed; for one day with certain probability, they will awaken to a whole “New Reality” when China unilaterally decides to change the rules governing both the access to, and pricing of REE .
    – Via all the interviews; and all the articles written / presented on II (thankyou); we do gain an abundance of perspective from REE-mining CEO’s, and various Pundits; yet we hear very little from the perspective of the CEO’s of these multi-national REE-dependent end-users, and what they’re doing to secure their futures! …Perhaps that’s an area worth exploring?

    July 4, 2014 - 7:00 PM

    • Robin Bromby

      Indeed it is, Brian. That issue was in the back of my mind when I wrote this post but it needs further thinking through. The Japanese have shown they’re prepared to support projects through financing and off-takes (Lynas and Alkane being only two examples) but I think there is also a wider issue: the security of supply for the West. The EU, the US, etc. have all agonised about the problems with critical metals but, arguably, have done far too little to rectify the situation. As far as the US is concerned, I don’t think anyone would want to return to the 1930s and the level of interference by the Roosevelt administration (closing down gold mines in 1942, for example) but there is a happy medium between that and today’s laissez-faire approach. There were some positive aspects to the interventionism: by 1941’s Japanese attack, Washington had pretty well tied up all the mineral supplies from Latin America and shut the door to the Japanese who were trying to buy metals like molybdenum and tin (and Peru’s cotton crop).

      July 4, 2014 - 7:48 PM

    • Tim Ainsworth

      Interesting point there Brian is that there are quite a number tie ups between Japanese & Euro companies to RE producers/developers: Rhodia>Lynas/Avalon, Shin Etsu>Alkane, Toyota>Matamec, ThyssenKrupp>Tantalus, Siemens/potentially Lynas, etc, but to my knowledge not a single US end user of note has made the effort.
      US manufacturing seems quite content to draw off the Chinese MSC for the immediate future.
      Perhaps that’s why China itself has taken such an active interest in quite a number of ROW deposits, dare I suggest “land banking”.

      July 4, 2014 - 9:47 PM

  • SKBhushan

    I understand that there are more than 140 REE deposits in the world but only 12 have >1% REE,still with other byproducts they become economical.True selling La and Ce at >6$ may not work and they form bulk of the deposit,but then selling Dy,Y,Ga,Ge with REE will make them profitable.Anyway price above 10$ in near future for voluminous La and Ce will open the doors for many companies for their LREE deposits

    July 5, 2014 - 5:59 AM

  • Venture capitalist

    Calling a PFS, FS or a A$2.8M financing items that proceed the drawing board as the Reuters article describes it, shows the gross exaggeration of current state of affairs in REEs. Sonali Paul describes the most serious issue at pinpoint accuracy: investors, banks, companies are unwilling to take any risks by providing capex financings as risks are too high, leaving all REE projects in the dark, or on the drawing board. Why does the author leave out Avalon anyway, busy with financings since their FS was released in April last year, aiming at a very unusual all equity capex financing since debt financing already failed miserably?

    July 5, 2014 - 6:50 AM

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