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Clint Cox: Formidable challenges face competitors of Chinese rare earths

by Greg Klein | January 20, 2020

Depending which part of the supply chain’s under consideration, this one country produces anywhere from 70% to 95% of these critical minerals. China’s overwhelming rare earths dominance has long been obvious but trade tensions have once again highlighted the problem. Speaking at VRIC 2020 on January 19, Clint Cox outlined the hurdles Westerners face in the struggle to ensure security of supply.

Formidable challenges face competitors of Chinese rare earths

An analyst with The Anchor House who’s specialized in REs since 2006, Cox works with people throughout the supply chain including end users, government agencies, producers and junior explorers.

Last year China’s trade war threat to “weaponize” rare earths brought chills to Western end-users, who are all too familiar with the crisis of 2010. Prior to the Senkaku incident, prices had been trending downwards. Then came the monumental spike, shooting up costs of some elements 30 times.

“Our entire auto industry in North America almost shut down because of this,” Cox says. “A number of other industries almost shut down because of this.”

Naturally juniors found opportunity in crisis. Previously numbering about a dozen, ASX- and TSXV-listed rare earths explorers swelled their numbers beyond 450, a number grossly disproportionate to the availability of qualified geos. “They raised almost $6 billion in that time period,” Cox points out. “They ended up with one producing mine in Lynas Corporation and one mine in Molycorp, the Mountain Pass mine that went bankrupt.”

Mountain Pass in California has since re-opened—as a supplier to China. The world’s greatest source of rare earths deposits has, over the last two years, become a significant importer.

That’s a legacy of environmental neglect that includes an 11-square-kilometre tailings pond with about 100,000 to 150,000 tonnes of exposed radioactive muck, right next to a tributary of the Yellow River.

“China knows this,” he says. “They’re trying to fix it.”

As a result the government has been shutting down mines and looking for external sources. But on a global scale domestic production remains overwhelming.

As does the processing supply chain, led by six state-owned companies that have consolidated their operations. The Big Six benefits from China’s approach to capitalism.

They are all subsidized, every last one of them. They’re subsidized at the local level, the provincial level and the national level.—Clint Cox

“They are all subsidized, every last one of them,” Cox emphasizes. “They’re subsidized at the local level, the provincial level and the national level. This could be free power, this could be interest-free loans, it could be loans that never have to be paid back, and sometimes just flat-out cash payments. They are subsidized at every level.”

Companies in Bayan Obo, China’s most important rare earths-producing region, received about $395 million in government support over just one year. “That’s free money, that’s a subsidy, that’s tough to compete with. That’s way over what the United States is going to spend to try to solve this issue.”

A 20-year expansion plan for rare earths projects in the region finished well ahead of schedule, he notes.

Cox says China began 37 rare earths projects last year, promising some 48,000 tonnes of magnet production. “We only have a couple of hundred tonnes of magnet production in North America. And they spent close to, we gather, ten and twenty billion dollars on making rare earths facilities last year. And we’re excited about tens of millions, or maybe a hundred million dollars spent on some of the projects by the government this year.”

The country’s environmental legacy notwithstanding, China’s current handling of radioactivity presents another advantage. Freeing up the miners, the Chinese nuclear authority now takes responsibility for dealing appropriately with waste. Non-Chinese companies have to fend for themselves. Such challenges have been illustrated by Lynas, which faces opposition to the cracking and leaching plant in Malaysia that processes material from the company’s Mount Weld mine in Western Australia.

Another Chinese advantage: The Big Six launders material from the “unofficial or black market,” coming from unsanctioned, artisanal operations of dubious environmental and workplace standards. Some of it comes from inside China, while additional sources include Myanmar and other parts of southeast Asia, South America and elsewhere.

“So a lot of material flows through this black market. They legitimize it, because once it enters one of their supply chains, one of the Big Six, they can stamp an ‘official’ stamp on it and it becomes official material.”

He adds, “In general, Western countries can’t utilize the black market like China can. That is a huge edge. Some of the black market material can cost one-third of regular material.”

The juniors are definitely the place where the last crop of potential mines came from, and it looks like they might be the next out there. There’s some out there today.—Clint Cox

Supporting all this is a totalitarian regime. “That is tough to compete with.” Despite heightened Washington concern, the U.S. government agencies trying to address the problem remain uncoordinated. U.S. Congress currently has 18 bills concerning rare earths, Cox says.

Still, efforts persist to extract rare earths from sources such as mineral sands and coal. Then there are the juniors.

“The juniors are definitely the place where the last crop of potential mines came from, and it looks like they might be the next out there. There’s some out there today.”

But he has a warning for would-be miners who assume they’d receive a premium for non-Chinese supply. They won’t, he cautions. They’ll have to meet Chinese prices.

Other possibilities might not be predictable. “A dark horse can always come up. You never know what might happen in the rare earths industry. A new application, a new mine, a new processing technology, any of that can transform the industry.”

Read about the Canada-U.S. Joint Action Plan on Critical Minerals Collaboration.

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