China's officials go green; Neo in hot water; Neo's sintered NdFeB factory; Hastings: a disaster; Iluka miss the point; IAC a game changer?; A German EV drive without RE;
Rare Earth 1 June 2023 #121
Yesterday a young fellow at the International Center for Defense & Security in Estonia launched a potentially damaging report on Neo Performance Materials. We heard rumours and half-baked suspicions over the years, and this report sums them all up. But the author can’t see the forest because of all the trees.
Hastings would be hilariously funny, if their case would not be so utterly sad for Hastings’ shareholders. Share price down more than a third in 2 trading days.
Grimn or better known as Youyan, a research-heavy PGE and rare earth company, surrendered a 40% stake in its rare earth production unit to China rare Earth Group. We’ll dive into the details in a forthcoming issue.
Opening of environmental reporting season in China and also two major rare earth provinces reported
Accelerate the construction of high-quality development demonstration areas in old revolutionary areas
Ganzhou in Jiangxi province is a rare earth center of China.
This article was written by Mdm Wu Zhongqiong 吴忠琼, Deputy Secretary of the Jiangxi Provincial Party Committee and Secretary of the Ganzhou Municipal Party Committee - a position which makes her the No. 1 in Ganzhou city and puts her on the same level with the provincial governor (with the party secretary throning overhead).
She has a master’s degree of aerospace systems engineering from Beihang University and among other positions she was a director of the development planning department at the State Administration of Science, Technology and Industry for National Defense. She is also First Vice President of the China Jinggangshan Cadre Academy, a national-level cadre training school for professional, technical personnel and military cadres.
At face value a comrade beyond reproach.
Apart from the formalist-ideological gibberish of most of the article, lots of slogans and the embarrassing personality cult - all among the things Xi Jin Ping had actually set out to abolish when he entered office - these short sequences here are of substance:
The treatment of abandoned rare earth mines has been fully completed, and the production of rare earth mines which had been completely shut down for 6 years was upgraded and has resumed.
Formulate laws and regulations on drinking water source protection, water and soil conservation, and dust pollution prevention and control, and form a pattern of co-governance and co-management of ecological civilisation.
The whole thing pretty much indicates “work in progress”, lack of accomplishment may well be suspected.
A corresponding publication from Sichuan provincial party committee is a tad less ideological sloganism and has an tangible action report of the Sichuan Department of Ecology and Environment attached:
Rectification of the "Second Round of Central Ecological and Environmental Protection Inspection Report Rectification Task List in Sichuan Province".
Sichuan details environmental problems and failures of recent years and their current status.
Tone from the top
You will be hard pressed to find recent domestic speeches or domestic comments of Xi Jin Ping on the economy in which he does not press a “green” agenda.
Today going green is vital for political careers in China. Also Mdm Wu’s, with 9 years to go.
Neo Performance Materials in hot water
This analysis argues that the EU and NATO’s efforts to strengthen supply chain resilience in critical raw materials are vulnerable to the People’s Republic of China’s leverage on key industry actors. It studies the case of the planned expansion of Silmet, Europe’s only rare earths processing plant, as well as the entities that control the plant and their current and historical ties to the Chinese market, the PRC party-state, the People’s Liberation Army, and China’s defence sector.
Silmet’s ownership – Neo Performance Materials: Estonia’s Silmet, a rare earths processing plant that was established in the Soviet era to produce enriched uranium, is currently controlled by the Canada-based company – Neo Performance Materials (NPM). Silmet processes rare metals, including rare earth elements, that the EU has identified as critical raw materials. There are plans by Silmet’s ownership to expand into producing rare earth magnets, which are essential for the green transformation and modern military equipment.
A history of PRC state ownership and intervention: NPM has a history of Chinese ownership. Its magnet-producing subsidiary, Magnequench (MQ), was acquired from General Motors in 1995 by a consortium of two Chinese state-owned enterprises coinciding with the PRC government’s plan to develop the rare earths sector. By 2001, MQ production facilities were relocated to China. In 2005, MQ merged with Canada-based AMR Technologies, and Chinese shareholders’ shares were not disclosed. In 2006, AMR Technologies changed its name to Neo Material Technologies (NEM).
For several years, both Silmet and NEM were owned by US investors. To increase supply chain resilience in the rare earths sector, US company Molycorp acquired Silmet in 2011 and NEM in 2012. However, in 2015, Molycorp filed for bankruptcy — just after the PRC government caused rare-earth element (REE) prices to plummet by temporarily easing market controls. Prior to Molycorp’s bankruptcy, US-based Oaktree Capital Management (Oaktree) established a joint venture with a PRC state-owned asset management company to invest in distressed assets inside and outside of China [concretely: distressed asset manager Cinda, directly under the central government] . In 2016, Oaktree, due to the secured debt it issued to Molycorp prior to its bankruptcy, became NPM’s majority shareholder and the owner of former Molycorp assets, including Silmet, Magnequench, and other REE processing facilities in China.
If feels like they are out there trying to get you, then it is probably because they are out there trying to get you.
If we want to be paranoid, then lets do it right
Every single NdFeB manufacturer on this planet has facilities and/or joint ventures in China and therefore every single one of them can be considered a suspect.
And also non-magnet Solvay have a rare earth facility in China, apart from a multitude of other China interests.
The Oaktree-Molycorp-Neo story is indeed a bit odd. Oaktree were lender of last resort to Molycorp, when no-one else would offer loans to the company anymore. The collateral to Oaktree was Molycorp’s Neo Performance Material plus the Estonia factory, separated from North America’s largest rare earth mine and Molycorp’s core asset.
Oaktree’s partner, China Cinda, a distressed debt vehicle of China’s central government, is a murky story, same as all the other distressed debt vehicles of China’s central government. Together they invested and possibly squandered billions in businesses that were outside their permitted scope. One of the asset managers top executives was executed, what became of the others we don’t know.
If there had been a sinister agenda regarding Neo, why did this acquisition of collateral have no rare earth consequences? None, whatsoever.
The Chinese agenda was something else.
China’s interest was Mountain Pass
What China really wanted and also got from this deal was the largest rare earth mine in North America, the Mountain Pass bastnaesite mine, served up plain and straight with no distractions like Neo attached, on a silver tray in a single bidder auction for puny US$20.5 mio.
A construct was chosen that held the whole affair just below Trump’s CFIUS threshold, with a warrant that is held by China’s state-controlled Shenghe Resources conveniently forgotten.
The only other potential bidder, a Russian backed consortium, had been asked not to bid - for national security concerns. Hilarious, isn’t it?
But that is another story.
Author & magnets
While very diligent, most unfortunately the young author Frank Jüris does not understand the very least what Neo’s products are and what the difference is to high performance sintered NdFeB magnets which the West would like to have. If he thinks that this is like cooking NdPr, dysprosium, holmium, gadolinium, terbium, cerium metal powder in a big pot according to one big recipe, then he is naïve.
Naturally Neo had to try and acquire know-how from the masters.
The author’s lack of insight culminates in this exquisit recommendation:
These risks could be mitigated by requiring industry actors that receive European subsidies to supply annual quotas of processed rare earths for the European market.
Let us put this into perspective: The EU imported in 2022 18,000 t of rare earth compounds. Almost 12,000 t of this were uneconomical cerium compounds, 5,200 t of mostly uneconomical lanthanum and the rest is trivial.
If BIC import lanthanum-cerium mischmetal from China for their one-way lighters, then one can hardly claim this should be of any whatsoever importance.
Truth of the matter is, that the dependence is in rare earth permanent magnets, SmCo and NdFeB, not in rare earths.
Anyway, we are all doomed
For downloading the full report click here.
Leaders of Japan, Europe and other advanced nations, who are meeting in Hiroshima, agree that the world’s reliance on China for more than 80 percent of processing of minerals leaves their nations vulnerable to political pressure from Beijing, which has a history of weaponizing supply chains in times of conflict.
On Saturday, the leaders of the Group of 7 countries reaffirmed the need to manage the risks caused by vulnerable mineral supply chains and build more resilient sources.
“It’s a complicated economic geopolitical moment,” Ms. Hillman added. “And we are all committed to getting to the same place and we’re going to work together to do it, but we’re going to work together to do it in a way that’s also good for our businesses.”
“We have to create a market for the products that are produced and created in a way that is consistent with our values,” she said.
On Saturday [May 20, 2023], the White House said it planned to ask Congress to add Australia to a list of countries where the Pentagon can fund critical mineral projects, criteria that currently only applies to Canada.
While the Biden administration is looking to streamline the permitting process in the United States for new mines, getting approval for such projects can still take years, if not decades. Auto companies, which are major U.S. employers, have also been warning of projected shortfalls in battery materials and arguing for arrangements that would give them more flexibility and lower prices.
We would still recommend a one-stop permitting solution with a mandatory time frame. No more open-end application processes with multiple agencies on state- and federal levels.
Big Auto can’t imagine completely running out of molecules and is blessed with wishful thinking, when asking the taxpayer to enhance its corporate profits.
Furthermore, the president expects efforts to be accelerated for realizing the development of a green airport in North Kalimantan; the exploration, enrichment of rare earth metals; and the establishment of a bilateral task force.
Apart from tin tailings in Sumatra, there are deposits in Kalimantan and Sulawesi, at least one of them quite promising.
But don’t forget, Indonesia requires for all ores to add value in Indonesia before export of the resulting intermediate product is allowed.
View from Japan
The EU aims to popularise and expand the use of EVs as part of its measures against global warming, and the procurement of such raw materials is essential. Rare earths are also used as raw materials for the permanent magnets used in wind power generators promoted by the EU.
On the other hand, rare metals and rare earths have a hidden side that adversely affects the environment. The mining and refining processes may emit hazardous substances, and the chemicals used in the mining process may pollute groundwater. Mining can also use large amounts of water, reducing agricultural and drinking water supplies.
But these other faces have gone largely unnoticed by European citizens. Why: Rare metals and rare earths have been mined and refined mostly in areas far away from Europe.
We just love how the Japanese can be respectful and polite about what the EU is serving up in rare earths. The current EU commissioners retire next year.
D. Ian Chalmers
Over the last two years, there has been an abundance of discoveries of rare earths mineralization called Ionic Adsorption Clay (IAC), characterized by the extensive low-grade deposits in Southern China. Australia leads the way due to its long-lived and continent-wide deeply oxidized weathering environment considered necessary for these deposits to form. Barely a week goes by without a new discovery. But are these deposits genuinely IAC and does it matter?
Ian Chalmers had been involved in the Dubbo Project (Alkane Resources —> ASM) for more than a quarter of a century.
Being one of the cardinal western experts on all things rare earth he recently agreed to join the Critical Minerals Institute as co-chairman. The other co-chairman is no-one else but Jack Lifton.
South Africa Beats Climate Goal as Blackouts Slash Emissions. It’s one of those headlines you read and assume the Babylon Bee is to blame. In this case, it came from a Bloomberg article, gushing about South Africa’s falling emissions putting it on track to meet its 2025 climate goals. They were even bold enough to note: ‘Power plant breakdowns are reducing industrial activity.’
Sure, collapsing into the Stone Age is probably going to lower your CO2 emissions – for a while – but pretty soon everyone is going to be chopping down the nearest forest like it’s 5000 BC.
When it comes to South Africa, at the beginning of May it was predicted that 2023 would see 250 days of widespread blackouts lasting up to 12 hours at a time. Some say this is costing $51 million a day. A mixture of corruption, mismanagement, and accusations of sabotage have led to the nation’s old coal-fired power stations packing-in.
This looks not so good for Rainbow and Steenkampskraal. Is South Africa a failing state?
Managing Director and Chief Executive Officer of Iluka Resources Tom O’Leary told the company’s annual general meeting that the key Australian rare earth resources – neodymium, praseodymium, dysprosium and terbium – were essential to produce high strength permanent magnets needed to make electric motors used in electric vehicles, as well as in wind turbines and in defence applications.
O’Leary said: “We have a once in a generation opportunity to use that influence to pursue downstream industries and lift our sights beyond the mere extraction, and even the refining of minerals.
“Taking the further step to rare earth metallisation would represent a crucial gateway step to the potential manufacture of rare earth magnets in future.”
If this thinking was valid, Australia should have the world’s largest steel industry. And an automotive industry. Does it?
In 2020 Australia’s sole and single automaker, Holden, went belly-up after 165 years.
O’Leary addresses this point:
“Some argue this is unrealistic [yes, we do!], citing the historical challenges of establishing heavy industry in an environment where Australia’s proposed customers were already well established and dominant incumbents.
With a population of 26 million people and a domestic market potential about the same size as Shanghai also an Australian heavy industry for economies of scale would absolutely need to be export orientated.
And that is where Australia always failed. Rather than forcing its manufacturing industry to compete in export - like, for example, Korea did - and implementing corresponding (employer-friendly) policies, Australia was always quick in protecting its domestic industry with import tariffs, allowing its industry to muddle through based on a smallish domestic market and rendering it entirely uncompetitive during the process.
Australia could afford to go down a semi-socialist road, because exports of natural resources always paid the bills and helped maintaining/increasing the value of the Australian dollar.
The real issue
Mr O’Leary has a problem: Apart from China there is no market big enough to absorb the max 17,500 t/y of rare earth compounds Iluka (almost fully de-risked by the taxpayer) are wanting to produce.
And the same goes for rare earth metals, if Australians were to produce those. The open metal market is much smaller than the one for rare earth oxides.
The really big magnet material consumers make their own metals in-house.
Rare earth is a NATO-case: No Action, Talk Only.
Fact is that only Australia is doing something tangible and now there is big surprise because:
Where are the tangible results from government action elsewhere?
Nothing, nil, zilch, nada, zero, niente.
Japan is cooking its own soup. And whatever happens in EU and US so far is the result of private initiative (EU), or tailored to exclusively the specific demand of defense applications (US).
But there is no uncontrollable laughter in China’s rare earth community. They are extremely concerned with any even so small rare earth advances in the West. A siege mentality, not only applicable to rare earths. Time for a change of policy in China?
Outlook for Iluka
By the time Iluka enter the market, with a little luck and solid preparation, China’s economy may have turned around and Iluka’s product may surf on rising demand and rising prices - as far as China allows prices to rise.
And, always remember, Australian rare earths are duty-free if imported to China. Mr O’Leary is being paid for generating profits to pay shareholders dividends, not for trooping the colours.
The truth here is that the entire value chains of rare earths have gone missing outside China and the highly-paid and cushy-pensioned politicians and their bureaucrats even in year 13 after the Senkaku island incident haven’t done much about it..
Until death do us part
In China bureaucrats and politicians can be held responsible for anything they did or didn’t do during their time of service, even after retirement.
Perhaps there is something the West can learn from China.
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