Resilience of RE Supply Chain; Carbon Neutral Off The Rails; No More Heroes; Stillborn Subsidies; Prices Hold Steady; Tanbreez Revival?; Chinese Rollercoaster;

Rare Earth 2021 September 19

The Resilience of the Rare Earth Supply Chain

Last week the Global Rare Earth Industry Association hosted one of the most meaningful and important webinars on rare earths in recent memory: How resilient is the Rare Earth Supply Chain?

First Leslie Liang of Wood-MacKenzie (previously known as Roskill) presented the current state of the physical market in rare earth.

In essence, the situation is, that China could provide all the permanent magnets the world will need on its quest to go carbon neutral. The challenge for China would be access to sufficient quantities of rare earth raw materials.

However, this is our view, the current political situation denies China access to rare earth raw materials. This inevitably leads to a rare earth raw material squeeze, which ultimately will disable sufficient global output of permanent magnets.

Then Gaius King of Fox-Davies shared the results of years of diligent, excellent research, evidencing that neither in rare earth or permanent magnets the world can produce even remotely enough to meet agreed climate goals, which are enshrined in international agreements and relevant national regulation.

The current raw material squeeze on China would develop into a full-blown crisis in the near term.

No current junior miner project could fill the yawning gap, it would be simply too late already.

Gaius expects a large global iron ore miner to develop rare earth activities, without directly naming Rio Tinto, who already ship low monazite concentrate from Madagascar to China at below US$600/t CIF.

Every Cent of Price Increase is Bad News

Related to Gaius King’s presentation we need to say:

While investors are foolishly jubilant about exponential price increases of non-ferrous metals, lithium, nickel, aluminium, rare earth, etc., they all don’t realise, that the material cost will make the finished products such as electric vehicles, turbines for windtowers, etc., unaffordably expensive.

Resulting demand reduction will be the needle that pops the balloon of inflated prices.

Toyota, the largest car manufacturer on the planet, in cooperation with Panasonic has already published to replace lithium-ion batteries by 2025. If so, there will be a knock-on me-too effect, which will be instantly followed by the demise of lithium, cobalt, nickel & co prices.

A Disconnect

The panel discussion showed a certain disconnect between good, important work being done and the ultimate goal to be achieved, a reduction of global warming. The time frame required for certain projects and the climate goal deadlines are seriously out of sync.

It was also somewhat strange to hear, that no-one seems to talk to the only one, who has the resources to make carbon neutral happen and who will in the end determine the panelists’ projects success or failure: China.

Missing All Climate Goals

Literally everyone is forgetting the overall goal, that is to mitigate global warming by going carbon neutral.

If we allow the current situation to continue and, instead of joint action, carry on with petty squabbling among nation states, each of them full of self-importance and entitlement, the world will fail in the effort against global warming.

If we don’t do it all together globally, nothing will happen and politicians will simply switch to blame-game mode.

We already know, who will be blamed.

The Result

We are well on the way for average global temperatures to rise by 2.7℃:

UN: Pandemic did not slow advance of climate change

The United in Science 2021 report, which gathers the latest scientific data and findings related to climate change, said global fossil-fuel CO2 emissions between January and July in the power and industry sectors were already back to the same level or higher than in the same period in 2019, before the pandemic.

"Unless there are immediate, rapid and large-scale  reductions in greenhouse gas emissions, limiting warming to 1.5C will be impossible, with catastrophic consequences for people and the planet on which we depend." Guterres said.

Is this the best we can do, folks? Seriously?


Carbon neutral: Road to nowhere

For those who still think, that we really are on the road to tackling climate change, here a clip pointed out to us by an avid reader and contributor:


No More Heroes: Listed Rare Earth Companies’ Share Price Performance

We had a look at junior and senior rare earth companies and companies, who are somehow active in and related to rare earth, some of whom may actually be able and in time to help enable carbon neutral, if they’ll ever see serious investment of sufficient amounts of long-term capital.

Most of these are listed on various stock exchanges outside China and ranked according to share price performance 2021 from the start of the year until September 17:

Click on the image for the Google sheet - data current as of September 17, 2021, errors & ommissions excluded

The heavyweights and actual producers Lynas (+89%), Neo (+25%), MP (+6%) and Iluka (+45%) year to date look lacklustre, in comparison with the fireworks that went off in China: China Northern (+280%), Minmetals (+200%), Shenghe Resource (+190%), Baotou Steel (+188%) and Rising (+104%).

The Van Eck REMX Fund in the a.m. list had a good run, because it includes Chinese companies (47% of weight) and does not exclusively focus on rare earths. Interestingly, the Van Eck performance is quite similar to the Chinese rare earth Huatai-Pinebridge Fund (still too young and too small to qualify for serious investment).

Akron already abandoned rare earth to focus on its core fertilizer business, as a valued contributor was kind enough to inform us.

We urge you to do thorough research before you place any money on any of the companies listed. If you read TREO, you know what we mean.

Where the Rare Earth Boom played out

China is, where the rare earth market is:

Click on the image for the Google sheet - data current as of September 17, 2021

Repeat Nosedives

On the occasion of our previous issue we observed an across the board nosedive of China rare earth share prices. After recovering in the first half, during the second half of this week China rare earth share prices fell again.

Originally it was the wider impact of China getting tough on regions, industries and companies, many of which nonferrous, whose energy efficiency rates are way below the standards set by the government. Relevant enterprises were forced to reduce production or even suspend production, among them rare earth companies.

Chinese analysts point out, what we already mentioned before, the current rare earth price developments are different from those before, because for the first time the rare earth prices are driven by raw material cost and raw material shortage.

The more simple explanation is, if you have nothing to sell, you can’t show a profit.

Minmetals, for example, have not a single mining license.

Of the companies discussed about we hold positions in Shenghe and Minmetals.


Stillborn Subsidies

Which investor in his right mind will invest in an industry, that is fully dependent on subsidies, which may evaporate on changed political climate?

Group lobbies US Congress to incentivise rare earth magnet manufacturing

The Bill would create a $20/kg production tax credit for magnets that are manufactured in the US, or $30/kg for magnets that are both manufactured in the US and for which all component rare earths material is produced and recycled or reclaimed wholly in the US.

Why the US needs subsidies for establishing a domestic permanent magnet production:

The red line shows only the roughly calculated material cost for NdFeB magnets, no other production cost considered, no time lag between raw material procurement and susbequent finished magnet output considered either.

On the right hand side graph you can see, currently the material cost inside China already exceed ex-works sales revenue for the finished <150℃ and <180℃ working temperature magnets.

On the left hand side, the graph for potential outside China permanent magnet production, the material cost curve is even higher.

You guessed right, it is the old, old story and we don’t get tired telling it

The difference between the red lines in both graphs is the China VAT of 13%. While domestically VAT is a cost-neutral in- and out tax and upon export of permanent magnets from China there is full refund of VAT, there is no refund on the export of rare earth compounds, rare earth metals and rare earth alloys.

Chinese rare earth product export prices contain 13% VAT. Chinese export prices are the benchmark for foreign junior rare earth miners and actual non-China producers, which in effect makes procurement cost of rare earth materials 13% higher outside China, compared to inside China.

That is, why the red line on the left, marking material cost outside China, is higher than the one on the right, marking material cost inside China.

This is not an accident, it is China’s policy, applicable to all China exports of anything. Low added value products have not VAT refund upon export, high added value items get full 13% VAT refund upon export.

And this China policy is the very reason for the hollowing out of Western economies, it is the root of all trade friction.

And what does the West do?

Rather than engaging China in trade talks with the objective of rectifying this trade distorting export practise, governments in the US and EU seem to have decided to rather milk the US and EU tax payer for subsidies, in order to enable domestic industries that - considering current cirumstances - can hardly ever be competitive.

Fantastic trade-off, can’t wait to see what comes next.


Tech industry braces for skyrocketing rare earth prices

"The rising cost of this key magnetic material has been overwhelming, and that knocked at least 20 percentage points off our gross margin. ...That's really a huge impact," Hsiao told Nikkei Asia. "We don't see this trend reversing anytime soon."

Praseodymium and neodymium belong to a category of metals known as rare-earth elements and are used to make neodymium-iron-boron (NdFeB) magnets. These permanent magnets, as they are known, are essential to a swath of tech gear -- everything from speakers and electric vehicle motors to medical devices and precision munitions.

Hsiao's headaches are typical of many hardware makers. Demand for rare earths has risen sharply due to their increasing use in cutting-edge technologies, including the booming electric vehicle industry, while the economic recovery from the coronavirus pandemic has fueled demand for electronics.

Geopolitics are only making matters worse.

China is the only country that has a complete supply chain for rare earths from mining, to refining, to processing. As of last year, it controlled 55% of global production capacity and 85% of refining output for rare-earth elements, according to commodity research specialist Roskill. In January, Beijing hinted that it could introduce tighter controls exports, sparking higher prices.

This is close to spreading FUD (fear, uncertainty and doubt) about China, a media favourite these days. Strangely, in the very same media hardly any content critical of China was carried until 2013. Go figure.

With the “tighter controls” Nikkei refers primarily to new legislation for rare earths and to the Export Control Law of 2020.

We previously discussed extensively and in great detail China’s 7 year effort to overhaul 9 pre-existing, outdated laws and fold them into the export control law and concluded, that apart from refering to 20 year old export prohibition of ionic clay processing know-how, there is nothing in the Export Control Law that even mentions or refers to rare earth.

The law emulates pre-exiting export control laws in the US and the EU. Britains export control law came right after Brexit.

And again we ask: Since when has China’s government ever needed a law to do something or anything at all?

Do the media, who cook this stuff up over and over again, seriously believe that all their readers (=customers) are intellectually challenged?


Me-toos are popping up everywhere:

Lions Bay Capital Inc. Announces Update on Potential Rare Earth Project in Western Victoria, Australia

As reported in the Company's news release on August 25, 2021, LBI has entered into an option agreement with Savic under which it will have the right to enter into a Joint Venture agreement with Savic to earn a 50 per cent interest in the areas.

The below map from the SRK report shows the location of the recently announced Koppamurra rare earth element (REE) discovery in South Australia, on the border with Victoria, relative to the Savic licenses.

It seems, someone wants to piggyback on Australian Rare Earths Ltd.


And another me-too, this one a Jack of all Trades:

Quantum Energy Inc. (QEGY) Announces Hiring of Robert Edward Murray to Lead Rare Earth Exploration, Company to Open Offices in Ohio

Quantum Energy, Inc. currently has exploration operations ongoing in Wyoming, Washington, Michigan, and Alberta and Saskatchewan in Canada. The Company is highly focused on the conversion and processing of rare earth oxides and materials from a wide variety of waste streams related to coal, including fly ash, fly bottom Ash, coal ash, and reclaimed rare earth and ferrite magnet sources from appliances, electronics, and automotive waste streams.


In case you missed it:

LYNAS RARE EARTHS FY21 Results Investor Presentation

and never-ending trouble from the false promise a decade ago:

Activists to challenge court ruling on Lynas' TOL extension

A group of activists is appealing against the High Court’s decision to throw out their suit to invalidate the government’s six-month operating licence extension to Lynas Corporation.

Environmentalist group Save Malaysia Stop Lynas (SMSL) and two residents of Kuantan, Pahang, had had their suit thrown out on July 28 and were ordered to pay RM40,000 in cost.


Energy Fuels Hosts Mining, Environmental and Political Heavyweights to Showcase Uranium Activities and Introduce Production of Rare Earths at its Blanding, Utah Facility

Approximately 15 containers of RE Carbonate (300 tonnes of product) produced at the Mill is being shipped to Europe where it will be processed into separated rare earth oxides and other value-added RE compounds, thereby creating a new U.S. to Europe RE supply chain along with new opportunities and financial benefits for the surrounding communities. The Mill will be producing rare earths as a complement to its established uranium production business.


Greenland prepares legislation to halt large rare-earth mine

Greenland's left-leaning government, which came to power in April after campaigning against the development of Kvanefjeld, says it will ban the exploration of deposits with a uranium concentration higher than 100 parts per minute (ppm), which is considered very low-grade by the World Nuclear Association.

Hilarious editing oversight, but that is the general quality we have become used to from the media: Parts per million - ppm.

In advance of this Greenland Minerals share price has dropped 47% since the start of the year:

Hudson Resources are even down 75%:

Renewed interest in Kringlerne, Greenland?

This brings us to the Tanbreez’s eudialyte. Projected Th and U discharge as per the Tanbreez Environmental Impact Study looks like this:


Hochschild Mining reveals 'profitable' PEA on its heavy rare earths project named Aclara in Chile

Hochschild Mining Head of Investor Relations Charles Gordon joined Proactive New York to discuss the Peru-based gold and silver miner's recent developments within its heavy rare earths project, recently renamed Aclara.

It used to be called Penco. According to our file at 14 kt TREO minus recovery & processing losses, Aclara is far too small to ever generate profits and the only way to competitively get the value-carrying content out of the ground would be in-situ leaching with ammonium sulphate, which is envrionmentally probably unacceptable in Chile.

Proportional content of rare earth elements in the Penco/Aclara deposit


Prices

Compared to beginning of the month, principal heavy rare earth oxides gained substantially on the back of no import possibility from Myanmar and Southern China rare earth deposits closed.

Light rare earths are stable, NdPr is expected to stay around RMB 600/kg incl. VAT (~US$93/kg), as much of the demand has been covered by long term agreements. NdPr prices may dip a bit during November, as certain Chinese traders, who took positions on credit, will have to unwind their positions, in order to return loans by year’s end.

As ever, these are ex works China prices incl. 13% VAT for the most common qualities of rare earth oxides/metals, converted at the official onshore RMB/USD exchange rate. Actual offer prices will differ.


Thanks for reading and have a great week ahead!