China Northern: Lost in Translation; Malaysia to ask China for help; RE know-how for the rest of us; Russia: Back to the future; EGT micro-deposit aims at London listing; Arafura fined; Prices flat
This is a very long post for rare earth buffs, no casual diet.
We expect some heated reaction and in preparation we already slipped into our flame proof suits.
Recently we were inundated with questions from paying subscribers. While we do not have a crystal ball, we hope to have shared facts combined with reasonable assessments. Those who have not yet received an answer we kindly ask for their patience.
China Northern RE Group - Lost in Translation
Adamas Intelligence wrote in their rare earth newsletter last week:
CNRE injects another $278.4M into processing plant expansion:
This week China Northern Rare Earth Group (CNRE) announced that it will inject a further $278.4M into its subsidiary Baotou Huamei Rare Earth High Tech (Huamei) that is upgrading and renovating its processing facilities in Baotou to be the world's largest.
Once completed, the plant will have capacity process 198,000 tonnes of mixed rare earth concentrate annually (containing ~58% TREO) to produce approximately 107,000 tonnes of separated oxides and 39,600 tonnes of metals annually.
The latest injection follows an initial $1 billion investment by CNRE in March 2023 to upgrade the facility. Completion of the first phase of the project is expected in Q4 2024. The group expects the project will yield an IRR of ~25% and return a payback on capital in just under 6 years.
Once completed, the plant will have capacity process 198,000 tonnes of mixed rare earth concentrate annually (containing ~58% TREO) to produce approximately 107,000 tonnes of separated oxides and 39,600 tonnes of metals annually.
The latest injection follows an initial $1 billion investment by CNRE in March 2023 to upgrade the facility. Completion of the first phase of the project is expected in Q4 2024.
The source of that article presumably were Chinese online media, who all carried an unisono write-up about it the week before.
The real story
In 2021 and 2022 seven of CNRE’s subsidiaries were handed hefty fines plus public shaming for gross environmental violations. The stock-listed part of China Northern Rare Earth Group was rated on 104th position of all stock-listed Chinese companies in terms of ESG.
Here the spoiler: The CNRE project is about environmental compliance and reducing carbon output.
What China Northern announced in March last year was not the initial investment. It was the approval of the “Smelting Green Smelting Upgrade and Renovation Project” for a major upgrade of all China Northern processing facilities in Baotou and adjacent areas at a total investment of RMB7.8 billion (~US$1.1 billion).
Baotou Huamei is of course not the only facility in China Northern Rare Earth Group separating rare earth. But Baotou Huamei were chosen as the “implementation entity”, i.e. the “project lead” in charge of all the related upgrade projects.
Relevant upgrades at CNRE’s Gansu and Shandong province facilities were already completed in 2022.
Baotou Huamei
As part of the plan the old and rusty equipment of Baotou Huamei is being retired. The corresponding write-off and installation of new equipment are part of the capital injection mentioned.
Baotou Huamei’s separation capacity is ca. 18,000 t REO, on par with Baotou Hefa, definitely not 198,000 t, as suggested in the newsletter.
Fun-fact: A rare earth separation facility of a 200 kt capacity would require roughly half the area of Phoenix, Arizona or San Antonio, Texas - or half the area of Baotou City, for that matter. You can’t do that with US$278.5 mio, also not in China.
CNRE capacity
China Northern Rare Earth Group consists of 50 rare earth and rare earth downstream companies in 12 provinces, from wholly CNRE-owned via majority to minority joint ventures, from basic rare earth processing to all kinds of NdFeB products, hydrogen storage materials, polishing powders, et al.
The 198,000 t mixed concentrate capacity refers to the China Northern Rare Earth (Group) High-tech Co., Ltd. Rare Earth Concentrator Plant, whose current capacity is 150,000 t/y. An upgrade of ⅓ of capacity.
The current rare earth separation capacity of China Northern Rare Earth Group is ca. 109,500 t TREO.
So the 107.000 t TREO renovation refers to the entire China Northern Rare Earth Group separation capacity, except one facility: The quantity difference is Xinfeng County Baotou Steel Xinli Rare Earth Co., Ltd., which is a ion-adsorption clay separation facility who does not use the 3rd generation sulphuric acid smelting process.
The quota question
Adamas write:
With CNRE group receiving major production quota increases in the past two years, utilization of its existing processing capacity has reached atypically high rates meaning the Huamei upgrades cannot come soon enough. CNRE anticipated ~6-year return on the ~$1.3 billion investment suggests the group is optimistic about the near- to medium-term for REO prices.
The devil lives in the detail.
China Northern’s production quota for finished REO in 2023 was 152,000 t, which of course does not match with the capacity of 109,500 t.
China Northern are in charge of not only Inner Mongolia, but also for their affiliates in other provinces, no matter if minority or majority invested by China Northern, no matter from which domestic mine/concentrator the raw material comes from. That is, where the gap between China Northern’s capacity and the quota originates.
China Northern have no quota for ion adsorption (IAC) based material, but they have two companies processing IAC, one in Baotou, Inner Mongolia, and one in Ganzhou, Jiangxi Province. These two get their quota assignments from China Rare Earth Group.
The Sichuan light rare earth output quota incl. Shenghe Resources is administered by China Rare Earth Group, as well as the output of former China Aluminium companies in Jiangsu Province.
Please remember
China’s actual overall rare earth oxide output will always be much, much higher than the quota, because the use of imported raw material does not count against the quota. China’s import of rare earths in 2023:
217,000 metric tons of ores and rare earth intermediate products of varying REO content
5.5 million metric tons of heavy mineral sands, much of it processed for its monazite contents
3,400 metric tons of finished rare earth compounds
It is confusing, but there is no alternative to diving into the details, when trying to understand China’s rare earth realm.
Malaysia is appealing to China for rare-earth processing technology in a bid to unlock up to RM1 trillion (S$284 billion) worth of the mineral deposits in the country that are crucial to high-technology applications.
This is despite Beijing having imposed a ban on exports of rare-earth extraction and separation technologies since December 2023, a move that has deep geostrategic implications.
Building a rare-earth refinery at home will also help Malaysia curb rampant illegal ore exports. On March 12, Mr Nik Nazmi revealed in Parliament that only 3,000 tonnes, or less than a sixth, of the 19,000 tonnes of rare-earth oxide produced by China in 2023 from Malaysian ore came from legal exports.
The export ban is unlikely to deter smugglers who already dominate the sector, but it will hurt the Kenering mine, which must decide whether to shutter or begin costly stockpiling after March.
These are the official China import numbers:
The total quantity of everything rare earth China officially imported from Malaysia is 16,700 t
How exactly does Nazmi get to the idea that any smuggled MREC should have yielded 19,000 t of finished rare earth products? Nazmi can’t possibly know what the yield was in terms of finished products. Does he want to suggest that more than 25,000 t of MREC where shipped from Malaysia to China last year, including 22,000 t smuggled on BOTH ends, Malaysia AND China?
As everyone can see above, this includes substantial Lynas numbers. Does the minister seriously wish to imply, Lynas are exporting rare earth illegally?
We do not think that smuggling of such substantial quantity on both ends is feasible and possible. At this time we assume the Chinese import statistics are correct. We can see from China’s statistics what is Lynas and what is supposedly illegal MREC and what is monazite from tin mining tailings.
Process help from China
Ion adsorption clay leaching know-how is on the negative list of Chinese technology. It is not in the “prohibited” category but in the “restricted” category. This implies that licensing of this know-how is theoretically permissible, if applied for.
Zhou Mi, a researcher at the Ministry of Commerce's International Trade and Economic Cooperation Research Institute, said, ``This report shows that China certainly has the lead in rare earth processing and refining technology, and that Malaysia wants to promote cooperation with China.'' ``I understand the idea of wanting to effectively raise the level of resource extraction and supply chains in one's own country, but cooperation is related to specific rules and systems on both sides.'' "This could become a problem, so the Malaysian side should understand the details in advance and consider taking action."
We think what Zhou Mi says to Malaysia is: “Release the MREC export restrictions, then we may have a talk.”
State governments have been reminded to comply with the implementation of a moratorium on the export of non-radioactive rare earth elements (NR-REE), which came into force on January 1, the Dewan Rakyat was told today.
Natural Resources and Environmental Sustainability Minister Nik Nazmi Nik Ahmad said a reminder letter on the matter had been issued to all state governments on March 6.
“The implementation of this moratorium was communicated to all state governments through a letter dated December 20, 2023. However, the ministry received a request from state governments to reconsider the moratorium.
The Perak state government has requested for an exemption from the non-radioactive rare earth elements (NR-REE_ export moratorium, Menteri Besar Datuk Seri Saarani Mohamad said.
Nik Nazmi had also said that a letter with a reminder about the matter was issued to all state governments on March 6.
It does not look like the moratorium was implemented on state-level.
The final text identifies 34 critical materials, of which 17 are strategic, like copper, aluminum and natural graphite. Some are groups of elements. Strategic heavy rare earth elements are neodymium, terbium, dysprosium and gadolinium. The light ones are praseodymium, samarium and cerium, the Council of the EU noted.
CRMA allows the European Commission and member states to recognize a project as strategic. Then authorities will be obligated to issue permits for extraction proposals within 27 months, compared to 15 months for recycling and processing.
Good move. We are tired of these hypocrites, who view EV and wind power as solutions, but at the same time don’t want to allow mining in their own countries for not-in-my-backyard reasons. Mentality of 4-year-old children at work.
The EU must set a good example, that it is ready to do the same it asks of others.
The Myanmar National Democratic Alliance Army (MNDAA) has re-opened the border crossing in Chin Shwe Haw, a town it seized from the regime during Operation 1027, but no trade is flowing from either side of the border with China.
The border crossing was re-opened on Monday [11 March 2024] for trade and travel. However, trade could not resume because the regime has blocked the trade route near Lashio town, merchants said.
Merchants are currently using the Taunggyi-Kengtung-Mongla route and the border trade gate in Kachin State’s Kanpiketi to trade with China.
The Golden Triangle
Beijing-brokered negotiations in January resulted in a ceasefire in northern Shan State. During the latest round of talks, from Feb. 29 to March 1, the two sides agreed to resume border trade with customs tariffs reportedly to be shared between the regime and the MNDAA on a 30-70 basis.
The Taunggyi-Kengtung-Mongla route is controlled by the regime and the National Democratic Alliance Army (NDAA), also known as the Mongla Group. Mongla is under de facto control of the NDAA. Merchants have to pay taxes to both the regime and the NDAA to export agricultural produce.
It is all about money, funding for the different armed groups and for the Tadmadaw.
Why does China get involved hands-on?
There are a dozen or so minorities living in the border area and kinship knows no borders. Neither does the drug issue. China does not want instability in its south. Stopping trade from the China side is supposed to put financial pressure on the Myanmar side.
Britain can help break China’s stranglehold on one of the largest sources for rare earth materials in the world by setting up an air route out of Mongolia, the country’s prime minister has said.
Western powers are in a race against China, which extracts and refines the majority of rare earths, to secure as much of the precious materials for their own industries.
This is benighted. There are two ways of shipping out of Mongolia, either through Russia by rail or through China by rail and sea. Thereby Mongolia can’t possibly be a solution to any geo-strategic resource problem.
China’s ambassador says the country will continue to do business in Canada’s domestic critical minerals sector despite Prime Minister Justin Trudeau’s “unfortunate” crackdown on foreign investment.
Ambassador Cong Peiwu said the Canadian government is “wrong” to prevent Chinese investors from buying majority stakes in domestic mining companies, like it did in 2022 when it forced three Chinese state-owned firms to divest from a trio of lithium companies.
China’s ability to flip its big money investments in the Caribbean and South American – ports, 5G telecommunications networks, space infrastructure and clean energy – from civilian to military use is a growing security concern, U.S. Southern Command’s commander told the House Armed Services Committee Tuesday.
HASC chair Rep. Mike Rogers (R-Ala.) cited the $3.6 billion mega-port to handle giant container cargo shipping at Chancay, Peru, as an example of growing Chinese influence. Richardson, in her written testimony, said Beijing boasts that the port will serve as the “gateway from South America to Asia.”
But the Peru project is not the only one of concern to Rogers. He noted that Beijing, using state-owned enterprises, has invested in 40 port projects “from the Bahamas to the tip of South America” and at both entrances to the Panama Canal.
