MP's Rocky IPO; Update: RE Prices GO BALLISTIC; Sustainable RE, R U Kidding?; First Victim of China's RE Restrictions
Rare Earth 2020 November 20
It was a bit of a rocky start for MP:
However, what you see here will happen to every listed junior RE miner when he starts production, has actual sales and can be valued properly: Lofty announcements paired with optimistic forecasts are forgotten and hard economic reality kicks in.
MP has one single customer who is also major shareholder, owned by a state that isn’t exactly friendly towards the USA. It will be a thorny road ahead. China prices holding up will certainly help.
We wish Litinsky and MP the best of luck.
Whatever happens to rare earth in China, it is always wrong.
If rare earth prices are low and depressed, junior miners in the West accuse China of manipulating prices down, in order to prevent non-China competitors from entering the market.
If prices go up, consuming industries in the West accuse China of abusing it’s monopoly status.
At the time of this writing, rare earth prices have been rising for several weeks and the prices for magnet materials seem to go ballistic, while the weak US$ lends about 5-6% support:
The price rise is carried by the magnetic materials, the raw materials that make up ca. 30-32% of the volume of permanent magnets.
Shares prices of actually producing RE companies are rising, too, however, we must caution that those who lean on externally procured raw material may not be able to extend their margins.
As we have laid out in our previous issue, in China there has been a massive build-up of permanent magnet overcapacity, too much too early, driven by “me-too” bets on increased demand in the EV area.
While long term the demand for NdFeB demand will increase massively, medium term there won’t be enough demand to physically absorb the increased NdFeB capacity, likely leading to industry consolidation, which will be bad news for the RE prices.
However, if the current RE price level holds this time, combined with the long term RE demand forecast to double by 2030, those junior rare earth miners who have finished all their homework (rather few), have a sane amount of capex needs, are not located in the middle of nothing and companies who are the fastest to production, like recyclers, become valid investment cases, while Lynas, MP and perhaps Neo will surely have a good run.
It was certainly not the intent of the high-handed policy makers in Beijing to trap one of its own in China’s rare earth restrictions, but it happened.
Zhongke Sanhuan, a major Chinese permanent magnet maker and partner of German magnet maker Vacuumschmelze, failed in its backward integration into rare earth oxides with China Southern Rare Earth Group, because it fell foul of China’s “Negative List for Foreign Investment”, which prominently features a prohibition of all and any foreign investment in China’s rare earth sector.
Read the full article of China’s investigative journalists at The Paper below.
We are not known for heaping praise on junior RE miners, but the latest investor presentation of Commerce Resources is easily among the top 5 rare earth investor pitches of all times, a master piece:
The one element we really don’t like is this myth, China would become a net importer of rare earth.
China has a dominating share of the world steel market. Related to that China imports a billion tons of iron ore.
Does that iron ore import make China a “net importer of steel”?
In rare earth the situation is quite similar. While being the world’s top exporter of rare earth compounds and metals, China emerges as a large rare earth raw material buyer.
But that does not make China a net importer of rare earth compounds and metals.
Lets forget this silly pun of “China net-importer of rare earth.”
Sustainability, a buzzword. But mis-placed in mining.
“Sustainability is the ability to exist constantly”, says Wikipedia.
Mines are self-depleting assets, as such obviously not sustainable, ever. Period.
In rare earth you may add to that oceans of spent acids, mountains of tailings and - here come the bonus - radioactive waste products, mainly thorium.
Thorium could be used as a fantastic fuel for thorium molten salt reactors, but the EU under German leadership, EU president Mrs von der Leyen, who previously ruined the German Federal Forces as defense minister and was pushed by Mrs Merkel to Brussels, apparently because no other German ministry wanted to have her, is strictly anti-nuclear.
In our humble opinion, RE mining, benefication and separation does not qualify for the term sustainable, along with others, prime example is lithium from brine. It is simply what it is.
The EU has embarked on a generally laudable, but overly idealistic mission to enforce sustainable raw materials, going it all alone, forcing anyone who wants to participate in the EU market to stick to strictly enforced rules.
What this does is similar to the EU REACH legislation, which forces market participants to register all substances they handle in the EU and test them, as if they were meant for pharmaceutical and agricultural purposes. Compliance with this regulation led to, sometimes disproportionally, large cost, while at the same time reducing competition.
REACH is purely to berate the obvious: You should not drink sulphuric acid and you should not eat sodium cyanide. It is superfluous bordering on the ridiculous. Monty Python’s Ministry of Silly Walks comes to mind.
We once confronted a senior EU trade official, pointed out the oligopolistic trends induced by REACH and calling REACH a non-tariff trade barrier. He agreed, but said there was no way back. Rare earth compounds also fall under REACH, by the way.
The sustainability drive also creates a somewhat secluded market environment within the EU, and as compliance cost are added to the price, a high-priced one on top of that.
The EU also legislated automotive norms from 2030, that will be impossible to meet by regular combustion engine cars, forcing the automotive industry to only turn out hybrid and fully electric vehicles for the EU market.
The whole thing is full of hypocrisy.
The way we see it, there is no chance that rare earth will be mined and processed in the EU27, same as the battery materials. If it is not government regulation, it will be concerned and blissfully ignorant citizens who will stop it.
All will remain import.
Of course EU regulations also apply to imports and here is, how this plays out:
Policymakers, full of themselves for the goodness that they bring to mankind, will successfully have continued on their path of de-industrialising Europe, consumers will be happy to drive electric cars with Chinese rare earth magnets and tires of Russian neodymium rubber, have their prostatas treated with holmium lasers, have MRI scans with gadolinium contrast media, will treat their diarrhoea with cerium-containing agents and not a single gram of these materials will be “Mined in EU.”
As before in REACH, the burden of EU sustainability compliance will be offloaded entirely to producing countries, who will add the cost of compliance to the price and who will also have to deal with the fallout of feelgood governance in the EU, namely, the waste and environmental degradation stays in the producing countries.
Exports are important to the EU, so regular combustion engine cars will continue being produced in the EU beyond 2030, but only for export, same weapons produced by German Rheinmetall.
Here is, how this likely looks by 2030:
EU officials know all that full-well and they, together with a myriad of consultants and the cult-like sustainability gang, happily milk the EU budget for critical metals forever, unless someone finally calls the bluff.
Cynical and hypocritical beyond belief. And don’t nibble on that yttrium metal, will you!
Thanks for reading and have a glorious weekend!
Zhongke Sanhuan terminates its capital increase in Southern Rare Earth: there is a small amount of foreign capital among shareholders, which does not meet the requirements
In July, Beijing Zhongke Sanhuan High Technology Co., Ltd. (hereinafter referred to as “Zhongke Sanhuan”, 000970), a leading domestic rare earth permanent magnet company, finally announced its participation in one of the six rare earth groups in China after more than a year. Southern Rare Earth Group Co., Ltd. (hereinafter referred to as "Southern Rare Earth"), however, the incident has changed again.
On November 17, Zhongke Sanhuan’s announcement disclosed that the company held the third interim meeting of the eighth board of directors in 2020 on the same day. The meeting reviewed and approved the "Proposal for the company to terminate the capital increase in China Southern Rare Earth Group Co., Ltd." and the "Company signed the supplement Agreement> Proposal on Related Party Transactions.
On the same day, Zhongke Sanhuan, Ganzhou Rare Earth, Jiangxi Copper, Jiangxi Tungsten, Southern Rare Earth and Beijing Sanhuan Xirong Technology Co., Ltd. (hereinafter referred to as "Sanhuan Xirong") increased their holdings of Southern Rare Earth5 % Equity and other matters signed the "Supplementary Agreement."
Regarding the reasons for the termination of foreign investment, Zhongke Sanhuan explained that on July 23 this year, the National Development and Reform Commission and the Ministry of Commerce implemented the "Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition)" (hereinafter referred to as the "Negative List" ") Regulations: Foreign investment in rare earth, radioactive minerals, and tungsten exploration, mining and beneficiation is prohibited. As Zhongke Sanhuan has a small number of foreign shareholders, the capital increase of Zhongke Sanhuan to Southern Rare Earth does not comply with the "Negative List" policy. Therefore, the company decided to terminate the capital increase in Southern Rare Earth after many discussions with Southern Rare Earth and its original shareholders.
Previously, on July 6th, Zhongke Sanhuan announced that on the same day, Zhongke Sanhuan and Ganzhou Rare Earth, Jiangxi Copper Group and Jiangxi Tungsten Group signed the "Agreement on Capital Increase and Share Expansion of China Southern Rare Earth Group Co., Ltd." Jiangxi Copper Group and Jiangxi Tungsten Group agreed that Zhongke Sanhuan will increase the capital of Southern Rare Earth by RMB 431,393,958.40. After the capital increase is completed, Zhongke Sanhuan will hold 5% of Southern Rare’s equity.
Sanhuan Xirong mentioned in the above "Supplementary Agreement" is a wholly-owned subsidiary of Beijing Sanhuan Holdings Co., Ltd. (hereinafter referred to as "Sanhuan Holdings"), the controlling shareholder of Zhongke Sanhuan. Wang Zhenxi, chairman of Zhongke Sanhuan , Executive Chairman Hu Boping and Senior Vice President and Secretary of the Board Zhao Yinpeng are the directors of Sanhuan Xirong, and Vice Chairman Li Ling is the company’s controlling shareholder, Sanhuan Holdings’ controlling shareholder Zhongke Industrial Group (Holding) Co., Ltd. (hereinafter referred to as " Zhang Guohong, a director of Zhongke Sanhuan, is the chairman of the company’s controlling shareholder Sanhuan Holdings and its controlling shareholder Zhongke Industry. Therefore, Sanhuan Xirong is a related legal person of Zhongke Sanhuan, and the signing of the "Supplementary Agreement" is a related transaction.
The announcement mentioned that Zhongke Sanhuan and Nanfang Rare Earths agreed to continue to promote the high-end magnetic material project with an annual output of 5,000 tons in Ganzhou in accordance with the joint venture agreement signed on July 6, 2020. The progress will be synchronized with the increase in capital and shares of their own. In addition, it will actively promote the business cooperation between Zhongke Sanhuan and Southern Rare Earth. Southern Rare Earth will supply rare earth raw materials to Zhongke Sanhuan at the most favorable market price.
Zhongke Sanhuan believes that this matter will not affect the company's supply of heavy rare earth materials and will not have a significant impact on the company.
Southern Rare Earth is one of the six major rare earth groups approved by the State Council. It is a core member enterprise of the "China Rare Gold Valley" and China's largest medium and heavy rare earth production and operation enterprise. Southern Rare Earth was jointly funded and established by Ganzhou Rare Earth, Jiangxi Copper Group and Jiangxi Tungsten Group on March 13, 2015, with a registered capital of 753 million yuan, each of which holds 99.47%, 0.47% and 0.07%.
Zhongke Sanhuan is an enterprise established on July 23, 1999 by Beijing Sanhuan New Materials High Technology Company (now renamed "Beijing Sanhuan Holdings Co., Ltd."), which is affiliated to the Chinese Academy of Sciences, as the main initiator. Listed on the China Shenzhen Stock Exchange in April 2000. Zhongke Sanhuan continues the main business of Sanhuan Company, engaged in the research and development, production and sales of magnetic materials and their application products.
Zhongke Sanhuan’s main product NdFeB is widely used in energy, transportation, machinery, information, home appliances, consumer electronics and other aspects. Especially in recent years, the rapid development of the global energy saving and environmental protection industry has promoted the development of hybrid vehicles, electric vehicles, and Applications in emerging fields such as energy-saving appliances, robots, and wind power generation. Zhongke Sanhuan is a leader in China's rare earth permanent magnet industry and one of the world's largest manufacturers of NdFeB permanent magnets.
US-China rivalry: Pentagon invests US$12.7 million in rare earth producers to reduce reliance on China
The US Department of Defence has invested more than US$12.7 million in three American producers of rare earth metals as the country seeks to reduce its dependence on China for the much sought-after raw materials.
The main beneficiary is MP Materials, which owns the Mountain Pass rare earth mine in California – the largest outside China – and was granted US$9.6 million, according to a statement issued by the Pentagon on Monday.
The money would be used to pay for the construction of new processing and separation facilities for refining the minerals, it said.
The two other funding recipients were TDA Magnetics in California and Urban Mining Company in Texas, which received US$2.3 million and US$860,000, respectively, it said.
Making batteries efficient and power-dense requires rare earth metals and minerals like cobalt and lithium. While they can be found in a variety of places, much of the world’s production is done in a few developing nations with a long record of human rights offenses and lack of respect for the environment.
Congo and Chile
According to UNICEF, two-thirds of the world’s cobalt comes from the Democratic Republic of Congo, and 20% of its output comes from artisanal mines, where up to 40,000 children work in dangerous and unhealthy conditions for almost no pay.
In Chile, lithium mining uses up to 65% of the fresh water in the Salar de Atamaca region and damages the local environment.
These human and environmental costs are usually ignored, by environmentalists, politicians, and the EV industry. By posting a warning about these abuses, the United Nations is trying to instigate a much-needed debate about the dark side of environmental pet projects.
One Drop of Oil
The rush to electric vehicles does not make sense from an economic, environmental, or human rights perspective. It is based on the extreme and irrational notion that even one drop of oil is evil.