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A quick search of media stories from the month of December, 2009 shows 24 clips including references to the 15 lanthanides and their related elements scandium and yttrium. By contrast, one day in December, 2011 produced 56 stories on the same resources. Even the tone of REE coverage has transformed over the years. Two years ago, an analyst piece from veteran metals consultant Jack Lifton titled “Underpriced Rare Earth Metals from China Have Created a Supply Crisis ” was a common headline as the world discovered that cheap supplies had left manufacturers vulnerable to a monopoly with an agenda. That supply fear made REE the investment de jour and sent almost all of the rare earth prices through the roof. In December of 2010, the headlines in big outlets like The Motley Fool announced that the “Spot Price of Rare Earth Elements Soar as much as 750% since Jan. 2010.”
Reality soon set in as investors realized that this was not a simple supply and demand industry. First, demand was still vague, subject to change and very specific about the type and purity of the product being delivered. Second, the ramp-up period for companies exploring, getting approval for development, mining, processing efficiently and delivering to an end-user was very, very long. Some became discouraged. That is why this year, the consumer finance site, The Daily Markets ran an article with the headline: “Why You Shouldn’t Give Up on the Rare Earth Element Minerals” by Gold Stock Trades Newsletter Writer Jeb Handwerger.
Through it all, Streetwise Reports has focused on cutting through the hype to explain what is really driving demand, how the economy and geopolitics shape supplies going forward and which few of the hundreds of companies adding REE to their company descriptions actually had a chance of making a profit.
Back in June of 2009, in an interview titled “The Race to Rare Earths,” we ran an interview with Kaiser Research Online Editor John Kaiser that concluded “China’s export-based economy, once dependent on American greed, is now but a fading memory. While the U.S. was busy printing and preening, the Chinese were long-range planning. But America wasn’t the only country caught off guard by China’s strategic, if surreptitious, supply procurement.” Even while other analysts were panicking, Kaiser was pointing out how investors could be part of the solution–and make a profit in the process.
“For the juniors, the opportunity right now is to source these projects. They get title to them, and when these end users want to develop them, they’re going to have to pay a premium to have these projects developed,” Kaiser said. “So it will not be economic logic that results in these companies getting bought out and having their deposits developed. It’ll be a strategic logic linked to long-term security-of-supply and redundancy concerns. And we’re seeing that sort of psychology at work in this market. It’s a bit of a niche in this market. Not as big as gold, but it is an interesting one because of the long-term real economy link implications.”
After years of covering the space by interviewing the growing chorus of analysts and newsletter writers singing the praises of rare earth elements, in June of 2011, we launched The Critical Metals Report to give exclusive coverage to the entire space, including rare earth elements, strategic metals and specialty metals. One of the first experts interviewed was Emerging Trends Report Managing Editor Richard Karn in an article called “50 Specialty Metals under Supply Threat.” He warned that investing in the space is not as simple as some other mining operations. “The market is just starting to become aware of the difficulty involved with processing these metals, which, in many cases, more closely resemble sophisticated industrial chemistry than traditional onsite brute processing. Putting flow sheets together that process these metals and elements economically is no mean feat.”
In this early article, Karn busted the myth that manufacturers would find substitutions, engineer out or use recycled supplies for hard-to-access materials. “The advances we have seen especially in consumer electronics over the last decade and a half have not been driven by lone inventors or college kids tinkering in their parents’ garages, but rather by very large, well-equipped and well-staffed research arms of powerful corporations. The stakes are high and if a certain metal is critical in an application, they will buy it regardless of the price,” he said.
Similarly, a July 2011 article for The Critical Metals Report featured Energy and Scarcity Editor Byron King sharing “The Real REE Demand Opportunity” driven by the automobile industry and beyond. He was one of the first to point out that not all rare earths are the same with Heavy Rare Earth Elements demanding big premiums.
“Going forward, the serious money will be in HREEs, which have a lot of uses other than EVs,” King said. “For example, yttrium is used in high-temperature refractory products. There’s no substitute for yttrium. Without it, you can’t make the refractory molds needed to make jet-engine turbine blades. If you can’t make jet-engine turbine blades, you don’t have jet engines or power turbines. The price points for these HREEs will reflect true scarcity and unalterable demand. People will bite the bullet and pay what they have to in order to get the yttrium.”
House Mountain Partners Founder Chris Berry also addressed the impact of electric vehicle demand on vanadium, a popular steel alloy strengthener now being used in lithium-ion batteries in the interview “Can Electric Vehicles Drive Vanadium Demand? “
“The use of vanadium in LIBs for EVs is not significant yet, but could eventually become important as the transportation sector electrifies. One of the real challenges surrounding LIBs is settling on the most effective battery chemistry. In other words, what battery chemistry allows for the greatest number of charge recycles, depletes its charge the slowest and allows us to recharge the fastest? Today, based on my research, lithium-vanadium-phosphate batteries appear to offer the highest charge and the fastest recharge cycle. It seems that the lithium-vanadium-phosphate battery holds a great deal of promise, offering a blend of substantial power and reliability. I am watching for advances in battery chemistry here with great interest,” Berry said.
In September, Technology Metals Research Founding Principal Jack Lifton shared his insights on why some junior REE companies are prospering while others wither and die. In the article, “Profit from Really Critical Rare Earth Elements,” he said: “Rare earth junior miners are now being culled by their inability to raise enough capital to carry their projects forward to a place where either the product produced directly or the value to be gained from the company’s development to that point by a buyer can be more profitable than a less risky investment. The majority of the rare earth junior miners do not understand the supply chain through which the critical rare earth metals become industrial or consumer products. Additionally, they do not seem to recognize the value chain issue, which can be stated as ‘How far downstream in the supply chain do I need to take my rare earths in order to be able to sell them at a profit?’”
Then Lifton made this important point for Critical Metals Report readers. “It is very important for the small investor to understand that the share market does not directly benefit the listed company unless the company either sells more of its ownership or pledges future production for present, almost always sharply discounted, revenue.” As always, Lifton encouraged investors to follow the money to a specific end rather than the general market demand often envisioned by investors accustomed to the more defined gold market.
In October, JF Zhang Associates’ Principal Consultant and Chief China Strategist J. Peter Zhang shared his insights on “U.S. Manganese Supply as a Strategic Necessity.”
Manganese is now largely used largely in the production of low quality stainless steel, but is being incorporated into lithium-ion batteries. That increased demand is focusing attention on the limited supply outside China. “There really is no electrolytic manganese metals production in the U.S. or anywhere outside China except for a small percentage from South Africa. We don’t produce even a single ounce in North America. Relying on other countries to supply essential commodities (like oil for instance) is always a problem. If China suddenly decided to reduce production, or in the likely event that its domestic demand increases, the world would be out of options. Policymakers need to understand this risk and Congress needs to take action to minimize the potential impacts,” he said. “From the end of 2008 to 2009, China tied things up. Since then, the price has doubled, tripled and quadrupled. That should be a wakeup call. North America needs to either establish a strategic reserve system for critical metals or build production capacity to mitigate supply risk. I think there is some sense of urgency right now, but a lot more needs to be done.”
Picking the right junior is the trick. In the November article “Navigating the Rare Earth Metals Landscape” Technology Metals Research Founding Principal Gareth Hatch outlined the odds. “TMR is tracking well over 390 different rare earth projects at present; I can’t see more than 8-10 coming onstream in the next 5-7 years. Projects already well past exploration and into the development and engineering stage, and beyond, clearly have first-mover advantage.”
Just this month, in an interview entitled, “The Age of Rare Earth Metals” Jacob Securities Analyst Luisa Moreno compared the impact REEs will have on our daily lives with the transformation in the Bronze Age.
“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.” Moreno then pointed to the seven companies that could come to the world’s rescue and usher in a miraculous new world of smaller, stronger, more powerful gadgets based on a steady supply of REE materials from reliable sources.
By: The Gold Report
Source: http://jutiagroup.com/20111227-critical-reading-for-rare-earth-metals-investors/
Posted in Interesting Articles | Tagged 50 Speciality Metals under Supply Threat, Byron King, commodities, Critical Rare Earth Elements, Economic War, Garth Hatch, gold, Gold Stock, Gold Stock Trade, Heavy Rare Earth Elements, HREEs, investors, J. Peter Zhang, Jack Lifton, Jeb Handwerger, Lithium-Ion, Luisa Moreno, Manganese, mining, Race to Rare Earths, Rare Earth, Rare Earth Element, Rare Earth Element Minerals, rare earth metals, Rare Earth Prices, REE, REEs, Scandium, Supply Crisis, Technology Metals Research, The Age of Rare Earth Metals, The Critical Metals Report, The Real REE Demand Opportunity, U.S. Manganese Supply, Underpriced, Vanadium, Yttrium
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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 otherJapan, 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 upand 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 leverageand 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 neededin 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 tableand 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 doneand 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 resultspay 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.
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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
