Molycorp

2012 Outlook: Uncertainty Continues For Rare Earths Prices, China Still Major Player

(Kitco News) - After exploding onto the metals scene in 2010 and garnering widespread media and investor attention, rare earths element prices have dropped and have been unstable mainly due to demand tapering off in 2011, leading to uncertainty in 2012.

Low demand during 2011 was caused by high rare earths prices from both heavy and light rare earths metals, which despite their fluttering prices, remain historically high.

Despite unstable prices throughout 2011, there is some expectation that rare earths prices might become more stable in 2012.

“I think that rare earth metals, they tend to be more strategic in nature and supply versus demand remains quite balanced in favor of prices being stronger in 2012,” said Mike Frawley, global head of metals at Newedge Group. “The pace of consumption in mainland China is a critical component of demand, prices.”

The Chinese continue to control most of the rare earths supply but reports show that Chinese exports are extremely low. Information provided by Metal Pages, a news site that focuses on non-ferrous metals, ferro alloys and rare earths, indicated that rare earth elements exports have dropped 65% in 2011 and that China has only exported 11,000 metric tons of rare earths through the first three quarters of the year.

Reports suggested that the Chinese government may change regulations that would get around Chinese producers who have cut their supply while keeping prices high.

Rare earths prices alone are also an issue not only with volatility, but with their general cost.

According to a report focused on rare earth elements performance for the upcoming year from A.L. Waters Capital, the firm highlighted some specific rare earths and their current prices compared to their peak prices.

A heavy rare earth such as dysprosium, which is commonly used in televisions and lasers, reached a market high of $2,800 per kilogram while its current price is $2,000.

Another heavy rare earths type, europrium, which is used in television screens, peaked at $5,900/kg while its current price is $3,900.

Some light rare earths come at a substantially cheaper price, such as neodymium, which is used in magnets, peaked at $410/kg on the market and currently sits at $270. (A complete list of all 17 rare earth metals and their uses can be found at the end of the article.)

While rare earths are expensive to use in producing several products used daily, the drop in demand does not come from an alternate substance that can be as effective for a fraction of the cost.

“Demand has gone down (in 2011) but I also think that they haven’t really been able to replace rare earth metals,” said Arnett Waters, chairman of A.L. Waters Capital. “I think that part of what’s going on is that businesses are spending less money on more expensive stuff. If I have a use for europrium and I can use a quarter of a pound of it and it does ok in the product that I’m making, I’m not going to adopt a new product in this economy. It would cost too much money.”

Also, with current economic crises around the globe, it is expected that demand will not be strong in 2012 given the historical high prices of rare earths.

Waters used strategic military defense equipment as an example.

“In the case of strategic military equipment, defense budgets are declining,” Waters said. “I realize the U.S. may not be cutting stealth bomber production, but I am saying that in many countries that would like to use these rare earth metals for strategic purposes are cutting their defense budgets and they cannot afford it.”

Rare earths metals play a large role in current modern technology, cruise missiles and other weapons systems.

PRODUCING RARE EARTHS METALS OUTSIDE OF CHINA

China holds most of the processing capacity for rare earths metals.

“A lot of the processing capacity is in China and you can’t use Chinese capacity unless you’re actually getting your rare earths from them,” said Waters. “That’s why Lynas Corporation Ltd. (ASX: LYC) and others have been building their plants in Malaysia.”

Lynas currently has a concentration plant under construction at Mount Weld in Western Australia as well as an advanced materials plant in Kuantan, Malaysia. Neither plant has begun production yet.

Molycorp Inc. (NYSE:MCP) has three facilities, two located in the U.S., California and Arizona respectively, as well as one located in Estonia. The company stated earlier in 2011 that production from the three facilities would produce between 4,941 and 5,881 metric tons by the end of 2011. The company expects to raise production to 19,050 metric tons by the end of 2012.

The sentiment to mine and produce rare earths outside of China does not fall squarely on the shoulders of these two companies but it is still believed that bigger companies will gain more control of mines and production compared to smaller mining companies.

“At the end of the day it just means that there’ll be fewer smaller mines and there’s a natural evolutionary process that takes place in all developing parts of the world,” said Frawley. “You’ll have the small miners who will be succeeded by stronger companies. A more efficient process will begin to emerge.”

“That takes a long time and I don’t see it changing the balance of that supply any time soon.”

RARE EARTHS AS AN INVESTMENT OPTION FOR THE GENERAL PUBLIC

The biggest obstacle rare earths metals face as an investment is that although classified under the umbrella of rare earths metals, there are 17 different types and they are separated into two categories.

“Rare earth prices are not listed like precious and base metals prices so it is difficult for the average person to invest in,” said Waters. “It’s a barrier to the growth of the industry.

“As the market is maturing, there is going to be a need for a centralized source of information.”

Although newer in the metals world than precious and base metals, information can always be found.

“They’re small markets in comparison to gold, copper and aluminum in terms of tonnage and consumption tonnages,” Frawley said. “In terms of price transparency of these markets you’ll have to dig a little deeper.”

-List of heavy and light rare earths metals and their uses-

Heavy

Yttrium TV, glass and alloys

Promethium Nuclear batteries

Europium TV screens

Gadolinium Superconductors, magnets

Terbium Lasers, fuel cells and alloys

Dysprosium TVs, lasers

Holmium Lasers

Erbium Lasers, vanadium steel

Thulium X-ray source, ceramics

Yterrbium Infrared lasers, high reactive glass

Lutetium Catalyst, PET scanners

Light

Samarium Magnets, lasers, lighting

Neodymium Magnets

Lanthanum Re-chargeable batteries

Cerium Batteries, catalysts, glass polishing

Praseodymium Magnets, glass colorant

Scandium Aluminum alloy: aerospace

By Alex Létourneau of Kitco News
Source: http://www.forbes.com/sites/kitconews/2011/12/30/2012-outlook-uncertainty-continues-for-rare-earths-prices-china-still-major-player/3/

Molycorp, Daido, Mitsubishi form next generation rare earth magnets JV

Molycorp has formed a joint venture with Daido Steel and Mitsubishi to manufacture next generation NdFeB permanent rare earth magnets.

RENO, NV -

Molycorp, Daido Steel, and Mitsubishi have formed a joint venture to manufacture and sell next-generation neodymium-iron-boron (NdFeB) permanent rare earth magnets, producing greater performance with less reliance on dysprosium.

The joint venture will be financed by the three companies and by a government subsidy sponsored by Japan’s Ministry of Economy, Trade, and Industry.

The effort will utilize Daido’s commercial-scale magnet manufacturing technologies, Mitsubishi’s domestic and international marketing and sales network, and Molycorp’s rare earth oxide, metal and alloy manufacturing capabilities, according to Molycorp.

Target markets for the joint venture are the automotive and home appliance markets. “The joint venture has been provisionally awarded a supply agreement for a next-generation electric vehicle with a major automotive manufacturer,” Molycorp advised.

Rare earth magnets currently fall into two basic types: samarium cobalt and neodymium-iron-boron, both of which can be bonded or sintered. Currently, between 45,000 and 50,000 tons of sintered neodymium magnets are produced each year, mainly in China and Japan.

“The technology for use by the joint venture is a new and novel approach that does not depend on the use of patents held by other magnet companies,” said Molycorp. Instead, it “allows for the manufacture of permanent rare earth magnets that deliver greater performance with less reliance on dysprosium, a relatively scare rare earth.”

“The process also results in higher production yields,” the company added.

The technology is licensed from Intermetallics, a partnership between Mitsubishi, Daido and Masato Sagawa, co-inventor of the NdFeB magnet. Made with neodymium, praseodymium and dysprosium (or terbium), NdFeB magnets are considered the world’s most powerful permanent magnet. They are a component of high-performance motors used in the power trains of electric vehicles, hybrid vehicles and wind power generators, as well as in motors in home appliance and industrial applications.

The International Energy Agency estimates electric motors are used in 45% of global power consumption. The NdFeB magnets in motors could help reduce that power consumption by 20% and potentially reduce global CO2 emissions by 1.2 billion tons.

“I am happy and very honored that Molycorp is able to partner with these extraordinary companies, who are global leaders and innovators in so many areas,” said Mark Smith, Molycorp CEO. “Molycorp is also pleased that the joint venture can break ground almost immediately and will be able to produce some of the world’s most powerful rare earth magnets in as little as 14 months.”

The JV plans to build an initial 500 metric-ton-per year magnet manufacturing facility in Nakatsugawa, Japan (Gifu Prefecture) with start-up expected by January 2013. The companies expect to commence work on the new facility next month and eventually expand operations in the U.S. and elsewhere.

“The next generation magnet manufacturing technologies being utilized by the joint venture are a perfect complement to the advanced technologies Molycorp is deploying across our own rare earth manufacturing supply chain,” Smith said, adding the initiative is a major milestone in Molycorp’s mine-to-magnets technology.

The capital contribution ratio of the joint venture will be 30% by Molycorp, 35.5% by Daido, and 34.5% by Mitsubishi.

By: Dorothy Kosich
Source: http://www.mineweb.com/mineweb/view/mineweb/en/page72102?oid=140588&sn=Detail&pid=72102

The Age of Rare Earth Metals: Luisa Moreno

The Critical Metals Report: Luisa, in a recent interview, you called the rare earth space “the modern Bronze Age played in the capital markets.” Could you expand on that?

Luisa Moreno: The Bronze Age was the first period of human civilization in which metal was used. This rare earth period is similar in that investors are learning about new elements and their applications, which are fairly critical for our modern lifestyle. At the same time, investors have the opportunity to create profits in the space. The analogy is an exaggeration, but we are discovering these new elements.

TCMR: You published a report called “Rare Earths Economic War.” Is there really a war in the rare earth space? If so, who’s winning?

LM: There is an economic war over the rare earths, with China on one side and other industrialized nations on the other—Japan, the United States and the E.U. China is probably winning. It has decreased exports in the last few years and increased protection. It has attracted a great deal of the downstream business and it is positioning itself well. At this point, it produces most of the world’s rare earths, and prices are at record highs. Japan and the other countries have been left with few options, and those options are more expensive, such as substitution, recycling and adapting production lines to use less efficient materials.

However, the capital and equity markets have been depressed for various global economic reasons. If the global economy recovers, stocks should go up—and hopefully investors will gain from that as well, because rare earths are still needed and we need to develop these projects.

TCMR: You have said that China may gradually phase out rare earth elements (REE) exportation and keep them for itself, to attract businesses and because mining them is a toxic business. So why doesn’t China get behind some REE projects, to get one into production and get the world off its back?

LM: China is concerned with its own demand, and my forecast indicates it will likely become a net importer. But to answer your question, China tried to buy Molycorp Inc.’s (MCP:NYSE) Mountain Pass project as well as the Lynas Corp. (LYC:ASX) project. It wasn’t able to, due to lack of support from local governments. China (and by China, I mean some individual companies and perhaps its government) would like to control most of the REEs and be able to supply the rest of the world, but the rest of the world is not ready to be dependent on the nation for such critical elements.

TCMR: A post on raremetalblog.com talks about China’s growing relationship with Wal-Mart, the world’s biggest retail company, and how it is trying to get Wal-Mart suppliers to be more sustainable. Another post talks about growing demand for LED light bulbs. They are expensive, but they more than pay for themselves in the long run. These items mean a greatly increased demand for REEs —so are we underestimating future demand?

LM: We may be. Chinese demand is better defined because China has the REEs and it can produce and consume them internally. It is different, however, in Japan, which has to decide now if it is going to develop and build production lines that are dependent on REEs. If it doesn’t feel comfortable with that, it might decide to use different elements instead of making products using these elements; it might choose to produce hybrid cars with fewer REEs.

At this point, there is great potential for REEs —but at the same time, if the supply is uncertain, some industrial nations might come up with a plan B. Assuming the global economy does well, there is great potential usage and demand growth, not just in China, but also in other nations’ energy strategies. So many risks are attached to supply that it is hard to accurately predict what the real demand will be.

TCMR: Does Japan have any leverage with China that can stabilize the flow of rare earths to its manufacturers?

LM: Japan might have some leverage, but not enough to change Chinese policies. You might remember the fishing dispute a few months ago; China stopped exporting to Japan until it felt comfortable the dispute was resolved. You could say Japan has almost no leverage—and that is true of the U.S. and EU as well. Japan has been talking to China for a long time, and the World Trade Organization is aware of the struggles, but no one has been able to persuade China to change its policies.

TCMR: China has attempted to curb illegal and small-scale rare earths mining. Are the Japanese sourcing the REEs through these kinds of means now? Do you think Japan will resort to the gray market?

LM: That is not something its government would disclose or announce, but I think Japan is trying to purchase the REEs through other nations— and it is possible that Vietnam, Thailand and neighboring countries are buying illegal rare earths. But based on its culture and what I have been told by Japanese traders and businessmen, Japan will avoid buying illegal rare earths directly from China. It would rather do business with the surrounding nations.

TCMR: Your report says the biggest obstacle to developing deposits is metallurgy, or the ability to recover and process the REEs. Is it true that no two REE deposits are identical, and therefore there is no standard process for extracting and refining REE-bearing minerals?

LM: Yes; no two deposits are identical, so the process will differ from project to project. The refining process of each element is performed using solvent extraction or ion exchange processes that are well known, but the balance of chemicals used and the design of the processes depend on the composition of the feedstock REE concentrates. It is definitely not one size fits all, so companies have to determine how to economically extract their REEs, which is complicated and expensive. My understanding is that solvent extraction is commonly used for the lights, while companies with high percentages of heavies may have to use the ion exchange process as well, and that tends to be equally expensive. So it is an expensive endeavor for a company that wants to extract anywhere from six to 10 elements. That is a lot of elements.

TCMR: We should also consider production of concentrates versus oxides. It is easier to produce concentrates, but concentrates reap only about 20% of the value oxides offer, correct?

LM: Potentially, yes. It depends on the percentage of the most expensive elements. For example, if the REE distribution in a company’s concentrate has high percentages of dysprosium and terbium and other expensive elements, then that could be a motivation for them to separate and refine the elements and realize the individual values. Those with more of the lights will realize less value for the individual refined elements. Some concentrates have more of the high-priced elements than others, but I’m not sure if a company can realize that price; the market for the concentrate is not very well known outside of China.

TCMR: Many companies are talking about producing oxides instead of concentrates, in hopes the market will attribute greater value to their projects, share prices having dropped from where they were in summer. Do you have any comments on that

LM: Either way, companies will always realize less of a price if they sell it as a concentrate instead of as individual elements. And yet, from concentrate to the individual elements, a lot of capex is needed—in some cases, it is justified, depending on the prices, but in others, it might not be. Meanwhile, time will tell where the prices of these elements will end up, and that will give a much better picture of these projects’ economics.

TCMR: What are the top four or five projects that are most advanced in terms of being able to economically recover and process the REEs and their respective deposits?

LM: Molycorp is well positioned. Another one is Rare Element Resources Ltd. (RES:TSX; REE:NYSE.A). Some say it is similar to Molycorp because it has high percentages of bastnaesite minerals, but the deposit is somewhat different. Again, no two deposits are identical. I had a chance to visit the lab that is performing its pilot study, and it seems Rare Elements Resources is the most advanced project at Hazen Research Labs. It’s the one that is in pilot scale, so it may be fair to say that is closer to production.

Another project making significant progress is Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX ), which is working with SGS Canada on its Kipawa deposit, and in the last few months the company has disclosed detailed information about the metallurgy. It is very confident about the results, and a pilot study should happen next year. Matamec should be disclosing details of its PEA in the next couple of days; relatively speaking, it has made significant progress in communicating its project advancement to the market. Hopefully the PEA will show some positive economics.

TCMR: That is primarily because of eudialyte, the mineralization hosting the REEs?

LM: Correct.

TCMR: Is that easier to process?

LM: Not historically. Eudialyte has always been problematic because silica gel formation was an issue in the processing and recovery of REEs. But working with SGS and other private consultants, Matamec has solved that problem, according to what the company has disclosed.

TCMR: Is there news regarding a possible offtake agreement there?

LM: It has not officially been disclosed, but Matamec has attended different conferences and it appears that Japanese and other Asian interest parties have approached the company numerous times. So, my perception is that there is significant interest in the Kipawa deposit, and that could materialize in an offtake or a memorandum of understanding or something like that.

TCMR: And you have a Speculative Buy rating on Matamec with a 12-month target of $1.50? It’s currently trading at about $0.26.

LM: Correct.

TCMR: Do you expect that will go lower before it goes higher?

LM: It depends on how the overall market performs. I wouldn’t expect it to go much further down, especially when the company is just days away from a PEA. Between that and the potential for an offtake agreement, things look positive for the stock.

TCMR: Another company you have a spec buy on is Frontier Rare Earths Ltd. (FRO:TSX). You had a 12-month target of $9.83 in July, but now that is down to $5.90. Why the 40% drop?

LM: Right after I did my first forecast, I was surprised to see the prices growing in increments of 300% and higher, and then it all collapsed. I did not predict that behavior at all, so I had to go back and adjust. I was also expecting to hear more details about the metallurgy, but I didn’t have access to those. At the same time, I continually try to understand the mineralogy and its potential challenges. All this led me to lower the recovery rates and prices, which reflected that decline.

TCMR: How does Frontier Rare Earths Ltd., with 532 thousand tons (Kt) of contained total rare earth oxides (TREO) in the indicated category and 415 Kt contained TREO in the inferred category, compare to other deposits in the space.

LM: Compared to other light deposits, it is a good size. Frontier plans to produce 20 Kt per year, and just based on the indicated resource of 22.9 million tons (Mt), it should be able to do that for 20 years. According to the company, it also has the potential to extend it further.

TCMR: The prospecting rights for Zandkopsdrift, Frontier’s main project in South Africa, are held by a subsidiary called Sedex Minerals. Frontier owns 74% of that project, and a black empowerment group owns the other 26%, according to the South African ownership laws. Does that hurt Frontier, not owning the project outright?

LM: A few investors are not comfortable with that, and those are investors who just don’t invest in South Africa because of that policy —they don’t know what the South African government’s next move will be. Thus, it may hurt Frontier a little. But since that is South Africa’s law, it also affects other companies operating there. For example, most platinum comes from South Africa and Russia, and there are still good investment opportunities there. So, it doesn’t make a project less relevant or important. I have met James Kenny, Frontier’s president and CEO. He is competent, very passionate about the project and very active. He is working hard to bring value to the project and bring partners to the table—and he has managed to bring Korea Resources Corp. (KORES) and a consortium of Korean companies in. He has been successful so far.

TCMR: Last time you spoke with The Critical Metals Report, you introduced our readers to Montero Mining and Exploration Ltd. (MON:TSX.V). Any updates on it?

LM: Montero has an established resource for the rare earths of about 5 Mt, and the company is working on expanding that. But Montero tells me that bastnaesite is the main mineral in the deposit, which is similar to the Molycorp deposit, Mountain Pass. Montero has been able to produce a mineral concentrate, and it has been really aggressive in terms of being able to get to the market first. There is hope that, by the end of next year, it will be able to sell either a concentrate or even individual oxides. That is very positive.

TCMR: Montero also increased its interest in Wigu Hill, its REEs project in Tanzania, by 10%, to 70%. Do you think the company will eventually buy it outright?

LM: If it becomes successful. That is probably the company’s plan.

TCMR: One other major issue right now is financing. Investors are becoming increasingly skeptical about companies’ abilities to produce returns. What companies have enough money to continue with their development plans for at least a year, and that don’t need further dilution any time soon?

LM: Molycorp has been very successful in raising money. Frontier has about $50 million (M), and it only needs about $20M to finish its feasibility study by next year. Rare Element Resources is also in a very good cash position. It has about $74M in cash, and it needs a fraction of that to complete its feasibility study by the end of next year as well; it can even extend it. Hypothetically, even if there were a recession for the next two years, I think these companies would have enough cash to complete their studies. Other companies that probably have sufficient cash for a year: Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.A; TASXF:OTCPK; T61:FSE), Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) and even Matamec. More than 12 months would probably not be possible for those three, however.

TCMR: What about the opposite? What are some companies that are looking to finance in a market that’s hostile to small-cap REE companies?

LM: I did hear that Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX) just raised $15M recently. The company has plans to build a concentration facility and is trying to produce as early as 2013. It will need more money as it moves from exploration into construction and to production of oxides and metals. It will be interesting to know how far the $15M will take the company and when it will need to come back to the market.

TCMR: In your report you write, “The Swedish government has declared Tasman Metals’ Norra Karr deposit as a strategic resource of national interest, and a consortium of rare earth end-users in Europe are closely monitoring the progress of the project. The project has the potential to generate significant volumes of all the key major rare earths.” With some of those key European players behind Norra Karr, is there any way that project can be fast-tracked?

LM: Only if there is a significant direct interest from the local government and perhaps even the Swedish government. The Europeans are generally conservative in terms of their mining policies, so they will want to ensure all the environmental studies are in place and that a mine development in the region will be done properly. So, while Sweden is eager to have the project going forward, they will probably stay cautious, avoiding extreme fast tracking because of the risk of pollution or other troubles. I hear that the European Union is interested in seeing this project develop, but I don’t think the European Union has enough influence over Sweden’s local government; those governments still operate independently. I think Sweden will take its time and make sure the work is done properly.

TCMR: Is metallurgy the main hurdle for fast tracking project development?

LM: Yes. Environmental studies are important and they take time, but not usually five years. The metallurgy is very important, making sure all the tests are done—and many of the tests are done by the same labs, which are testing or analyzing multiple deposits from multiple companies, and that causes delays. So metallurgy is definitely an important aspect in the timing to market.

TCMR: Any advice for investors in this space?

LM: Examine the same factors you would for any mining company: the exploration, the potential success, potential resource growth, infrastructure and exploration results—pay attention to the project’s minerals, and any radioactive elements. They might have bastnaesites or monazites, or some other minerals that have been processed commercially. Understanding different minerals, the metallurgy and how they are processed is key. Management and the team are also important: experience, delivery, starting and finishing projects. These are all important aspects for consideration.

TCMR: Thank you, Luisa. It’s been a pleasure.

Luisa Moreno is a senior mining and metals analyst at Jacob Securities Inc. in Toronto. She covers industry metals with a major focus on electric and energy metal companies. She has been a guest speaker on television and at international conferences. Moreno has published reports on rare earths and other critical metals and has been quoted in newspapers and industry blogs. She holds a bachelor’s and master’s in physics engineering as well as a Ph.D. in materials and mechanics from Imperial College, London.

Want to read more exclusive Critical Metals Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators and learn more about critical metals companies, visit our Critical Metals Report page.

DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Ucore Rare Metals Inc., Tasman Metals Ltd., Rare Element Resources Ltd., Matamec Explorations Inc., Frontier Rare Earths Ltd. and Montero Mining and Exploration Inc.
3) Luisa Moreno: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None.

Source: http://www.businessinsider.com/the-age-of-rare-earth-metals-luisa-moreno-2011-12

 

How to Invest in Rare Earths

Exchange-traded funds are jumping on the bandwagon to invest in rare earths and other strategic metals, mainly by investing in companies that mine and use the materials. There are risks for ETF investors to weigh.

Oil, Gold…Rare Earths?
As ETFs focus on some less-known materials, there are risks to weigh

The raw-materials rally that has driven investors to load up on gold, crude and wheat is also sparking interest in funds tied to relatively obscure commodities such as lithium, uranium and rare earths.

Investors have poured hundreds of millions of dollars into a handful of exchange-traded funds linked to those materials over the past year or so. But betting on these kinds of industrial building blocks presents some unusual challenges and risks.

Trying to replicate the price swings in underlying materials through an ETF is challenging because there are typically no futures markets for these substances, as there are for more commonplace materials. Holding the physical goods is often impractical as well. As a result, many funds instead concentrate rare-earth and other exotic-metals plays on related stocks, which can rise or fall independently of the commodities.

The fortunes of some of these materials—and the companies that work with them—can change suddenly. After Japan’s nuclear disaster in March, two ETFs that hold uranium-related stocks plunged amid a clouded outlook for nuclear energy and haven’t recovered to date. In addition, uncertainty about the global economy has caused prices of some rare earths to fall by double-digits in percentage terms in recent months, according to market participants.

Investors who accept the risks are generally buying into a thesis that’s been applied to a broad range of commodities in recent years—that rapid economic growth in emerging markets is pushing up demand and suppliers are struggling to keep up. Indeed, some basic commodities have leaped in price, but some of the biggest increases are related to lesser-known materials.

While oil costs a little more than twice what it did at the low point in 2009, for instance, the price of neodymium—one of a group of rare-earth elements used in high-tech products and advanced weaponry—was recently up 23-fold over a similar period, according to American Elements, a Los Angeles manufacturer that uses rare earths.

A Step Removed

Van Eck Global last year launched Market Vectors Rare Earth/Strategic Metals. What qualifies as a “strategic” metal is “a little subjective,” says marketing director Edward Lopez. But instead of buying the metals, the fund buys shares in companies that get at least half their revenues—or have that potential—from rare earths or materials such as titanium and tungsten.

Despite their name, rare earths are common in the Earth’s crust. But about 90% of rare-earth supplies currently comes from China, which has started to limit exports, saying it needs the materials at home. Likewise, foreign investors face restrictions on holding shares of major Chinese rare-earth producers, Mr. Lopez says.

Mining companies in the U.S. and elsewhere are trying to ramp up production to replace lost supplies. Investing in such companies carries distinct risks, Mr. Lopez says, including the hurdles of moving from planning to production and the possibility that the market for the materials may shift in the meantime. But the Van Eck fund includes among its top holdings Molycorp Inc., in Greenwood Village, Colo., and Australia-based Lynas Corp., companies that are developing rare-earth mines in the U.S. and Australia, respectively.

Shares of the Van Eck fund are down 21% since it was launched last October, and down 36% this year through Sept. 30. The fund at the end of August had $346 million in assets, according to National Stock Exchange, a data provider and stock exchange.

Liking Lithium

Lithium is another metal that has attracted widespread interest, because of the vital role it plays in powering a proliferating array of consumer electronics, including cellphones and laptops. But, as with other such elements, it’s impractical to invest in lithium directly. It’s an often volatile material and insuring a large stock could “take so much away from the return that it wouldn’t be practical,” says Bruno del Ama, chief executive of Global X, an ETF provider.

The company’s Global X Lithium, launched in July 2010, invests in shares of companies that mine lithium and in makers of products that use lithium, such as lithium-ion batteries.

The fund’s largest single holding is Sociedad Quimica & Minera de Chile SA, a Chilean company that produces plant nutrients and iodine as well as lithium. Shares in the company made up 23% of the fund’s holdings as of Sept. 30.

The fund had $128 million in assets at the end of August, including inflows this year of $24 million, according to National Stock Exchange.

Mr. del Ama says buying stocks can give investors a boost because miners can make money even if prices for the material stay flat. “If on top of that, the price of the commodity goes up…you get a leveraged impact on the return,” he says.

Shares in the lithium fund have fallen 16.2% since the 2010 launch, and are down 41% this year through Sept. 30. Average lithium prices in 2011 through July were 2% below average prices last year, according to TRU Group Inc., a consultancy that specializes in lithium.

Uranium Plays

The recent fate of two uranium-linked funds—Global X Uranium and Market Vectors Uranium+Nuclear Energy—shows that the “leveraged play works both ways,” as Mr. del Ama puts it.

After the March 11 earthquake and tsunami in Japan crippled the Fukushima Daiichi nuclear plant, uranium prices plunged amid concern the incident would undercut support for nuclear power. In early September, weekly prices for the thinly traded fuel were 23% lower than they were on March 7, before the disaster, according to Ux Consulting Co. LLC.

But shares in Global X’s uranium fund, which focuses on uranium mining, have fallen even harder, losing more than half their value since March 10, the day before the Japanese disaster. The Market Vectors fund, which invests in both miners and other firms that work on nuclear energy, has fared somewhat better over that same period, falling 33% through Sept. 30.

By LIAM PLEVEN
Mr. Pleven is a reporter for The Wall Street Journal in New York. Email him at liam.pleven@wsj.com

Rare Earth Q4 Outlook

It’€™s a familiar story for rare earth market watchers,€“ sky-high prices and tight supply outside of China.

But until significant production outside of China is established, analysts foresee few changes to this trend,€“ barring end users shutting up shop to cut demand.

2011 has thus far seen prices for most rare earth elements take off in the wake of tight control from over production and export quotas. Total production in China for 2011 has been capped at 93,800 tonnes , an increase of 5 percent from 2010, while exports have been restricted to 30,184 tonnes,slightly less than the 30,258 tonnes permitted last year.

Although Lynas Corporation Ltd . (ASX:LYC ) officially opened their Mount Weld mine in Western Australia on August 4th , production from this facility, which will initially be 11,000 tonnes per year, is not likely to make an impact on the REE market until 2012, as the first feed of rare earths concentrate into the yet-to-be-fully-licensed Lynas Advanced Materials Plant (LAMP) in Malaysia is scheduled for Q4 .

In the meantime, Molycorp Inc . (NYSE:MCP) remain the only major producer filling the gap outside of China, and the Colorado-based company has profited nicely from the comparatively modest amount of supply it has been able to pump into REE markets so far this year.

Last month Molycorp’€™s reported production results of 815 metric tonnes of rare earth oxides for Q2, and also announced that they expected output of 977-1,321 metric tonnes during Q3, and 1,017-1,377 metric tonnes for Q4.

Coupled with the sky-high prices most REE are currently fetching, the anticipated increase in output from Molycorp has left some analysts quite bullish on the company’€™s performance outlook for the remainder of the year.

Prices may climb further still as China halts production at 3 mines

One twist that may still play a major role in REE markets before the year is out is the halt in production announced by the Chinese government on Monday .

State media reported that production has been ordered suspended by year’s end at 3 out of 8 mines in Ganzhou, Jiangxi Province. The Ganzhou region produces nearly 40 percent of China’€™s rare earths.

Li Guoqing , Director of the Ganzhou City Mining Management Bureau, commented on Monday that it was unknown when production at the 3 mines would resume, and that an eventual resumption of operations would be based on directives from the provincial government.

Although the shutdown is mostly a consequence of China hitting its annual production quota too early and the government clamping down on illegal mining and exports, it is unlikely to have an impact on the 15,000 tonnes of rare earths slated to be exported from China over the last half of the year. The prospect of a prolonged shutdown in one of China’€™s key mining regions may well begin to ripple through REE markets during Q4.

EU reveals it is stockpiling rare earths to reduce dependence on China

Another development that could play out on REE markets over Q4 was the disclosure by the European Union (EU) on Tuesday that they are stockpiling rare earths to reduce their dependence on China.

Speaking to Reuters , Andrea Maresi, press officer for EU industry minister Antonio Tajani confirmed that they were “€œworking to secure supplies of these minerals from outside of the EU, such as from Latin America, or from Africa or other countries like Russia.”€

“€œWe are trying to improve our sourcing and reduce our dependence on China”€, he added.

David O’Brock , CEO of Molycorp’€™s majority owned Molycorp Silmet AS in Estonia, revealed to Reuters in a recent interview that he had been approached by the EU about stockpiling, and had advocated stockpiling at least 3,000 tonnes of rare earth carbonate.

In spite of his conviction that the EU should be stockpiling to offset export restrictions from China, however, O’€™Brock believes REE prices will level-out in Q4.

“€œI think that prices have already started to stabilize. And consumers have found their upper boundaries that they can pass on to their customers, unless the Chinese suddenly open the flood gates, I don’€™t see prices dropping and I don’t see a continued climb in the prices,”€ he said.

By Robert Sullivan
Rare Earth Investing News
09/07/2011

Can The U.S. Break China’s Stranglehold On Rare Earth Metals?

These elements are the building blocks of a modern society, and China has all of them. Until now. The U.S. mining industry is starting to catch up.

rare-earths

You may not know what rare earth metals are, but they probably feature prominently in your life: These 17 chemical elements, which are buried in the Earth’s crust, are found in common electronics (lithium-ion batteries, laser pointers), and many clean technologies (electric car motors, solar panels, wind turbines). It’s not surprising, then, to learn that our demand for dysprosium, neodymium, terbium, and the like have increased in recent years. As it stands, the Western hemisphere is almost entirely beholden to China for its supply of rare earths. And China is willing to play hardball with its mineral deposits, putting the U.S. in a dangerous position where a key part of our economy and society is controlled by a not altogether friendly country. But that may be about to change.

Rare earth metals, paradoxically, are actually not that rare at all-in fact, many rare earths are more common than gold. But up until now, the economic incentives to mine them just haven’t been there. Recently, however, China started to curb exports and raise prices of these previously cheap metals, realizing both that they need a large domestic supply and that much of the world is dependent on them. Outside of China, rare earth metals are seen in high concentrations in select sites in the U.S., Canada, Australia, and elsewhere. And that’s creating a burgeoning rare earth industry in the U.S.

In the 1960s and 1970s, the USGS flew over the U.S., using airborne magnetometers to find anomalies in the Earth’s magnetic field that could signify big rare earth deposits. In recent years, mining companies have taken it upon themselves to confirm the presence of these deposits. They use everything from satellite technology to “almost old-fashioned prospecting. They go out in the field looking for interesting rocks and minerals, and indications of spots of interest,” says Gareth Hatch, Founding Principal of Technology Metals Research.

There are hurdles for ambitious companies to jump through. The U.S. used to produce rare earth metals at the Mountain Pass Mine in California, but it was shut down in 2002 largely because of lack of demand and environmental issues (the mine spilled a large amount of radioactive water into a neighboring lake). In 2008, Chevron sold the site to Molycorp, a company interested in reviving the old mine. Molycorp is currently expanding and modernizing the mine-a process that will yield 40,000 metric tons of rare earths by 2013, or 25% of the world’s supply.

The company, which is spending $2.4 million a year on environmental compliance and monitoring, says it plans to keep the process as clean as possible. “If what they say is what they do, you’re looking at a much more environmentally friendly process than in China, with the recycling of water and reducing effluent into the environment,” says Hatch. “But at the end of the day, you’re still messing around with some pretty nasty chemicals, and you still have waste piles of rock and radioactive material.” Fast Company’s calls to Molycorp have not been returned.

In China, rare earth mines are often responsible for egregious environmental violations, including air pollution and the production of wastewater that contains large amounts of radioactive material and acid. The pollution makes people sick, and it destroys local farmland and waterways.

California’s Mountain Pass is huge, but it isn’t enough to supply all of America’s rare earth metals. This is partially because it will produce mainly light rare earths instead of heavy rare earths, a group of chemicals that are often found in smaller concentrations. We need both types to manufacture the electronics and gadgets we enjoy so much.

There is hope for American independence in the heavy rare earth arena, however. The Pea Ridge iron mine in Missouri has a known deposit, and Quest Rare Minerals is exploring some major heavy rare earth mines in Quebec, a place that probably isn’t as likely as China to cut off the U.S. from imports or jack up prices impossibly high.

And the U.S. may soon have another major rare earth mine to count on in Nebraska, where Quantum Rare Earths is working on what may be the biggest untapped rare earths deposit in the world. But there’s a catch: Actually mining this deposit may not happen for a while. “It needs to be further explored and defined,” says Scott Wescott, a corporate communications representative for Quantum Rare Earths. That means it will take at least two to three years just to figure out the economics of mining and work on gathering permits for construction.

The permitting process is a major hurdle for U.S. companies. “The time it takes to get through the red tape is mind-boggling,” says Hatch. One DOE report claims that it will take 15 years to break dependence on Chinese rare earth metals (Hatch believes it’s more like eight to 10 years).

But we don’t necessarily have to wait for companies outside of China to get moving on their rare earth projects. In the meantime, it’s worth paying attention to companies like Nanosys, which manufactures more sustainable replacements for some of the rare earths found in LED backlighting.

Even with multiple mines and creative companies working on replacements, the U.S. will likely remain at least partially dependent on China for rare earths. It’s the classic problem of competing with China: Multiple layers of red tape may do some good in protecting the environment, but they really slow things down.

Ariel SchwartzTue Aug 16, 2011
www.fastcompany.com

China’s robotics revolution may boost rare earths, precious metals

Taiwanese technology giant, Foxconn has announced that it will deploy one million robots in three years time to do a variety of routine functions including assembling, spraying and welding. The company has an employee strength of 1.2 mn of which one million is employed in Chinese Mainland.

Foxconn has already announced major expansion plans for China and nineteen new projects are in the pipeline including factories that will produce cameral lenses,LED lighting rigs and recently it opened a facility in Chengdu, provincial capital of Sichuan to manufacture laptop computers.

The impact of increased robotics usage in creating unemployment has often been discussed while the goal is to reduce labour costs and improve efficiency.

 However, the impact of increased robotics deployment will be see in commodities- both precious metals and rare earth elements stand to gain if China robotics revolution were to become a world-wide phenomenon. Already China restrictions on export of rare earth elements (REE) very critical for electronics, industrial, automobile and renewable energy applications has led to miners re-opening closed rare earth facilities around the world especially in USA and Canada. Recycling of rare earths has also intensified

Electronics industry also utilises precious metals including Gold and Silver in varying quantities in integrated circuits and assemblies.

The Silver Institute estimates that industrial demand for silver will jump to 666 million ounces by 2015, or a 36% increase from 2010. A report said the forecast growth will come from established applications, such as silver’s use in electrical contacts and in the photo-voltaic market. The technical proficiency of silver limits the ability to switch in favor of lower-cost alternatives, making the metal largely price inelastic. Emerging end-uses that benefit from silver’€™s antibacterial properties or incorporate silver’€™s electrical and thermal conductivity are expected to boost silver consumption through 2015.

According to World Gold Council technology demand for gold remained steady in the first quarter of 2011 at 113.8 tonnes ($5.1bn). A revision to the fourth quarter figures now means that 2010 was the highest year on record for gold demand in electronics at 326.8 tonnes or $12.9bn.

Meanwhile, rare earth mining stocks are seeing a flurry of activity in recent weeks due to general industry movements and short covering, according to an article in Seeking Alpha. Among the stocks to watch are Molycorp (NYSE: MCP) which is now trading at $54 levels. Molycorp shares gained on announcement ofits major supply agreements while Rare Element Resources (AMEX:REE) also rallied recently, to a lesser extent Avalaon Rare Metals (AMEX:AVL) and Rare Earth Stock index at NYSE rose following positive developments in the industry.

By Sreekumar Raghavan
04 August 2011
www.commodityonline.com

Rare earth metals and elements may affect future global relations China

Jim Sims, from Molycorp, says China is starting to export fewer rare earth elements than previously

 Wars have been fought over oil and water. But are the future global tensions going to be over access to Scandium, Neodymium or Dysprosium?

 Or could conflicts be fought over any other of the 17 rare earth elements, which, week by week, are becoming more and more important in developing the latest high-tech products?

Tucked onto the periodic table of the elements, in a little section once ignored by chemistry teachers, rare earths are now everywhere.

They are in your iPod or tablet computer, are vital for the red colour in your TV screen whatever make you have and allow your headphones to be small enough to fit into your ears.

Jim Sims
As China’s exports are being restricted, we are looking at outright shortages of rare earths, probably this year and next.

 Jim Sims Molycorp representative
They are in hybrid cars - both in the batteries and the fuel - and in new generation wind turbines, missile defence systems, solar panels and even F-16 fighter jets.

At the moment China provides 97% of the world’s rare earth elements, which is making America nervous from both an economic and a security perspective.

Their price has gone up 1000% in just a year, which is making mining them in the US worthwhile once again.

‘Rare earth shortages’

A deep hole in the ground high up in the Mojave Desert is America’s only rare earths mine, and the race is on to dig out the supply to match the demand as only a few places in the world have enough reserves to make mining them practical.

“The world - America, Britain, everyone - relies on what China exports to meet their needs,” says Jim Sims from Molycorp, the company running California’s Mountain Pass mine.

“As China’s exports are being restricted, we are looking at outright shortages of rare earths, probably this year and next,” he adds.

America’s only rare earths mine is located in the Mojave Desert in the US south-west

So the huge diggers and trucks moving vast volumes of rocks around, the daily explosive charges blasting the mountainside apart, are harvesting one of the world’s biggest deposits.

The mine closed down 10 years ago when a flood of cheap Chinese rare earth elements made profits hard to maintain.

Until just a few weeks ago, Molycorp was asking for the US government’s help to cover costs of digging these elements out, separating them off and moulding them into metal alloys.

But the price has gone up so rapidly, rare earths is suddenly looking like a good business.

Last year China’s exports of rare earth elements to Japan were interrupted during a political row over territorial waters, which sent shudders around the world.

“We should be worried when any country completely dominates any raw material supplies,” says Christine Parthemore, from the Center for New American Security in Washington DC.

“I don’t think China is uniquely at fault in this situation, but they are using the political leverage that’s derived from cornering the market they have as any country would.

“I’m sure America would do the same,” he adds.

Increasing demand

The creation of permanent magnets, a key component in so many green technologies, is one of the key uses of rare earths.

They make the new generation of wind turbines more efficient and reliable. But there are such an increasing variety of uses for these elements, down to glass polishing, that there aren’t enough of the raw materials to go around.

The speed of China’s growth means the country is consuming more of its own rare earths, which has led to a drop in the amount available for export.

“It is a security issue strictly in the sense that these minerals are used in critical military components for their properties, which we don’t currently have substitutes for,” says Christine Parthemore.

“If the prices go way up or there are actual supply shortages, it can drive prices up over the long term on military procurement - or it can mean there are parts that we can’t manufacture here in the United States anymore.”

It increases the need for an industry to extract the ore and process the materials.

“The elements are all mixed together in the ore we mine,” Jim Sims says.

“We turn them into a liquid, and let these elements settle out into oxides which are like powders,” he adds.

Inside a warehouse at the mine are dozens of huge white sacks, each weighing a metric tonne and each worth $200,000 (£125,700).

“Those powders then get turned into metals as magnets or used in their oxide forms for a variety of uses in a variety of different substances,” Mr Sims says.

As new uses are found for materials like rare earth elements, there will be more competition, and access to them may change the shape of global politics.

By Alastair Leithead BBC News, Mojave Desert, US July 12, 2011

Rare earths mining may chip away at China’€™s hold on high tech gear

ELK CREEK, Neb.,€” Each new 3,000-foot hole bored into the rolling hills of southeastern Nebraska potentially drills away at a troubling Chinese monopoly.

The drills pull up cylinders of rock in search of exotic minerals like neodymium, praseodymium and ytterbium.

Those “rare earths”€ are critical ingredients of your car’€™s catalytic converter and your computer’€™s flat-screen display, of smart phones and smart bombs. They make your Prius purr and your lasers shine.

 In 2010, the world mined 133,000 metric tons of rare earths. Of that, all but 3,000 tons came from China. In the United States there is one mine €”in Mountain Pass, Calif. €”responsible for the entire country’€™s output.

 ”€œWe could go without this [rare earth] stuff”,€ said Matt Joeckel, a University of Nebraska- Lincoln geologist who also works for the state’s Conservation and Survey Division, “if we cared to go back to maybe a 1940s level of technology.

Global demand for rare earths is projected to climb 8 percent a year, while the Chinese have clamped down the growth of supply at zero.

A U. S. Energy Department report last year warned that supplies are “€œat risk”€ of disruption. Limits on Chinese exports could increasingly mean that high-tech equipment made with rare earths will only be made in China.

General Electric led a small parade of American manufacturers testifying to Congress this month urging the country to spur its own production.

At stake isn’€™t just the ability to make a better cell phone (tiny magnets make for tiny speakers) or a sharper television picture (the phosphor red in screens comes from europium). The elements are critical to oil refineries and cutting-edge medical care. And rare earths play a growing role in making our modern military more modern.

Some in Congress have suggested the country’s national security is threatened if supplies run too short.

Some 50 years ago, state geologists surveying southeast Nebraska found two oddities around Elk Creek. The rocks were more magnetic than most, and were denser.

Those findings drew the attention of mining company Molycorp Minerals. It drilled holes across the landscape and pulled out 90,000 feet of core samples.

Molycorp would ultimately walk away from Nebraska. In short, the price of the stuff then just wasn’€™t high enough to gamble on a mine.

A few decades later, a high-tech boom vaulted prices for rare earths upward. Canadian company Quantum Rare Earth Developments came looking at the core samples and reams of data left behind by Molycorp. Joeckel, the Nebraska geologist, had stockpiled it all for safekeeping.

Meantime, half a continent away, the same company that passed on Nebraska in the 1980s is cranking up production in California. Molycorp is the only producer of rare earths in the U. S. It stopped mining a few years ago so it could retool its processing plant at Mountain Pass €”a$530 million overhaul.

The new method is a greener process that uses far fewer chemicals and less water while shaving the cost of extracting the minerals from mined rock. The company expects to crank up operations in 2012 and produce up to 40,000 tons a year.

Yet even that added U. S. capacity is largely spoken for, without accounting for growing demand in the country.

“€œIt’€™s been a nightmare”, said Donald Geissler, a purchasing manager for small wind turbine maker Bergey Windpower in Norman, Okla. His company needs rare-earth magnets, which have gone up 40 percent in the last year. “€œWe don’€™t know in the near future if anything’€™s even going to be available”.

June 27, 2011, 6:22 AM
by Scott Canon