Runaway Prices; LEM Comment; Energy Fuels Red Numbers; Alaska...; Australia's Opportunities; Mkango Take Back Control; Doubts On MP and Vital; Hastings Tone It Down (a bit);

Rare Earth 2021 August 8

LEM Comment

With regard to our write up on July 27, 2021, LEM would like us to post their comment:

Q U O T E

“The reason for us not getting our license, is the reference to Natura 2000 and the scope of the project at site, i.e. the more intrusive the project at site, the more ways it could potentially have a significant negative impact on the N2000 areas.”

U N Q U O TE

Our take is less diplomatic.

If one wanted to exclude every, ever so remote risk in rare earth mining, perhaps EU officials should also stop boarding airplanes, as the chance of dying in an airline accident is said to be 1:11 million.

To say, best practises “plus alpha” should be good enough for obtaining a rare earth mining license in the EU.

Norra Kärr is a touchstone for earnesty of the EU, to lead by example and to produce at home at least this tiny, miniscule part of technology metals it predictably will need, rather than to offload everything to remote countries.

In the era of sustainability, “not-in-my-backyard” is not a valid concept.


Energy Fules operating loss up

UUUU published first half results. Comparing Energy Fuel’s first half 2020 to first half 2021:

  • Sales increase 2.7% to US$ 809 mio

  • Operating loss increases 20% to -US$ 17.189 mio

  • Net loss increases 57% to -US$ 21.692 mio

  • Working capital increases 146% to US$ 98.773 mio

Lucky for UUUU the market reaction was mild:


Japan, the US, and the Quest for Secure Supply Chains

State-of-the-art military technology utilizing semiconductors and rare earth minerals is essential for superiority in new warfighting domains such as space, cyberspace, and the electromagnetic spectrum. 

Yes, if you have the magnet manufacturing capacity, which the US does not have.

Currently, China manufactures about half of the printed circuit boards used in the United States and accounts for about 90 percent of the world’s supply of rare earths. Dependence on China for the supply chain of these critical technologies and strategic materials not only benefits Beijing, while hollowing out the U.S. and Japan’s domestic industries, but also carries risks such as the possible insertion of malware and supply interruptions in emergencies.

The US may want to have a long and hard look, at WHAT rare earths it is importing and then evaluate, if China really benefits of these exports in any way. It does not help the US to to solve the rare earths issue, if it can’t produce the permanent magnets on its soil. So far we have not seen a NdFeB magnet concept in the US, that could actually work.

Also, dependence on a single source poses a risk that the supply of strategic materials may be interrupted in emergencies. For example, China targeted Japan with an embargo on rare earth exports in 2010. 

The rare earth products mix, that Japan buys from China, is substantially different from the mix the US are buying. Hence a rare earth embargo that did hurt Japan, would be almost completely ineffective in case of USA.

China did acknowledged this fact on February 17, 2021 already, when Global Times editor Hu Xi Jin was made to backpedal on a hoax that he had sold to the Financial Times, who had no qualms about the source:

On the other hand, we must also realize that China is not an absolute monopoly on rare earth exports, and the actual impact of cut-off of rare earth products is uncertain, and its "precise destruction capability" may not be as strong as some people think.

That is not to say, that the US are more resilient than Japan, but that the US are already completely hollowed-out and devoid of a rare earth to magnet value chain, so that the US dependence on China has long moved past rare earth and permanent magnets to the downstream components.


Larry Kudlow of Fox News is taking a very negative, controversial view here, spiced up with a bit of conspiracy theory and alternative fact, as he points at uncomfortable truths. A bit of a climate denialist. But it is a guide to what needs to be mended:

The Green New Deal Crossroads — America First vs. America Dependent

It is a breathtaking endeavor that is doomed to fail — a) because consumers don't want the high prices and high costs, b) because America does not even remotely have the resources to support this net-zero emissions crusade, and c) because Americans are already waking up to the enormous national security and military risks endemic to this poorly thought out utopian plan.

Second, the Green New Deal utopians have no idea of the cost and difficulties of creating an entire new infrastructure. Nor do they understand that a new infrastructure would generate enormous carbon emissions by itself. Nor do they understand that the minerals and materials that go into electric power and batteries and new electricity grids and so forth are simply not available to the United States at the present time.

The US was certainly not built by people who kept pointing at all the things that can’t be done, but rather by those, who had a mind-over-matter approach, going against the odds.

We hold it with formidable rare earth expert David R. Henderson of Rittenhouse International Resources, LLC:

You can rely on the US to do the right thing, after having tried everything else.


Talking about living in denial:

Sen. Murkowski Announces Big Wins For Alaska In Infrastructure Bill

Permitting:

  • Includes legislation authored by Senator Murkowski to improve the timeliness and efficiency for the permitting of critical mineral projects, like the proposed development of graphite near Nome, cobalt in the Ambler region, or rare earths in Southeast. [=Bokan-Dotson Ridge]

Supply Chains for Clean Energy Technologies

  • Provides over $6 billion for battery processing and manufacturing, including grants for commercial-scale battery materials processing facilities. This could benefit firms who are looking to produce and refine battery materials such as graphite and rare earth elements in Alaska.

According to Ucore’s Preliminary Economic Assessment, Bokan-Dotson contains barely enough NdPr to feed a commercial size NdFeB maker for one, maximum 1.5 years.

Bokan looks much better on the heavy rare earths, dysprosium and terbium side of the spectrum. In terms of dysprosium, ca. 10 years of the demand of a commercial size NdFeB maker. But this and NdPr can’t pay for the development of Bokan.

The US government is already funding the feasibility study of a Lynas processing project in Texas. That should be fed from Lynas Mount Weld-Duncan, which looks a bit better in terms of heavy rare earths than Mount Weld CLD (Central Lanthanide Deposit).

Also that will be controversial, as Japan, who, with an incredible amount of patience, helped Lynas on their feet and prevented them from falling over, is still short of non-China heavy rare earths and JOGMEC will most likely want to have a say over Lynas moving into production heavy rare earth elsewhere.


Talking about Lynas

Australia grants Lynas $11 mln for new rare earth refining process

Lynas Rare Earths Ltd said on Thursday it got a A$14.8 million ($10.9 million) grant from Australia to commercialise a new mineral refining process that produces high-purity rare-earth carbonate.

The grant comes as nations worldwide look at ways to curb their reliance on China for the specialised minerals, which are used in a range of products including electric vehicles, smartphones and military equipment.

Lynas, the world's largest producer of rare earths outside China, said the new refining process would be used at its upcoming A$500 million processing facility in Kalgoorlie, Western Australia.

Lynas needs raw material for the Malaysia separation, that is free of radioactive contents, else sooner or later Malaysia will cancel the production license. It is nice, that the Australian government contributes.


And, since we are at it, a bit on Australia that we picked up from REIA’s weekly newsletter:

Australia’s opportunity to manufacture rare-earth magnets

However, mining our rare-earth reserves is just one part of the picture, especially if Australia, in partnership with its allies, seeks to increase its resilience in the face of Chinese market dominance. Australia needs to extract itself from the old habit of exploiting our natural resources and sending them to production lines overseas only to buy back manufactured products through our imports.

The author may want to revisit, why Lynas put their rare earth downstream facility “LAMP” in Malyasia in 2011, not in Australia:

According to the management of LYNAS, it is rather difficult to get this project running in Australia due to its economics, therefore they are looking to build their plant elsewhere, supposedly in China.

LYNAS states that there are several reasons that have induced them to choose Malaysia, one of which includes availability of resources (Lynas Corporation n.d.). Nick Curtis, chairman and chief executive officer of the associated corporation claims that in Malaysia, skillful engineers, energy, water and infrastructure are readily available, with the low operating cost also becoming a bonus (Lynas Corporation n.d.).

Source: The debate over Lynas Corporation Limited's project in Malaysia

Lets take a more obvious example of Australian resource business:

Australia has been exporting iron ore for more than 60 years and currently stands for >50% of the world’s total trade in iron ore. However, it has yet to become a meaningful steel producer.

On the other hand, China built up a steel industry during the past 20 years and now stands for almost 60% of world steel production. China turned from the world’s largest importer of steel, 37 mio tons in 2003, to a net steel exporter in 2006. China steel exports peaked at whopping 112 mio tons in 2015.

All that China achieved substantially based on Australian iron ore.

In rare earth and downstream permanent magnets, customers demand the high quality and the wide variety that China offers, at low cost. This is no easy task and these are not commodities.

Regarding rare earth and permanent magnet downstream in Australia, perhaps this video may offer some enlightenment. The FFS policy described somewhat fits to “G20 Talk Green, Invest Brown” in our previous issue:


Mkango to Acquire 100% of Both the Songwe Hill Rare Earths Project and Maginito, and Raises £5.52m to Accelerate Its Integrated Mine, Refine, Recycle Strategy

Mkango Resources Ltd. is pleased to announce that Mkango and Talaxis Limited, a subsidiary of Noble Group, have entered into an agreement whereby Mkango will acquire Talaxis’ 49% interest in Lancaster Exploration Limited, which owns the Songwe Hill Rare Earths Project in Malawi, and Talaxis’ 24.5% interest in Maginito Limited, which holds a 25% interest in rare earths magnet recycler HyProMag Limited, for 54,166,666 Mkango shares, equivalent to £13m at the Placing Price (as defined below).

On completion of the Transaction, Mkango will own 100% of Lancaster and Maginito, in addition to its existing wholly owned interests in Mkango Polska (which is developing a rare earth separation plant in Poland) and three other exploration licences in Malawi, which includes the exciting Mchinji exploration project.

Following completion of the Transaction and the Placing, Talaxis’ shareholding in Mkango will have increased from 11.3% to 32.6%.

In other words, Noble have swapped the non-listed shareholding in the Songwe Hill operator and the two start-up companies for 21.3% of additional shareholding in listed Mkango. Overall, it is a kind of a reversal of the previous arrangement, but without cash.

A good deal for Mkango, while the additional listed shares of Mkango can serve as somewhat liquid debt-collateral for battered Noble’s total debt of ~US$ 1.4 billion.

That the offtake with Noble remains in force is a good thing for Mkango. It is better to have a partner in clear-cut jurisdiction, rather than dealing with some capricious customer elsewhere.

Noble have swapped the entire Songwe Hill output quantity with a restructured subsidiary of giant China Aluminium, under a non-binding letter of intent.

But what if Mkango’s separation plant at Pulawy really comes into being, and Noble still have the rights to the raw material from Songwe Hill?

Mkango’s feasibility study is not due until Q1 2022. Given general feasibility, there are some logistic challenges. To get out of landlocked Malawi to China or to Poland, the product has basically two ways to go. Either 850 km through restive Mozambique via Port Beira, or 1,700 km through Tanzania via Port Daressalam, a route, that has proven to be prohibitively costly for Rainbow’s concentrate ex Burundi.

Anwyay, Mkango shares were up 13% on the announcement:


Ørsted completes largest onshore wind project to date

Ørsted has completed the 367 MW Western Trail Wind Farm located in Wilbarger and Baylor counties, Texas - its largest onshore wind project to date that brings Ørsted's total onshore capacity to over 2.8 GW of wind, solar, and battery storage in operation.

Fantastic news, except onshore wind turbines usually do not contain rare earth magnets. That is quite different for offshore wind turbines. While not separately mentioned, rare earth magnets will be part of the trouble in Siemens price-hike announcement.


American Rare Earths' drilling at La Paz increases indicated resource by 117% to 35.2 million tonnes

The project’s JORC-compliant total resource tonnage has also increased by 33.1% to 170.6 million tonnes with an average grade of 391 parts per million (ppm) total rare earth elements (TREE), as well as 4.4 million kg of scandium oxide.

170.6 mio t at 0.0391% TREO is 66,700 t TREO in total. That is hard rock, not ionic clay. We wonder, how much of that could possibly be recovered.

4,400 t of scandium could cover the current world consumption of Sc for the coming 200 years. And there are 13 other listed companies banking on scandium.


Peak Resources’ share price went straight back to Square 1, after announcing a share placement, priced >20% below its preceding share price closing, on August 6, 2021:

Equity Placement of A$30 Million and Termination of the Ngualla Rare Earth Project Royalty

Peak has received firm commitments to raise A$30 million (pre transaction costs) through a two-tranche placement priced at A$0.09 per share

  • Tranche One comprising 226.8 million shares utilising Peak’s current Listing Rule 7.1 15% capacity to raise A$20.4 million

  • Tranche Two comprising 106.4 million shares to raise a further A$9.6 million,subject to shareholder approval

618.53 million of Peak’s shares, almost 40%, are held by insiders.

Ahead of the announcement, Peak’s share price had already dropped from AU$ 0.14 on July 23 to AU$ 0.11 on August 2 and closed AU$ 0.092 on August 6:


MP Materials profit beats expectations on rising rare earths prices

The company, which relies on China to process rare earths from its California mine, reported second-quarter profit of $27.2 million, or 15 cents per share, compared to a net loss of $62.5 million, or 92 cents per share, in the year-ago quarter when it was a private company.

Currently, MP lightly processes rare earths it extracts from California's Mountain Pass mine and ships the material to China for separation into various rare earth metals because there are no U.S.-based options.

Again the misguidance: “…which relies on China to process rare earths….ships the material to China for separation”. The export-processing of rare earth raw materials has been banned in China for a long time.

Everyone in the industry knows that, it is incomprehensible, why MP keep spreading such spin in a suggestive, implied way.

Another statement of the company also challenges gravity:

MP expects to be producing roughly 6,000 tonnes of the rare earth metals neodymium and praseodymium in California annually by 2023.

Perhaps MP may want to explain to investors, where and to whom they want to sell these 6,000t of NdPr from 2023?

In our view, this NdPr MP will need to substantially export to China, in absence of a US market for NdPr and unsubstantial demand elsewhere.

While MP’s current bastnaesite shipments to China are duty free in China and also carry no trade war tariff, NdPr 75/25 from the US pays 5% import duty plus a 27.5% trade war tariff and 13% VAT upon import to China.

Lets do the math, assuming MP could reach the required quality parameters and produce marketable NdPr 75/25:

  • Current China domestic NdPr 75/25 market price: RMB 620/kg ex works (~US$96/kg)

  • After deduction 13% VAT: RMB 548/kg

  • After deduction trade war tariff: RMB 429/kg

  • After deduction of import duty: RMB 408/kg (~US$63/kg)

So, before logistics cost, financing and trade margin, for NdPr 75/25 MP could currently achieve US$63/kg CIF China, while the market price (including China’s VAT) should be US$96/kg.

MP’s predecessor Molycorp went bust on a similar concept, even without the added burden of trade war tariff.

If MP implement such concept, turning out a product that has no domestic market and needs to be exported to China, it will mean much higher cost and may mean lower sales, possibly even losses.

Or MP leave the NdPr to MP’s major shareholder, China’s Shenghe Resources, same as 100% of MP’s current output of bastnaesite. If the price is right, Shenghe will certainly have a way of placing the product, just like they miraculously made the China tariffs on MP’s bastnaesite disappear.

But in such case, to what US problem could MP be a solution?


Another gold miner, trying rare earth, at moderate cost, to support a continuously falling stock price:

Antler Gold Announces Binding Letter Agreement to Acquire Greenfields Rare Earth Project in Zambia

The Project being acquired from the Vendor is a carbonatite which was first identified in the 1960's in the Kafue district in southern Zambia. The Project is located within the Vendor's currently held mineral license. Under the Agreement, Antler has the right to create a new license and to transfer it into a newly incorporated joint venture entity ("Newco") once certain terms and conditions are met, including (i) a payment of C$5,000 to the Vendor on signing of the Agreement, (ii) C$25,000 of exploration work in respect of the Project within 6 months of expiration of the 30 day due diligence period commencing on the date of the Agreement, and (iii) an additional C$10,000 payment to the Vendor should Antler decide to proceed to establish a joint venture with the Vendor and transfer the license to Newco. 

Among the gold to rare earth cases was New Jersey Mining Co.


Vital Metals blessed us with yet another colourful press release about their mining of Nechalcho and exploration of “North T-Zone”.

Vital list “key milestones forecast for August 2021”:

  • Mining activities to enter the main North T ore body

  • Ore Sorter to commence processing material from high grade stockpiles

Not a word about the mandatory - one may say “vital” - Environmental and Social Impact Assessment (ESIA). Without it Vital Metals may simply remain Canada’s largest rare earth sample miner, and not Canada’s “first rare earth producer”.

It may begin to worry shareholders and stakeholders.


Talking about blessings, Hastings have updated their investor presentation. The framework remain the same, as we analysed a year ago. Hastings just applied a couple of cosmetic changes.

Hastings claim a resource of 27.42 mio t. But that consists of 14 mostly smallish deposits strewn over a vast area of 650 square kilometres. For two of these there is a feasibility study, of which some details were made public in the non-conclusive executive summary of the feasibility study.

Source: Figure 4-3 on p.15 of Hastings executive summary of the definitive feasibility study, marked up by us.

The ‘Simon’s Find’ deposit, 8,600 t TREO, mentioned in the presentation, is not one of these two.

Average values across the Yangibana deposits

Also they significantly toned down their claimed “Schaeffler Offtake”. In general, signing some XL-sized company’s general terms and conditions does not really constitute a “Master Agreement.”

KfW Bank denied the existence of a debt finance agreement.

However, we said exactly one year ago, Hastings would have needed a doubling of rare earths prices. As this has happened, it makes sense to revisit and do a new calculation for the two deposits under the feasibility study, Bald Hill and Fraser’s. Hastings plan to do that in Q4 2021.


Prices

Happy days continue, as the rare earth prices keep showing strong gains:

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 contain the most common grades of the named materials.

Things are different this time around, as now it is raw material prices pushing up the price of the rare earth oxides, something, that we have not seen during the past 5 years:

Note: RE Carbonate prices multplied by a factor of 10, for better visibility of the trend

There is now a small margin for separating praseodymium from NdPr, almost no margin for separating neodymium from NdPr, so it is not worthwhile to incur the cost of separation of either, much rather one would sell the NdPr 75/25 as-is. This means, that separated praseodymium oxide and neodymium oxide will be very short, which should drive prices even more:


It is National Day in Singapore on Monday.

Thank you for reading! Have a great week ahead!