Weekly Rare Earths Review: ‘From Malaysia with Optimism’
The share prices of ProEdgeWire sponsors for the week ending on February 22 registered a minor drop of 4.14% in a week that was not especially rich in groundbreaking revelations or developments. However, when considering the Australian markets and one of the emerging players in rare earth production, Lynas Corp (ASX: LYC | OTCQX: LYSDY), while it closed the week at -8.8% in Australian trading and -4.06% in OTCQX trading after announcing a net loss of AUD 54.5 million for the first half of the 2013 financial year (almost doubling the previous loss) due to higher costs and the purchase of raw materials needed to get production started in Malaysia. In fact, investors in welcomed Lynas’ performance and shares closed 5.3% higher in Australia, gaining 7.5% at the OTCQX (at the time of writing).
The message from investors is optimistic and they are betting that Lynas’ performance will start improving as production in Malaysia progresses, especially in view of the Company’s surmounting the various legal obstacles posed by NGO’s such as SMSL and the Malaysian elections now rumored to be scheduled in early April. The Malaysian government has supported Lynas and while the opposition has used Lynas as a political ‘football’, raising the issue of approval, the legal requirements for the system are clear – and Malaysian standards match European ones – and there are no further legal hurdles.
Stans Energy (TSXV: HRE | OTCQX: HREEF) was another standout, showing a weekly gain of 18.18% on the TSX and 15.5% on the OTCQX. There was no news to prompt this show of confidence other than the Company believes the new and more mining friendly Kyrgyz Geological Agency will ultimately facilitate the approval for the development of the Kutessay II field. Last week, we also reported that China is pursuing legislation to protect the rare metals sector by strengthening control over industrial practices and environmental standards and curbing the incidence of smuggling activities in the sector. The pursuit of higher standards should help to reduce some of the international trade tensions revolving around rare earths and China; it should also help to boost the development of more sources beyond China’s borders as consolidation and rationalization will likely imply higher costs and tighter controls for Chinese producers.
It is obvious that in the past 20 years, China has reached rare earths production levels that are no longer sustainable. The Chinese government is intent on restructuring the sector, perhaps reducing it to a handful of major suppliers that can be monitored, while remaining cost effective and cleaner (in view of a number of environmental concerns raised by a more vociferous population), leaving the market open to competitors from North America and Australia. China needs a steady supply of rare earths itself and both self-lasting supply of rare earths in order not to jeopardize their own economic growth while pursuing a better return on investment from sustainable mining.
Japan, which is the world’s largest consumer of rare earths (after China), became concerned with the quality and reliability of supply years ago and it started to take pre-emptive steps even before the exacerbation of tensions with China over the Senkaku/ Diayou Islands. One of the latest projects involves the extraction of are earth from bauxite red mud by-products in Jamaica. However, since the start of the year, one of the most intense discussion on the need for reliable rare earths has come from Germany, where industry and politicians have been engaged in a discussion over critical resources. Germany has been urging cooperation with its partners in the EU and NATO to take more responsibility in foreign economic and security issues in the long term to achieve reliable rare earth and critical minerals supplies. The list of companies putting pressure on the German government to pursue this line read like a who’s who of some of the world’s main Industrial conglomerates including ThyssenKrupp, Bayer, Bosch, Volkswagen AG and BMW among others.
These German giants have warned that if long term supplies cannot be guaranteed, German industry (the largest in the EU) “is in danger”. The list of materials considered essential includes rare earths, graphite and tungsten. Germany is also planning to boost its output of energy derived from renewable resources and it needs magnetic materials such as the rare earth elements neodymium and samarium. These have gained increasing importance because they are an integral part of the efforts to build renewable energy facilities and electric and hybrid vehicles. Despite the growing global demand for rare earths, meanwhile, efforts to recycle these coveted commodities are still at an early, or laboratory, stage and a German company, Fraunhofer is among the leading pioneers. The evidence suggest that the biggest industrial economies, China, Japan, Germany and of course the United States are predicting high demand for both light and heavy rare earths. Economies worldwide need them to make a host of goods and technologies from electronic components for vehicles, television screens, mobile phones or wind turbines.