The Anchor House, Inc.

By Clint Cox

Is the West just bluffing or is the rare earth industry headed for a bitter showdown? It’s a bit melodramatic, but let’s examine the facts:

First, there was the lead-up. The rare earth industry has known for some time that China has supplied the majority of Rare Earth Elements (REE) to the world. Projections have shown that this will likely remain the case for the foreseeable future. China also consumes an increasing amount of their own REEs. China has export quotas and tariffs on rare earths. The West needs these resources, but has very few options outside of China. The tension is getting more palpable. A few weeks ago the opening gambit was played — it was announced that the US and the EU were preparing to launch a formal complaint with the World Trade Organization (WTO):

http://www.eubusiness.com/news-eu/1244719922.23

According to the EUbusiness article:

“The materials include tungsten, copper, bauxite, antimony, yellow phosporous, magnesium carbonate, molybdenum, rare earths and indium.”

http://in.biz.yahoo.com/090623/137/batrx8.html

According to the above Reuters story published at Yahoo Finance India™:

“The materials expected to be covered by the case include yellow phosphorous, antimony, bauxite, coke, fluorspar, indium, magnesium carbonate, molybdenum, rare earths, silicon, talc, tin, tungsten and zinc.

In a move that may have been an attempt to forestall U.S. and European action, Beijing said on Monday it was cutting export taxes on a range of materials, including some used to make steel.”

It is interesting that Beijing is already responding to the WTO threat. It is also interesting that the US and EU went ahead with the formal complaint:

http://china.globaltimes.cn/top-photo/2009-06/439234.html

The Chinese are not happy with the complaint, and Mei Xinyu called it “ridiculous and unacceptable.”  Interesting!  The article also states:

The US and the EU have “staged such kind of shows” several times before, Mei added.

But US Trade Representative Ron Kirk said in Washington yesterday that “China’s measures appear to be part of a troubling industrial policy aimed at providing substantial competitive advantages for the Chinese industries using these inputs.”

“We are going to the WTO today to enforce our rights, so we can provide American manufacturers with a fair competitive environment and put more American workers back on the job,” Kirk told AFP.

A little back and forth. Bloomberg reported China’s counterpunch (although, for some reason, they failed to mention the rare earths!):

http://www.bloomberg.com/apps/news?pid=20601089&sid=aYIqDM13REqY

Today, China called for a WTO probe of U.S. restrictions on poultry imports and the trade body’s former chief, Mike Moore, warned that the world is in “dangerous waters” as protectionism increases.

Yikes.  The dreaded “P” word. The industry will be watching this rather closely. Here comes the really fascinating part for Rare Earth fans — if you take a gander at The Office of the United States Trade Representative announcement regarding the WTO case you find the following raw materials included:

http://www.ustr.gov/about-us/press-office/fact-sheets/2009/june/wto-case-challenging-chinas-export-restraints-raw-materi

The dispute filed today addresses various unprocessed and processed forms of nine inputs of key interest to a wide range of U.S. industries:  bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.

Where are the Rare Earths?  I don’t have an answer right now, but it looks like they are not there! Are they included in the complaint?  The WTO doesn’t have the complaint listed yet, but I will keep checking. Is this much ado about nothing? That is quite possible.

The US and EU are obviously upset about raw materials, but what about Japan?  They are a substantial consumer of REEs from China. Will they be joining the fray? According to a story at www.steelguru.com (as sourced from www.platts.com):

http://steelguru.com/news/index/2009/06/26/OTk5MTg%3D/Japan_unlikely_to_follow_US_and_EU_in_WTO_filing_against_China.html

Although Japan appears unmoved yet by the US and the EU moves, the Japanese government nevertheless has voiced concerns over China’s production and export restrictions on rare earth. The Japanese trade ministry continues to seek talks on a bilateral basis, as it was more important for Japan to understand the ultimate aim behind China’s export restrictions, possibly leading to a joint solution.

It appears that Japan will continue to dialogue with China. Indeed, the title of the article is “Japan unlikely to follow US and EU in WTO filing against China”.

More on China’s response can be found at the English version of People’s Daily Online entitled “Absurd double standards on China’s resources”. I think the title says it all. They are not happy.

What does all of this mean to the market?  Not much, at this point — we’re not even sure that rare earths are included in the complaint!  There is lots of posturing, but the market continues to function.  There will be increased dialogue while the WTO encourages all concerned parties to work out their differences.  This process can take several years, and the entire sector may look different by the time the powers that be have concluded their arguments.

We will continue to track the story and see if REEs will be a “No-Show” or smack in the middle of a nasty WTO Showdown.

Please direct comments or questions to the Contact page.

By Clint Cox

With this post, I will try a new format.  I will attempt to to give brief excerpts of Rare Earth news with links and brief commentary.  Please feel free to leave feedback in the “Contact” section.

In the midst of relatively stagnant rare earth element (REE) prices and an uncertain economy, several deals have emerged to mark a massive shift for the rare earths industry.

China is actively pursuing more REEs.  Downstream companies are moving up the stream. And the market is being smacked with surprises on a regular basis!

Let’s get right to it:

“Rare Earths” the Hot Topic at Vancouver Show
Before the Cambridge House Conference June 7-8, several newsletter writers began to cover the rare earths.  Some of their pronouncements made a big splash in the Canadian junior exploration market — affecting stock prices dramatically to the upside.  Then the Vancouver show had no less than four speakers mentioned rare earths from the podium during their talks.  Instant sizzle!  Suffice it to say that there will be many new rare earth companies in the coming months as new players wade into the water to ride the wave.  Don’t get me wrong, there may be some very interesting projects that come forward, but there will be (and is) some ugliness.

Chinese Company Buying Majority Stake in Lynas Corporation
In February of this year, Lynas Corporation Limited (ASX: LYC) suspended their Mount Weld project due to “uncertainty concerning the financing structure”.  This suspension was primarily due to bondholders refusing to release funds to Lynas. They were eventually able to settle with the bondholders, but Lynas didn’t receive the hoped for amount.

Many investors were looking to the Mount Weld project as the great hope for the industry, a non-China resource with the possibility for near-term production.

The big question in the industry has been “Where will Lynas get the money to complete their project?” A number of people speculated that they might turn to China, and indeed they did!

From a May 1, 2009 Lynas Press Release:

“Lynas Corporation Limited (ASX: LYC) is delighted to announce the introduction of a proposed new majority shareholder, China Non-Ferrous Metal Mining (Group) Co., Ltd. (CNMC).”

The Chinese will end up with 51.6% of Lynas, and will provide needed capital and assistance with acquisition of proper financing for the project. Much of the sales-pitch for Lynas has been based on having a REE resource outside of China.  However, now the project will be under majority Chinese ownership — this is an interesting twist, to say the least! The Lynas board will now be made up of eight members – the four existing plus four appointed by CNMC.  Nicholas Curtis is to remain the Executive Chairman and will have the casting vote.  The Chinese are intimately familiar with this industry, and they have piqued our interest to follow what they will do with Mount Weld.

Lynas now says that they hope to be in production within 12 months of receiving their financing (in the amount of US$366 million).

How this will affect the market is, as yet, unknown.  But it is clear from this deal, and the one below, that the Chinese are very serious about extending their position in the marketplace.

More Here:
http://www.lynascorp.com/page.asp?category_id=8&page_id=27

Chinese Buying into Arafura
Arafura Resources Ltd (ASX: ARU) of Australia recently signed a deal with a subsidiary of East China Exploration & Development Bureau (ECE) that gives ECE a 25% stake in ARU in exchange for approximately $17 million.

ARU’s Nolans Bore project is a fairly complex undertaking that will attempt to bring four separate products to market:
1.    rare earths
2.    phosphoric acid
3.    uranium
4.    calcium chloride
The REEs are slated to bring in the lion’s share of the revenue, but the other products will be critical to the success of the project.

The capital cost for the project is expected to be in the US$100s of millions.

The rare earth-bearing minerals at Nolans Bore will skew towards the lighter end of REE distribution.  They are reporting a resource (including measured, indicated, and inferred) of 30.3 million tonnes at 2.8% rare earth oxide (REO).

The key for this project moving forward is to see how ARU raises the capital necessary to complete this project.

More Here:
http://www.mineweb.co.za/mineweb/view/mineweb/en/page72102?oid=82059&sn=Detail

Vietnam Gets into the Game
Toyota Tsusho Corporation, a trading house affiliated with Toyota Motor Corporation, cut a deal late last year with the state-run mining agency to develop the Dong Pao rare earth deposit in Vietnam.

This site has some good potential, and they expect to be producing 5000 tonnes annually starting in 2011.  The rare earth-bearing mineral in this deposit is bastnaesite – the same mineral that was mined at Mountain Pass (mentioned above) and is currently mined at Bayan Obo in China.

This deal affirms that there are deposits “off the RADAR” that may make an impact in the industry

The interesting thing about this one is that the industry has been watching the usual public companies in North America and Australia, and this site may come to production before most (all?) of the others.

More Here:
http://www.ibtimes.com/articles/20081202/toyota-group-start-importing-rare-earth-metal-element.htm

NeoMaterials Extends Their Reach
NeoMaterial Technologies Inc. (TSX: NEM.TO) recently signed an agreement with Mineracao Taboca S.A. to investigate the potential of producing a commercially viable heavy rare earth concentrate from Taboca’s tin mining operations at Pitinga.

The rare earth-bearing mineral at Pitinga is xenotime, which has a favorable distribution towards the heavy rare earths.

NeoMaterials is a significant player in the REE industry.  They make a variety of REE oxides and magnetic powders, and employ approximately 1,300 employees in a number of facilities throughout the world.  With this deal, it seems that they are hoping to reach back upstream and secure their own supply of concentrate.

More Here:
http://ca.news.finance.yahoo.com/s/15042009/30/link-f-cnw-neo-material-technologies-signs-development-agreement-brazilian-rare.html

This Week’s Picture:  Carbon Coating!

Thin sections (rock samples cut into a wafer thin block) are used for a variety of identification methods.  One instrument used to identify REE minerals is the Scanning Electron Microscope (SEM). Before thin section samples are placed in the SEM, they are coated with carbon by burning up some filament in a vacuum. That’s hot stuff!

I am working on a new format that will (hopefully) serve the Rare Earth community better.  The new format will be up by June 22nd.

Thank you for your patience!

By Clint Cox

Back in May I visited the Bear Lodge rare earth property of Rare Element Resources.  I have wanted to visit the site for quite some time, so it was a highly anticipated trip.  In the end (and throughout), it was quite enjoyable, and incredibly educational.  I was able to spend the better part of two days with several top-notch geologists who had many years of experience with rare earths.

I flew into Rapid City, South Dakota and drove from there to Sundance, Wyoming.  This is a great part of the country with the Black Hills, Mount Rushmore, Crazy Horse, the Vore Buffalo jump, and plenty of outdoor distractions.

We stayed in Sundance, and it was short drive on paved roads and then another short drive though the property on gravel roads to reach Bull Hill, the primary target of rare earth exploration at Bear Lodge:

Bull Hill at Bear Lodge

In its recently released 43-101 report, Rare Element Resources stated that they have over 9.8 million tons (this is 8.89 million metric tonnes) at 4.1% REO.  The primary rare earth minerals are ancylite and bastnaesite.  The infrastructure is very good at Bear Lodge, and we will watch the company closely as they look to develop their understanding of the property further.  We await the results of their metallurgical work, as they are trying to be the first to process ancylite as a primary REE mineral.

Special thanks to Don Ranta (President of Rare Element Resources) and Jim Clark (my host, and Vice President of Exploration) for allowing me to visit the site!