China Minister Wants Rare Earth Reconciliation - US Still Seek Divorce, But Want Custody; RE Nuke Waste Trap; RE Prices Continue Stellar Voyage

2021 Rare Earth March 5

After the retraction of rare earth boycott rumours spread by Global Times editor Hu Xi Jin, ahead of the yearly “Two Meetings” (两会), the plenums Chinese People’s Political Consultative Conference and the National People’s Congress currently held in Beijing, China’s Minster of Industry & Information Technology (MIIT) Xiao Yaqing urges that “countries should work together” in rare earth (see Nikkei article link below). Mr Xiao is a career bureaucrat, not a politician. In this capacity he was also chairing China Aluminum 2004-2009. Since 2012 he is one of the 205 full members of the Central Committee, but he is no member of the almighty Politbureau.

The background

But what is Minister Xiao’s intention here, after Chinese government entities like the Ministry of Commerce and the National Development & Reform Commission (a.k.a. State Planning Commission) have very publicly debated a rare earth boycott, China’s government having put a symbolic rare earth boycott on US defense contractors, following the highly symbolic visit of the general secretary of the Communist Party to leading Chinese NdFeB magnet maker JLMag?

In the true sense of re-emerged Maoist thought, the same general secretary refers to the US as 强敌, “strong enemy” and asks the People’s Liberation Army to prepare for war, a confrontational stance like Mao Zedong’s, who had fully dismissed the Soviet survival strategy of ‘peaceful coexistence’ of socialism and capitalism.

Meanwhile, the official term for China in the US is “strategic adversary”.

The last time two super powers had such a loving relationsship we called it Cold War.

All members of the Standing Committee of the Politbureau of the Central Committee of the Chinese Communist Party: right-to-left Xi Jinping, Wang Yang, Li Keqiang, Wang Qishan (who is no member of the standing committee, but always present), Wang Huning, Li Zhanshu, Han Zheng and Zhao Leji at a an exhibition honouring Chinese heroes of the Korean War on October 19, 2020.

Why under current political circumstances a Chinese government minister can seriously call for cooperation in materials China itself instrumentalises and weaponises for trade war?

It is because of an opening gap between aspiration and reality in rare earth.

China’s objectives:

  1. China needs unhindered access to foreign rare earth raw materials, in order to keep going and growing in rare earth. Currently this is not guaranteed at all.

  2. China needs to be able to invest in foreign RE miners everywhere, in order to secure supply sources and direct tradeflows, and have currently existing foreign RE investments safe from political barricades.

  3. China needs open markets for its rare earths and it’s downstream products, notably permanent magnets, electric motors and electric vehicles.

  4. China may want to test the resolve of the new US-government, if it would prefer if the issue of rare earth would be put to rest again, just like the previous Democrat administration did, after the Pyrrhic victory in the WTO legal battle with China on rare earth export quotas in 2014.

It is a trap

China may just be offering another Pyrrhic victory in RE.

Since this suggestion comes from a bureaucrat and not from a leading politician and the US/EU choose to follow-up on it, it will look like the foreigners were the ones seeking coop. Perhaps the US/EU should not go down this slippery slope.

If there should be any talks on RE at all, these should be the US/EU demands:

  1. The VAT refund upon export of rare earth oxides from China, currently zero, and the VAT refund upon export of permanent magnets from China, currently the full 13%, should be equalised to the same VAT refund upon export rate for both. Currently no foreign NdFeB magnet maker can compete with Chinese made NdFeB magnets because of this discrepancy.

  2. Related to (1) above, erasion of Chinese trade war import tariffs on finished rare earth products. Same as for rare earth raw materials, imported finished rare earth products from WTO origins should be duty-free in China.

  3. Chinese investment in foreign junior miners could be welcome, if it includes the downstream processing, i.e. ore to oxide and oxide to metals.

  4. Related to (3) above, all and any Chinese export restrictions and prohibitions on rare earth production technology must be lifted

Since the current Chinese administration continuously touts itself as the harbinger of globalisation and free trade, rare earth would be a glorious opportunity for the Chinese government to walk the talk and show the world it means business. On that premise, all of the a.m. should be entirely agreeable for China.

A climb-down of China in RE would primarily benefit Japan, on whose behalf the US and the EU actually fight a proxy war.


In addition to the a.m. MIIT made a push in an area, that everybody had been dragging his feet on (we discussed): Internationalisation of Chinese rare earth standards.

Rare earths are not commodities

Today trade practises in rare earth are archaic. Sample here, sample there, long evaluation periods, as there are no commonly accepted standards of production, test methods, quality parameters and specifications.

That is the very reason, why rare earths are not commodities. Lacking internationally applicable standards, rare earth products will never be commodities.

Standards enable trade

If in rare earth we have universally recognized standards like the ASTM for refined oil products and EN for steel products, rare earth products could eventually be traded freely and with confidence under the internationalised Chinese GB standard, e.g. commoditisation of rare earth products.


An avid contributor to our humble publication pointed us to this:

Morgan Stanley published an - in our opinion - ill-conceived report on MP Materials, because it bases on the assumption that NdPr is a commodity and that MP can sell the NdPr freely, which is not necessarily the case.

Typical NdPr compositions are 75% Nd, 25% Pr and 80% Nd, 20% Pr. MP’s product would be a 70/30 composition, in our view.

Theoretically 1,000 t NdPr output of Mountain Pass would come probably along with output of 1,800 t of lanthanum, 2,700 t of cerium and 55 t of samarium compounds.

Even if we included Lynas new Texas facility, MP’s lanthanum and cerium could be fully consumed by the US market, based on current consumption patterns and samarium wouldn’t be a major issue.

These 1,000 t NdPr could support a 3,400 t NdFeB magnet production, if there was such a consumer in the US.

But actually, almost all the forecast growth in magnetic materials and permanent magnets happens in China.

And that is a problem, because where and to whom can you sell NdPr?

If you think that NdFeB production is feasible outside China, then you won’t see the issue.

But if NdFeB production outside China was feasible and demand outside China was growing, why are there no NdFeB makers sprouting like mushrooms the world over?


Rare earth prices continue their stellar voyage:

We think, the price development has gone way out of control.

We note, that the Baotou Rare Earth Exchange has discontinued feeding price data on its WeChat channel, probably not to add fuel to the fire.

Rare Earth share prices are falling, internationally and in China.


Based on news releases of Energy Fuels and Neo Performance Materials, the Financial Times carried yet another RE story with an eye-catching headline: The U.S. Is Trying To Secure Rare Earth Elements For National Security.

The idea is that Chemours-owned Southern Ionics supply monazite to Energy Fuels, who then supply a concentrate to Neo Performance Materials, who then ship the radiation-free concentrate to their subsidiary Silmet in Estonia for separation.

The spin in the story is, that eventually some finished product makes it back to the US in order to build more fighter jets and submarines.

Sounds like a plan.

Lets do, what the FT hasn’t, and try to look at it from an angle of national security for a moment:

  • Raw material supply of a US company in Georgia to a US-owned facility in Texas for pre-processing: so far, so good.

  • Then a foreign, China-dependent company takes the pre-processed, non-radioactive product and ships it 10,000 km to Sillamäe, Estonia, at the outer edge of the EU, 30 km from the Russian border, to a country with 25% Russian - likely Russia-loyal - population, a country permanently under Russian influence peddling and threat, to produce rare earth oxides in an originally Soviet-built facility.

  • The refined rare earth compounds are then supposedly shipped 10,000 km back to the US by the China-dependent foreign company passing, within sight of the Russian military base at Kaliningrad while traveling through the largely Russian controlled Baltic Sea.

  • Last but not least, all of the involved parties will probably base their transactions on Made-in-China prices (incl. China VAT 13%), ship the material halfway around the globe at historically high freight rates and expect the market including the Pentagon to pay for all that plus their profit.

In terms of supply-safety during times of crisis, also in view of the Financial Times’ “national security”, perhaps a slightly less than ideal plan and the success would solely be measured by the increase of cost.

However, the US government has already committed to Lynas/Blue Line for light rare earth, and for the heavy rare earth semi-committed to Lynas; probably Lynas have to prove that they can separate heavy rare earth themselves competitively, rather than continue shipping of heavy rare earth concentrate to China.

But this is not a story about Energy Fuels, Neo Performance Materials, the Pentagon, Lynas or “national security.”

It is a story about radioactive waste.

Silmet aerial photo. Source: SCANPIX

Silmet’s long history is nicely documented on it’s website.

Nuclear waste in Estonia

What is not written there is, that when Estonia regained its independence, the Russians dismantled much of Silmet’s (radiating) equipment and brought it back to Russia. What they left behind was the crippled facility and 12 million tons of radioactive waste, stored at the ocean shore and that the country took over a decrepit nucelar power plant from the Russians, after a half-baked clean-up.

Beginning of the 2000s Estonia began cleaning up and implementing EU waste standards. And so did the town of Sillamäe where Silmet is located, including temporary waste storage arrangements for Silmet.

In the course of becoming compliant with EU regulations, also Silmet’s operating equipment was classified as possible future radioactive scrap.

Acquisition and Molycorp’s pledge

In 2011 Molycorp acquired Silmet and from then onwards Silmet processed also Mountain Pass bastnaesite, shipped from the California all the way to Estonia (we still marvel, how that could have been feasible).

There is radioactive residue at Silmet, mainly from Silmet’s niobium and tantalum processing , in order to preserve the “radiation practise license” of Silmet, Molycorp undertook towards the Estonian government to ship all the radioactive waste from Estonia to USA for further processing and final disposal.

When Molycorp went out of business in 2015, Silmet became a subsidiary of Magnequench Neo Powders Pte., Ltd. in Singapore, a Neo Performance Materials company.

Extension of license

On October 25, 2017, Silmet applied for a 5-year extension of its radiation practise license, well ahead of expiry.

Public notice of initiation of the procedure for the application for a radiation practice license by Estonia’s Environment Board

As part of the license extension application Silmet officially proposed, based on significant joint research & development work with Estonia’s famed University of Tartu, to dilute the waste with shale oil ash of the state-owned company Eesti Energia and Sillamäe port in order to turn it into a kind of “inert aggregate” for port construction in the embarkment of Sillamäe harbour, a good faith proposal in order to avoid having to ship the waste back to the US.

Sillamäe port, photo Meelis Meilbaum / Virumaa Teataja

What followed was mudslinging and outrageous allegations about all kinds of offenses against the company in the media.

With the allegations flying and an investigation initiated, the Port of Sillamäe owner Tiit Vähi, former prime minister and former owner of Silmet, declared that he was no longer interested in these construction materials, because the precondition of environmental approval was not fulfilled by Silmet, which effectively killed Silmet’s plans.

The “radiation practise license” of Silmet covering the processing of raw materials containing natural radionuclides, columbite and tantalite and the treatment of NORM [naturally occuring radioactive material] residues containing natural radionuclides resulting from the processing lapsed on January 30, 2019 and the government rejected Silmet’s license extension request, as the company could no longer credibly demonstrate that the proposed solution would work in practice.

Problem unsolved

By end of 2018 the recorded quantity of waste was 535 t, a solution had to be offered and so Neo Performance Materials reverted to the old promise, to take the waste to the US, if in exchange Silmets license would be extended.

It so happened, March 29, 2019 the license extention was granted, after Silmet additionally agreed to stringend on-site supervision and to execute the shipment of the waste to USA within a year.

The waste, meanwhile 660 t, is still there.

Consequence

In our view, the a.m. is most likely the background of Neo trying to ship the waste from Estonia to Energy Fuels and, vice-versa, why Neo need Energy Fuels to ship substantially radioactivity free raw material to Estonia.

None of this is even remotely related to “national security”.

Déjà vu

The Silmet story is very similar to Lynas’ in Malaysia.

Big promise to take the waste out of the country back to Australia, attempt to be creative in trying to get around the (impossible to fulfill) promise and subsequently hitting a brick wall.

It cost Lynas AU$ hundreds of millions in unscheduled investments, while in case of Neo probably Silmets procurement should be severly affected.

The bigger picture

The bigger picture is, however, that governments are happy to “solve” the China rare earth dependence “problem”, improve “national security”, enjoy taxes, fees, employment and economic kick-on effects, as long as they can press companies to make impossible promises that the waste does not end up in their own territory.

The next rare earth company falling into the same trap is just a matter of time, as governments couldn’t be bothered to solve the problem.

Anything nuclear is a hardsale to spoiled voters, who want to feel sustainable and environmentally friendly, but do not want to face the consequences of their own consumption behaviour.


Thanks for reading and have a wonderful weekend!

//Policy

Australia Plans to Loosen China’s Grip on Minerals Supply Chain

The government unveiled a 10-year road map on Thursday that includes A$1.3 billion ($1 billion) of funding to help businesses capitalize on the country’s abundant natural resources and exploit opportunities in a de-carbonizing world. It encourages growth in high-value products like batteries and solar cells, as well as technologies and equipment that make mining safer and more efficient.

The Modern Manufacturing Initiative comes as the U.S. and Japan look to cut their dependence on China for minerals that are vital to many manufacturing sectors. Australia is the top exporter of lithium, a key component in batteries, and is also a major source of rare earths. Beijing is reviewing its rare earths policy and there are signs it may ban the export of refining technology to nations or firms that it deems are a threat to state security.

Comment: If Bloomberg would read TREO, they would know that China has banned export of ionic clay processing already in 2000, 21 years ago.

The U.S. Is Trying To Secure Rare Earth Elements For National Security

REEs like cobalt, lithium, neodymium, vanadium and gallium are critical to numerous defense and commercial applications, including aircraft/UAVs/vehicles, sensors, precision-guided munitions, electric motors, nuclear reactors and more.

The U.S. has no domestic production of 14 critical minerals, relying completely on imports to meet demand for them.

China has no such dependency. The country commands the majority of the world’s mined REE output and approximately 80% of REE processing/separation. As recently as two weeks ago China was reportedly exploring how much it can impede American defense contractors by limiting REE supplies.

Comment: We continue to marvel at the rigorous research and exquisite expertise that goes into Forbes’ rare earth write ups. China is import-dependent on RE raw materials and the FT article was nothing, as FT was led on by a fabrication of Global Times Hu Xi Jin, who obviously was forced to issue a retraction 2 days after the FT article on a China military news website.

China urges global cooperation on rare earths in jab at US

Countries should work together to address the demand for rare-earth minerals and products, the Chinese industry and information technology minister said Monday, in an apparent swipe at U.S. President Joe Biden's effort to create supply chains less reliant on China.

Xiao also outlined plans to bolster the nation's semiconductor supply chain, targeted by the U.S. as a weak point of China.

Comment: China depends on imported RE raw materials and imports semi-conductors also for military applications that could threaten the US. Pondering RE boycotts in such situation is plainly beyond unwise.

Five Eyes alliance urged to forge ties with Greenland to secure minerals

The Five Eyes grouping of Australia, Britain, Canada, New Zealand and the United States, should expand its framework to include "resource intelligence, technical collaboration, major project financing and supply chain integration for minerals and materials critically important to national and economic security", the report said.

It is natural for the Five Eyes to target Greenland for its mining and rare earth potential because two thirds of the 41 licence holders in Greenland's mining sector were linked to Britain, Canada and Australia, the report added.

"Greenland’s vast critical minerals reserves and the sheer number of British, Canadian and Australian companies operating in Greenland make it a new frontier for Five Eyes," said the report, made available to Reuters ahead of its release on Friday.

Could rare earth minerals be Alaska’s edge?

Alaska has large deposits of rare earth minerals and resource companies are already working to extract them. Canadian company Ucore Rare Earth Metals Inc. has a project on Prince of Wales Island called Bokan Mountain, which it says is the highest grade heavy rare earth element project in the U.S.

//Companies

Ionic Rare Earths (IXR) - $13M Delivers Feasibility Study by YE/21

Comment: We hear in the interview DFS to be available Sept/Oct 2022, not 2021. Overall, we don’t think that Matthew Gordon asked the right questions. It could have been a brutal grilling.

//Market

North American groups seek to break China’s grip on rare earths supply

Neo Performance Materials of Canada and Energy Fuels of the US have found an efficient way to safely produce rare earths from radioactive monazite sands. The sands, a mining byproduct, will be supplied by US-based chemicals group Chemours. 

China controls about 80 per cent of rare earths supply and has been considering an export ban, leading to fears it will gain a military and commercial advantage over the US and Europe. 

How Cognitive Bias Theory Affects Your Investment Decisions

Online message boards often fall into echo chambers, a study by Yale and UC Santa Barbara found that discussions on these sites were generally led by under 2% of the usership, with a further 62% of users simply following the dominant views posted by this small group.

This leads to the perception of a broad consensus, despite the vast majority of posts representing the views of a tiny minority. Consequently, any views that differ from this accepted stance are shouted down, which again reinforces the view that the dominant view is correct. 

The study further found that the views expounded on online investment boards had “negligible correlation with future market returns” and if followed resulted in “poor investment strategies”.