\n\tBy Greg Peel<\/p>\n
\n\tAs FNArena<\/span> noted in July's feature article Make Mine Rare<\/a>, the world has come to arrive at two misconceptions with regard to “rare earth elements” (REE<\/span>). The first is that any element which has seen its price skyrocket in recent years must by definition be a REE<\/span>, and the second is that prices have skyrocketed because of that global rarity combined with a jump in demand. Neither assumption is strictly true.<\/p>\n \n\t“Rare earth element” is a scientific classification referring to the Lathanide<\/span> series of elements in the periodic table which fill atomic numbers 57-71. The lower numbered are known as the light rare earth elements (LREE<\/span>) and the higher numbered the heavy rare earth elements (HREE<\/span>). There are other elements outside of this specific classification which have also seen their prices skyrocketing in recent years including Zircon (40) and Niobium (41) and even Titanium (22). Strictly these are not REEs<\/span>.<\/p>\n \n\tNor are REEs<\/span> rare in terms of global abundance. Cerium (58) is about as abundant as copper (29) for example. REEs<\/span> are only “rare” in that they are rarely found in large concentrations. In particular, dysprosium (66), which is one of the most sought after REEs<\/span>, is not often found in commercial quantities. Yet a rule of thumb in the REE<\/span> game is that if your deposit has no dysprosium you'll struggle to make a profit. One thing is certain however, and that is that prices recently seen for REEs<\/span> outside of China are in no way representative of what they should be were existing global deposits (not even counting those as yet undiscovered) to currently be at production stage.<\/p>\n \n\tChina produces 94% of the world's REEs<\/span> at the moment yet can only boast 36% of known deposits. Moving REE<\/span> from the ore deposit stage to the concentrate stage ready for use is a highly complex and costly business – far more so than copper, for example. Last century, when the global demand for REEs<\/span> was insufficient to justify such investment, Western private enterprise eschewed REE<\/span> projects. Communist China had no such concerns however, and had a solid customer in nearby Japan.<\/p>\n \n\tOne area of unsubstitutable<\/span> use for LREEs<\/span> is in “screens” – television, computer etc. Japan became the world leader in the export of manufactured electronic goods a while back, and hence a major consumer of REEs<\/span> which it bought from China. The urbanisation<\/span> and industrialisation<\/span> of China suddenly re-awoke the base metal and bulk mineral industries in the noughties<\/span> which had been asleep since the nineties' recession, such that the world scrambled to rebuild production of everything from copper to iron ore and coal as price soared on Chinese demand. At the same time, the boffins<\/span> of the West were creating new products requiring a sudden demand surge for REEs<\/span>. These include screens in everything from HD TVs to smart phones and tablets. But it also includes “green” things like wind turbines and electric motors which rely on HREEs<\/span> for their supermagnetic<\/span> characteristics. Another supply-side scramble then began.<\/p>\n \n\t“Screen” and “green”. They could be the buzzwords of the twenty-tens. And not only are the Chinese now buyers of computers and smart phones and televisions, since the West outsourced its manufacturing base to China the Chinese have learned how to make their own.<\/p>\n \n\tChina is thus sitting in the box seat. <\/p>\n \n\tIn 2008, China supplied nearly all of the global annual demand for REEs<\/span> outside of China of 50,000-55,000 tonnes<\/span> but in 2010 Beijing cut its export quota to 30,000 tonnes<\/span>. That quota stands again in 2011. In early 2011 REE<\/span> prices had jumped to a level outside China of some fifteen times those within China, notes the New York Times. Some elements had seen their prices rise thirty-fold in three years.<\/p>\n \n\tYet since August, prices have begun to plunge. Prices outside of China for LREEs<\/span> such as lanthanum (used in oil refining) and cerium (polishing flat screen TVs) have fallen by as much as two-thirds. Sharp falls have also been seen for highly magnetic neodymium (smart phones, wind turbines).<\/p>\n \n\tEx-China REE<\/span> prices had simply become too high. For every raw material there is a price at which demand destruction kicks in, no matter how unsubstitutable<\/span> that element. In the US, Europe and Japan, companies have simply been moving their operations to China to thus access Chinese prices. Others have drawn down on inventories, switched to alternatives, or simply ceased manufacture until such time prices become commercial once more.<\/p>\n \n\tAs was noted at the recent International Rare Earths Conference, falling prices have scared speculators into dumping their own stockpiles, feeding into the plunge. Cerium has fallen from US$77\/lb in August to US$45\/lb in November. Mind you, it was US$6\/lb three years ago before China began to limit exports.<\/p>\n \n\tThese prices adjustments have, of course, annoyed Beijing. The response has thus been a ban on selling REEs<\/span> at prices deemed to low, such that despite export quotas the minimum price for cerium has been set at US$70\/lb. Beijing has also begun to enforce strict environmental regulations on REE<\/span> mining, such that Chinese producers are being forced up the cost curve anyway.<\/p>\n \n\tIf there was one overriding theme of the Conference, notes Goldman Sachs, it was that the current farce cannot continue if the global REE<\/span> market is to be viable. Price stability is paramount, and price ceilings have now been found beyond which consumers back down. Quite simply, new sources of global supply are needed.<\/p>\n \n\tIf only it were that simple. For as REE<\/span> researchers Hallgarten<\/span> & Co have found, the three most advanced projects outside of China have really not moved forward much in the past year given the build time for a processing plant is considerable. Molycorp<\/span> in the US has had the advantage of already carrying inventories of lanthanum and cerium, and its Silmet<\/span> project looks like being the first in the world to reach the First Revenues stage for a new project. Australia's Lynas<\/span> ((LYC<\/span>)) had been coming up fast behind Molycorp<\/span> and looked like pipping the Americans on New Production until the Malaysian government threw a spanner in the works by holding up the approval process for the Lynas<\/span> Advanced Materials Plant (LAMP).<\/p>\n \n\tMeanwhile, Great Western is gearing up for a plant build in South Africa that will put first non-Chinese HREEs<\/span> out in the marketplace in early 2013. As to competition for these Big Three, the peleton<\/span> has fallen well behind, Hallgarten<\/span> notes. <\/p>\n \n\tThe comparisons with uranium in 2006-07 are clear. When the uranium price was running hot, suddenly everyone was declaring they had a uranium deposit. On this news alone the prices of mining juniors were rocketing hundreds or even thousands of percent. In 2010-11, it's REEs<\/span> which suddenly seem to be everywhere. But as was the case when the uranium price burst, the bursting of REE<\/span> prices has quickly seen a lot of mining companies go rather quiet. Moreover, those miners which can only really lay claim to commercial deposits of niobium which, like zircon is not strictly an REE<\/span>, have sensibly decided to stop claiming REE<\/span> status.<\/p>\n \n\tAustralian investors would be heartened to learn that of the three international REE<\/span> hopefuls sitting another level back from Lynas<\/span> – somewhere between the environmental assessment, permitting and financing stage and the mine build stage – two are Arafura<\/span> Resources ((ARU<\/span>)) and Alkane<\/span> Resources ((ALK<\/span>)). Both, like Lynas<\/span>, have seen their share prices rather hammered this past few months as REE<\/span> prices have fallen.<\/p>\n \n\tMeanwhile, one company that has yet to draw significant attention from international researchers is Hastings Rare Metals ((HAS)), which FNArena<\/span> introduced in the aforementioned feature Make Mine Rare<\/a>.<\/p>\n \n\tHastings has just completed a scoping study which has shown “great potential for success”, with a total heavy rare earth oxide resource of 62,000 tonnes<\/span> that places Hastings in the world's top ten. Most of this resource is accessible via simple open cut mining and initial estimates are for a mine life of 15 years.<\/p>\n \n\tWhat sets Hastings' deposit apart from the pretenders back in the field is its extremely high proportion of heavy rare earth oxides (85%) of its total rare earth oxide content. Based on a proposed one million tonne<\/span> per annum mining rate Hastings estimates it can produce 1000 tonnes<\/span> of ytterium<\/span> (39) oxide (which is not an REE<\/span> bit sits alongside zircon and niobium) and 150 tonnes<\/span> of highly valuable dysprosium oxide (the king of HREEs<\/span>).<\/p>\n \n\tOf course, getting the stuff out of the ground is one thing. Processing the ore into actual product is the highly complex part, and the part which requires a plant build of considerable timeframe unless processing is outsourced. Lynas<\/span> has been busy learning the pitfalls of outsourcing plans.
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