Wednesday 23rd September 2020

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REE Dragon

Western Rare Earths Discoveries May Just Feed China

By Ted Niles

Between the increasing demand for rare earth elements (REEs) to supply global technological advance, and the 2010 reductions of export quotas by China, the non-Chinese world faces a global supply shortage. This situation presents opportunities but also challenges. The speakers at last week’s Technology Metals Summit 2012 in Toronto stressed two of those challenges in particular: the absence of a supply chain for REEs outside China and the considerable economic challenges to any company starting a rare earths mine given that absence.

China produces 97% of the world’s REEs. The obstacles facing a non-Chinese REE industry stem from the inordinate complexities of rare earths themselves. Gold, silver or copper are metals that require only a relatively simple process of refinement before they are sold into the market. But the process which any of the 17 chemical elements called rare earths must undergo before their end use in, say, one’s iPod, requires a degree of scientific and technological expertise unlikely to be found in any roomful of scientists and engineers. Unless, of course, that room is in China. This because since the Chinese began serious production of cheap rare earths in the late 1980s, the rest of the world has all but abandoned its interest in them as anything but an end user. This was conspicuously signalled by the 2002 closure of the largest US rare earths producer, Molycorp’s Mountain Pass REE mine.

Western Rare Earths Discoveries May Just Feed China

Gary Billingsley, Great Western Minerals TSXV:GWG Executive Chairman, explains the impact: “When you’re talking about rare earths outside of China, you have to have something to sell. If you’re a permanent magnet manufacturer for instance, the rare-earth mine all by itself really doesn’t have a saleable product you can use. You need a bunch of other steps in that supply chain, like separation and metal-making and alloying in order to produce a product that’s saleable to generate revenue. And right now, outside of China, there’s precious little of that supply chain.”

And so, China is not only the largest producer, but the largest consumer of rare earths. The problem facing a non-Chinese rare-earths industry is not one just of supply but of demand. Thus a rare earths mining company’s job is far from over after the physical extraction of the material from the ground. “If you’re going to be bringing a project onstream,” Constantine Karayannopoulos emphasizes, “you should have a business plan that addresses the biggest market, China.” The CEO of Neo Material Technologies TSX:NEM continues, “Ultimately, the projects that will succeed will have to demonstrate that they will be able to sell what they can produce, and they’ll have to do it at a reasonable cost.”

The advantages China has enjoyed in this respect have been tremendous. Not to mention unique. Inner Mongolia’s Bayan Obo mine, Karayannopoulos points out, is often mistakenly described as a rare earths mine. But while it does host the world’s largest REE deposit, Bayan Obo’s primary function is as an iron-ore mine, and the rare earths are a byproduct of the tailings. “No non-Chinese mine can really compete against Bayan Obo production, where the rare earths are essentially a free extra,” Founding Editor Tracy Weslosky adds. “If China wanted to, it could sell it at any price. But I don’t see them selling.”

The vast majority of speakers at the Summit were in agreement on this point—that China is, in Karayannopoulos’ phrase, “the most brilliantly self-interested economic power in the world.” While not hostile to the world outside its borders, the burgeoning superpower is decidedly unconcerned with it. Speaking of China’s export quotas, Hedrick Consultants Inc Founder James Hedrick remarks, “I think that as economies [recover], and as demand [for REEs] in the world goes up, China will continue cutting back on supply to coerce people to move their IP and their plants and their technology to China to create more jobs for their people. Their economy and population is growing, so they have a lot of jobs to provide.”

Unless you’re willing to build a total supply chain outside China, all you’re doing is supplying China. How will we benefit, if China maintains its lock on demand? —Jack Lifton

Jack Lifton adds, “Unless you’re willing to build a total supply chain outside China, all you’re doing is supplying China.” The Founding Principal of Technology Metals Research declares, “How will we benefit if China maintains its lock on demand? The Chinese state is not making investments here to make a profit. They don’t want to build dollars to buy Bentleys. What they want is materials to go back to China.”

Lifton continues, “The US doesn’t have an industrial policy. That’s not the way they think in China. I think we’re in an extremely competitive situation, and I think we are pretending that this will all go away. That the market will correct and everything will go back to the way it was. It won’t, because we now have the largest corporation in the history of the world—China Inc—buying the world’s resources for internal development. The Chinese have not been imperialist-expansionist for 1,000 years. They want to be left alone. They don’t want your land; they want you to stay away from theirs. It’s not at our expense, yet.”

While Lifton’s remarks might strike some as alarmist, the general feeling of the Summit suggested that building a non-Chinese rare-earths industry will be troublesome, at best. With the prospect of near-term and significant reduction of rare earths from China, the race is on for juniors to discover and delineate economically feasible deposits to feed a technology sector that, over the last ten years, has become highly dependent upon them. And the question still remains, “Will investors step up to the plate?” Karayannopoulos answers, “There’s no question that consumers around the world are making the right noises about supporting production outside of China. Ultimately, they’ll have to put their money on the table if they want to see this happen. Talk is cheap. Some of these projects have a price tag of around $1 billion. There are very few people that have the longer-term confidence in prices and demand.”

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