In a recent interview on InvestorNews, CMI Co-Chair Jack Lifton had a chance to speak with Rowena Smith, the Managing Director and CEO of Australian Strategic Materials Limited (ASM) (ASX: ASM). The conversation took a deep dive into ASM’s unique positioning in the rare earths industry.

Smith was quick to clarify that ASM’s metal-making business is not a joint venture, contrary to Lifton’s initial impression. Instead, it’s entirely an ASM venture, based on a former joint project initiated with a Korean university professor a decade ago. This venture is now wholly owned by ASM, emphasizing their dedication to innovation, especially in low-carbon metallization.

The company’s metal plant in Korea is already operational, with its production feeding directly to key customers. Remarkably, ASM began delivering neodymium praseodymium metal to a Korean magnet producer in the previous year, and they’ve since expanded to provide specialist alloys for permanent magnets used in wind turbines and electric vehicles. Among their significant clients is Noveon Magnetics in Texas, marking a burgeoning relationship.

Lifton highlighted the rarity of ASM’s achievements. Apart from Japan and China, ASM stands out as the sole known company already shipping metal and alloy in the rare earth sector. Smith added, “We’ve actually established an end-to-end supply chain that doesn’t at any point go through China.” This autonomy is crucial for the diversification and security of the rare earths supply. To access the complete interview, click here

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South Korea, with its thriving tech giants and world-class OEM automotive industry, is transforming into a hub for the rare earth supply chain. While many look to China, the US, and Japan as key players in the rare earth game, Korea’s role is frequently overshadowed, despite its growing clout and demand.

Firstly, one must dispel misconceptions. South Korea is not a reservoir for rare earth elements. Nevertheless, its demand is robust due to its dynamic industrial base. Surprisingly to some, for example, Samsung Electronics Co., a Korean enterprise, surpasses even Apple Inc. (NASDAQ: AAPL) as the world’s premier cell phone manufacturer. Each phone requires a fraction of a gram of permanent magnet. Given their production volume, this accumulates to a significant demand. Furthermore, Korea boasts two of the globe’s top three battery producers: LG Energy Solution (LGES) and Samsung SDI Co., Ltd., subsidiaries of industrial giants, LG and Samsung, respectively.

Complementing this, Korea is home to Hyundai and Kia, renowned automotive brands that have gained a reputation for producing quality electric vehicles at competitive prices. The Hyundai Ioniq, for instance, was one of the initial electric cars introduced to the US market, utilizing permanent magnet motors and lithium-ion batteries. Notably, every raw material essential for these devices must be sourced from outside Korea.

This international sourcing is where companies like Australian Strategic Materials Limited (ASM) (ASX: ASM) come into the picture. Recently, ASM confirmed a five-year contract to provide USA Rare Earth, LLC with neodymium iron boron (NdFeB) magnet alloy from its Korean Metals Plant. This alloy, pivotal for creating permanent magnets in electric vehicles and wind turbines, underscores the intersecting interests of companies spanning continents.

Moreover, ASM isn’t limiting its partnerships to one US-based enterprise. They’ve also inked an agreement to sell a substantial 100 tonnes of this alloy to U.S.-based rare-earths magnet manufacturer, Noveon Magnetics Inc. In tandem, they’re also sourcing rare-earth oxides from Vietnam as feedstock for their Korean Metals Plant while concurrently developing a rare-earths mine in Dubbo, New South Wales, Australia.

From a personal vantage point, I recall my endeavors half a decade ago to bring LG Energy Systems into a partnership with the US Defence Department. The aim was for LG to manage rare earth permanent magnets for the Department of Defense. However, the looming threat of Chinese retaliation led to a withdrawal from LG, emphasizing the geopolitical sensitivity surrounding these minerals.

Now, representatives from Korean tech titans, including LG and Samsung, are traversing the globe in search of rare earths, with endeavors even in metallurgy and possibly magnet production. Additionally, ASM’s joint venture in Korea with Kiron — a domestic, Korean venture, funded by a significant Korean (rare earth permanent magnet end-user) corporation — underscores the collaborative nature of this industry.

To sum up, while the global discourse frequently orbits around China and the US, the Korean rare earth landscape is bustling. Their relentless quest to develop a comprehensive domestic supply chain for rare earth permanent magnets will invariably lead to a demand spike, which may catch many by surprise.

So, as the competition intensifies to secure these critical materials for the next generation of tech and transport, one thing’s clear: don’t underestimate Korea.

The rare earths sector, particularly the rare earth magnet metals (such as neodymium (Nd)), had a great 2021; but given that the electric vehicle (EV) and clean energy booms are just getting started, 2022 should be another strong year. The most powerful electric motor magnets used today are known as permanent magnets, and they typically are made of neodymium iron boron (NdFeB). Dysprosium (Dy) and praseodymium (Pr) are also commonly used in permanent magnets.

As shown below, neodymium prices had a very strong 2021 reflecting a very strong demand for permanent magnets used in powerful electric motors. It is interesting to note the correlations of price and EV car sales from the chart below especially when considering that the peak months for global electric car sales in 2021 were March, June, October, November, and most likely December (usually the best month of the year).

If you think electric car sales will boom again in 2022 and throughout the decade (as I do), then there is a strong case for owning the rare earth miners of these key magnet metals.

Neodymium 1 year price chart – Currently at CNY 1,110,000/t (USD 174,134/t)

Source: Trading Economics (red arrows by the author to show peak e-car sales months in 2021)

Where is the opportunity in rare earths?

Most rare earths reserves are found in China, followed by Vietnam, Brazil, Russia, India, Australia and the USA. Canada also has some rare earths. Most of the global rare earths production is from China followed by USA and Australia.

For Western investors, the two largest rare earths producing mines are owned by Lynas Rare Earths Limited (ASX: LYC) and MP Materials Corp. (NYSE: MP). A third smaller producer is Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR), which, however, is a processor, not a rare earth miner.

For investors looking at the next potential rare earths producer then best to look to Australia and Canada. Today I will focus on Australia.

Australian rare earth miners

Lynas Rare Earths Limited (ASX: LYC) (Lynas)

Lynas is the second largest NdPr producer in the world. Lynas owns the Mt Weld rare earth mine and Concentration Plant in Western Australia (WA), one of the world’s highest grade rare earths mines. Lynas ships concentrate from WA to their Malaysian plant for separating and processing into commercial rare earths’ materials. As part of their 2025 plan, Lynas is progressing their new Kalgoorlie Rare Earths Processing Facility in WA as well as their LRE/HRE separation & specialty materials facility in the USA.

Boosted by strong prices and production (5,461t of NdPr in FY 2021), Lynas reported record sales of A$498 million and a record profit of A$157 million in FY 2021. I would expect this to continue in 2022.

Lynas is no longer cheap and trades on a market cap of A$9.69 billion, and a 2022 PE of 24.9. A top tier Western rare earths (NdPr) producer.

Australian Strategic Materials Limited (ASX: ASM) (ASM)

Australian Strategic Materials is an emerging integrated producer of critical metals for advanced and clean technologies based in Australia and South Korea. ASM plans a “mine to metal” strategy to extract, refine and manufacture high-purity metals and alloys that they can then supply directly to global manufacturers. ASM plans to produce a range of high-purity metals, alloys and powders from their metals plant in South Korea. Products will include titanium, zirconium and rare earths, required for permanent magnet production with the raw materials initially sourced from the market. The plan is to later source some materials internally, notably from their flagship Dubbo Project.

The Dubbo Project deposit contains rare earths, zirconium, niobium and hafnium. The Dubbo Project is ready for construction, subject to financing. In December 2021 ASM announced an updated base case in which the 20-year life of mine is expected to achieve a pre-tax NPV of A$2,361 million and a pre-tax project internal rate of return of 23.5%.

In November ASM announced the commissioning of their Korean Metals Plant in Ochang Province, South Korea. In December ASM announced they had formed a JV with Resource Corporation (KOMIR) (formerly known as Korean Resources Corporation (KORES)) to enable the supply of critical minerals and metals into Korea.

Korea is a tech-based manufacturing powerhouse, and this JV is very timely as non-Chinese tech manufacturers try to wean themselves from dependence on China-centric supply chains.

ASM trades on a market cap of A$1.34 billion.

Arafura Resources NL (ASX: ARU) (Arafura)

Arafura own the shovel ready Nolans rare earths (NdPr) Project in the Northern Territory of Australia. Arafura is aiming to be a trusted global leader for sustainably mined and processed rare earth products and plans to mine and process ore to separated commercial oxides at a single site at their Nolans Project. The main focus being to produce NdPr oxide. The Project has all Federal & NT Environmental approvals secured and Government and Minister support for A$300 million senior debt facility. Basically, the Project is ready to go subject to final project funding being secured. Subject to that funding, first production is targeted to begin late 2024.

Arafura trades on a market cap of A$333 million.

An interesting side note to end on is that Arafura quote:

• “EV market growth is exponential: 10 to 40 times in the next 20 years. This will require 6–15 times more rare earth elements.
• Most EVs need about 1kg of rare earths for their motor magnets.
• Just 0.05% of the vehicle cost: but it can’t run without it.
• Market analysts forecast a supply gap that represents 109% of global supply today and is in excess of 11 Nolans Projects.”
  

Source: Arafura Resources October 2021 company presentation

Closing remarks

We should remember that in 2021 the Morrison led Australian Government announced a A$2 billion loan facility for Australian critical minerals projects. These funds have the potential to help Australian rare earths juniors to move towards production.

Combine this with high magnet rare earths prices and surging demand, and we have all the ingredients for a strong 2022 from the Australian rare earths’ miners.