One of the better stories I have read. Can be found on google under rare earth metals. They then also have a story on the to 7 next producers where lynas is on top. The best pr you could get. Dow up flinstone theory looking good. Rare Earth Elements: The Seventeen Metals Crunch by Jackie Steinitz
The Rare Earth Elements (REE), a group of seventeen metals crucial to much 21st century technology, have been hot news recently.? The number of applications for the metals is spiralling and demand is rising.? But China, which produces 97% of world supply, has cut its export quota by 72% for the second half of 2010 and announced that it has only limited resources of the critical 'heavy' rare earth metals. Meanwhile recognition of the strategic importance of rare earths is growing.?
An act was recently tabled in the US to take all necessary initiatives to reintroduce a domestic rare earth supply chain so as to ensure a secure source of these vital metals. Countries such as Korea and Japan, both heavily dependent on the metals for hi-tech manufacturing, are scrambling to secure future supplies. Prices of the rare earths are soaring, up on average by 300% between January and August 2010, with the rises for each individual metal ranging from 22% to as much as 720%.
A number of companies have already latched on to the opportunity presented by a looming supply shortage in some, (though not all) of the metals. There are many exploration, development and mine restart projects on the go outside China. However the mining and processing of rare earths is not an easy task.? The metals are often found with radioactive elements such as uranium and thorium which makes them subject to stringent environmental restrictions.? Moreover since the metals are always found together, albeit in varying combinations, they are difficult and expensive to process; the oxide of each metal must be separated and purified sequentially which is not an easy job as the metals are chemically similar.? Since each orebody is unique each has different processing requirements, but there has been considerable loss of expertise in the West during the era of Chinese dominance of the market.
In short it is a long, challenging and costly process to develop a rare earths mine.? A company needs a favorable orebody, a careful approach to environmental considerations, a high level of skills, and access to significant amounts of capital.? But the rewards for those who succeed could be high.
This article summarises some of the basics about the supply and demand for rare earths then reviews eleven of the companies undertaking rare earths projects.
Background : The Supply and Demand for the Rare Earth Elements
The term "rare earth metals" is commonly used to refer to 17 metals including the 15 lathanides, yttrium and scandium.? They are all listed in Group 3 of the periodic table and have similar atomic structures and characteristics.? Most were discovered during the nineteenth century, though for many years they were barely more than a laboratory curiosity.? Demand in 1953 totalled just 1,000 tonnes of rare earth oxide worth $25M compared, for example, with 2.7 million tonnes of copper production that year with a value of $1.7B.??????
More recently however material scientists have discovered that the metals have a plethora of important magnetic, electrical, chemical, optical, fluorescent, metallurgical and catalytic properties. These characteristics have made the metals vital components in many new and environmentally friendly technologies.? For example they are used in supermagnets as they have high magnetic strength per unit of weight.? These magnets can be used in electric motors which can then be smaller, lighter, quieter, produce less vibration and be more energy efficient, Wind turbines using REEs are more efficient, lighter (and therefore taller), and require lower maintenance.?
REEs are also used in MRI scanners, LEDs, energy efficient light bulbs, glass, ceramics, superalloys, aerospace and a whole host of consumer electronics such as Ipods, monitors, hard disk drives, laptops and cellphones. Hybrid cars are voracious consumers typically using 30kg of rare earths per car in order to lower emissions and better fuel economy. REEs are also vital components in a number of defence applications including mine detection, missile guidance systems, lasers, radar, missile-guidance systems and so on. Demand has risen rapidly averaging 8%pa from 2003 to 2008 when a total of 124,000 tonnes of rare earth oxide was consumed, with a value of $1.25bn.
The metals always occur together in the earth's crust; the fact that they have not separated into individual metals even after eons of repeated melting and resolidifying is testament to the similarity in the properties of these elements.? However each deposit has varying combinations of the metals, though the "Light Rare Earths", those with atomic numbers 57-62, typically account for about 97-99% of the rare earth oxides in a deposit leaving just 1-3% for the "heavies" (HREE). Despite their name the metals are not particularly rare - indeed even the rarest is more than 100 times more abundant on earth than gold.? But they are only rarely found in economically viable concentrations.
Prior to 1948 the metals were sourced principally from placer sands in India and Brazil.? Thereafter rare earths deposits were identified in a number of minerals including monazite, bastnasite, xenotime and ion-adsorption clays; production became more widespread.? By 1990 fourteen countries were mining the metals with the USA the largest producer thanks to the Mountain Pass deposit in California.
China meanwhile began recovering rare earths as a by-product of iron and steel in Mongolia in the 1950s.? It actively supported research and development into the metals, and by the 1980s it had joined the world stage of producers. The industry grew rapidly but in an unregulated fashion spawning businesses of all sizes from huge state-owned enterprises, through small businesses running rare earth processing plants to artisanal miners. By 1992 it had become the world's largest producer, and Chinese leader Deng Xiaoping, recognising the strategic importance of these resources declared, "There is oil in the Middle East; there is rare earth in China".?
Worldwide prices of rare earths plummeted In the 1990s driven down by the triple whammy combination of a rapid rise in Chinese supply, low demand (rare earths were then only used in niche applications), and low costs in China due to low wages, intensive competition within China and its lax mining standards/environmental controls.? This undercut mines in the West eventually driving them out of business or causing them to cutback production. By 2000 China accounted for 88% of world production. Today that figure is 97%.
Outlook for Rare Earths
Demand for rare earths took a significant hit during the financial crisis falling by a third in 2009.? However demand is rebounding this year and the number of applications is continuing to rocket.? New technologies to use rare earths, including tidal power generation turbines, hydro power generation, magnetic refrigeration and eBikes could lead to incremental growth in demand.? In particular wind turbines could become massive consumers; for example the Chinese plan to extend installation of wind electrical generating capacity from 13GW last year to 300GW by 2020 could on its own require three and half times current world production of neodymium. ? Chinese supply meanwhile is fragile. The industry has been fragmented and extraction techniques have been inefficient and often environmentally hazardous.? China is now therefore taking a raft of measures to protect and optimise its diminishing resources (it recently declared that it has only 15 years resources left of the heavy rare earths), to ensure that it has enough for domestic usage and to maximise the value added in China. It has therefore been imposing production quotas, restricting export quotas, stockpiling, increasing environmental regulation, closing down small and/or illegal operations and consolidating larger ones in an effort to gain more control.?
But the USGS estimate that Chinese resources account for 'just' 58% of the world total.? Supply/demand fundamentals and rising prices are one again creating opportunities outside China.? Lynas should be the first off the block with a mine to market pipeline in place by the third quarter of 2011 (see below for more detail).
Molycorp, which owns the Mountain Pass mine in California recently completed a $390M IPO to restart mine production generating 20,000 tpa by 2012. Other new projects are being developed in Canada, South Africa, Vietnam and Greenland amongst others, though none are likely to be in place much before 2014.? Although development for these will be long, expensive and challenging there may be governmental assistance if legislation such as the proposed RESTART (Rare Earths Supply-Chain Technology and Resources Transformation) Act in the US is passed.? This aims to ensure the reintroduction of a competitive domestic rare earth supply chain by all necessary measures including the provision of government-backed loan guarantees, support for innovation, training and workforce development, research into recycling and so on.? Finance may also be forthcoming from the Chinese who are seeking to secure supplies from abroad.
It is clear from recent price trends that some of the metals are already in shortage. Looking ahead supply to 2014 is likely to be restricted to constrained Chinese supply plus the new production from Lynas and Molycorp.? Meanwhile demand for rare earths in existing technologies is anticipated to grow organically to at least 200,000 tpa of rare earth oxides worth $2-3BN by 2014 according to Dudley Kingsnorth of IMCOA.? Then there will be incremental demand from the new technologies particularly if the Chinese wind turbine progresses as planned.
There is a school of thought too that the market for rare earth metals is currently inefficient and mispriced ? see the section on Dacha Strategic Metals below for more detail.? All in all it seems likely that there is considerable upside potential for prices on at least some of the metals.
LYC Price at posting:
$1.51 Sentiment: Buy Disclosure: Held
