Dee Rare Earths is still a relatively young industry and I am by no means an expert but I always research and apply my understanding of other resource projects to better understand Ngualla.
I'll try to answer your question in a clear and simple manner.
Firstly China. As mentioned they are keen to keep a tight hold on supply and maintain their monopoly. However as you know the west is not too happy about this and China themselves are now getting very serious about the environment. A lot of the industry over their is involved in the black market and even the legit companies have a very poor record environmentally. Their methods and the locations of the mines (nearology to key waterways and farmland etc) are far from ideal.
As a result of their latest invoicing policies and crack down on environmental standards sourcing a concentrate from somewhere like Ngualla (huge tonnage deposit of good grade) they not only have a big influence on world supply dynamics but also avoid ruining their own environment with poor mining techniques and leaching technologies. There is still spare capacity at their processing facilities and they have the IP and methods that other companies have taken years and years to develop.
If they secure Ngualla they could comfortably produce at a lower cost than Lynas and really test them. Further to this they have a big involvement in Tanzania and Ngualla shapes as an ideal asset to their domestic manufacturing industry. If anyone is to take out PEK as a whole China would be in prime position due to their knowledge of the industry and their RE infrastructure in place (something which other countries are well behind on). After learning how Chinese do business and think in terms of investments and projects they are too smart to overlook it!
Next is LYC.
Yes they may be processing their own ore but what has to be understood is that RE processing is very different to say Iron Ore or Coal where each company can easily seperate their own ore with standard technologies and capex/opex estimates. Not all companies are going to be able to develop the technologies to separate the ore nor get funding to do so due to the nature of their deposits(you saw how long it took LYC themselves). This bodes well for LYC on two fronts.
They can almost have two businesses firstly an ore business (where they stockpile ore and control supply/demand much like China do and almost act like) and secondly a specialist processing, marketing and distribution company (where they take others concentrates process them, obviously make a margin on it, and use their existing customer and sales channels to get the product to the end user). As such they could be like the Glencore of Rare Earths.
The more RE they get the better chance they get to compete against China, they make money on not only their mines and mining but also the margin on processing concentrate with their IP/Technology and using their existing and future business channels. They also have back up supply should demand outweigh their supply or if they gain further large customers (Note that all of this is long term LYC thinking as i am assuming RE demand rocketing and Lynas becoming a major force with plant expansions and stockpiling etc).
Think of it like a large LNG gas project (an area I am more familiar with). Companies like Santos and their QLD LNG project source gas from various companies for various reasons to have security of supply, get the most out of their infrastructure capacity, quality of gas and to meet differing customer needs and meet terms of numerous gas sales agreements. The greater control of gas on the eastern market the greater flexibility it gives them and provides further supply assurance to their customers.
Resources is a complex thing as a whole but relatively simple when broken down into the different variables. I hope this was of assistance.
PEK Price at posting:
46.1¢ Sentiment: Buy Disclosure: Held
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