TORONTO (miningweekly.com) – Should the world’s largest rare-earth elements (REE) producer China proceed to cap its exports within the next five years, it would probably not have a significant knock-on effect in the current global market, critical REE project developer Frontier Rare Earths CEO James Kenny told Mining Weekly Online on Friday.

He said the reason for this was the fact that China is currently expected to fall short of its proposed 100 000 t/y export cap, leaving the present largely balanced market unaffected.

China produces about 90% of the world’s rare earths supply and consumed more than half of this in its own market, which itself continued to grow. China was expected to produce about 90 000 t of rare earths this year.

However, should the giant country in five to eight years decide to implement its REE export quotas, or not, either way the global industry was expected to feel a pinch as a result of market growth by far exceeding the supply side.

The Financial Times newspaper on Wednesday reported that the World Trade Organisation (WTO) had concluded that restrictions by China on the export of rare earths were not in line with WTO rules.

Kenny said that if the reports were true, he was not particularly surprised by the result, adding that he expected China to appeal the ruling, which in his mind would very likely be unsuccessful.

The newspaper cited sources within the US, the eurozone and Japan that had complained to the WTO in March, arguing that the Chinese rare earths industry was seeking to benefit improperly from a dominant market position.

Produced mainly in China, REEs are critical for making high-tech items such as smartphones, tablets and hybrid vehicles, and are also used in automotive catalysts.

Rare-earth elements consist of 17 elements on the periodic table, including 15 elements beginning with atomic number 57 (lanthanum), extending through to number 71 (lutetium), and including the elements yttrium and scandium, which have similar properties.

On July 2, China announced that it would apply a quota for exports of rare earths for the second half of 2013 on the same basis as it applied a quota in the first half of the year.

FUTURE SUPPLY SHORTFALL

What would be missed in the short term is the 30 000 t/y to 40 000 t/y of illegal REEs flooding onto the market from unregulated Chinese producers if China succeeded in its recent efforts to ‘clean up’ its often-considered dirty REE industry, and impose stricter environmental regulations and to clamp down on illegal output.

Kenny explained that the “spectacular” rise in REE prices from mid-2010 to mid-2011, when China had previously restricted REE exports, had resulted in a glut of unregulated Chinese REE suppliers flooding the market. This had resulted in significant quantities of REEs from illegal sources entering the market and distorting prices.

However, the Chinese clampdown on illegal market activity would remove a significant portion of the global supply, which could spell trouble.

“Clamping down on the illegal output is potentially a positive development and could help to narrow the internal Chinese prices versus its export prices,” he said.

Kenny said the REE market was currently seen as being largely in balance, but a supply deficit would emerge from 2015 onwards.

Rare Earths producer Lynas Corporation’s CEO, Eric Noyrez, recently said at the Metal Pages Rare Earths conference in Guangzhou, China, that global rare earth demand was expected to grow by 5% to 6% a year before 2020.

Kenny argued that this meant the demand side could grow to between 220 000 t/y and 240 000 t/y by 2020, leaving a 120 000 t/y deficit.

He said that even if the only significant REE producers outside China, US-based Molycorp and Australia-based Lynas, managed to achieve their peak output capacities, there would still be a significant supply deficit. And that is not even considering the market growth beyond 2020.

COMPELLING INVESTMENT CASE

Kenny said REE basket prices had bounced up to 30% off their recent lows in the last three months, pointing to a dwindling Chinese supply and REE consumers restocking.

This could be the market turn REE suppliers had been waiting for. The dwindling Chinese demand and a growing global market makes for a compelling case to invest in REE juniors in the current market.

Kenny said the fact that the company had C$38-million cash in the bank, that would see it through to completing a prefeasibility study (PFS) and a bankable feasibility study, and the fact that it had a confirmed joint venture partner set the company apart from other REE juniors.

TSX-listed Frontier Rare Earths, which is developing the Zandkopsdrift REE project in South Africa’s Northern Cape, last month said it expected to release results of its PFS early in 2014, after it had determined more testwork was necessary to improve the flow sheet.

Capital and operating costs of the mine, processing plant and related infrastructure were expected to be higher than the initial economic assessment in 2012, but would be partially offset by lower capital and operating costs for the rare earth separation plant.

The completed PFS was presented to the company for review during the third quarter, and it had identified several areas where engineering design and process improvements could be made that were expected to have a “potentially significant” positive impact on the estimated capital and operating costs of both the Zankopsdrift processing plant and the Saldanha separation plant.

Value engineering and process optimisation studies were currently under way, as well as several other areas of improvement.

Kenny also said that while it was initially planned that any process improvements found by the feasibility-study testwork would be introduced during the feasibility study itself, it had decided that the positive impact was potentially big enough that it should be included in the PFS.

The proposed process improvements included a flow sheet that was expected to result in a higher proportion of higher-value critical rare earths and higher-purity products being produced through another REE recovery method and a new processing technology.

This would, in turn, lead to a basket price for Zandkopsdrift production at current free-on-board China prices of $44/kg, compared with an in-situ basket price of $36/kg.

The Zandkopsdrift project comprises mining and processing activities to produce a mixed rare earth product, a seawater desalination plant to be located 35 km from the mine and a rare earth separation plant to be located at the deep-water port of Saldanha Bay, in the Western Cape, about 300 km from the deposit.

The Zandkopsdrift B zone has the biggest total rare-earth oxides grade and the highest grade of high-value heavy rare-earth oxides of significantly advanced rare-earth deposits outside China.

Envisioned is a standalone opencast mine, which will be mined by conventional free-dig and/or drill, blast and haul techniques, with minimal drilling and blasting required.

Zandkopsdrift has a target total production capacity of 20 000 t/y of separated rare-earth oxides, and is expected to become one of the largest producers of high-demand critical rare-earth oxides, which comprise dysprosium, terbium, europium, neodymium and yttrium in separated, high-purity form.

Frontier in December struck an accord with Korean government-owned mining and natural resource investment company Korea Resources Corporation (Kores), which had acquired a 10% interest in Frontier's Zandkopsdrift project, along with an offtake right and obligation for 10% of the production.

The C$23.8-million deal was believed to make the company the only junior company in the rare earths sector to have signed and completed a definitive agreement with a significant strategic partner.

Under the terms of the agreement, Kores has the option to increase its participation in Zandkopsdrift up to 50%, together with an offtake right and obligation for up to half of the production from the project.

Further, Kores had agreed to arrange project finance to develop the entire project on the best available market terms and to provide pro rata funding for the portion of Zandkopsdrift development costs not covered by the project finance, while it would also be responsible for providing technical and operating experience for the design, construction and operation of the Zandkopsdrift facilities.

Kenny also said that it had recently submitted its 30-year mining right application to the Department of Mineral Resources, and that an environmental impact assessment review was now under way, with these processes expected to take between 12 and 18 months.