another new article.

Lynas' big clean break
Stephen Bartholomeusz
Published 4:54?PM,?16?Dec?2010

Lynas Corp chairman Nick Curtis must be operating in a state of near-disbelief. A little over a year ago Lynas? ambition of becoming the first new producer of rare earths outside China in decades appeared shattered. Today he is chairman of a $2.5 billion company whose prospects have been transformed.

Overnight the US Department of Energy released its critical materials strategy in a report focused on the key rare earths needed for clean energy technologies. Rare earths are used for the magnets, batteries, photovoltaic films and the phosphors used in wind turbines, electric vehicles, solar cells and energy-efficient lighting.

The DOE highlighted the risk of disruptions to the supply of these materials in the short term, defined as the next five years, saying they would decrease in the medium to long term. There are estimates that demand will rise by more than 60 per cent over the next five years.

Importantly, clean energy technologies today represent about 20 per cent of global consumption of the materials the DOE regards as critical, although that share is destined to grow. Rare earths are also used in defence technologies, cars, LCD screens and a host of other products.

While rare earths aren?t actually particularly rare, China dominates the sector with about 97 per cent of the world?s production. That?s partly because of the ?dirty? nature of the processing of rare earths and partly because they are low-value and haven?t been responsive to shifts in supply and demand balances. The DOE says that may be because they represent a small proportion of total product costs ? but also says that lack of responsiveness could lead to supply shortages.

As discussed previously, the users of rare earths have been galvanised by China?s cutbacks in its exports of rare earths and, earlier this year, its decision to ban exports to Japan after the Japanese held onto the captain of a Chinese trawler than they believed had rammed two Japanese patrol boats in disputed waters. Japanese industry is heavily dependent on rare earths.

That led to last month?s alliance between Sojitz Corp, the largest supplier of rare earths in Japan, and Lynas under which Sojitz will help arrange funding for an acceleration of Lynas? plans to expand its Mount Weld mine Western Australia and its processing facilities in Malaysia and Lynas will commit a large proportion of its production to the Japanese market. Mount Weld is expected to start production in the third quarter of next year and then double it, to 22,000 tonnes, in 2012.

The DOE report helps put Lynas? position in context. With lead times of between two and 10 years ? closer to 10 in the US ? to establish a new mine, it is difficult for production to respond quickly to changes in demand.

With the rest of the world now acutely aware of how dangerously dependent their industrial bases have become on China?s dominant position in rare earths, given its apparent willingness to use that position for economic and geopolitical leverage, non-Chinese production has a strategic and economic value. Lynas will be bringing non-Chinese rare earths to market before any other producer.

The release of the report in the US caused shares in Moly Corp, which owns the world?s largest non-Chinese rare earths resource at Mountain Pass in California, to spike more than 10 per cent. ?Mountain Pass was shut down more than a decade ago against a backdrop of low prices, cheap Chinese production and severe environmental concerns ? leaks of radioactive wastewater.

Moly Corp plans to reopen the mine towards the end of next year and build to production levels of around 20,000 tonnes by late 2012, possibly with the help of subsidies from a US Government now very concerned about the security of supply, and national security, implications of the reliance on China.

The DOE report makes the point that diversified global supply chains and multiple sources of materials are needed to manage the supply risk. That mean encouraging domestic mining and processing of rare earths in the US and well as encouraging production elsewhere.

The report also assumes nearly 10,000 tonnes a year production from Arafura Resources? Nolan?s Bore project in the Northern Territory and about 3000 tonnes a year from the Dubbo Zirconia project in NSW by 2015. It also talks about researching substitutes and of recycling.

In the near term, however, it will by Lynas and the Moly Corp that China?s customer nations will be looking to fill some of the gap between supply and demand and to reduce their reliance on China.

Curtis, whose company only narrowly escaped (with a big of a shove from the Foreign Investment Review Board) being drawn into China?s dominance of rare earths, may have been helped somewhat by China?s own actions but he has steered his group into exactly the right position at almost exactly the right time.