Australian Strategic Materials Ltd. (ASX: ASM) has accomplished the execution of a business model first described by Canada’s former Great Western Minerals and then appropriated by the (second) American Molycorp, neither of which could ultimately pull it off – the vertical integration of a critical mineral producer from the mine to the finished mass-produced product ready for end-user product fabrication.

For ASM the first integrated production will be of rare earth metals, titanium, and zirconium, the mineral supply chain for each of them originates with the company’s Australian mining operation, and the final processing to metals is done in a Korean joint venture, already proven at the pilot plant level and with a full-scale plant being contracted for with Hyundai Engineering.

I have no doubts that the entire output of ASM’s Korean operations will be sold into the Korean market. The sister company of Hyundai Engineering, Hyundai Motors, is already mass producing a low-cost battery powered EV, which needs rare earth permanent magnet electric motors made independently of Chinese critical metals.

The Korean nuclear power industry needs zirconium (and its sister metal, hafnium [also to be produced by ASM in Korea]) for the cladding of fuel rods. And the Korean domestic armaments industry needs rare earth permanent magnet motors and titanium for its aircraft and shipbuilding (Korea’s first full-scale aircraft carrier is now being planned).

ASM, having now structured its total supply chain for critical metals, just last week installed a new CEO, its former COO, Rowena Smith, who has almost 30 years of global mining experience in strategic planning and mineral processing with senior mining corporations, including roles at South 32, Rio Tinto, and BHP. Previous CEO David Woodall abruptly stepped down from his roles and left the company.

It’s important at this point to understand the significance of the replacement of now former CEO, David Woodall, by former COO, now CEO, Rowena Smith. Those who plan wars, or even battles, rarely carry them out. During David Woodall’s tenure, the vertical integration of ASM was planned and the component ventures were acquired, modified and themselves integrated. During that time Rowena Smith, as COO, familiarized herself with the plan, helped to implement it, and took over the day-to-day operations of the system as it matured. She has overseen areas of the Dubbo project and the Korean Metals Plant. Last week the board of the company determined that ASM was ready for her operationally-experienced and skilled management to assume overall control, and the management change was implemented.

ASM is now the first non-Chinese company to complete a vertically integrated business model from the mine through to the production of high purity critical metals for the EV, shipbuilding, aerospace, and nuclear industries.

ASM is Australian-owned and sited, and its first customers are in Korea.

The rest of the non-Chinese mining and processing world should look closely at this success and emulate this model.

Iluka Resources Limited, (ASX: ILU) an Australian mineral sands company, is poised to add rare earth elements to its portfolio of products. The company’s main products are zircon, titanium, plus iron and carbon materials from its processing plants in Australia. It also has recently announced the de-merger of its Sierra Leone company, Sierra Rutile Holdings Limited, to end up with two ASX listed companies.

The plan announced by Iluka is to start concentrating monazite and xenotime in the second half of this year from its mineral sands operation in Western Australia. Cracking and leaching will begin next year followed by separation to produce rare earth oxides in 2024 at Eneabba, Western Australia, which is a 3 hour’s drive north of Perth. According to public company information, the planned output is 17,500 tons per year of Total Rare Earth Oxides (TREO). They note the plant will have a full capacity of 23,000 TPY of TREO with all circuits fully utilized. It is reasonable to assume that they are looking for additional monazite to fill their plant as the capacity is more than they can produce themselves.

Based on the feed rate of 17,500 TPY TREO Iluka expects to produce 4,000 TPY of Nd/Pr plus 500 TPY of Dy/Tb. Typically, Dy:Tb ratio varies from 2:1 to 5:1. At today’s pricing of $135/kg USD for Nd/Pr oxide, Dy oxide at $362/kg USD, and Tb4O7 at $2.056/kg USD, Iluka’s annual revenue could be in the range of US$1 billion.

The projected capital costs are AU$170-200 million for the cracking and leaching, and AU$320-390 million for the separation and finishing. Additional costs include plant and infrastructure AU$110-140 million plus indirect costs, contingency, commissioning and miscellaneous costs of AU$400-470 million for a total of AU$1-1.2 billion. According to the company, there will be support from the Australian government in the form of a loan from the government’s Critical Minerals Facility fund and a risk-sharing agreement that would include non-recourse debt, royalty payments to Iluka, and flexibility in repayment schedules.  This is what is necessary to get these projects off the ground – government support and vision to see that risk sharing is very important.

Raising this amount of capital in the markets today is a challenge and also very dilutive as their current market cap is AU$3.8 billion.  An advantage Iluka has over many other planned entrants into the rare earth space is their existing cash flow from current operations, as it will take time to generate revenues from this operation after construction begins this year and until the first output is expected to be seen in 2025.

Source: Iluka Company presentation, April 4, 2022

Based on using their existing stockpile at Eneabba, Iluka could produce 12,400 TPY TREO with an operating cost of AU$13/kg or about US$10/kg which is competitive with Chinese costs. I am assuming they put no value on the feed material as it is in a stockpile.  They have not included any transfer costs from other sources in their expanded production estimates with other sources of feed. The stockpile feed would produce 2,700 TPY of Nd/Pr or about half of the capacity of 5,500 TPY of Nd/Pr. This stockpile would be exhausted in 9 years, so they are actively looking for other sources to fill the plant.

One question that is not clear is whether they will take a Molycorp plant design approach or the Lynas approach.  Molycorp originally designed a single train 20,000 TPY TREO capacity. Lynas built four 5,500 TPY TREO trains so that if supply or demand changed, or there was a problem in one train, they did not lose all their production.  This came to light over the COVID era when demand dropped.  This is a major consideration of any new plant design as economies of scale are limited or offset by potential operational problems.

Overall this may well be one of the players to cross the finish line in the race for more production of rare earths outside China.

Way back in 2011 there were nearly 250 rare earth themed junior mining ventures looking at 400 “deposits” mainly in Canada and Australia. Today, just two of them are producing, Lynas Rare Earths Limited (ASX: LYC) and MP Materials Corp. (NYSE: MP) (the successor in interest to the bankrupt Molycorp of yore). These two ventures, even then, stood out from the pack by their common purpose of delivering a value-added product, individual separated (or blended) rare earth chemical forms, in the case of Lynas, and “magnets,” in the case of Molycorp. All of the others, without exception, stated that their saleable product would be a “mixed con.” This was the great “con” of the rare earths’ boom and bust of 2010-2013.

A concentrate of a mixture of all of the rare earths, from which the chemical elements that interfere with the separation of those rare earths into individual, or purposely blended combinations, of individual rare earth salts, is what is targeted to be produced at a mining operation where the ore is “mined,” concentrated, cracked and leached, and then is chemically processed to remove elements that interfere with the next step, selective separation of the individual elements in a form required for the next step in the supply chain that ultimately results in a finished product for sale to consumers.

For the rare earths this concentrate is, for practical purposes of safety and economics, a mix of rare earth carbonate solids. This should have been the initial target of 2011’s 250 rare earth juniors. It wasn’t. They overwhelmingly (other than Lynas and Molycorp) did nothing to advance towards this target. That turned out to be a good thing, because the only non-Chinese customers for this “mixed con” before 2017 were Solvay in France (9,000 tpa capacity to produce individual rare earth salts), Silmet in Estonia (2,500 tpa), and assorted small operations in Asia, outside of China, with a combined capacity of perhaps 3,000 tpa. All of these bought their feedstock from China or (a tiny amount) from Russia at the time.

No 2011 junior sold a single gram of mixed con to the marketplace prior to 2017 (Lynas)

Why was the first 21^st century, rare earth boom, such a bust?

Because none of them had the knowledge, education, experience or skill in processing or mineral economics to see that integration into a total rare earths supply chain targeted to a final product is necessary for profitable operation. Almost without exception the profitable part of the rare earth supply chain is concentrated in the metals, alloys, and magnet making end, and the only way to make a mine and separation system profitable is to distribute costs along a total supply chain. (America’s Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR), which is operating on a total supply chain model through magnet alloys, is an exception, because it is able to make a profit selling a mixed carbonate due to the skill of its administrative and operation management and a unique, for North America, existing processing infrastructure).

If there is to be a domestic American, or European, total rare earth permanent magnet supply chain then there will have to be in place operating commercial rare earth separation systems, rare earth metals and alloys production, and rare earth permanent magnet production capability and capacity to support it.

In fact, if there are to be total domestic supply chains for any critical metals, then, not just a mine, but also all of the downstream elements of the supply chain have to be in place before that can happen.

I note that for the cobalt chemicals necessary for the production of lithium-ion battery cathodes, the Canadian integrated cobalt processing junior, Electra Battery Materials Corporation (TSXV: ELBM | OTCQX: FTSSF), has entered into a supply agreement for cobalt concentrates from the world’s largest non-Chinese producer, Glencore, to process that concentrate into fine cobalt chemicals for the battery manufacturing industry in its existing Canadian facility. When and if Electra can produce cobalt concentrates from its company-owned deposits there will already be in place the downstream operations to support that. In the meantime, it will buy feedstocks from others, and/or also toll them for others. Electra’s management looks also to have given considerable thought to pricing, so as to ensure profitability.

This business model, to have in-house as much of the total final product supply chain as is necessary to be profitable, is the only practical business model for the production of critical metals and materials.

As of December 31, 2021, America’s Energy Fuels (rare earths) and Canada’s Electra (cobalt) are setting the pace for the future development of a North American critical metals’ industry by commencing operations.

Happy New Year!

China’s recent re-enactment of its export “prohibition” list illustrates the differences between the impact of the West’s “financial globalization” and of China’s approach to globalization under “Socialism with Chinese Characteristics” on the individual nations’ security of supply of critical materials (rare earths) as enabled by what are the two principal competing economic systems in today’s world, “free market” capitalism and state-controlled capitalism (also known as Socialism with Chinese characteristics).

It’s easy to say that China’s recent revisions to and the republication of the law that makes the export of named technologies from China either subject to governmental approval or simply illegal, is retaliation for the American (Trump[?]) (and now also the Japanese and EU) administrations’ technology import and use bans applied recently to Chinese cybertechnology, but for the Rare Earths these restrictions have been in place for more than a decade, and their updating and reaffirmation in Chinese law tells a much more nuanced and worrisome story.

Looking carefully at those of China’s export restrictions that are focused on rare earth “processing” technology, they show that China does not want any of its companies, state-owned or “private”, to give any assistance to foreign entities to develop any aspect, at all, of a total rare earth supply chain.

I have been told that China originally acquired rare earth separation (by solvent extraction) technology from the first Molycorp in the early 1980s when that company was seeking to lower its costs by exporting the rare earth separation technology it had developed in the 1960s and 70s to China where bastnaesite, the same mineral as was being mined at Mountain Pass by Molycorp, was being recovered in large quantity as a byproduct of iron ore mining in Baotou, Inner Mongolia. I believe that Molycorp also then began sending some ore or ore concentrates from California to China at that time for separation in China. I have been told that the “blueprint” for a rare earth separation plant supplied by Molycorp was stolen and illegally “sold” into alleged operatives from China in the first Chinese “rare earth processing rush” in the 1980s during which dozens of dedicated solvent extraction systems for rare earths were built outside of Molycorp’s control.

Deng Xiaoping, the real founder of modern China’s economic system famously said during this period of rapid growth for China’s rare earth “processing” industry that rare earths were to China what oil was to the middle east. Besides encouraging the development of a rare earth industry and to support it, this pronouncement also encouraged the creation in Chinese universities of departments of “separation science” in departments of chemistry and chemical engineering. Today, in 2020, thousands of Chinese chemists and chemical engineers specialize in rare earth “processing.” The State Key Laboratory for Separation Science at Peking U., alone, has four locations with more than 400 researchers, more than 150 of whom hold PhDs! It is estimated that several thousand Chinese researchers are dedicated today to the field of rare earth studies in China.

All of the raging commentary about Chinese intellectual property theft from the West, America in particular, has masked the fact that regarding rare earth processing downstream of ore concentration China has an existing and growing advantage technologically over all of the West. While it is certainly true that we do not know the true costs of mining and refining rare earths in China, because China doesn’t seem to capitalize health and safety concerns that are both significant and also highly regulated in the USA and almost all other Western countries, we must also concede the advantage of extensive experience to China in the effective production of rare earth metals, alloys, and magnets. The current method of choice, for example, for the production of rare earth metals, the electrolytic reduction of molten salts, has never even been practiced commercially in the USA.

The unfortunate truth is that the US and the West needs technological help. Particularly in scale-up, from China’s large reservoir of downstream (of mining) rare earth processing knowledge and experience if, and only if, the goal is global competition with China for the 150,000 mta rare earth permanent magnet markets. If the goal is regional or national self sufficiency and security of supply then governments will have to either subsidize or get much smarter, with regard to economics and the selection of companies that have the necessary skill sets, about (re) establishing total domestic supply chains for critical materials and, especially, the components manufactured from them.

The American federal bureaucracy is an assembly of the industrially inexperienced but well credentialed (not necessarily well educated!) who first and foremost speak with each other, and, when and if they must reach outside of their group, go only to academics for advice on policy.

Implementation of policy is simply not considered, and the excuse for that is it would look like overstepping their authority, favoritism, or worst of all, a mistake might be made that would reflect badly on the bureaucrat.

China’s mandarin bureaucrats are chosen primarily for their experience and skills as well as their education and (Chinese Communist) Party connections. The China “State Council” sets the nation’s industrial policies. The bureaucrats implement those policies. Those bureaucrats, speaking with the authority of the State Council and President, have a great influence on the lending policies of the People’s Bank of China.

The current Chinese “President” has decreed (not recommended) that by 2025 China will be independent of the rest of the world in 10 key high technologies. Several of these technologies are critically dependent upon rare earth enabled components, especially rare earth permanent magnets.

China is today cleaning up its rare earths industry to meet global standards of health and safety. This has necessitated a sharp restriction on rare earth mining within China. China is today, in 2020, on a track to import nearly 40% of its needs for rare earth bearing ores for ALL of the rare earths.

In fact, heavy rare earth production from so-called ionic clays has essentially halted within China. Yet, notwithstanding the rare earth mining pollution “problem” the implementation of China 2025 is advancing rapidly.

What does this mean for Western rare earths mining, refining, metal and alloy making, and rare earths enabled products’ manufacturing?  It means that China, Incorporated, is your competitor at every stage of the total supply chain. It means more importantly that as China’s consumer economy grows and as along as China requires outside raw materials the rest of the world will be completely subjugated to Chinese pricing and export policy.

Neither the US (or any other allied) defense establishment can take the risk of having its rare earth permanent magnet and alloy supply cut off or curtailed by the Chinese government. Even more dependent upon China today, in permanent magnet volume alone, are the global OEM automotive and consumer appliance industries.

Investment outside of China in a total rare earths supply chain is a necessity for US defense and the continuation of an independent American manufacturing base for high technology consumer products. It is certainly not wise to put all of your eggs in one basket, but it is also very unwise to plan on just one company or one technology to solve America’s (and the West’s) dependency on the Chinese rare earth industry. The solution is to choose only those participating companies that understand the need to manage or have a total rare earth supply chain in view. The poor economics of some of the component operations of the total rare earths supply chain can be solved by legislation (e.g., the Cruz rare earth components tax relief bill) or by the distribution of costs among the supply chain components so that the whole is profitable.

It’s time for a serious discussion of the rare earths supply problem. China is not planning to assist the development of competitors in this field.

“What enabled China to do so well was this whole concept of globalized trade…It became a thing of who can produce the metal the cheapest and who will pay the most for it. Everything went all around the world to whoever wanted it. It was in this context of globalization that the rare earth mania 1.0 happened. It was, I believe, a major blunder by China.” States John Kaiser, Founder of Kaiser Research Online, in an interview with Gianni Kovacevic, CEO of CopperBank Resources Corp. (CSE: CBK).

John went on to say that China controls more than 90% of the world’s rare earths and how a skirmish with Japan panicked the market and caused a 10-20 fold increase in rare earths prices. He continued, “To some degree this was a strategy by China to force technology to move to China where they could have access to these rare earths without worrying about it…now we have something weird happening. We have deglobalization happening and that changes the logic completely.”

Now we are witnessing well known Silicon Valley investors funding a re-floatation of Mountain Pass citing the very reasons John and Gianni have been saying for some years and touch on throughout this detailed conversation… to access the full conversation, click here

“Molycorp spent $1.8 billion to redevelop the (Mountain Pass) mine and vertically integrate that output through a separation plant to salable, separated rare earths products. It didn’t work. At the end they were not able to operate the separation plant, Project Phoenix, and the company shutdown because it ran out of money.” States critical materials expert Jack Lifton, in an interview with the Technology Metals Show hostess Tracy Weslosky.

Jack went on to say, “Two years later a company that became MP Materials purchased the mine and the refinery project from the bankruptcy trustee and they began to operate it as a mine. In the last 12 months that mine has produced 50,000 tons of rare earths concentrate containing 12,000 tons of rare earths included in which are about 2000 tons of magnet metals, neodymium and praseodymium, which could make 6000 tons of magnets.”

In the interview Tracy and Jack discussed some of the challenges awaiting MP Materials in becoming a vertically integrated domestic rare earths company. Jack also provided an update on Lynas and explained how it will be affected as MP Materials progresses with its plan.

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“You have formally announced a mine to magnet strategy. In the rare earths business, we have seen this before, in the round one of the rare earths boom in around 2011 or 2012. A company no longer in existence called Great Western Minerals announced a mine to magnet strategy. Then Molycorp announced a mine to market strategy. Neither of those companies ever achieved anything like that and neither of them advanced to where you have advanced which is the separation of the heavy and light rare earths. I would like to know if you are planning a vertically integrated company which would be not only mining and refining but producing metals and alloys and fabricated magnets” Asked Jack Lifton, critical materials expert and Technology Metals Show host, in an interview with Pini Althaus, CEO and Director of USA Rare Earth LLC.

Pini replied, “The difference here is between announcing strategy verses implementing strategy and we have been very careful to annouce things as they actually take form and become a reality.”

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