Hallgarten Short MP; USA Rare Earth's Round Flop; China RE Raw Material Imports Up 38%; Lynas Curse; RE Prices Going Sideways; Peak's Dreams; And Other Things
Rare Earth 2021 August 28
Apologies for a rather incomplete posting today, there are multiple engagements we have to attend to. There is much more we should write about, e.g. ASM. Worry not, we are on it.
Hallgarten & Co released another one of their hard-hitting research papers:
A while ago a couple of hedgefunds approached us, who also wanted to short MP. We advised caution.
Hallgarten make a number of valid points, but on the Neo Performance acquisition suggestion they are on the wrong path.
Neo do not produce sintered NdFeB magnets, the stuff that all the “military-strategic” panic is all about (Jack Lifton, the man truly in the know of all things rare earths, estimates US-mil demand for rare earth magnets below 2,000 t per year).
Neo’s model already works well. We see no synergy of Neo with MP, but one: Neo could process some of MP’s bastnaesite. Where are Neo’s facilities located? In Estonia and, oh!, surprise, surprise, in China (rumour goes, Neo are the only foreign company permitted to process rare earths in China, which is incorrect).
Neo do have a raw material issue in Estonia, as they have accumulated too much radioactive waste from their Russian raw material and therefore Neo can take in only raw material, which had its Th and U contents removed. Removing Th and U from Southern Ionics’ (now owned by Chemours) monazite is the core function that Energy Fuels perform for Neo. Other services may not be so important.
China has punitive trade war duties of 25% to 27.5% on all rare earth products from USA, except for two: Bastnaesite and monazite.
During the first half of 2021 China’s Shenghe Resources imported 30,000 t of bastnaesite concentrate from MP Materials at a value of US$ 100 mio.
It does not require much fantasy to imagine what happens, if MP divert quantities from Shenghe Resources, a holding company under behemoth giant China Aluminum, member of the Big 6, and put these quantities elsewhere. Reintroduction of punitive duties on MP’s bastnaesite may be on the menu.
That would leave a rather limited market for MP’s bastnaesite.
We are, however, concerned, that the board of MP may be blissfully unconcerned with the world of reality, and be much more concerned with Wall Street spins and hypes.
Shareholders of Neo certainly won’t mind a complete replay of the Molycorp story, Groundhog Day style. They know already now, how it will end, but in the process it will create lots of fat fees and boni left-right-center.
We believe, as before during Molycorp times, that Neo’s people won’t care so much, who serves as chairman under them.
Contrary to Hallgarten, currently we don’t see a market for MP’s NdPr in the US or anywhere near there. We believe, if MP really start separating rare earth, they will have to ship the finished product to China and some reference quantities to Japan.
Given the interdependent relationship between MP Materials and Shenghe Resources (China Aluminium), could that perhaps be the plan?
Another lofty concept here below.
Talking about Wall Street spins and hypes:
The company, which is developing the Round Top rare earths deposit in Texas, is considering an initial public offering (IPO) or going public via a special purpose acquisition company (SPAC), though it does not plan to issue debt, according to the source and documents.
Any offering is expected to raise between $300 million to $500 million, which would be used in part to finance the Texas mine and processing facility. The company hopes to have it operating by 2023.
USA Rare Earth rival MP Materials Corp, which controls California's Mountain Pass mine, went public last year in a SPAC deal worth nearly $1.5 billion. Its stock price has more than doubled since its November debut.
That is rich, Wall Street bovine brown matter.
Why: Round Top is a multimetal deposit, whose TREO of 0.063% is less than 1/100 of Mountain Pass’ TREO concentration.
Any offering is expected to raise between $300 million to $500 million, which would be used in part to finance the Texas mine and processing facility. The company hopes to have it operating by 2023.
Used in part only? How much would be burned in Wall Street fees?
Except for divine intervention, we would put a large question mark behind that 2023 schedule.
The corporate presentation of November 2020 warns, that a mineral reserve has not been declared:
This basically means, that all things concerning commercial viability are rather uncertain, if not completely unknown.
Generally it is reasonable to say, that “infered” does not include a high degree of confidence (no, we didn’t say “educated moonshot”).
According to the PEA, at Round Top there are resources of 200,000 t as measured (M), 164,000 t as indicated (I) and 735,000 t as infered (two times M+I!) , summing up to 1,099,000 t. That would mean in terms of TREO 126 t as measured, 463 t as indicated and 463 t as infered.
Through our humble and non-expert observation, we have come to believe the critical mass for a RE-only deposit is a TREO of 100,000 t, at a reasonable cut-off grade.
Texas Minerals management says to base on a heap leach quantity of 20,000 t/day, but we can’t see in the PEA where that quantity should be coming from.
May be we missed something.
Loss of valuable elements
According to the Preliminaty Economic Assessment (PEA), during heap leaching >90% of zirconium, hafnium, beryllium, gallium and aluminium will be lost:
Source: NI 43-101 PRELIMINARY ECONOMIC ASSESSMENT ROUND TOP PROJECT
We have been trying to verify the calculation in the corporate presentation of November 2020:
This projection works, if one takes the management’s envisioned 20,000 t/day as a base (assuming that mineralisation is consistent throughout, a bit of a rarity at that low concentration) with every kilogram of at least 19 of the products in the mine plan are mined, assuming there is a technology to process all this to high quality finished products and sold at current market prices.
Quite a bit of a challenge, this mixed bag.
The product range is certainly a wet dream for any nonferrous metals wholesaler, but it is a nightmare for a producer.
To realize its projected numbers and justify the projected values, Texas Minerals will have to turn out the refined end product of each of the planned items.
Naturally, there are costs for doing so.
Texas Minerals so far only plan capex for rare earth, US$350 mio, nothing for all the other products that they must turn out in their pure, processed form, in order to reach management sales projections.
For example: Lithium carbonate sure looks really sexy and could make 26% of sales. But then please consider, that the CAPEX for a dedicated lithium carbonate production facility of commercial size can be another US$170-200 mio, on top of the US$350 mio Texas Minerals schedule only for rare earths.
Beryllium hydroxide could make 15% of value, even though 91% of beryllium will be lost through leaching, according to the PEA. There is an SX process to turn out beryllium hydroxide, but also this will need its own dedicated facility (Round Top had been explored for beryllium in the 1980s by Cabot with no follow-up, and the 108 drillholes of the time are part of Texas Minerals data collection).
And this goes on.
Adding up, the amount of capex required may possibly exceed Goldman Sachs’ rather generous valuation of USA Rare Earth: US$ 1 billion.
It may be best, to wait for the definitive feasibility study of Round Top, to shine a light on the complexity and the CAPEX needed to achieve the projected sales of fully refined products.
Mine-to-Magnet, Mission Impossible
As to the envisioned forward integration, the much fabled mine-to-magnet value chain, with USA Rare Earth NdFeB sintered NdFeB magnet production: Based on Round Top it does not fly, it rather slams into the wall of simple fact.
Using the former Hitachi equipment, at the nameplate capacity of 5,000 t NdFeB magnets, based on management calculation, Round Top’s 20 year life of mine output would only last for only 2.5 years of USA Rare Earths NdPr demand for magnet production.
And that bases on the extremely optimistic management projection, on top of basing on the assumption there is a technology to recover these elements at all.
If we assume that we are wrong and management is right about the resource and its recovery, perhaps it would be conceptually better to separate the humble quantities of Round Top NdPr and sell off as neodymium oxide and praseodymium oxide into their respective lucrative markets, while attaching the NdFeB magnet production (if it can ever run, software issue?) to upstream NdPr supply from MP Materials, who, if they walk the talk, will have NdPr coming out of their ears, with only China (trade war duty on US-NdPr 27.5%) and a bit to Japan to sell to.
This would also breathe life into the agreement between USA Rare Earths and Geomega, a lean and mean NdFeB supply chain optimisation move.
Why MP should listen
Theoretically Round Top carries a some quantity of dysprosium and also terbium, if they can be recovered, both indispensible for NdFeB magnet production. According to Texas Minerals managment projection, they may turn out 150 t per year of Dy.
Without access to dysprosium and terbium and on top of that without a sizeable downstream NdFeB customer, NdPr from MP Materials will be useless, so conceptually a cooperation with USA Rare Earth may be a partial solution.
Even if MP go it alone all the way to NdFeB magnets, they will still need Dy and Tb, and US Rare Earth will still need NdPr.
And if Round Top is a round flop, USA Rare Earth will also need the remaining materials.
China’s Imports of Rare Earth Raw Materials
China’s imports of rare earth raw materials are strongly increasing on a combination of import incentives and increasing demand for rare earths:
The a.m. includes materials of hugely varying rare earth contents and does not include heavy mineral sands.
Heavy mineral sands, prime example India’s, contain 0.1% to 1.4% of monazite. Since additional sources for rare earth raw materials are hard to come by and no new deposit in the rest of the world is scheduled to open for years to come, China is set to also buy more mineral sands for getting more monazite.
In this regard, news like this one are not really surprising:
The proposal for Cape Foulwind, near Westport, will bring 40 trucks each day to the area, which is home to a famed seal colony, a surfing beach and stunning views.
Westland Mineral Sands Ltd has applied to the West Coast Regional Council and the Buller District Council for resource consent to mine 500,000 tonnes of heavy mineral concentrate over 10 years.
Barrytown JV Ltd applied for resource consent from the West Coast Regional Council and the Grey District Council to mine 5000 tonnes of heavy mineral concentrate from 115ha of private farmland every week for 15 years. The minerals would be trucked along the Coast Road tourist drive (State Highway 6) to Westport for exportation.
NZ entrepreneur and Westland chairman Duncan Hardie controls more than half of Westland shares. He is the owner of Hardie Pacific Ltd. Apparently, he wants to attend to growing China demand, and with NZ being in Beijing’s good books, the otherwise significant political risk to his business is not as high.
Recently, a rare earth investor pinged us:
Is there a particular reason rare earth stocks in china have hit lightspeed since july and others have not?
Underlying commodity pricing rallied a bit but was still of march/april highs where prevailing S/P of most of those co's was alot lower?
As readers of this humble blog know, rare earths are not commodities outside China, even though China and everyone else would like them to be.
China has industrial standards for all rare earth products. Think ASTM, SAE, DIN, EN, JIS and so on, which we apply to products like copper, aluminum, steel, and so on.
That is, what makes such products commodities: Universally applicable standards. So you you can deal in these products with the confidence that they will be, what you need them to be.
Not so in rare earths. In the almost complete absence of rare earth standards in the West, for every lousy ton of rare earth that you trade you need sample approval, because every customer has her/his own test methods and quality parameters for a product, that meets her/his requirements.
There has been broad agreement to fill the standards void in the West by adopting Chinese industrial standards, a giant leap forward.
Reality is, however, that since 2015 there has been an International Standards Organisation (ISO) working group, which in the past 6 (six) years managed to achieve agreement to adopt one standard out of dozens, that would need to be adopted.
Result: Outside China rare earths can’t be commodities.
Share prices in China increased because of fantastically improved results of China RE companies on increasing rare earth prices.
For example, China Northern Rare Earth Group’s net profit increased 5 times in H1 2021 over H1 2020.
However, rare earths are largely a China-domestic affair, so stock investors outside China don’t see, why price increases in China should have any impact on junior rare earth miners abroad, who are many years away from production and cashflow.
There is no relevant rare earth research at banks either, only Wall Street occasionally tries really hard.
Lynas still suffer from an unworkable commitment:
Malaysia has provided rare earths producer Lynas Corp (ASX: LYC) with some breathing room for finding a permanent location for a low-level radioactive waste disposal facility for its processing operations on the country’s east coast.
The Australian miner, which fought hard to stay in Malaysia under certain conditions that it needed to fulfill by September this year, said the licensing deadline for the permanent disposal facility (PDF) had been extended by six months to March 2, 2022.
Lynas has always been on temporary permits since Day 1.
The background is, that Lynas, under former chairman Nicolas Curtis, had committed to take the waste from Malaysia back to Australia. Something, that has always been impossible under Australian law.
And that is the root of Lynas’ nagging problem, the curse.
Meanwhile, in China:
The National Development and Reform Commission announced the list of the first batch of new series of national engineering research centers
ecently, the National Development and Reform Commission announced the list of the first batch of national engineering research centers included in the national new sequence management. It is reported that the National Engineering Research Center is the National Development and Reform Commission with the goal of serving the country’s major strategic tasks and the implementation of key projects.
Among them, the National Engineering Research Center for High-Performance Homogeneous Alloys established by the Institute of Metal Research of the Chinese Academy of Sciences, the National Engineering Research Center for Powder Metallurgy established by Central South University, the National Engineering Research Center for Rare Earths established by the Institute of Rare Earth New Materials Co., Ltd., The National Engineering Research Center for Rare Metal Materials Processing established by the Non-Ferrous Metal Research Institute, the high-quality non-ferrous metal green special metallurgy national engineering laboratory established by the Institute of Technology Group Co., Ltd., and the key integrated circuit materials established by the Institute of Semiconductor Materials Co., Ltd.
The incorporation is somewhat new. It means for-profit research, a bit of pressure, not just hanging around and beating dead horses, while drawing a salary.
Batteries vs Hydrogen Fuel Cells
While we are not experts on lithium-ion batteries at all, we have always been concerned about the unsustainable recovery of lithium from brine. Being somewhat idealistic, reports of children labouring in Congo’s cobalt mines instead of going to school we find outright repulsive.
Already a while ago we pointed out, that, while putting the West on the quite possibly unsustainable lithium-ion battery track, China itself showed signs of moving towards the hydrogen fuel cell.
Concretely there was the plan, to run all public busses on hydrogen fuel cells.
Now a task force of the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, the National Development and Reform Commission, and the National Energy Administration officially approved the Shanghai City Group as the first demonstration city group for the demonstration and application of hydrogen fuel cell vehicles - and that is not only busses.
Shanghai City Group clusters include: Shanghai, Suzhou and Nantong (Jiangsu Province), Jiaxing (Zhejiang Province), Zibo (Shandong Province), Ningdong Energy and Chemical Base (Ningxia Province) and Ordos City (Inner Mongolia).
Of course the usual suspects of experts and lobbyists will point out, that fuel cells are heavy and there will be not enough space in the boot of a vehicle (which was not really an issue with LPG fuelled cars), the lack of filling station infrastructure, the challenge of carbon neutral production of hydrogen and so on and so on.
China holds it with Canada’s Bachmann, Turner Overdrive: You ain’t seen nothing yet.
The updated BFS will focus on updated transportlogistics, mine planning, renewable energysolutions, early works and project execution planning, updated pricing assumptions for producing neodymium praseodymium (NdPr) oxide and other separated rare earth products, tailings storage evaluation and flotation process optimisation.
The updated BFS will be completed by the end of February next year.
It was estimated that the $165-million refinery will produce around 2 810 t/y of high purity NdPr oxide, around 625 t/y of combined mid and heavy rare earth carbonate, some 7 995 t/y of lanthanum rare earth carbonate, and 3 475 t/y of cerium rare earth carbonate sourced from the Ngualla project, in Tanzania.
Great news and a good move to update the BFS, primarily because of the improved prices.
While Peak are at it, they may also want to tell the market to whom in Europe they want to sell 2,810 mt of NdPr, 8,000 t of La-compounds and 3,500 t of Ce-compounds per year. We don’t see, to whom.
Pensana promised the Yorkshire Council that their raw materials will contain no radionuclides and thereby put themselves checkmate. Hull will want the same promise from Peak.
From our view, the whole concept is a total waste of time and money.
As far as Peak are concerned, a low capex, quick and dirty production of concentrate for subsequent sale to China (or whoever wants to buy it), along the highly profitable model of MP Materials, would require less fantasy and be much more attractive in all aspects, including a much shorter timeline to cashflow.
Shareholders will appreciate that.
The above gives you a general idea over the price development of these rare earth oxides over almost 60 years.
The 2010 prices are those before China’s export embargo to Japan, which started from Q4 2010.
The 2011 prices are the historical peak prices.
Since our last post, in RMB terms light rare earth oxide prices of lanthanum are down 2.8%, cerium down 1%, which points at maximum output of light rare earth for obtaining NdPr.
Heavy rare earth oxide terbium is down 3%, dysprosium down 2% and holmium down 3.5%, but given the healthy increases this year, nothing to get concerned about.
As usual, these are RMB ex-works China prices incl. 13% VAT (non-refundable upon export), converted at the official daily on-shore exchange rate fixing. Actual offers will differ.
Declining RE PRices?
Hallgarten & Co mention in their MP analysis the risk of declining RE prices. One may ask, how that should come about, considering the forecasts of RE demand doubling by 2030?
Most of the growth projection basically comes from 2 applications: NdFeB magnets in traction motors of EV and offshore windfarms.
One can see from automaker announcements that the trend is away from using NdFeB magnets in the EV motors, simply because automakers can’t get a handle on rare earth and NdFeB prices. Since automakers success is not measured by the increase of cost, they try alternatives to these motors.
There are downsides in performance and weight, apart from efficiency, if one goes for alternative motors.
But, given speed limits in practically all countries, do we really need EV to accelerate from 0 to 100 in 3 seconds?
There is still a lot of steel in EV, further weight reduction can still be achieved by a number of substitute materials.
If you then understand, that Chinese industry traditionally competes by making an equivalent products for export, but cheaper, it may well happen, that Chinese EV makers also follow the western trend, in order not to attain cost leadership from the wrong end. If that really should become a trend also in China, addtional demand for high operating temperature types of NdFeB magnets would be less.
NdFeB are used in the turbines of offshore windfarms, not really onshore. The reason is, offshore maintenance is a difficult and expensive exercise, therefore offshore windfarms should go at lowest possible maintenance. That is, where high operating temperature NdFeB magnets come in. If, for cost reasons, China should decide to reduce offshore windfarming, also here a demand dent could occur.
If that happens, the forecast 9.x% yearly growth of RE consumption may become quite a bit smaller, realisation of which will be followed by lower price levels. Over a longer time frame, RE may still become short, but the pressure would be less.
Of course, industry promoters and analysts who live of making lofty forecasts will find such suggestions ludicruous.
May be, but the risk is not as remote as one may think.
We have already seen green horses vomit in front of a pharmacy, a German saying goes. It means, we have already seen the even most unlikely scenarios playing out before.
Global Warming, Rare Earths and the Bickering Among Nations
For 50 years we have known, that we are facing a global problem. That much time has passed since the Club of Rome showed us the limits of growth.
That inaction has put the world under extreme time pressure.
Can someone explain, why, in the face of global warming, we waste may years and lots of money in order to produce RE in the West, while China has all the capacity the world needs for enabling low carbon economies worldwide, and all that instantly?
Yes, universal human as well as civil rights in China are a problem, as they are, they have always been and they will always be trampled on in socialist countries. Such systems do not work in any other ways, as they subordinate the individual to the group and the minority to the masses. If the Chinese people don’t like it anymore, they will change it.
What comes first, human rights in China or the well-being of all mankind? Should the fate of mankind be sacrificed for time-consuming bickering between nation states, that slows everything to a crawl?
Can we perhaps postpone that bickering for a couple of decades and cooperate for struggle with avoiding excessive global warming?
By then, the aritificial islands in the South China Sea with their already crumbling structures will have vanished below the water line, and the suspected oil and gas underneath will have turned almost worthless on greatly reduced demand for fossil fuels.
China domination has been a fear in the western world, ever since the last German emperor Wilhelm II in 1895 used the phrase “yellow peril”, while Chinese workers had slotted to build railways in the US, later in Russia, and dug trenches for the warring powers in World War I.
USA ca. 1860, Transcontinental Railway
Russian Empire, ca. 1914, Murmansk Railway Line
Chinese Labour Corps, ca. 1916, somewhere at the Western Front
Thanks for reading and have a marvellous weekend, stay healthy!