Recent press reports suggest that China might ban export to the US of rare earth-related products and technologies, particularly magnets, in response to the US decision to restrict exports of chipmaking technology to China. Japan and the Netherlands have signed on to these restrictions, but so far. the EU has not. Perhaps part of the EU delegation visit to Beijing is designed to cool tempers and avert a broader “trade war.”

I suspect they must be smiling in Beijing today at the degree of alarm these articles have produced. But let’s take a collective breath and look at the potential consequences from a couple of angles and see if it makes geopolitical sense. After all, the Chinese are nothing if not pragmatic.

Rare earth magnets

Let’s begin with magnets, the single most important product. China does not have a monopoly on production and arguably is not even making the best quality magnets. Bonded neodymium (neodymium, iron, and boron or “NdFeB”) magnets are made in Japan, Korea, the Philippines, Thailand, Germany, the UK, and the US (albeit in small quantities) in addition to China. Rare earths (“RE”) oxides are converted to metals in Vietnam and Thailand, as well as the UK. NdFeB alloys are made in Vietnam, Thailand, Japan, Germany, and the UK. The highest-performance sintered magnets in the world are made by Shin-Etsu in Japan. Hitachi is a close second. TDK Corporation is close behind. The Chinese magnet producers always try to close the gap in performance with the Japanese. 

All of this suggests that, from this angle at least, global sourcing could work around a Chinese product ban.

Rare earths refining

What about refining? Rare earths currently are refined in Malaysia by Lynas Rare Earths Ltd. (ASX: LYC) (although some recent political difficulties there for Lynas suggest that might change in the near future), in Estonia by Neo Performance Materials Inc. (TSX: NEO), in France by Solvay SA (ENXTBR: SOLB) and in Japan by Shin-Etsu (TSE: 4063) and Mitsui (TSE: 8031) subsidiaries.

The technology to refine both light and heavy rare earths is well known outside of China. The organic extractants to separate REEs were all imported into China for decades and are still produced by non-Chinese companies (Solvay, Albright & Wilson, and a collection of Japanese).

So, alternative sources also exist for refining, although China does remain the processing giant by output, accounting for approximately 85% of refining activity.

Returning to Chinese pragmatism, and its history of avoiding making the second mistake twice: the rare earth embargo China imposed in 2010 against Japan led to an important defeat for China in 2015 at the WTO, an organization China continues to view as useful to its strategic ends. Having a ruling already in place that export quotas violate trade rules imposes a significant constraint on history repeating itself.

US perspective

From a purely US perspective, however, the refining question is troublesome and Washington knows it. The sole rare earth mining company operating in the US, MP Materials Corp. (NYSE: MP), currently sends its output to China for processing. That issue will change in a couple of years, since MP, with partial funding from the Department of Defense, has begun work on a processing facility near its operations. Australia’s Lynas Corp is building two new processing facilities in Texas, one for Light Rare Earths and another for Heavy Rare Earths, also with US Government (“USG”) funding assistance. Two other processing facilities reportedly are under consideration, one in Arkansas and yet another in Texas.

Thus, the processing issue is a real vulnerability for the US, as MP could not swiftly pivot to send its output to one or more of the existing processing facilities cited above, even if those would have space to accommodate additional flow on an urgent basis, which they might not.

From this perspective, China still has a means by which to “strike” the US if that truly were its intention – and perhaps it is. Interestingly, Presidents Xi and Putin met recently: one can wonder what sort of “economic penalties” against the US that Mr. Putin might have floated to a Chinese leader potentially irked by various recent US moves, including luring Taiwan SemiConductor to establish a huge factory in Arizona (visited by President Biden in March) or the potential ban of TikTok currently being bandied about in DC. Or – most irritatingly of all – the USG funding the growth of rare earths processing capability in the US.  I would add that Washington needs to feel an equal sense of urgency and commitment to building more rare earth mines in the US to ensure secure sourcing of the minerals needed to transform the economy.

Rare earths and the automotive industry

Finally, let’s look at a concrete example of an industry whose future seems irrevocably tied to access to rare earths – the automotive industry. Pat Ryan, Chairman and Chief Executive Officer of Ucore Rare Metals Inc. (TSXV: UCU) contributed:

“In the automotive world there are three primary markets, Europe, North America and the Far East. Risk mitigation in each of these markets is more important now than ever before, including the sourcing of critical metals, as supply chains must be independent of each other and shift from high dependency to diversified, sustainable, circular and innovative solutions.

This is absolutely necessary so that individual markets, including North America, are secure, costs can be understood and managed by OEM’s and jobs created in the market where products are sold. Threats or posturing are just that, and never forget that decade after decade North America has been successful because of its innovation, openness and entrepreneurial ideas. That is a point of reference and confidence and with a global energy transition upon us, the sense of urgency is more paramount than ever.“

Final thoughts

So generally speaking, I can’t share the current alarm. Not while so many other more subtle and effective means remain available to China if it really wants to make problems for the US economy. After all, the problem with a ‘nuclear bomb’ is that once used, it’s impossible to contain the fallout.

Solvay S.A. (BRU: SOLB | OTCQX: SLVYY) (‘Solvay’) has started making news in the rare earths space. Solvay, a Belgian chemical company, acquired Rhodia in 2011 and with it the rare earth division with plants in France and China. Since Ilham Kadri was appointed the new CEO of Solvay in March, 2019, their only press releases on its rare earth division have been about three patent infringement cases surrounding materials for catalytic converters and their treatment of exhaust gases from internal combustion engines. Then suddenly over September-October of this year, there were 3 news releases that were focused on developments in Solvay’s rare earths division.

On October 11, 2022, Solvay announced the signing of a non-binding offtake memorandum of understanding (MOU) with Hastings Technology Metals Ltd. (ASX: HAS) (‘Hastings’) where Hastings will initially supply Solvay with 2,500 tonnes per year of mixed rare earth concentrate (MREC) from its Western Australian Yangibana Project. The Solvay plant in La Rochelle, France was founded in 1948 and originally was built for the separation of rare earths from monazite. The reported capacity for La Rochelle is 10,000-15,000 tonnes per annum of rare earths concentrate, which if accurate, made it a significant producer in the 1980s and 1990s. This would mean however that the agreement with Hastings alone would not bring the plant back to full capacity, unless Hastings expands production over time or Solvay sources concentrate from other producers.

This new MOU follows Hastings’ recent move to take a significant position in Neo Performance Materials Inc. (TSX: NEO). NEO and Solvay compete vigorously in all aspects of rare earths but as noted above the main area is in the materials for catalytic converters. This move by Solvay with Hastings comes on the heels of Solvay announcing its plans to expand and upgrade its plant in La Rochelle to process rare earths and recycle rare earth magnets. NEO has also announced its plan to put magnet production capabilities in Estonia where it has a rare earth separation facility in Sillamae.

NEO’s plant in Estonia has traditionally received its rare earth concentrate from Russia but given current political circumstances, it begs the question how long can this last? NEO does have an arrangement with Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) to supply concentrate from Energy’s uranium operation in White Mesa, Utah. This is the only uranium production facility in the USA. Energy Fuels is going to process monazite to produce RE concentrate. To that end, Energy Fuels announced a deal in May of this year to take a position in a heavy minerals deposit in Bahia, Brazil, which contains monazite.

Another announcement from Solvay this October was that it took 100% control of Solvay Special Chem Japan (SSCJ) through its purchase of the remaining 33% from Santoku Corporation. This facility, like La Rochelle, is focused on catalyst and semiconductor industries. Decades ago this plant was processing RE concentrate from China. When China stopped exporting concentrate in the late 1990s Anan Kasei, a Japanese joint venture between Santoku Chemical and Rhodia, stopped the separation of rare earths and bought intermediate products from China again to produce more value-added products. Ilham Kadri, Solvay’s CEO, commented on the transaction saying: “This transaction marks a logical step forward in our global plan to expand our leadership in Rare Earths specialties.”

It will be interesting to watch Solvay and NEO position themselves in the European market which currently only has one metal/alloy producer, Less Common Metals, and one magnet manufacturer, Vacuumschmelze, a German producer. Let the games begin.

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!