Former Fortescue Metals executive Russell Scrimshaw says his rare earths company will get into production several years sooner because of Wednesday’s decision to partner with China’s biggest rare earths importer.
Speaking after Peak Rare Earths cemented a deal with China’s Shenghe Resources, Mr Scrimshaw said the alternative would have been to “wait and twiddle our thumbs” until developed nations established the sort of rare earths processing infrastructure that China dominates.
“The only foreseeable way in the short term for us to get going, we believe, is this way,” he said. “This is going to be a worldwide industry; the West is just not, at the moment, moving along fast enough.”
Perth-based Peak had originally planned to pair its Ngualla rare earths deposit in Tanzania with construction of a new refinery near Middlesbrough in the UK. The plan to build the mine and a British refinery was projected to cost $US365 million ($559 million) according to a 2017 study. The plan was to create a non-Chinese producer of separated rare earths at a time when governments in the UK, Australia, Japan, South Korea and the US were becoming worried about China’s dominance of the sector.
The Australian government has since loaned more than $1 billion to Iluka Resources for the construction of the nation’s first rare earths separation facility at Eneabba. Resources Minister Madeleine King this year suggested only “like-minded” foreign investors were welcome to back Australia’s critical minerals, widely interpreted as a warning about China.
Peak’s strategy changed last year, around the same time that Shenghe bought a 19 per cent stake, and as it was negotiating final permits with a Tanzanian government that was keen for more domestic minerals processing.
Peak has since put the UK refinery idea on the backburner and will now spend $321 million building a Tanzanian mine that will sell a rare earths concentrate. Peak confirmed on Wednesday it had finalised a seven-year deal for Shenghe to buy 100 per cent of the concentrate from the mine.
Peak shareholders will be asked to vote on the offtake deal, which came with a non-binding deal for Shenghe to also provide engineering, procurement and construction of the Tanzanian mine. Peak said it was also discussing options for Shenghe to buy a non-controlling stake in the Ngualla project, on top of the equity it already owns in the company.
If Peak does build further downstream processing infrastructure in the future, Shenghe would have rights to at least 50 per cent of the higher-value products the company would make.
Mr Scrimshaw was a founding director of Fortescue, serving the company between 2003 and 2011 as it rode the first wave of China’s steel boom.
Mr Scrimshaw said the type of geology at Peak’s Tanzanian mine – bastnaesite – was not suitable for any of the established rare earths refineries outside China, and that fact had been very influential in the decision to find a Chinese partner.
“We can sit and wait and twiddle our thumbs for a long while until someone else builds a refinery that can take bastnaesite around the world, but there is only one company that we know of at the moment that is building one and that is MP Materials in the US,” he said.
“The easiest way for us to begin, and the least risky way for us to get this project going is to deal with Shenghe who are the largest importer of rare earths into China”.
Victorian deal
Shenghe is also negotiating with ASX-listed VHM Limited over a proposed offtake deal that would allow the Chinese company to buy most of the rare earths concentrate that the Melbourne-headquartered company produces in the future from its deposit near the Victorian town of Swan Hill.
At a time when nationalistic sentiments are running high in the critical minerals sector, Peak chief executive Bardin Davis said the deal with Shenghe was financially rational.
“What should be the focus of a junior mining company? For us, the focus has always been around how do we create shareholder value and how do we do that in a capital-light and low-risk manner,” he said.
Mr Davis said the Shenghe deal had reduced Peak’s fundraising challenge, lowered the execution risk and still retained the right to go further into downstream processing later on.
Rare earth elements such as neodymium and praseodymium are used in the manufacturing of permanent magnets that go into cars, wind turbines, fighter jets and night vision goggles.
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