RE Prices: Happy Days Are Here Again; Myth Busting: EU 98% RE-China Dependence?; VAC Throw Their Hat in The Ring; Rare Earths Exploration in Laos; Vital Now A RE First In Canada; LEM Report Profit;

Rare Earth 2021 July 7

The EU 98% rare earth China dependency myth

In rare earth the devil lives in the detail.

2020 the EU imported 10,250 t of rare earth compounds, 4,120 t of which originated in China, ca. 40%.

The No. 1 importer to the EU 2020 were Neo Performance Materials, who alone imported more than 5,000 t of rare earth compounds to the EU from Russia for their Estonia processing factory, located 30 km from the Russia-Estonia border.

Neo Performance Materials have interesting dependencies: On procurement and production side they depend on China and Russia, and for ca 1/3 of sales they depend on a single customer in Japan. That is not by choice, it simply reflects the reailty of the market.

The EU’s rare earth metals import in 2020 came in at rather humble 475 t, 445 t of which originated in China, 94% of the total.

How to construct a 98% EU-dependency in overall rare earth from China basing on 40% of 10,000 t rare earth compounds and 94% of 475 t rare earth metals beats us.

What do EU Commissioner Breton and his team of 21 assistants want to achieve by throwing around a verifiably false number?

Continued exhaling of common-place hot air rather than moving forward with tangible action - beyond enriching consultants and entertaining debating clubs - will only lead to 98% of European EV being built in China in future.

VAC throw their hat in the ring

Beginng March Germany’s Vacuumschmelze GmbH & Co KG (VAC) announced, that their permanent magnets meet DFARS 225.7018, the US-government acquisition standard, banning government purchases of NdfeB, SmCo, Tantalum and Tungsten originating in North Korea, Iran, China and Russia.

On June 22, 2021 VAC announced the partnership with EuroGroup for the American market.

The heat is on, US-NdFeB hopefuls better begin to deliver on their lofty promises.

Who is VAC?

VAC was established in 1923, will soon be 100 years old. Currently they are US-owned.

VAC develops, produces and sells specialized alloys, materials and parts, components, permanent magnets and applied products. VAC's product range includes a wide range of highly developed semi-finished products and components.

To oversimplify: VAC manufacture permanent magnets (NdFeB and SmCo) and adjacent derivative products. For our purposes we only focus on their NdFeB and SmCo business.

VAC also controls Neorem Oy, an NdFeB producer in Finland who started off as Outokumpu Magnets in 1988 under Sumitomo Metals/Hitachi Metals license.

VAC has about 1,300 employees, more than 70 of them in R&D. The company holds ca. 500 patents.

Sales of the group are around EUR 350 mio (2019). We extracted the NdFeB and SmCo sales. Since no separate profit/loss numbers are availble for the permanent magnets, see here group profit/loss:

Source: VAC annual reports

We can clearly see from the graphs the rare earth crisis of 2011 carrying results through to 2012 and then tanking, as well as the pressure from Chinese NdFeB capacity build-up.

VAC do mention their struggle with China’s permanent magnet overcapacity, along the lines which GITI presented at REIA on March 11, 2021 and explaining the fundamental issues.

VAC hold 49% in a joint venture called SanVAC with China’s largest NdFeB producer, Zhongke Sanhuan, who wanted top quality permanent magnet production know-how from VAC.

Zhongke Sanhuan’s overall NdFeB capacity including SanVAC is ~19,000 t, set to more than double by 2023-2025.

Zhongke Sanhuan is 5% shareholder of China Southern Rare Earth Group and has a 66%/34% JV with China Southern to build a 5,000 t NdFeB plant in Ganzhou (34% = >1/3 of shareholding is the blocking minority as per Chinese law).

SanVAC’s numbers look a bit milder than the group’s:

Source: Zhongke Sanhuan annual reports

SanVAC’s negative results are continuous operating losses.

One can see that VAC must be hungry for additional profitable (!) business, and in this sense we have to understand the aforementioned announcements of the company concerning the US defense and automotive market.

The reality is, however, that no customer, particularly not automotive, will voluntarily pay higher prices than what is on offer from China, which kills any NdFeB producer in the West.

Therefore VAC has been in full cost-reduction mode since last year. Be it white collar voluntary retirement, be it automation to bring down numbers of blue collar workers and other standard measures. As things stand VAC is unlikely to invest in increasing NdFeB capacity just in order to increase losses.

VAC chose not to respond to written questions.

What is next?

After Hitachi Metals, sooner or later VAC may become the next victim of China’s unfair trade practise in rare earths and permanent magnets, supported by EU government inertia:

  • China holds cost of rare earth magnet materials 13% higher in export than they are China-domestic, while

  • at the same time China builds up huge capacities in permanent magnets to cover world demand and refunds 13% VAT on permanent magnet exports in support.

Generally, the net profit rates of prime NdFeB manufacturers are around 5%. It is pretty obvious that China’s unfair trade practise of withholding 13% margin from non-China-based NdFeB manufacturers kills all and any NdFeB attempts in the West.

And no NdFeB production means, no attractive market for new rare earth producers.

We suggest EU Commissioner Breton (Mr. “98% China Rare Earth Dependency”) to talk to his colleague, EU Executive VP and Trade Commissioner Dombrowski and raise this matter with Beijing with no further dealy:

  • Either grant full VAT refund upon export of rare earths, or

  • Grant no VAT refund of permanent magnets.

China, whose leadership seriously wishes to portrait the country as the harbinger of openess and globalistion as well as foremost protector of fair trade, will likely decline such approach, arguing that it needs the additional 13% in rare earth export revenue for to pay for the environmental damage rare earth production causes (same as the resource tax on domestic ores and concentrates), while in permanent magnets China will certainly want to stick to free market principle (while continuing to impose WTO incompatible export tariffs on certain other products).

Probably China will probably advise the EU Commission to build its own rare earth supply base, which is exactly what the EU wants to avoid, because it can’t do that without popping its citizens’ feel-good-sustainability-bubble.

Or China may reply to include this matter in negotiations about a free-trade agreement China-EU.

Nonetheless, it needs to be raised and discussed, before antidumping and antisubsidy tariffs be imposed swiftly on China’s permanent magnets.

Rainbow keep advertising rare earths extraction Phalaborwa phosphogysum waste in South Africa:

“These results prove that we’ve got very high value of neodymium and praseodymium in these gypsum stacks, which are the two key rare earths needed for permanent magnets, which are driving the green revolution worldwide in electric vehicles, wind turbines and so forth.

The core question is, however, how to get the rare earth contents out of the phosphogysum competitively. Several other projects have tried this route over the years, so far apparently none of them successfully.

Regarding the export ban that hit Rainbow in Burundi, the company informs:

The majority of local staff have been placed on furlough and short-term cash requirements in Burundi minimised.  RMB currently holds approximately 420t of concentrate available for export which is expected to provide funding for the re-commencement of operations once permitted.

Negotiations between the Burundi government and Rainbow are to take place from July 5.

Pensana shift concept? Again?

The latest news announcement seems to indicate just that:

Pensana is aiming to establish Saltend as an attractive alternative to mining houses who may otherwise be limited to selling their productsto China, having designed the facility to be easily adapted to cater for a range of rare earth feedstocks.

In other words, we are talking toll processing? Change from manufacturer to service provider? This would require a partnership that goes beyond toll processing, as all raw materials of every origin are different and each requires its own dedicated process.

Also there was the promise of Pensana to the Yorkshire Council, that no radionulides would be contained in the material shipped to the facility.

Sticking to that promise reduces the number of potential partners quite a bit to a shortlist with only one candidate: Lynas, who anyway have to separate radioactive content in Australia, before shipping material out to their processing facility in Malaysia.

Then, what happens to Longonjo, Angola?

The most concrete activity on account of the company for the hot and complicated deposit in Angola according to the news announcement is “procurement activities towards establishment of the construction camp.”

But do Pensana again hope to sell the proportionally high thorium concentrate from Longonjo to China, rather than shipping it for processing to the UK? The licensed, compliant customers for high Th/U material are few in China.

Meanwhile, no details of the bankable feasibility study, due last January, have emerged, so, while the company goes ahead and spends shareholders money, investors still have no idea, if the Angola mine and the Yorkshire processing facility, separately or jointly, could be feasible at all.

Vital Metals becomes Canada’s first rare earth producer

“Mining activities are over 30% complete with waste material removed from the pit to enable the first blast of ore on 28 June and we are now stockpiling ore for the crusher,” Vital Metals’ managing director Geoff Atkins said in a media release.

“We will continue to ramp up crushing and ore sorting with full production rates expected to be achieved in July. Beneficiated material will be stockpiled for transport to our extraction plant in Saskatoon,”Atkins said.

“Our extraction plant in Saskatoon”? That seems a bit rich.

According to the company announcement Vital started mining on June 29. That is a small step for rare earth, but a giant leap for Vital.

Nechalacho has been carefully nursed through two decades and a once-in-a-lifetime boom, but never made it off the ground.

And then an Australian company beats the Canadians at their own game.

Leading Edge Materials Reports Quarterly Results to April 30, 2021

Leading Edge, prominent playball of the EU’s contradictory policies and needs in all things rare earth and battery materials, published their quarterly results, a profitable quarter, because of the sale of the Bergby Lithium Project to United Lithium.

There were no news on the mining license for the rare earth deposit Norra Karr.

Lao authorities ink MOUs with 2 firms on mineral exploration

Meanwhile, another company will explore, survey and carry out feasibility studies on zinc, rare earth and other ores on 189.4 square kilometres in Phalavaek and Houayxay villages in Hom district and in Orm and Thamlo villages in Anouvong district.

The company is also required to provide US$100,000 as a guarantee and an additional US$10,000 as a supporting allowance for Xaysomboun. The company must also fulfill various financial obligations specified in the MOU.

We have no information, who these companies may be.

Xaisomboun Province, where Hom District is located, was subject to a development project of China North Industries Corporation “Norinco”, China’s foremost weapons exporter. It is also the location of the failed investments in several rare earth processing facilities, as the Laotian government withdrew the licenses in the last minute.

Rare Earth Metals and the Quest for Renewable Energy

China is the world’s largest producer of rare earths metal. Chinese stocks command 43.46% of REMX’s weight – by far its largest geographic exposure.

“Against this backdrop, some countries have sought to reduce their dependence on Chinese supplies. A mining site in West Texas could offer the US a 130-year supply of 15 of the 17 rare earth elements. Japan has invested in an Australian site with significant deposits,” notes BNP Paribas.

We don’t think that any bank has valid and dependable research on rare earths and RE market participants. BNP Paribas comment above is a prime example for this dilemma, as was Morgan Stanley’s hilarious piece “If You Like EV, You'll Love MP”. MP’s current concept works just right, but the bank’s analysis was misleading, because the analysts understand Wall Street well, but not rare earths.

The last to professionally analyse rare earth were China-owned CLSA, but that is history.

Ill-advised and burnt investors of any class are a big problem for the rare earth space.

Many say:

Rare earths? Never again.

There is pressing need for non-sponsored, separate from over-challenged bank analysts, no-nonsense, easy to understand, common sense analysis and information.

This would also be in the best interest of junior rare earth miners.

We develop this concept with some potential partners. Banks, however, have not signalled any interest.

Watch this space for further announcements.

China’s metals reserves snapped up at auction as Beijing tries to cool red-hot raw material prices

In a rare move aimed at cooling a rally in metal prices that has pushed up raw material costs for Chinese manufacturers, the National Food and Strategic Reserves Administration said last month it would sell 50,000 tonnes of aluminium, 30,000 tonnes of zinc and 20,000 tonnes of copper on Monday and Tuesday.

The aluminium was split into around 200 lots, with the auction of the last 250 tonnes taking place at 7:52pm on Monday, a notice on the bidding platform operated by state-owned Norinco showed.

The buyers were not named, although only manufacturers and fabricators were allowed to bid.

We carried this explainer for the copper auction.

We didn’t dare to call the trend in our June 13 and June 28 posts, however, happy days are here again, prices are up and seem to be holding:

Since June 28, our previos post, oxides of NdPr added 10%, Nd +7%, Pr +3%, Tb +5% and Dy +6%.

Separating NdPr carries no added value:

Currently it makes no commercial sense to separate NdPr oxides into Nd and Pr, the value of NdPr as-is offers better return. That could result in separated oxides of Pr and Nd becoming short in supply. As ever, this opens two roads, either higher Nd prices, or lower NdPr prices.

Shares of rare earth and permanent magnet makers jumped at the China stock exchanges. However, in a regular business environment they can’t both be winners, either rare earths or permanent magnets would win. However, this is China and there is overarching national interest involved.

On top of that, everything is national security in China nowadays.

Anyway, because of permanent magnet overcapacity in China, we see the bottleneck in rare earths and listed China RE companies should win, if that was a normal market.

There is tons of more rare earthy things we could/should write about, but currently time is a bit limited.

Stay healthy and have a great rest of the week!