##{"id":60358,"date":"2012-08-02T14:53:06","date_gmt":"2012-08-02T04:53:06","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/08\/02\/rare-earths-done-and-dusted-or-is-it-xeno-time\/"},"modified":"2012-08-02T14:53:06","modified_gmt":"2012-08-02T04:53:06","slug":"rare-earths-done-and-dusted-or-is-it-xeno-time","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/08\/02\/rare-earths-done-and-dusted-or-is-it-xeno-time\/","title":{"rendered":"Rare Earths Done and Dusted? Or Is It Xeno-Time?"},"content":{"rendered":"

\n\tBy Greg Peel<\/p>\n

\n\t“While some companies can point to good access, and a few can also claim to have ways to raise the money required, there remain very few that can talk a cogent gathering of sentences about how they intend to process their minerals AND do it profitably.”<\/p>\n

\n\tChristopher Ecclestone<\/span>, Hallgarten<\/span> & Company<\/p>\n

\n\tEcclestone's<\/span> statement sums up why last year we saw a rare earth element (REE<\/span>) bubble, and this year we've seen a bust. I have often made note in past articles on the subject of REEs<\/span> that the hysteria engulfing these elements has been more than reminiscent of the uranium bubble-and-bust of the last decade. Spot uranium traded at US$20\/lb at the beginning of 2005, hit US$138\/lb in early 2007, and fell to US$40\/lb by 2009. There was no nuclear disaster to prompt the price collapse, no demand crash and no sudden supply surge. The run-up in price had simply been the result of speculative nonsense, and it was always going to end in tears.<\/p>\n

\n\tThe uranium price has not much recovered today, with Fukushima ensuring such. However, China's nuclear ambitions are back on track, and it was largely China's nuclear ambitions which drove the speculative bubble in the first place. Hedge funds began buying uranium, and the herd followed. Suddenly there was a global explosion of junior mining companies declaring uranium deposits in their mix, and so their share prices were sent to the moon. And, ultimately, back again.<\/p>\n

\n\tThe story has repeated with REEs<\/span>. China is again involved, but this time in a reverse role. While the rest of the world was paying little attention to REEs at the beginning of the new century, China was providing around 95% of global REE<\/span> supply. Modern technology has since extensively boosted global REE<\/span> consumption and demand, prompting the rest of the world to quickly get in on the act. Not being one to miss an opportunity, last year China attempted to corner the market in processed REEs<\/span> by imposing export restrictions. Already strong ex-China REE<\/span> prices “went parabolic” as a result. Consumers were priced out of the market, prices peaked, and sensing a potential shooting-oneself-in-the-foot experience, China relented and eased export restrictions. The price of valuable heavy rare earth element dysprosium, for example, has fallen from a US$2500\/kg peak to US$1200\/kg.<\/p>\n

\n\tIt was easy for junior miners to claim uranium deposits in 2006 – it's very hard to mine anything without finding at least some small level of uranium. The share market did the rest. Yet large, commercially viable deposits of uranium are rare. So are large, commercially viable deposits of REEs<\/span> very rare, but that's not why they're called REEs<\/span>. The label “rare earth” is a scientific classification, not a qualification. Cerium, for example, is more abundant than copper. It's not that difficult to find traces of the more valuable and scientifically defined REEs either, but it's very difficult to find grades worth even considering. Yet as was the case with uranium, this fact did not stop geologists jumping out of their skin to inform the market their company's deposits contained REEs<\/span>. Once again, the share market did the rest.<\/p>\n

\n\tAhead of the REE<\/span> price peak, over 200 global mining companies of varying sizes were quick to declare REE<\/span> deposits within their resources. As was the case with uranium, wild-eyed investors responded accordingly. It was not long, however, before investors came to realise<\/span> that finding traces of REEs<\/span> was one thing but that finding commercially viable traces was another, and that viability came down to composition of the relevant REE<\/span> basket discovered. Furthermore, each REE<\/span> must be processed out of the mineralisation<\/span> in a very elaborate and costly process. Investors were soon to learn that the sheer extent of capital expenditure required was enough to kill off any less than ideally positioned REE<\/span> aspirant. Notes Ecclestone<\/span>:<\/p>\n

\n\t“While the investing audience initially knew nothing about even the REE<\/span> basics, the basics are now taken as given and corporate presentations have run to the end of the rails on processing platitudes. As we have said ad nauseum<\/span> before, REEs<\/span> are about 'chemistry, chemistry and chemistry'. That is all one needs to know and if one doesn't have the chemistry right, then grade, sheer quantity, a nearby highway or a friendly Japanese offtaker<\/span> won't save a project from an ignominious fate.”<\/p>\n

\n\tThe analyst suggests a “sheer credibility gap” has opened up in the REE<\/span> space over the last year, and it all comes down to three issues. Firstly, simple access. Some projects touted in Canada, for example, have proven so isolated they cannot be viable under “even the most rosy price scenarios”. Secondly, financing. Capex<\/span> spend required can drift from the low hundreds of millions of dollars into the billions. Thirdly, processing. Plausible and cost-effective processing exists for only some of the complex mineralisations<\/span> with which REEs<\/span> are associated.<\/p>\n

\n\tEcclestone's<\/span> statement, which opened this article, will now make more sense. Let's review:<\/p>\n

\n\tIt is now a commonly held belief among REE<\/span> experts that of the 200-plus companies at some point declaring themselves in the REE<\/span> race, only a handful will actually survive. Or at least continue to pursue REE<\/span> ambitions. In FNArena's<\/span> last REE<\/span> instalment<\/span>, Rare Earths, Lynas<\/span> And Hastings<\/a>, expert Jack Lifton<\/span> cited Molycorp<\/span> and Ucore<\/span> in the US, South Africa's Great Western and Australia's Lynas<\/span> Corp ((LYC<\/span>)), along with a couple of others, as being in the race. He also singled out Australia's Hastings Rare Metals ((HAS)) and Northern Minerals ((NTU<\/span>)) as contenders, albeit with some way to go.<\/p>\n

\n\tHallgarten<\/span> & Company specialises<\/span> in analysis of the global resource sector. Hallgarten<\/span> had already culled its REE<\/span> focus down to those companies which “might survive”, and now the analysts have gone a step further and are focusing on those they believe “will survive”. From 200 companies, they are now left with five – Molycorp<\/span>, Lynas<\/span>, Ucore<\/span>, Great Western and Northern Minerals. <\/p>\n

\n\tTo that list we can also now add Australia's TUC<\/span> Resources ((TUC<\/span>)).<\/p>\n

\n\tIn 2005, TUC<\/span> Resources went looking for uranium near Pine Gap in the Northern Territory of Australia, and pegged out tenements. Early success was not forthcoming, so TUC<\/span> expanded its tenements and kept looking. By 2009 TUC<\/span> had found what might be something of a uranium deposit, but by 2009 the uranium price had bubbled and burst. At another site, while looking for uranium, TUC<\/span> found a prospective light rare earth element (LREE<\/span>) deposit. By this stage REE<\/span> prices were on the move up. Perhaps a change of tack was in order?<\/p>\n

\n\tIn 2011 TUC<\/span> was revisiting earlier test sites, this time with REEs<\/span> rather than uranium in mind, and what the geologists discovered would have required a few stiff drinks afterwards to absorb. REE<\/span> prices had already peaked at this point, and so finance would prove a lot more difficult to obtain than only a short time earlier, but TUC<\/span> had discovered a deposit of a mineral called xenotime<\/span>.<\/p>\n

\n\tTaking into account all that has been said above, xenotime represents somewhat of an REE<\/span> Holy Grail.<\/p>\n

\n\tHallgarten<\/span> has been convinced for some time that “the word” in the REE<\/span> space is “xenotime”<\/span>, which is what originally sparked the analysts' interest in Northern Minerals – the only other xenotime<\/span> player in the heavily crowded REE<\/span> field. Xenotime<\/span> is an REE<\/span> phosphate mineral, the major component of which is yttrium orthophosphate (YPO4<\/span>). The rare earths dysprosium, erbium, terbium and ytterbium and radioactive elements such as thorium and uranium are all secondary components of xenotime<\/span>.<\/p>\n

\n\tThe principal sources of REEs<\/span> being touted by the bulk of REE<\/span> companies are bastnasite<\/span> and monazite. Loparite<\/span> is the source for the Silmet<\/span> plant in Estonia but it is the lateritic<\/span> ion-adsorption clays found in China which are the “virtual magic elixir” of the industry, being “seemingly easy” to both mine and process. While this type of mineralisation<\/span> has also been found in Vietnam, and may well be present elsewhere in the world, the Chinese have been “widely viewed as blessed” in laying claim to this peculiar resource.<\/p>\n

\n\tDespite their high relative abundance, notes Hallgarten<\/span>, REEs<\/span> are more difficult to extract from host mineralisations<\/span> and then to process into concentrates or oxides than equivalent sources of transition metals, making the REEs<\/span> relatively more expensive. (“Transition metals” are all metals exhibiting malleability, ductility and heat and electrical conductivity, of which there are 38, including everything from copper, nickel, zinc and iron to precious metals.) The industrial use of REEs<\/span> was very limited until efficient separation techniques were developed.<\/p>\n

\n\tIon-adsorption clays are the most sought after, yet most elusive and mysterious, source of REEs<\/span> due to their ease of processing, and so far are seemingly geographically restricted to Southern China. Not only is the overall refining easier, it is more economical and theoretically more environmentally friendly. What TUC<\/span> Resources has in in xenotime<\/span> mineralisation<\/span> is not, Hallgarten<\/span> is quick to point out, ion-adsorption clay, but rather “ionic-like”clays. Hence TUC<\/span> has not quite hit the jackpot, but has stumbled upon arguably the next best thing.<\/p>\n

\n\t“Scant mention is made of xenotime<\/span> except amongst the [REE<\/span>] cognoscenti,” notes Ecclestone<\/span>. “This is not surprising as TUC<\/span> Resources and Northern Minerals are the only companies we know which have it”.<\/p>\n