Why the Siemens – Molycorp rare earths contract is a sector game-changer.
Siemens has recently signed a 10 year contract to Molycorp for the supply of rare earth magnet feed materials for their wind turbine machines. In the last 10 years of rare earth development, this is the most significant development in our space. I will try to explain why I feel this way. I need to state that the arguments presented are mine alone and that I am totally independent of any party or parties involved. I do not assert that the argument is necessarily correct or that any assumptions are supported by other facts available. I am simply presenting my thoughts to provoke consideration and discussion in the rare earths development space.
Why would Siemens sign a contract with Molycorp?
Because the price is cheaper than the price out of China? I don’ think so.
Because Siemens is concerned that they cannot guarantee medium to long term supply of magnet materials out of China (their major wind turbine competitor) and is looking for a non-China supply solution. This seems like a very logical response. It would be very interesting to see the details of the contract, particularly the long term pricing model. But I don’t think that will become public.
But why am I so overwhelmed by the contract? Easy. This is the first contract by an original equipment manufacture (OEM ), with a rare earths mining supply company. By that understand that the wind turbine manufacturer is actually contracting directly with the mining company for the sourcing of commodity magnet feed materials. Over the last ten years, this is exactly the solution to the developer rare earths space that we have all been aspiring towards! A solution where the long term technology provider ensures his future by being a major player in ensuring his supply chain. To date, the response of the hi-tech end user to this approach has been to distance itself from the mining process. They have seen the problem as that of their supplier; the magnet maker. They have not wished to be connected to the mining space. This move by Siemens is potentially a game changer.
Again. So why would Siemens sign a contract with Molycorp?
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Because they want to ensure their long term future in the wind turbine business by securing a long term supply of their magnet feed materials outside of China. But why Molycorp?
Because they are de-risking the decision by only choosing from existing, operating, non-Chinese production. But why not Lynas? This is a difficult question. Maybe it’s price, maybe it’s availability. Perhaps Lynas does not have the spare output out of contract. Maybe it’s a social licence issue. Allow me some slack here. There has been a lot of flak in the media of late about the poor environmental performance of Chinese rare earth producers (personally after many years inside China, I find these statements historically correct but not so correct today). I can understand why a hi-tech green energy business would want to distance itself from that. So if you want a non-Chinese (for supply guarantee and perceived environmental assurance), supply with no environmental issues, then maybe the local radiation-induced, social unrest around Lynas’ Malaysian operations could be enough to sway a decision towards Molycorp? Who knows? But it does flag any aspiring rare earth developer that their environmental, safety and social governance issues could be front and center in any possible deals going forward into the future.
What does the decision mean?
Details are sketchy at the moment. Is the arrangement in part due to the effectiveness of the German Resource Alliance (Rohstoff Allianz), processes in place in Europe? This would encourage similar approaches in North America. Does it mean that the top end OEM hi-tech companies have finally acknowledged that they must be part of the long term supply issue of non-Chinese rare earths? If so, then rare earths project developers can rekindle their dreams of arrangements, supply and maybe even financing as solutions. A few years ago I stated that if there are 20 significant OEM users of rare earth magnets (cars, trains and wind turbines) around the non-China world and there is no rare earths supply out of China, then at least a dozen new rare earths developments were needed to supply those OEMs.
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Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>