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ANALYSIS – ProspectingJournal.com – It didn’t take long for the panic to set in, last year, when the Chinese government flexed its muscle by threatening the world’s Rare Earth Element (REE) supply. With 95% of REE supplies coming from China, that scare was indeed legitimate. But REEs aren’t the only elements with which China has the potential to choke off. On American Elements’ 2011 Top 5 US Endangered Elements List, three elements (tungsten, indium and neodymium) have over 50% of world supply coming from Chinese mines.
To refresh the memory of those who followed the rare earth surge from last year, and the subsequent piquing of interest in rare earth companies, it began with Japan. As the summer of 2010 was coming to a close, reports of an embargo of shipments to Japan for REEs raised concern for manufacturers who depend upon the elements for production primarily in the tech industry. Within a month, that embargo spread to North America and Europe, and concern over Chinese monopolization rose, along with REE prices, and those of the companies devoted to them.
When the embargo ended, relief came to the sector, while the pace of development outside of China received only a minor increase. The threat of supply shortages still lingers, especially with tungsten, indium and neodymium.
The example of tungsten is not to be ignored, as 85% of global production comes from China, which has already indicated it might end all exports altogether due to domestic demand increases.
With the highest melting point and greatest tensile strength of all elements, tungsten’s importance is unquestionable. Used in all situations that call for high temperature thresholds or hardness and strength, tungsten is imperative to many modern living standards that depend upon it. From a US perspective, the element’s use in the aerospace program, electronics and military (including in bullets and armor) is critical. To the mining industry as a whole, tungsten is a savior with many uses within the assembly of mining equipment itself, including drills in need of durability.
Strangely enough, the United States dismantled domestic production of tungsten ore in 1994 with the last tungsten mine, the Pine Creek Mine in Inoyo, California, going down as a historical footnote en route to Chinese dependence.
Today, tungsten production remains primarily within China, but awareness of a need to develop outside of the PRC is becoming clearer. Options in the western hemisphere are appearing, and may soon be getting the attention they need to aid this drive for domestic independence. Juniors such as North American Tungsten [NTC – TSX.V] and Playfair Mining [PLY – TSX.V] may provide answers that mitigate a possible future supply breakdown.
For North American Tungsten, the title of being the western world’s leader in tungsten production doesn’t come lightly. Through developing its Cantung Mine, it provides tungsten concentrate production within the borders of Canada’s Northwest Territories, which from an international standpoint is a much more secure mining investment environment to work within.
At a much earlier stage, Playfair Mining is not yet a producer, but is heavily leveraged to the price of tungsten, which today sits around $440/MTU (“metric tonne unit”) or over $20/lb. With a goal in mind to partner with an end user of tungsten metal in order to finance its Grey River deposit into production, Playfair is well aware of the potential impact a tungsten shortage would carry.
Due to its high level of use in the manufacturing sector, a significant number of Fortune 500 companies are dependant upon tungsten’s availability. General Electric and its Tungsten Products Division, along with others like Kennametal and ATI Firth Sterling are among those that would most likely benefit from securing a long term tungsten supply, and are among potential targets should Playfair seek a high-worth partner to put its nearest term tungsten property into production.
The company has 4 high-grade deposits with two located in the Yukon, one in the Northwest Territories and another on the southern coast of Newfoundland. Each of the properties was acquired strategically during a period of massively deflated tungsten prices, prior to this latest surge over the $440/MTU mark. This increase represents a 70% rise from the recent low prices that graced Playfair’s entry period. While the commodity’s price has risen, the company’s stock has yet to follow suit.
While the current price of the stock seems to have languished, the team is making strides to be better prepared for when the bigger end-users in need of tungsten come knocking. The board includes experienced individuals who have taken deals into production before, as well as Director James Robertson who took the last big tungsten company outside of China to successful acquisition.
In both combined 43-101 compliant and non-compliant resource categories, Playfair’s tungsten properties contain more than an estimated 5.5 million MTUs of WO3. It’s to be expected, though, that since Playfair is an exploration company, these resources have room for expansion.
As economic uncertainty lingers in all global markets, crucial and endangered elements such as REEs, tungsten, indium and neodymium will be within the watchful eye of western manufacturers in need of these ingredients for their operations. Whether another anticipated panic is inflicted by possible impending embargo actions by China doesn’t change the dependence we have on endangered elements. And like last year’s REE crisis, a price surge on those companies were set to move prior complications is entirely a likely scenario.
By: G. Joel Chury
Wind turbine manufacturers are scrambling to find alternatives to a key element used in direct-drive permanent magnet generators (PMGs), thanks to skyrocketing prices and diminishing supplies of crucial rare earths.
China currently provides 94% of the world’s rare earths, including neodymium and dysprosium, which are used in the magnets for direct-drive wind turbine motors. However, the Chinese government has put new restrictions on rare-earth mining that have resulted in lower supply levels, according to a report from research firm Roskill Information Services (RIS).
For instance, this year, the Chinese government issued new regulations requiring all companies that mine rare earths to show they have mandatory production plans, appropriate planning permission, environmental certification and safety licenses.
But it was last year’s tightening of China’s export quota that really impacted the rare-earth market. Between May 2010 and August 2011, Chinese internal prices for neodymium increased eightfold – a reflection of the shortage of rare earths for magnets within China, RIS notes.
China has also ramped up its export taxes on rare earths, causing a shortage in the rest of the world.
As a result, only 25% of the world’s rare-earth supply will come from China by 2015, as demand for the neodymium and dysprosium necessary for the manufacture of magnets for wind turbines will climb at a pace of 7% to 9% per year through 2015, according to RIS’ research.
This growth in demand could result in a supply deficit within that time frame, causing wind turbine manufacturers to rush to find alternatives to PMGs.
Searching for other options
Some companies that rely on PMGs for their wind turbines have already taken steps to avoid the problem.
In September, PMG manufacturer Boulder Wind Power engaged Molycorp – which claims to be the only U.S. supplier of rare earths, and the largest provider outside of China – to be its preferred supplier of rare earths and/or alloys for wind turbine generators.
In addition to avoiding the trade conflicts and price volatility associated with China by using a U.S.-based supplier, the company also uses permanent magnets that do not require dysprosium, a very scarce rare earth.
“By effectively solving the dysprosium supply problem for the wind turbine industry, this technology removes a major hurdle to the expansion of permanent magnet generator wind turbines across global markets,” says Mark A. Smith, Molycorp’s president and CEO.
Direct-drive wind turbine manufacturer Goldwind has taken a similar approach.
“As a result of early price increases, Goldwind began developing efficiencies and alternatives that reduce the amount of rare-earth materials required to manufacture our magnets, which, in turn, mitigates our exposure to future price fluctuations,” Colin Mahoney, spokesperson for Goldwind USA, tells NAW. “This is a scenario that we have long considered.”
Despite RIS’ somewhat negative forecast, some say the worst is over. Because companies are looking to U.S. rare-earth suppliers, such as Molycorp, instead of to China – as well as coming up with alternatives that do not involve rare earths – there is some indication that prices may come down.
In fact, a recent New York Times article claims prices have dropped significantly since August.
Goldwind’s Mahoney agrees with that assessment.
“While the price of rare-earth materials have fluctuated over the past several years, more recent trends have included a dramatic drop in the neodymium market,” he says.
Still, it is uncertain how long these prices can be maintained, as demand for rare earths is expected to soar by 2015, the RIS report notes.
By: Laura DiMugno