The recent reduction of Chinese rare earth export quotas is a BIG deal.

It’s a HUGE story that reflects the unpredictable nature of this market.

The industry is being shaken.  There will be clear-cut winners and losers.  It may takes weeks and months before things settle.

I just wanted to acknowledge this event, as it will undoubtedly take its place in the long list of rare earth market shaping moments.

Wow.

Later this week I’ll take a stroll back to the beginning of rare earth time…

Today the US Government Accountability Office (GAO) publicly released its eagerly anticipated report entitled “Rare Earth Materials in the Defense Supply Chain”.

Although there are no colossal revelations in the report, it is a fascinating read and shows the thorough nature of the GAO. In putting together the report, they contacted:

• Department of the Interior
• Department of Commerce
• Department of Energy
• Department of Defense
• Various members of industry and academia

They go through a number of issues in the report, including a look at key rare earth processing steps (emphasis mine):

• Mining rare earth ore from the mineral deposit
• Separating the rare earth ore into individual rare earth oxides
• Refining the rare earth oxides into metals with different purity levels
• Forming the metals into rare earth alloys
• Manufacturing the alloys into components, such as permanent magnets, used in defense and commercial applications

When simplified, the above list gives us the following stages of rare earth products:

• Ore
• Oxides
• Metals
• Alloys
• Components

There are different players involved at each of the above stages, and many smaller stages between—so the complexity of what the GAO is undertaking here (an understanding of REEs in the defense supply chain) is no small endeavor.

When looking at rebuilding the supply chain, the following statement is made:

Based on industry estimates, rebuilding a U.S. rare earth supply chain may take up to 15 years and is dependent on several factors, including securing capital investments in processing infrastructure, developing new technologies, and acquiring patents, which are currently held by international companies.

15 years seems optimistic to me, but I’m all for rolling up some sleeves and getting to work!

It is also clear from this report that other agencies have recently researched, or  are currently researching the rare earth issue, including:

1. DOD study to be completed September 2010
2. Air Force’s Materials and Manufacturing Directorate internal report 2003
3. Army’s Armament Research Center informal efforts to understand dependency on REEs
4. Naval Surface Warfare Center informal efforts to understand dependency on REEs
5. Navy considered funding Mountain Pass in 2006 under Title III program
6. Department of Commerce roundtable
7. The Office of Science and Technology Policy in the Executive Office of the President interagency meeting recently
8. Department of Energy R&D projects
9. Department of Energy strategic plan for REEs being developed

This report is critical because it outlines the efforts underway by our government to understand important topics surrounding the rare earths.  The government is a powerful force, and it can have a profound impact on the industry as a whole.  That there is so much interest from the government is phenomenal — how it plays out will be worth watching!

Now we wait for everyone’s response!  Like a great soap opera – how will the media respond?  How will the different agencies work together?  Will this affect the current legislation being considered by Congress (HR4866)?

If you’ve missed the rare earth show up until now — there still may be plenty of action to come!

Metal Events Ltd’s “5th International Rare Earths Conference” was held in Hong Kong in November 17-19, and was attended by about 170 delegates – a new record for the event.

While the delegates engaged in lively discussion over many topics, most seemed to agree on one thing – 2009 was “the year of Rare Earths”.

It was revealed that the conference organizers had contemplated canceling the event earlier because of the questionable economy. What a difference a year makes! Rare earths are now basking in the gleaming shine of the world media, and the REE sector has become an investment darling.

The delegates were a mix of end-users, producers, processors, analysts, researchers, media, junior exploration companies, financiers, and consultants. There were people from all over the world – a testament that this conference is truly a draw for the industry.

The Excelsior Hotel, home of the 2009 Conference

Let’s get right to the luscious content:

Nicholas Curtis of Lynas Corporation threw down the gauntlet in the first talk with several dandy quotes:

“The marginal cost of production has been reached in China”

“The light rare earths are actually the ones in shortage”

“Illegal production from the south – that’s what the industry is relying on”

“Grade is king”

“You’re not looking for a rare earth project, but a bastnaesite project”

This last quote about bastnaesite begs for some context. Curtis was talking about the environmental liability of thorium and uranium (he referred to them as the “actinides” – but these are the actinides typically found with REEs). He stated that only bastnaesite had very little of the actinides, implying that this made it the premier target mineral. This is a fascinating statement, as Lynas has a supergene monazite project at Mt. Weld and a monazite project at Kangunkunde. Curtis is a compelling speaker and provides fantastic sound bites though!

Both Curtis as well as Mark Smith of Molycorp Minerals LLC (see below) emphasized the importance of environmentally sound mining practices.

Ms. Huang Xiawei of Grirem Advanced Materials Company Ltd. gave a technical, yet absorbing talk regarding processing in China entitled: “Progress of the High-Efficiency RE Extraction & Separation Technology in China”.

Mark Smith of Molycorp stated that his company’s goal was “to be the low cost producer in the world”. He gave an eloquent presentation updating the crowd on the present status and future possibilities of Mountain Pass. Two quotes from Smith:

“Ore grade is king”

“The ability to process is very, very critical and very, very complex”

Dudley Kingsnorth of IMCOA presented “Meeting demand in 2014: the critical issues”. Kingsnorth walked us through the road to commercial rare earths production, including the following steps:

1. Prove Resource/Reserve
2. Define Process – Bench Scale
3. Pre-Feasibility Study
4. Beneficiation
5. Extraction of Rare Earths
6. Separation of Individual Rare Earths
7. Obtain Project Environmental Approval(s)
8. Letters of Intent
9. Complete Bankable Feasibility Study
10. Construction and Start-up

He went into greater detail on each of these steps, and it was very informative. Two quotes from Kingsnorth:

“Each ore body is unique”

“There is a looming shortage of dysprosium, terbium, and yttrium”

Kingsnorth also pointed out that the coming climate conference in Copenhagen could have a dramatic impact on the future of the rare earth market, depending on if/what policies are decided upon.

An excellent review of the Chinese REE industry was written by Ms. Song Honghang and presented by Wang Yan of the Baotou Research Institute of Rare Earths, and was entitled “A review of the Chinese rare earths industry – the past 60 years”.  Ms. Wang gave the production tonnage of separated rare earth products from China starting in 1978 at 1000t and finishing in 2008 with 130,000t. That’s a serious increase in production!

Mick Muir of Arafura Resources gave an update on the Nolans Bore project in Australia. Muir indicated that they are targeting a 2012 production date and are seeking strategic partners.

Keith Delaney of the Rare Earth Industry & Technology Association (REITA) described how REITA wants to play a role in the juncture between government, industry, and academia. Delaney spoke about the importance of global supply chains.

Donald Ranta of Rare Element Resources gave an update of the Bear Lodge REE/gold property in Wyoming. Ranta focused on the bastnaesite-group minerals found in the oxide zone at Bear Lodge.

Don Bubar of Avalon Rare Metals gave an update on the Nechalacho (formerly known as the Lake Zone at Thor Lake). Bubar said he expects a new 43-101 resource estimate in January 2010.

Matthew James of Lynas Corporation provided a nice walk through of progress at Mt. Weld and the plant in Malaysia – including a fancy (and informative) fly through video presentation of the plant.

In a new format, five junior exploration companies were each given 10 minutes to detail their projects. Companies that presented were

• Alkane Resources (Dubbo Zirconia Project, Australia)
• Frontier Minerals Ltd. (Zandkopsdrift, South Africa)
• Greenland Minerals & Energy Ltd. (Ilimaussaq, Greenland)
• Mongol Gazar LLC (Mushgai Khugad, Mongolia)
• Rare Earth Extraction Co. Ltd. (Steenkampskraal, South Africa)

The most memorable quote (and most refreshing) from these presentations came from Trevor Blench of the Rare Earth Extraction Co.:

“We are the smallest rare earth project in the world”

Ian Chalmers of Alkane reveals actual rare earth concentrate!

Geoff Bedford of Neo Material Technologies Inc. gave an excellent description of the current status of both the rare earth market and his company. He provided fresh information regarding Neo’s purchase of Recapture Metals and their Pitinga Project in South America. He prefaced the Pitinga update by stating, “We are not miners”, and then went on to describe their collaborative efforts on the project.

In “A review of rare earth applications and innovations”, Olivier Touret of Rhodia Electronics & Catalysis furnished one of the best slides of the conference. He used an exceptional graphic to show the various kinds of hybrid vehicles, their CO2 emissions, and the additional manufacturing costs associated with each type. Touret also illustrated REE polishers. Riveting work!

Hidetaka Honyro of Iwatani Corporation gave “An overview of the Japanese rare earths industry”.  He catalogued Japanese REE demand for specific elements (especially Eu, Tb, Dy, Y, Nd, and Pr), and shared some excellent data.

Takehisa Minowa of Shin-Etsu Chemical Co. Ltd. presented a talk about neodymium (Nd) magnets. He used compelling graphics to explain the difference in strength of various types of permanent magnets – ferrite, alnico, SmCo, and NdFeB. The bottom line here was that NdFeB magnets are about 10x the strength of ferrite, but also about 10x the cost! However, if you want to save weight (which is the primary goal in many technology developments), you’ve got to go with NdFeB!

David Kennedy of Great Western Minerals Group also spoke about rare earth magnets. My favorite phrase of the day was revealed here: “residual flux density”.  Kennedy delivered superb information on the composition of magnets, as well as a description of the ability of how individual rare earth elements enhance performance.

The final talk was given by Judith Chegwidden (co-written with Robert Baylis) of Roskill Information Services Ltd.  Chegwidden addressed NiMH versus Li-ion batteries for the electrification of cars.  This is currently a hot topic, and she proved her thorough grasp of both technologies.

This conference was a great way to finish a great year in the REE market.

Please feel free to contact me through the “Contact” page if you have any questions or comments.

Special thanks to Jill Fitzgibbon and Rachel Carnac for putting together a marvelous conference!

As announced by The Wall Street Journal in an article entitled, “Lynas Turns to Market for Funds After China Deal Sours”, Lynas has found alternative funding for their Mt. Weld project:

The miner’s fully underwritten raising is pitched at 45 Australian cents a share and comprises a A$88 million placement to institutional investors, a A$295 million one-for-one entitlement offer to existing shareholders and a A$67 million underwritten conditional placement.

The offer price is a steep discount to Lynas’ last traded share price of 90 Australian cents.

This certainly doesn’t help their share structure, but it does help satisfy their immediate needs.  We will look next for their timeline on restarting construction in Malaysia and the building of the concentrator in Australia.

The Lynas Corporation deal with China Nonferrous Metal Mining (Group) Co., Ltd. (CNMC) is dead.

CNMC  pulled out of the deal after the Australian Foreign Investment Review Board (FIRB) requested that the CNMC stake be pushed below 50% and that they would have less than half of the seats on the board.

This deal was worth hundreds of millions to Lynas — CNMC was going to assist in financing the completion of the Mt. Weld project. Now Lynas will have to go back to the well and look for more money.

Nick Curtis has proven to be extremely resourceful when looking for money — so don’t count them out. The rare earths have experienced quite a run lately, especially in North America, but it is unclear if there will be an appetite for a project that requires this much capital. The world economy is still sputtering, but there may be interest in a project such as this.

We will follow the story.

The sheer volume of stories being published about rare earths lately has been staggering. I have wanted to include a number of links to these stories, but I realize that it might be frustrating because a number of the sources require subscription.  Many of the stories have had a distinctly Western slant on the recent issues, but several stories that have come from The New York Times, Science, and Metal-Pages.com have begun to reflect the Chinese thought behind the issues as well.

I would like to quote from a recent New York Times article entitled, “Backpedaling, China Eases Proposal to Ban Exports of Some Vital Minerals”,  because I believe it gives excellent insight into the current Chinese view on the recent MIIT draft:

Wang Caifang, deputy director general of China’s Ministry of Industry and Information Technology, tried on Thursday to allay concerns that the draft rules would become the final policy, saying the regulatory review was still under way.

“China is very responsible. We will not take arbitrary decisions. All our decisions will be consistent with scientific development,” she said in a speech at the Minor Metals and Rare Earths 2009 conference in Beijing. “China will not close its doors.”

During an interview after her speech, Ms. Wang said that China would continue to set an annual quota for the export of each mineral, adding, “I don’t think it will be zero.”

So there you have it, “I don’t think it will be zero.” Perhaps some of the hooplah will die down for a bit as we await the final REE policy from the Chinese.

And now for a video in which it becomes clear that the Chinese view resources from the standpoint of reserves, not just production. Thus, this video suggests a mindset that is very different from the Western approach of looking at production as the primary way to view rare earths. In other words, the Chinese recognize that they have the largest reserves in the world, but others have reserves as well — it’s just that they have chosen not to produce from these reserves for one reason or another (mostly pricing).

It is true that the United States does have vast reserves of rare earths, but are not currently producing from these reserves, although there is some production from above-ground stocks. Of course, this is a vast oversimplification of the issue.  For example, the United States does not have great reserves of the heavy rare earths, and each country has its own unique set of mining laws and restrictions. So reserve numbers, in and of themselves, do not tell the whole story, but it provides another frame of reference.

Also, in the video, we meet a gentleman who is directly involved in the production of rare earths, and he explains the problem of rare earth pricing with so much internal competition in China. This is part of what China is currently addressing — they wish to consolidate rare earth operations into fewer companies to create more efficient use of resources and provide better environmental controls. Of course, with fewer competitors, it will also help to better control the pricing.

Keep in mind that the Chinese will most probably not ban export of any of the REEs, but the commentator speaks of restriction in the piece.

And now, the video:

China to restrict exports of strategic rare earth metals – CCTV 090509

The controversy surrounding the recently released Chinese rare earth policy DRAFT by the Ministry of Industry and Information Technology (MIIT) has grown considerably, and I wanted to address some of the issues in a little more detail.

Please keep in mind that the document in question is a DRAFT, and it will undergo thorough review and revisions. When referenced below, “are being considered” means just that – we have to see the FINAL policy before we draw final conclusions.

Now some facts from the DRAFT:

• Yttrium (Y) is NOT being considered for prohibition from export. Many reports have stated that yttrium would be prohibited, but it is ytterbium (Yb) that is being considered for export prohibition – not yttrium. This is key, as Y plays a much more important role in the world REE market than Yb (which is almost negligible).

• All forms of europium (Eu), dysprosium (Dy), and terbium (Tb) are NOT being considered for prohibition from export. Co-precipitates containing Y/Eu and La/Ce/Tb ARE BEING CONSIDERED TO BE PERMITTED (for use in phosphors), as will certain compounds and metals containing specific percentages of Tb and Dy. Some forms of Eu, Dy, and Tb are being considered for the export ban, but there are important forms that will be allowed.

• Ytterbium (Yb), thulium (Tm), and lutetium (Lu), are being considered for the export ban. These elements have exceedingly small sales and are currently marginal in the rare earth market.

• Consolidation and Centralization is being considered to continue. By cutting producers and consolidating operations, the Chinese hope to create better efficiencies in handling waste and preserving their assets.

The point is, we just don’t know yet. Many articles and press releases have treated this DRAFT as if it were final policy – tiptoeing along the boundary of available facts and favoring what is presently fiction. The storyline of China banning export of HREEs makes for good copy and great stock prices, but it ignores both the facts above as well as the integrity of the Chinese political process for creating FINAL policy from a DRAFT.

To be clear – this is not to say that much of the DRAFT won’t become policy – but premature speculation has taken the coverage of this industry down a dangerously speculative path.

I have to remind myself again and again (with varying degrees of success): Beware of over-simplification and easy answers with the rare earth elements.

It’s a draft.

I feel the need to say this because there are a lot of people saying that the Chinese will prohibit export of certain HREEs as if it is a certainty — but it is not a certainty at all.  From the recent press release (from www.chinamining.org) regarding the the Development Plan:

China’s Ministry of Industry and Information Technology (MIIT) has drafted a plan and related policies for development of the rare earth industry in 2009-2015 and is now soliciting opinions from the related authorities, said Miao Wei, vice minister of MIIT.

Here’s the key — it is a process.  Note the part where it reads, “…is now soliciting opinions from the related authorities”.  This is not the final policy.  Let us wait and see the final policy before drawing conclusions.

China is the undisputed champion of the rare earth market, but it isn’t sitting on its laurels! Instead, it is steadily trying to streamline and remake its industry from within.

Two stories out of China last week indicated that China is in the midst of an industry-wide reorganization. The first story is from Chinamining.org and is entitled “China has drafted development plan for rare earth industry in 2009-2015, official”.

A quote:

China’s Ministry of Industry and Information Technology (MIIT) has drafted a plan and related policies for development of the rare earth industry in 2009-2015 and is now soliciting opinions from the related authorities, said Miao Wei, vice minister of MIIT.

Mining rights for large rare earth mines will be transferred to strong enterprises via tender in the future, Miao added.

Two things are clear from this. First, this is a process. Opinions must be solicited, and much must be sorted out. Second, a few big players within China will win. The mom-and-pop operations will be pushed out of the market in favor of fewer consolidated players. In fact, a later article entitled “China to support three domestic enterprises for rare earth development” published on steelguru.com narrows this list to three.

The quote:

The three enterprises are Inner Mongolia Baotou Steel Rare-earth Hi tech Co, China Minmetals Corporation and Jiangxi Copper Corporation. However the stockpiling policy for rare earth products can hardly be formulated.

The hope may be that the consolidation will allow for streamlined operations and greater control during the ebb and flow of the market.

We will follow the story as more details are released.

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.