We Think It Is The Egg; Outdated Stereotypes; NdPr holds $70/kg; International Energy Agency And Other Wake-Up Calls;
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We Think It Is The Egg; Outdated Stereotypes; NdPr holds $70/kg; International Energy Agency And Other Wake-Up Calls;
2021 Rare Earths June 21
We think it is the egg.
In the Critical Materials Corner, hosted by Jack Lifton with guests Pini Althaus from USA Rare Earth, LLC and Geoff Atkins from Vital Metals Ltd., the discussion round hit the question, what materials are we talking about, where do we start: Concentrate/carbonate? Rare earth compounds? Or magnets? Hen or egg?
It is probably NdFeB magnets, as market leader China already anticipated. According to our count of announcements, by 2023 China’s manufacturers will have 336,000 t NdFeB capacity, heading for 400,000 t in 2025. Different from exports of rare earths, China favours NdFeB with a full VAT refund upon export, and no matter what the rest of the world does, China will remain the main supplier for NdFeB currently with a close to 90% market share.
Source: chinabaogao.com
If other countries/industries want to get a piece of the cake, they should start with NdFeB production, even if only with a limited range of types.
Whoever does will run losses, because already from the start he will have to buy Chinese or Chinese-priced rare earth compounds from elsewhere (why should junior RE miners ask for lower prices than those China achieves in export?), which are 13% cheaper inside China than outside China (no VAT refund upon export of rare earth from China).
This is, where meaningful support from the US government can kick-in,
be it in trade negotiations with China to rectify fiscal manipulation of trade - Chinese rare earths and permanent magnets, both must get the same VAT refund upon export rate -,
be it with subsidies (the US RARE Act and the ORE Actsubsidies would be massive - if the bills should ever pass),
orbe it with antidumping duties on Chinese permanent magnets, a last resort, as already signalled by the US government.
USA Rare Earth
We believe Pini Althaus should exclusively focus on assembling the NdFeB magnet factory and get that one running, which is already a formidable challenge. Nothing else matters. Own rare earth separation and multimetal Round Top deposit development bind resources and add way too much complication to an already complicated project.
Vital Metals
Geoff Atkins can relax. He will sell his mixed rare earth carbonate one way or another, even if Canada receives the same “favourable treatment” from China in trade as currently the US and Australia get.
Disclosure: We hold an initial position of Vital Metals stock.
Outdated stereotypes
We keep hearing sterotypes that simply don’t hold water:
Sending rare earth raw materials to China for processing and receiving the finished products in return (“export processing”):
This has been officially illegal since 2016. Any junior RE miner suggesting such concept has not made his homework or is purposefully deceiving stakeholders;
China runs out of rare earth/permanent magnets:
Whether China’s reserves are 20 million tons TREO or 44 million tons TREO, the reserves would last China’s current demand for more than 100 years. The permanent magnet capacity by 2025 is forecast as 400,000 t, pre-empting investment in NdFeB production in the rest of the world;
China is a net importer of rare earths:
Source: Mining Journal - iron ore lumps
If China’s massive imports ofiron ore should make China a “net importer of steel”, then one could also say that China is a “net importer of rare earths”;
China actively reduces exports of rare earths:
Will China’s exports of magnetic materials be reduced because of China’s growing domestic consumption? Yes, but currently most of us wouldn’t even notice. Pre-COVID-19:
Source: data from China Customs
Significant Chinese exports of the magnet materials NdPr, dysprosium and terbium go to only one country: Japan. In terms of magnet materials, almost all the rest of magnet materials exports to other destinations is peanuts (that is also, why the recent rapid rise of magnet material prices didn’t bother the West much).
60% export volumes are cheap-as-cabbage lanthanum and cerium compounds. If China would stop rare earth exports, it would shoot itself in both feet - with an elephant rifle.
China is dumping rare earths:
As a result of the “Senkaku/Diaoyu Islands Incident” the Chinese government induced shipment delays of all kinds of goods to Japan, including rare earths. The order from the State Council must have been passed September 20 or 21, 2010.
Source: Japan Times, Apple Daily
This eventually led to enormous problems in China’s rare earth industry. The first official admission that the Chinese government actually had actively intervened to stop RE exports in 2010 came only in 2018, when at the Metal Events 15th International Rare Earth Conference in Hong Kong the then chairman of China Northern Rare Earth Group, Zhao Dianqing, talked about the damage this had done to China’s rare earth industry, followed by his promise that it will never happen again.
The stop of rare earth exports in autumn 2010 made Japanese companies panic and they ran around like chicken without heads to buy all and any quantities they could lay their hands on of the rare earth products for Japan that were stuck in China. Prices sky-rocketed.
This had a kick-on effect on other rare earth products, too, and companies who had never ever even handled rare earth, who knew nothing about rare earth, bought them anyway, whatever rare earth product at whatever price.
The result was a massive boom for all rare earth products, including the worst hardsellers among them.
Source: matthey.com - the vertical axis is percentage increase over 2007!
Miners and processors in China scrambled to produce enough material for the artificially inflated demand, aided by rampant illegal mining at great environmental detriment and outright theft of rare earth raw materials from state-owned enterprises’ mines.
The flood of orders soon subsided, but the flood of additional material didn’t, and that made prices drop rapidly. Aforementioned non-professional market participants tried to sell off their inventory at any price to anyone. Years of depressed prices and falling profits followed, combined with a tough industry consolidation and increased state-control.
Believe it or not, still today in some obscure corners you will find unsold rare earth inventory of 2010/2011 panic buying.
Final stereotype: The West is superior in rare earth mining best practises, environmental protection, sustainability and traceabilty.
It is a unwise to base on old stories from forgone times, when the environment did not matter to the Chinese government.
Junior rare earth miners, if they ever make it off the floor, would probably be hard pressed to match current standards enforced on the Chinese rare earth industry.
News reports of environmental transgressions by major Chinese rare earth companies, published by tightly controlled and censored Chinese media, show zero tolerance and no leaway for the industry, when it comes to environment and sustainability. Rare earth producers can expect multiple random inspections per year by the multi-ministry task force. Imagine the IRS, EPA and land resources authorities jointly at your factory gate for a surprise audit - two or three times per year.
Blockchain-based traceability of rare earths has just been hard-coded into law in China.
In our observation and talks with Chinese supliers we find, that actually China prepares meticulously to maintain market access in the age of carbon tax and sustainability trade barriers.
From October 1, 2021, seven new rare earth industrial standards go into force in China, four of which deal exclusively with sustainability, environmental protection and recycling.
If anyone anticipates western junior RE miners having an edge over China because of ESG or traceability, then he shold perhaps look a bit closer.
Does China play fair in rare earth? Absolutely not. No monopolist ever does.
The resurrected Maoist ideological concept of continuous struggle creates a mindset, that won’t make things any easier.
All the more: If the West ever wants to supplement and finally replace a major share of rare earths from China, it mustn’t cloud its mind with outdated stereotypes and wrong assumptions.
Curiously, the sterotypes also work reverse.
On May 20, 2019 the General Secretary of the Chinese Communist Party was on a propaganda trip to where the famous Long March started, in Ruijin, near Ganzhou.
In Ganzhou he visited the factory of JL Mag Rare Earth Co., Ltd.:
Source: Xinhua New China News Agency
Young and inexperienced stringers of western news services concluded that Xi Jin Ping visited a rare earth factory and that he was threatening the West with stopping rare earth exports. The usual suspects were quickly on hand to inflate this misconception to a sizeable hot-air balloon of hype.
Almost instantly, this hype found its way back into China media.
Chinese propaganda units concluded from the western media hype that the West was afraid of a China rare earth boycott and that it could cause harm to the West. So the patriotic hype in China followed suit. Analysts at the Ministry of Commerce and at the National Development & Reform Commission (i.e. State Planning Commission) were made to look into a rare earth boycott.
The conclusion of the ministries was of course, that a rare earth boycott would be ineffective and it would even include potential self-harm.
So what was the story?
Source: South China Morning Post
JL Mag don’t produce rare earths, they buy rare earths. JL Mag produce permanent magnets, and that is *the* Chinese product that the West and all new energy initiatives really depend on.
Most certainly the General Secretary meant to indicate a possible export boycott, but in permanent magnets, not rare earths.
Talking about standards:
Standards are a bare necessity for facilitating trade in all industrial commodities the world over.
Many years of cooperation with China and the International Standards Organisation ISO to internationalise China industrial standards for rare earths have produced next to nothing, resulting in continued embarrassingly archaic trade conditions for rare earths outside the China market.
Simply translating and adopting Chinese standards for products where China is the undisputed leader in production, application, application research and R&D seems to be politically inconvenient.
The much touted bankable feasibility study (BFS) expected last January with interesting details like the recovery rate, that has been completely missing from all and any announcements/information so far this year. It was replaced by a flimsy“management calculation”;
An ESG plan for a high thorium deposit near an area that used to be offered for its uranium mining potential;
Evaluation of what impact on whatever feasibility there may be the Angolan 25% tax on revenue will have. For diamonds 25% may be workable, but for mixed rare earth sulphate/carbonate concentrate rather not. The Preliminary Feasibility Study that excluded Yorkshire seemed to target a concentrate of ~30% TREO.
Meanwhile, after refusing to accede the free trade agreement with the EU in 2015, Angola, which is the origin of the term Blood Diamonds, changed its mind in 2020 and now requests accession, which is pending an EU sustainability assessment of Angola.
Why this matters: The EU enforces sustainability on supply chains and Pensana’s anticipated 4,000 t/year of NdPr will likely need to to be sold also in the EU.
Prices have been a mixed bag recently. Among the light rare earths lanthanum and cerium oxide prices fell significantly, neodymium oxide and NdPr prices fell a tad but are still above US$70/kg, which is healthy. Heavy rare earth prices were unchanged, gadolinium was rising.
As ever, these prices are median ex-works China incl. 13% of China VAT, converted at todays published onshore RMB exchange rate. Export prices will vary for logistics cost, trader margins and different qualities.
DON M. LAY, Vice President, Corporate Development / Director of Medallion Resources passed away during the weekend of June 13, 2021.
May he rest in peace.
It seems that after years and years of nagging finally policy makers and associations wake up to the fact, that the ambitions of new energy and green mobility are much larger than the related metal supply is.
Also consumer denialism is finally being adressed. Lots of interesting reads in the “Policy” section today.
The investment in Jetti Resources LLC, which extracts copper from mining waste, was made amid rising interest in metals used in construction, manufacturing and electrical conduction, and rising prices. As the world transitions to a low-carbon economy, copper demand is expected to outpace supply in the coming years, requiring more metals.
Jetty is BHP, Freeport, Mitsubishi of Japan Co., Ltd.
Jetty’s current owners include DNS Capital, the family office of Gigi Pritzker, a film producer who is one of the family heirs behind the Hyatt Hotel Chain, Ben Walton, the family founder of Wal-Mart Co., Ltd.
Comment: For copper there is a lot of interest and capital. And rare earths?
ThREE Consulting LLC has announced it has applied for DoE FOA funding to generate integrated feasibility studies to validate the techno-economic assessment of its Mine to Metal, Green Steel Project. ThREE has assembled an engineering team and ‘Green Mandate’ investors to collaborate on the development of this project. The overall goal is to produce superior green steel economically while not relying on carbon-capture credits, subsidies or inflated ‘premium pricing’ for Green Steel.
The fully permitted Pea Ridge Iron Ore Mine is located in Washington County, Missouri and hosts the highest-grade magnetite ore deposit in the world. Feasibility and pre-feasibility studies were produced on reopening the Pea Mine in 2013 and 2008. The Pea Ridge mine is typically compared to Olympic Dam. It has a world-class (USGS) rare earth deposit outside the iron ore orebody. Iron Beneficiation also produces a super high value REE-Apatite concentrate.
Green steel is produced by replacing coal or natural gas with carbon-free hydrogen gas to convert the iron ore into steel via a process called Direct Reduction of Iron (DRI).
Comment: DRI (directly reduced iron) in our veiw is not “green” because in the next step it needs to be molten in an electric arc furnace (EAF). EAF’s require a consumable called “graphite electrodes”.
Anyone who has ever seen the production of graphite electrodes will know that this is probably among the most noxious products on the planet with massive carbon output during production.
If that is supposed to be “green steel”, then why bother?
Every 6 to 12 months, a farmer takes a piece of these metal-collecting trees for nickel extraction. According to The New York Times, the farmers could hold in their hands roughly 200 kilograms of nickel citrate after purification, which is potentially worth thousands of dollars on international markets.
Recent announcements have aided Europe’s goal for a diversified rare earths supply chain. Mkango Resources and Grupa Azoty Zakłady Azotowe Pulawy S.A. (Grupa) announced plans to develop a separation facility adjacent to Grupa’s fertiliser and chemicals complex in Pulawy, Poland. A feasibility study covering the Songwe Hill project and the separation facility is underway and is due for completion in Q4 2021.
The Senate this month approved a bipartisan, $250 billion bill to boost government spending on technology research and development to catch up with China, including funds for digging up and processing critical minerals at home and with allied nations.
The Energy Department is already investing $19 million in projects in former coal communities to support research into extracting rare earths from coal waste and ash, the detritus left when the fuel is mined or burned.
In 2019, the U.S. Geological Survey published a study concluding that it was too hard to free rare earths from coal ash on a commercial scale and that there weren’t enough minerals in coal waste to make extraction worthwhile.
"It’s a general consensus that this is low-grade material," said David Henderson, founder of Rittenhouse International Resources LLC, a critical-minerals consulting firm.
In November, the Pentagon said it would invest $2.3 million in a California-based company called TDA Magnetics.
On its website, TDA describes itself as a U.S.-based manufacturer of magnets. The company doesn’t manufacture magnets, but imports blocks of rare- earth-based magnetic material, often from China, which is then fabricated into customized pieces, according to a person familiar with the matter and customs documents.
Comment: Slowly, very slowly reality dawns on the actors and things start moving in the right direction.
Speaking at the European Raw Materials Alliance Summit, the European Commissioner for Internal Market, Thierry Breton, rang the alarm bell regarding the EU’s dependence on third countries for 99 products – mostly raw materials – needed for the energy-intensive industries ecosystem.
Breton made a case point regarding rare earths supply, 98% of which are delivered to Europe from China, either raw or refined.
Comment: We really don’t know where this number of 98% comes from, being repeated everywhere in the EU ecosystem. Is the EU going for alternative fact now? Our pre-COVID view:
Also the EU actually exports some rare earth finished products to China.
The paradox of the green revolution is that public opinion is firmly in favour of decarbonisation but not the mines and smelters needed to get there.
Building a new mine in the United States is a tough prospect. Ask Rio Tinto, which has been trying for over a quarter century to win approval for its Resolution copper mine in Arizona in the face of stiff opposition from Native Americans and environmentalists.
Arizona, it is worth emphasising, has been a mining state since the late 19th century and has historically been the country's largest copper producer.
Even in such friendly jurisdictions, digging new mines is getting increasingly difficult as the need for green metals collides with green conservationist resistance.
Opposition to mining is not just a developed world problem. The phenomenon is global, although no other country has yet followed El Salvador and banned it completely.
For the Commissioner, however, there aren’t enough partnerships to fulfill the continent’s growing demand for critical raw materials. Thus, he called on member states to start considering domestic sourcing.
For him, this proposal not only refers to boosting circularity and recycling and increasing the use of secondary raw materials but also to supporting mining projects.
"Today, the data shows a looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realising those ambitions."
“Today’s mineral supply and investment plans fall short of what is needed to transform the energy sector, raising the risk of delayed or more expensive energy transitions.”
Comment: In a nutshell. When do investors finally wake up?
Hot damn we love electric cars here at EFTM, but bloody hell they are pricey. The price gap between a petrol car and its electric equivalent has long been our concern, along with the impact on our tax system should we all switch to Electric in a hurry.
Comment: If metal markets have their way, EV will even get more expensive.
