Tuesday 21st May 2019

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A Sino-solution for Lynas?

Rare earths provide a cautionary tale about supply chain weaknesses

by Greg Klein

Such is the non-Chinese world’s dependency on China that an Australian asset of global stature might effectively come under Chinese control. That’s one of the scenarios facing Lynas Corp and its Mount Weld rare earths mine, as the company faces an ultimatum that could shut down its Malaysian processing plant. While a made-in-Australia solution offers one possible outcome, another could follow the example of other major RE deposits worldwide. To industry observers, the situation once again emphasizes the need to create non-Chinese supply chains.

Rare earths provide a cautionary tale about supply chain weaknesses

One of the world’s richest rare earths deposits, Mount Weld boasts reserves estimated to bring more than 25 years of production at 22,000 tonnes of rare earth oxides annually, with an especially bountiful distribution of the magnet metals neodymium and praseodymium. Lynas concentrates ore locally in Western Australia before shipping material to Malaysia for refining and separation. But while rare earths metallurgy has stymied some other non-Chinese operations, this facility has operated successfully since 2012.

At least it did so under Malaysia’s previous government. Its first electoral defeat since Malaysia’s 1957 independence brought to office a party long opposed to Lynas’ Kuantan operation. Concerns about waste containing thorium and uranium brought to mind a Malaysian RE refinery operated by Mitsubishi up to 1992. The plant was forced to close after an increase in leukemia and birth defects that critics attributed to waste from the operation.

Following an environmental review of Lynas’ facility late last year, the government of new Prime Minister Mahathir Mohamad delivered an apparently non-negotiable demand: Ensure all material brought into the country has been rendered non-radioactive. And remove seven years of accumulated tailings from Malaysia by September. Failure to do so will shut down the plant, the government warned.

An enormous logistical problem in itself, the ultimatum raises the question of where to put the material. Western Australia doesn’t want it. Other jurisdictions aren’t exactly fighting over the opportunity.

Enter Wesfarmers, one of Australia’s largest listed companies and a multi-billion-dollar conglomerate with interests including chemicals, energy, fertilizers and industrial products. Its AU$1.5-billion bid for Lynas last March seemed surprising given the miner’s tribulations, and came with a daunting condition: that Lynas’ Malaysian facility retain a valid permit for a “satisfactory period following completion of the transaction.” 

Rare earths provide a cautionary tale about supply chain weaknesses

A founding principal of Technology Metals
Research LLC and a senior fellow at the
Institute for Analysis of Global Security,
Jack Lifton has over 55 years’ experience
with technology metals.

The following month Malaysia’s PM announced his government had been talking with companies interested in removing radioactive waste from Mount Weld ore before sending it to the refinery. Wesfarmers confirmed it had been meeting with Malaysian officials.

So what does Wesfarmers have that Lynas doesn’t? For starters, very deep pockets says Jack Lifton. A chemist specializing in metallurgy, a consultant, author and lecturer focusing on rare earths, lithium and others that he labels “technology metals,” Lifton and three other scientists were hired by the previous Malaysian government to evaluate the processing facility prior to its initial permit.

Although Lynas has so far spurned Wesfarmers’ advances, Lifton believes the giant offers the miner’s best chance of survival. “Wesfarmers would have the money and the time to deal with it,” he says. “A $38-billion company can spend a year fixing problems and stay in business. If Lynas were shut down for a year, I think that would be the end of it.”

Earlier this month Wesfarmers offered AU$776 million for ASX-listed Kidman Resources, which shares a 50/50 JV with Sociedad Quimica y Minera de Chile SA (SQM) on the advanced-stage Mount Holland lithium project in Western Australia.

“Wesfarmers clearly knows all the problems with Lynas but they’re still interested in buying it,” Lifton points out.

The possibility of a Chinese buy-out, on the other hand, could meet opposition from either of two governments. Malaysia’s previous administration held considerable concern about Chinese influence, Lifton says.

As for Australia, “I do not think that the government, as it will be constituted after this election, will allow the Chinese to buy what is basically the largest high-grade deposit of magnet rare earths on the planet,” he says. Even so, Chinese control could eliminate the Malaysian problem. “China has immense facilities and excess capacity for treating ore like that. They wouldn’t need the Malaysian plant, not at all.”

Control need not mean total ownership. Following Molycorp’s bankruptcy, California’s Mountain Pass mine quietly resumed production last year under MP Materials. With China’s Shenghe Rare Earth Company a minority shareholder, North America’s sole rare earths operation exports all its production to China.

Shenghe Resources comprises the world’s second-largest RE company by output. It holds a majority stake in ASX-listed Greenland Minerals, which describes its Kvanefjeld polymetallic deposit as having “potential to become the most significant Western world producer of rare earths.” Last August the companies signed an offtake MOU for the proposed mine’s total REE production.

Huatai Mining, a subsidiary of Chinese coal trader Shandong Taizhong Energy, holds 15.9% of ASX-listed Northern Minerals, which plans to become the “first significant dysprosium producer outside China” at the Browns Range project in Western Australia.

“Everything from Browns Range is now going to China for refining and use,” Lifton notes. “My understanding is that’s what’s going to happen in Greenland.”

Neither Greenland nor Northern can handle separation, he explains. “They can concentrate the ore, but where are the facilities to separate individual rare earths from the mixed concentrate? They are, today, overwhelmingly in China. The Chinese have an advantage in excess refining capacity.”

As for Lynas, its customers are mostly Japanese but include Chinese too. While Lifton thinks Malaysia would welcome Japanese ownership of Lynas, the Japanese no longer have processing abilities. They’re also burdened by Mitsubishi’s legacy.

“China does not, to the best of my knowledge, have ore as rich as Mount Weld. I don’t know of any other deposit on earth that’s so high-grade and well-distributed with magnet materials. So anyone who has processing would love to have that.”

Chinese control would only intensify a trend well underway, he adds. “They already have the largest RE industry in the planet in their country and they’re buying RE, cobalt and other critical assets in Greenland, Africa, Australia, South America.

“If we don’t reconstitute a total American supply chain, if the Europeans don’t do the same, for the critical materials like rare earths, cobalt, lithium, we’re going to be out of luck. The Chinese in my opinion are already self-sufficient in rare earths, lithium and cobalt. They have mines all over the world that they own and operate, they have the bulk of chemical processing. They’re going to take care of their domestic needs first, and then if they want to export, they’ll control the price, the supply, and they do control the demand because at this time about 60% of all world metals goes to China.

“In America there’s a lot of talk now about critical minerals and some people are saying we need ‘a conversation’ on the subject. So while we think about it and have conversations, the Chinese are setting themselves up for the rest of this century.”

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