Australian producers could benefit as the US looks to diversify where it sources this metal, used in anything from technology to healthcare.
Elio D'Amato Contributor Nov 9, 2020 – 4.38pm
Even with Joe Biden as President-elect, one topic that is unlikely to diminish is the tussle between the US and the rapidly expanding Chinese economy.
While one hopes that a more cordial trade relationship emerges, front of mind for Americans will be the creation of a more diverse and balanced approach to supply chain management.
One area of focus for the last few years has been the supply of rare earths into the US economy, which continues to be a lingering issue beyond who sits in the Oval Office.
Rare earths are a group of similar 17 metals/elements on the periodic table, grouped and classified together because they tend to appear within the same deposits. Their use in the past two decades has skyrocketed as they are used in a wide range of industries including technology, automobiles, aerospace, oil refining, healthcare and defence.
As an analyst it always infuriated me to hear the tired old statement that “rare earths are in fact not rare”, which is true. However, the term "rare’"refers to the fact they are difficult to find in an economic quantity that allows for mineable extraction.
In part this is why China has emerged as a major player – its ability to produce and sell the metals at a far cheaper price saw most other mines around the world shut their operations. According to a Geoscience Australia report in 2019, and compounding this issue, the world’s largest supplier and rare earths resource are found in China,
This is a concern to the US, particularly as these metals are included in the US government’s 2018 list of 35 critical minerals, and China is its largest rare earths supplier. Steps have been taken to ensure reliable and secure supplies of minerals it sees as critical to the US economy and military. This issue has also been identified by the European Union.
Further to finding the metals in a commercial quantity, processing the metals for use is another issue – one that is no better felt than by the world’s largest non-Chinese rare earths producer, Lynas Corporation (LYC). The West Australian firm has been processing rare earths deposits from its Mt Weld project in Kuantan, Malaysia since 2012 and has been stop-start since, as the extraction of these minerals is a highly toxic process which can cause extensive environmental damage if mismanaged.
But the supply threats have tipped the balance recently back in favour of building more plants. The US Department of Defence signed an agreement with LYC to build a heavy rare earths separation plant in Texas to deliver a strategic supply to the military. In Australia, the federal government has also granted major project status for LYC to build a new facility near Mt Weld, with state government support, to be completed in mid-2023.
This local and global interest has breathed life into this once-dormant sector and, beyond LYC, a number of ASX-listed participants could stand to benefit.
Australian Strategic Minerals: After its split with Alkane Resource, ASM is a pure rare earth play and is seeking to optimise the "mine to manufacturing" process from its Dubbo Project through to the Korean processing plant. Recent developments for the business have been positive, including the acquisition of Korean-based JV partner Ziron Energy, which has developed a metallisation process the company claims is more environmentally friendly and cost-effective.
Arafura Resources: ARU is developing the Nolans project 135 kilometres from Alice Springs in the Northern Territory, and has been working with partners in Europe and Asia to get its product to market. It is looking to build a processing site on plant and has the support of both the territory and federal governments.As the process for planning and engineering continues, the company is rolling full steam ahead to source funding for the project, which will likely be the catalyst for a re-rate.
RareX: Early-stage minnow explorer REE is working the Cummins Range project in the Kimberley region of Western Australia. While exploration activity carries risks, and volatile price action, when commentary from the company reads that it is sitting on, “a similar geological setting to the world-class Mt Weld”, investors listen. Further, recent drilling activity has yielded strong assays and there are many suggesting that its bite matches the bark.
American Rare Earths: Other than LYC, the other Aussie rare earths business trying to carve a name for itself operating in the US is ARR, which has the La Paz project in Arizona. This very early stage explorer is still some way from realising its vision. However, it is taking steady steps and, with the recent purchase of the Laramie project in Wyoming and ongoing rhetoric that rare earths may become a China strategy pawn, this may become a case of being in the right place at the right time.
Disclaimer: Spotee and/or its directors, employees, representatives and associates hold an interest in LYC and REE. Elio D’Amato is managing director of consultant Spotee.
ASM Price at posting:
$3.40 Sentiment: Buy Disclosure: Held
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