There are good stories among the rare earth hopefuls
Thank goodness so many rare earth companies have stuck with their plans and decided to tough out during the hard times. We are going to need them, even if most investors at present refuse to acknowledge this. And there are some good stories out there.
And thank goodness for InvestorIntel. One REE chief executive to whom I spoke earlier this year said he admired the way publisher Tracy Weslosky had stuck by the REE story even when it was seemingly at its bleakest. And, so I might add, have the readers of this website stuck by rare earths: posts about rare earths (and especially those from Jack Lifton) still bring the greatest number of comments. Rare earths is still a story that excites plenty of people (albeit either for or against, I might add).
And there are individual stories that should excite, and we revisit one today.
Jack Lifton a few days made the following point: “The production of the key rare earths, neodymium and praseodymium, is determined by the production of lanthanum and cerium, because the overwhelming majority of Nd and Pr is and must always be co-produced with La and Ce”.
Except, of course, when the rule does not apply.
As we reported back in April, one company claims to have overcome this rule. As we noted, at the Ngualla project in Tanzania owned by Peak Resources (ASX:PEK), the weathered Bastnaesite (at 3% cut-off) cerium constitutes 48.2% of the resource. Praseodymium makes up 4.73%, neodymium 16.6%. The other LREE, lanthanum, comprises 27.6% of the Ngualla production zone, with samarium at 1.6% (all other REE being below the 1% mark). So much cerium, so few buyers.
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The company claims had managed to overcome that problem. Peak told us that laboratory work had demonstrated it is possible to reject 80% of cerium at an early stage during the leach recovery process. Peak expected this would allow it to build a smaller plant as the capacity of the separation unit will be reduced by 40%; it will also slash the major operating cost drivers – hydrochloric and oxalic acid – by up to 60%; and while slicing only 6% off the project’s total revenue projections, the operating margins will actually be increased (because the production cost of cerium exceeds the sale price).
But, looking at today’s trading, Peak shares command just A$0.087: hardly the sort of value you would put on a company with a seemingly ground-breaking technology advance. The development got scant coverage in the Australian media back in April; I guess it is hard to sell a positive rare earth story in the present climate.
But that’s the world the rare earths companies live in at the moment.
The other point that Jack has been making is this: “China’s new economic model for consumption-led growth is a last chance for non-Chinese natural resource producers to get back in the game as suppliers to China or as joint venture partners of China overseas”.
We cannot afford to let that chance slip through the fingers.
A report by the Nikkei news service underlines the importance of this. The Japanese are worried that end-users are once again accepting they will be dependent upon China for their rare earths. It quotes an executive at Japan’s Nippon Denko, a major ferroalloy manufacturer, expressing concern at the risk involved in becoming solely reliant on Chinese supply.
But it is not just Australian and North American companies that have seen project plans delayed. Nikkei reports that Japan’s Sumitomo Corp is still to get started on its rare earth recycling business in Kazakhstan even though work began on that project in 2012. And it may be a while before it does get started: as the report states, when cerium can be had for $2/kg, it no longer makes sense for Sumitomo to spend ¥700 (about $5.60) to ¥800 to recycle a kilogram of it, according to Samwood, a Tokyo-based rare earth trading house. Nikkei quotes another Tokyo trader, Material Trading, which says Chinese rare earths are inexpensive and meet customers’ quality standards. Chinese producers are also seen as capable of withstanding further price falls.
Nikkei says Japan imported 22,000 tonnes of REE last year, up 60% from 2012, of which up to 90% came from China. “On the whole, global industry seems confident that rare earth demand is taken care of, for the moment,” the report adds.
So, it’s a sizeable challenge facing the non-China emerging producers. Those companies that have stuck with rare earths do generally have a very specific game plan. If you are focused on the heavy rare earths, then that by itself is an advantage.
Peak’s case is that is placed to ride on the back of the magnet business, a sector it expects to grow by up to 12% a year for the next five years. Neodymium accounts for 77% of rare earths used in magnet manufacture, with praseodymium at around 16%. Peak’s argues that its value is driven through being aligned to the two elements in demand from magnet makers.
The real worry is that, after all these years, we shall have gone almost full circle and still have a world where the Chinese call the tune. Peak Resources is one of the hopes of the side that, notwithstanding the travails of Molycorp and Lynas Corp, that the West has a significant part to play in the future of rare earth production.
It must succeed.
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