RE Media Hype; G20 Talk Green, Invest Brown; Peak: Divine Intervention; Rainbow's Africa Risk; Medallion's Monazite; LEM's PEA; NdPr >US$90/kg, RE Carbonate Doubles, Concentrate Up 15%;

Rare Earth 2021 July 27

Quo vadis, rara terra?

At the beginning of this year, INN invited those in-the-know for an outlook

Rare Earths Outlook 2021: REE Magnet Supply to Remain Tight

REE magnet supply tight: ~200,000 t of NdFeB demand vs. ~300,000 t of NdFeB capacity in China alone plus SmCo magnets: Tight supply? No kidding!

Corona’s huge impact

The pandemic had a huge, mostly negative impact on the rare earths market in 2020

We disagreed with the “huge, mostly negative impact assessment” at the time, but that does not make clickable headlines.

Price surprise

…the surge in pricing in Q4 came as a bit of a surprise.

Did we really, really seriously expect, in view of beaten-down rare earth prices, that China’s rare earth companies would absorb the substantial cost increase, caused by the implementation of the years ago announced China resource tax on September 1, 2020?

The implementation of the resource tax and the subsequent cost increase hit an already understocked, hand-in-mouth rare earth market.

Contradiction

…estimates that global consumption of NdFeB permanent magnets fell by approximately 10 percent last year.

Followed by the diametrically opposed statement:

…with the exception of REE magnets, which continued to show growth in the year

Fabulous, rigid analysis, can’t wait to see more of that.

Excepting REE magnets

We have seen demand from most REE end-use sectors fall back in 2020, with the exception of REE magnets, which continued to show growth in the year supported by increased use in wind turbines, EV/hybrid EV drivetrains and consumer electronics,”

“Exception of REE magnets”: Rare earth magnet materials represent >93% of rare earth world market value. If, as suggested, we exclude REE magnets, the remainder of the market is only of single-digit percent relevance.

And if that “relevance” goes up or down, or a bag of rice falls over in China….

China’s export volumes fell in 2020 on reduced external demand for FCC catalyst in refineries and reduced external demand for catalytic converters in the automotive industry. Affected lanthanum and cerium, US$1.50/kg byproducts.

When last year asked by a journalist on the impact of COVID on rare earths we said “none”. That is f course not, what the media want to hear. They want headline-grabbing catastrophy, mayhem and China rare earth blackmail.

Restrictions

Here another flopped hype:

(The rise was) mainly linked to market sentiment; speculation regarding trade restrictions of rare earths out of China in December — which didn’t materialize 

This analyst statement defies high school economics: If rare earth were denied export, the export quantities would press on the domestic market - resulting in lower prices, of course, not higher prices. The consultant fell for China-domestic, share-price pumping rare earth hype, that is no better than the pump-and-dump that we see outside China.

On the “restrictions”: We had debunked this fearmongering hype already on October 20, 2020:

The Rare Earth Observer
No Forest, Just Lots of Trees; Angola's Swamp; China RE Exports Continue Decline; The New Law Hype: China's Decades Old RE Export Prohibitions & Restrictions; Pakistan Enters RE Arena;
Retired U.S. Air Force Col. Jeffery A. Green, president of J. A. Green & Company, adds to the soul searching and concept seeking in US-based rare earth production. Same as others, he can’t find the forest because there is all of them trees blocking his view…
Read more

Brief sum up, for those not interested in details:

  • Every single self-respecting industrial nation has an export control law. After Brexit, out of the legislative umbrella of the EU, it one of the first laws the UK drafted;

  • China had 9 pre-exiting relevant laws, that were inadequate;

  • These 9 laws were folded into one, the one much hype was generated on, preferably by those, who didn’t bother reading it;

  • One of China’s objectives: Not seeing things like China-made chlorine gas containers in the civil war zone of Syria again. Entirely legtimate target, but not suitable for media hype;

  • The one lonely, sole and single rare earth relevant content in the law is the reference to a 20 (twenty) year old prohibiton of the export of ionic-clay related rare earth processing know-how.

Another somewhat relevant thought, that obviously slips everyone’s attention time and again: Since when does the Chinese government require laws to do something, anything, whatever? Rule of law remains a distant visionary part of the “Chinese Dream”, as China’s constitution is yet to be implemented.

The mythical State Reserve intervention

Markets for the magnet rare earths — neodymium, praseodymium, dysprosium and terbium — are expected to remain tight in 2021, exceptionally so if China’s State Reserve makes stockpile purchases in the near term…

More hype. The primary function of the Reserve in terms of industrial materials is reining in on prices to prevent them from sky-rocketing, also in food commodities, to keep consumer inflation low. In 20 years the China Material Reserve has had not one single record in industrial raw materials of buying high and selling low.

The opposite is true. Also for the rare earth story: The State Reserve was asked to buy rare earth in order to prop up miserably low prices.

The half-hearted 2 recent tenders for rare earth purchases fell through on low-ball pricing from the Reserve.

Furthermore, whatever tightness of the magnet rare earths is of no relevance to US and EU markets - miniscule demand in near complete absence of sizeable NdFeB magnet makers.

And more restriction alternative fact

…though it is not likely that restrictions on REEs exported from China to the US will be observed…

What restrictions?

There are the sanctions on Lockheed-Martin, who have US$ 1 bio defense relevant investments in China, however, there is no indication of Lockheed ever buying rare earths in China (we know for certain that one of their non-sanctioned sub-sub-suppliers does), so this sanction in terms of rare earths may be viewed as rather symbolic, while the ire of the Chinese government certainly creates difficulties for Lockheed’s rare-earth-unrelated investments in China.

Otherwise, there are no restrictions for rare earth export to USA, but there are retaliatory tariffs on the China’s imports of semi-finished and finished rare earth products from USA.

The media can’t live with the “old normal”, they want attention-grabbing, multi-million click headlines with China as the bad boy.

The very same media refused to accept any articles negative on China before 2013, only positive write-ups would generate headlines deemed clickworthy.

This kind of hype, spreading of alternative fact and disseminating stereotypes does nothing for turning rare earth into an investment-worthy business.


The Pioneer backs Bloomberg’s crusade:

G20: Green talk, brown investment

The German nesletter “The Pioneer” carried an article about a recent Bloomberg NEF report.

The Pioneer sums up:

  • In the five years between 2015 and 2020, payments from the G20 governments, including Germany, the USA, China and Russia, for direct and indirect subsidies for coal, gas and oil add up to 3.3 trillion US dollars .

  • These direct and indirect subsidies show a reduction of only ten percent in the period under review, from 706 billion in 2015 to 636 billion in 2019. The Bloomberg report speaks of “stubbornly high subsidies” for fossil energy generation.

  • While there have been significant decreases in subsidies per inhabitant in some of the G-20 countries, led by Saudi Arabia, Argentina and Italy, other governments have increased their subsidies per inhabitant significantly, including Russia, Mexico, the United Kingdom, Indonesia, Canada and Australia.

The Funding Nations

Change in G20 subsidies for fossil fuels 2015-2019, in percent:

On The Retreat

Change in G20 subsidies for fossil fuels 2015-2019, in percent:

This perfectly commensurates with government inertia in rare earths and permanent magnets.

Political support for large fossil energy projects such as the Nord Stream 2 gas pipeline by the German government is not included in these figures. This pipeline, which connects Russia with Germany and is supposed to transport 55 billion cubic meters of gas to Germany every year, is the largest project to feed fossil fuels into the German energy cycle.

The Pioneer concludes:

The governments of the G20 states speak green and act conventionally. The farewell to oil and gas is taking place in their speeches, but not in their state budgets. Politics as a pose - or as Hegel used to say:

“The truth of an intention is the deed. "

Our take: Things must become worse, before they can become better. Governments should deregulate in order to enable rare earth and magnet value chains.


Leading Edge Materials finished their PEA:

Leading Edge Materials Announces Positive Preliminary Economic Assessment Results for its Norra Karr REE Project With US$1,026M Pre-tax NPV(10%) And 30.8% Pre-tax IRR

Source: Leading Edge Materials website

As ever, the assessment hinges on assumptions. It is easy to shoot holes into it, when only targetting optimistic product prices and the “basket price”. On the other hand we are talking about a quarter of a century of LOM.

Also, the output quantities per year are actually smallish, and that is more of an advantage than it is a shortcoming, as LEM would not need to sell to everyone & sundry, e.g. export a lot.

Also, regarding EU domestic prices, we don’t know yet the impact of EU carbon tax on imports of rare earths, except that the price in the EU will be higher than elsewhere.

LEM are actually the touchstone of EU willingness to walk the talk to produce the metals it wishes to consume, rather than its members to “talk green and walk brown”.

Since the EU had to fund a debating club, in order to figure out what is wrong with its regulations, let us be very clear: Notwithstanding other obstacles, the EU would first need to exempt Norra Kärr from “Natura 2000”, so that LEM can obtain a valid mining license.

So far the expensive, aimless ruddering of the EU Commission has been nothing short of an (expensive) embarrassment.

We do look forward to some tangible deregulation action.


Divine intervention: Peak receive Ngualla license approval

You could almost hear a stone falling from the hearts of Peak’s board members.

Literally in the very last minute, they managed to get approved for a Special Mining License (SML) for the Nugalla deposit in Tanzania.

During January 2020 the Tanzania government had announced, that 2 companies would eventually receive a SML, gold miner OreCorp and Peak Resources, but the government didn’t follow through.

No SML had been issued since 2015:

Finally OreCorp verifiably received their SML beginning of June, and last week Peak Resources received notice of their SML approval.

Now Peak Resources are on par again with dozens of other junior rare earth miners.

Peak Resources share price jumped in jubilation:


Medallion’s monazite

Medallion Resources are one of the very few junior rare earth companies, who are looking for a less-conventional business model in rare earth rather than the working capital maximising ore-to-oxide concept, in Medallion’s case commercialising a process specifically for monazite, which may save the one or the other company the reinvention of the wheel.

Basically a good idea to be a service provider for developing a distributed value chain.

Medallion put out two announcements recently:

1. Completion of Techno Economic Assessment for Extraction of Rare Earth Elements from Mineral Sand Monazite

This is a process that turns out a mixed rare earth carbonate, which still has some way to go before becoming separated, ready-to-use rare earth compounds.

During a video interview on May 27, 2020 Medallion’s CEO acknowledged that missing link and expressed hope to combine with an “emerging technology” downstream. On February 18, 2021 Medallion announced having obtained a license under a patent for rare earth separation and purification, which we assume is Ligand Assisted Chromatography For Metal Ion Separation.

Currently, we would see no sizeable market for this mixed rare earth carbonate outside China, except perhaps Neo Performance Materials in Estonia - only, if the product is free from radiation.

In case of sales to China, the import of monazite is duty free, while mixed rare earth carbonate >30% TREO pays 5% import duty, plus, in case of US origin, 27.5% punitive tariff on top.

2. MEDALLION RESOURCES SIGNS LETTER OF INTENT TO FORM A PARTNERSHIP TO UTILIZE THE MEDALLION MONAZITE PROCESS IN SOUTHEASTERN AUSTRALIA

Medallion Resources Ltd. is pleased to announce the signing of a non-binding letter of intent (“LOI”) with Australian private company ACDC Metals Pty Ltd (“ACDC”) to form a partnership to utilize Medallion’s proprietary process to extract rare earth elements from monazite (the “Medallion Monazite Process”) in southeastern Australia.

ACDC Metals Pty Ltd was established in Melbourne on July 12, 2021, 11 days before this press release.

Managing director and sole shareholder of the company is a Mr. Andrew Nicholas Shearer, aged 51. So far the paid up capital of the company is AU$ 1.

Mr Shearer has been a non-executive director of Resolution Minerals Ltd (RML) since March 2017, Andromeda Metals Ltd (ADN) since October 2017, and Investigator Resources Ltd (IVR) since July 2020.

His bio you can find here and here.

Mr Shearer certainly is not a feather-weight in this business and we do look forward to seeing a stellar development of his company, but at this time an agreement of Medallion with monazite heavy-weights like - say - Iluka Resources or Rio Tinto may have been a tad more exciting.


Neo’s patents

Talking about patents, Neo Performance Materials’ Magnequench recently published a list of their main patents on their website.

Regarding policing of these patents, the paper describes this procedure:

Why this is relevant:

According to John Ormerod, who literally wrote the book on permanent magnets, NdFeB magnets, with a working temperature below 80℃, have as much as 30% of the NdPr content replaced with cerium. This is, what apparently is covered by Magnequench patents.

The relevant types of NdFeB magnets stand for ~50% of all NdFeB output and are exclusively produced in China, according to John Ormerod.

That is, how highly relevant this is.


Lynas hits record revenue despite third wave of pandemic in Malaysia

Lynas produced 3778 tonnes of rare earths oxide in the quarter, with NdPr output up slightly to 1393 tonnes, despite the restrictions in Malaysia.

Lynas is racing against the clock under deadlines imposed by the Malaysian government to stop cracking and leaching rare earths at the Kuantan facilities and to find a suitable permanent waste disposal site for more than 500,000 tonnes of low-level radioactive residue.

Comment: Mrs Lacaze, coming from a entirely different background, joined the company when there were problems left-right-center. Under her leadership Lynas turned into a success story. We need more women like her in rare earth. Good luck with the PDF.


Rainbows woes

Burundi suspends operations of several foreign companies describing mining contracts as “unbalanced.”

The government of Burundi has suspended the operations of seven foreign companies involved in mining gold and coltan. The main target is UK-listed Rainbow Rare Earths, which operates the only producing rare-earth mine in Africa. The government says it wants a more equitable share of revenue from the Gakara project.

Gakara is home to one of the world’s largest rare earth reserves, which are essential components in many hi-tech goods.

Mines Minister Ibrahim Uwizeye said in a letter to the firms obtained by AFP that the decision was made earlier this month due to multiple failures in the country’s mining legislation. “The state, which owns the soil and minerals, is not making a profit as it should,” according to the letter—describing the mining contracts as “unbalanced.”

Comment: The Africa-Risk at work. As far as we could see, terms actually had already been *very* favourable for Burundi and there were very unfavourable logistics cost for the comparatively cheap rare earth concentrate. That was, why Rainbow generated losses.

One of the world’s largest rare earth reserves? Almost 80% of the TREO in Gakara is practically worthless La and Ce:

The Belgians mined Gakara during the 20th century for exactly these 2 elements and gave up about half a century ago, because already then it was no longer economical. Now there are the NdFeB magnets, which may create some value for Gakara. But for that things like logistics cost should actually come down a lot.


The Metals Co, previously known as Deep Green

Digging up the ocean floor for metals could prove disastrous

Since June, 530 marine-science and policy experts from 44 countries have signed a statement warning that seabed mining would result in environmental damages “irreversible on multi-generational timescales." That should alarm not just investors, but policy makers charged with protecting the oceans.

The ISA had planned to complete a code for exploiting resources by the end of 2020. As meetings were cancelled during the pandemic, that date was pushed off. Then, in late June, the small Pacific nation of Nauru (population: 9,770), invoked its right under the group’s rules to request a fast-track adoption of mining regulations within two years. If the rules can’t be finalized by then, mining will likely move ahead.


Ucore to explore POW mine site

Ucore Rare Metals Inc. plans to further study the geology of the site of its potential rare earth mineral mine on Prince of Wales Island. The U.S. Forest Service on Wednesday opened a seven-day public comment period on the proposed exploration.

The first phase of the exploration would aim to take long "channel samples" from the veins along that strip of land every 55 yards (50 meters).

"The channel sampling program is designed to fill the gaps left from previous sampling programs carried out in 2009 and 2010," according to the memo.

Comment: Ucore’s PEA assessed an LOM rare earth oxide output of ~20,000 t.


Prices

Actually, prices peaked end of last week and have gone a bit softer since. However, Nd, Pr and NdPr oxides are above US$90/kg and it will be interesting to see, if this level holds.

In the back of these light rare earths, rare earth carbonate prices jumped and by now they have doubled since beginning of the year.

The lead in rare earth carbonate is the price fixing between Baotou Steel and China Northern Rare Earth Group, however, top executives on either side are also top executives of the other company, the ultimate conflict of interest.

The initiator for this price increase is seasonal peak demand paired with reduced output from Sichuan, according to China’s Northern Securities. The broker’s analyst also says, that China will rest more on domestic rare earth reserves for the time being (probably in acknowledgement of the rather unfavourable political situation).

On the heavy rare earth sentiment is a driver, because the COVID-19 related closure of the Myanmar-China border may last longer than anticipated.

A bit of concern: We think, in absence of extraordinary global GDP growth and with no substantial inflation, every dollar that raw material prices rise, reduces the outlook for market growth.

The prices above are ex-works RMB prices incl. China VAT 13%, translated at the official onshore RMB-USD exchange rate of the day and contains the most common grades of the named materials.

Thank you for reading, have a great week ahead!