Critical alternative rare earths sources remain elusive well after 2010 curbs

17th May 2013

By: Henry Lazenby

Creamer Media Deputy Editor: North America


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Following the global economic downturn of 2008/9 and a series of events and press reports in 2010 that coined what some referred to as the “rare-earths crisis”, there has been a glut of new rare earths projects starting out, yet few have progressed up the value curve, and rare earths supplies in the West still largely depend on Chinese production.

During 2010, there was global concern when China cut its rare earths exports and appeared to be restricting the world’s access to rare earths, sending the rare earths market into a flurry of action and rare earths prices sky high. This led to a growing realisation that an almost total US dependence on China for rare-earths elements, including oxides, phosphors, metals, alloys and magnets, was a matter of national security.

Some policymakers also expressed concern that the US had lost its domestic capacity to produce strategic and critical materials, and queried what implications this had for US national security.

Strategic management consultancy Cansource International president and CEO Ron MacDonald recently told Mining Weekly that solving rare earths supply security still remained an issue.

He pointed to a time three years ago that saw a big surge in new projects coming to the fore when rare earths prices shot up as a result of China’s clamping down on rare earths export (which in some commentators’ views was a political move), but said most of these had now stalled owing to a lack of funding to move them further up the value curve.

“The financing market for juniors has all but collapsed,” he said.

MacDonald expressed concern that there was currently little primary exploration taking place, which would eventually result in new production being delayed by years. He likened it to the start of a technological food chain, and expressed concern that that there was little happening in the world at present to sustain this growing demand.

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

“It is the critical first step to produce almost every product we know, and owing to the misalignment of primary exploration and increasing demand, including the question of securing these supplies, it would still take even more time for the primary exploration industry to get back on its feet,” he said.

MacDonald said there should be a more coordinated effort to encourage junior rare earths explorers to develop projects. While government incentives such as tax breaks for junior projects are one way to encourage investment in the sector, which is so critical for all future technological development, govern- ments should be wary of not skewing the playing field with overinvolvement.

MacDonald suggested governments should look at a more holistic “North American approach” to securing an adequate rare earths supply, independent of Chinese production and processing. He pointed out that while the US and Mexico had limited opportunities for new rare earths projects to come on stream, Canada had a number of projects with potential.

Another way in which governments could make it easier for junior rare earths com- panies to get into the market was to assist with research and development (R&D) initiatives.

As a result of rare earths being found in diverse geological formations, there are only a few proven and trusted process-plant flow sheets for extracting the minerals in an economical way; for certain of the best- understood geologies, a plethora of other rare earths deposits are excluded from development, owing to the development of such processing being too costly.

MacDonald suggested governments across the region should perhaps look into unlocking the potential of the various other types of deposits by assisting with the provision of the technology needed to develop new rare earth projects in an economical way.

Until 1948, most of the world’s rare earths were sourced from placer sand deposits in India and Brazil. Through the 1950s, South Africa took the status as the world’s premier rare earths source, after large veins of rare-earth-bearing monazite were discovered in the country. From the 1960s to the 1980s, the Mountain Pass rare earths mine, in California, was the leading producer.

Today, the Indian and South African deposits still produce some rare-earth concentrates, but the scale of Chinese production dwarfs them. China once produced over 95% of the world’s rare-earth supply, mostly in Inner Mongolia, even though it has only 37% of proven reserves, although these numbers have since slipped to 90% of world production and 23% of the world’s reserves.

All of the world’s heavy rare earths, such as dysprosium, come from Chinese rare earths sources such as the polymetallic Bayan Obo deposit.

China is a significant producer of the world’s two strongest magnets, samarium cobalt and neodymium-iron-boron permanent, rare-earth magnets.

New demand has recently strained supply, and there is growing concern that the world may soon face a shortage of rare earths. Within several years, global demand for rare earths elements is expected to exceed supply by 40 000 t/y unless significant new sources are developed.

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.

These are referred to as “rare” because, although relatively abundant in total quantity, they appear in low concentrations in the earth’s crust and extraction and processing are both difficult and costly.

Wresting Control from China

Integrated US rare earths producer Molycorp, with its flagship mine and processing facilities at Mountain Pass, in California, currently is the only North American producer of rare earths. In 2012, it bought Canadian rare earths processer Neo Material Technologies, which was intended to transform the rare earths industry and change Molycorp from being only a producer into a ‘one-stop rare earths shop’.

The acquisition gave Molycorp access to Neo’s rare-earth-processing capabilities and patents, making it the only major North American player with the ability to both mine and process the metals used in magnets and other applications.

However, weak prices and high costs have weighed on the company’s results, and in the fourth quarter it took a $258.3-million impairment charge related to the takeover.

Molycorp reported a loss of $50.1-million in the first quarter, as it was grappling with low prices and high production costs.

The US rare earths producer is nearing the end of a $1.25-billion modernisation project at its Mountain Pass mine, with commercial production expected at a new processing facility by midyear.

Other efforts to wrangle control of the rare earths market from China have not gone as smoothly as hoped either.

Australian rare earths miner Lynas produced its first product from its much- contested Lynas Advanced Materials Plant (Lamp), in Malaysia, in February.

During January this year, Lynas successfully commissioned the cracking and leaching rare earths extraction units at Lamp, and has since been working through early-stage production issues typical of the start-up of new plants.

However, the first-phase, 11 000 t/y facility is still facing one judicial review challenge against the granting of a temporary operating licence. The court challenge was originally scheduled for February 5, but has been postponed to enable the Kuantan High Court to deal with some preliminary matters. No new date has been set.

During December last year, the Malaysian Court of Appeal dismissed a court challenge by environmental group Save Malaysia Stop Lynas against the granting of a temporary operating licence (TOL) for the Lamp project, with the environmental group subsequently turning to the Kuantan High Court.

The Kuantan High Court, in February, again denied a second application from the Save Malaysia Stop Lynas group for leave to seek a judicial review on the award of a TOL for the Lamp project.

Meanwhile, in Canada, project developer Critical Elements is progressing with development of a new high-purity lithium and tantalum mine in Quebec. The Rose mine will be a significant new North American source of the two metals – which are also in high demand despite not being rare earths, but which are critical in technological applications.

Tantalum is a sought-after metal used in microelectronics such as medical devices and other industrial applications.

MacDonald pointed out that global tantalum supply has also been significantly impacted by the recent passing of the US Dodd-Frank Act and new guidelines at the Organisation for Economic Cooperation and Development, which bar companies from using tantalum that was illegally mined in Central Africa.

This has driven up demand for new sources of tantalum that are ‘conflict-free’.

“This mine, when in production, will provide a much-needed supply of ethical tantalum in a market that has not seen a new tantalum mine developed in almost 30 years,” Critical Elements president and CEO Jean-Sébastien Lavallée told Mining Weekly.

Costly Extraction

There is a growing realisation within the rare earths extraction sector that those develop- ment projects that do not possess well under- stood geologies will find it increasingly difficult to attract financing, which may result in those projects falling by the wayside in the medium term. Phillip Kenny, president of South Africa-focused project developer Frontier Rare Earths, which is developing its flagship Zandkopsdrift, project, in the Northern Cape, recently told Mining Weekly that if a prospective rare earths company had not already identified one of the three well understood rare-earths ores, chances of attracting capital were slim.

Kenny explained rare earths are most economically extracted with proven processes from the minerals bastnaesite, monazite and xenotime. Any other of the more than 200 minerals known to contain essential or significant rare-earth elements (REE) would require extensive R&D to find an economically sensible process to extract REEs, which would take a lot of time and cost excessive amounts of money.

Financiers were increasingly asking for process flow sheets before they would con- sider lending developers a dime.

“The race is on to become the next rare earths producer, and we are ahead, owing to being the only rare earths junior which already has a significant strategic offtake partner. We are also well funded and the Zandkopsdrift project’s mainly monazite resource would enable us to produce rare earths at a very economical cost,” Kenny aid.

He was referring to a deal closed in December with Korean government-owned mining and natural resource investment company Korea Resources Corporation (Kores), which has acquired a 10% interest in Frontier’s Zandkopsdrift rare earths project, along with an offtake right and obligation for 10% of the production.

The company said it believed the C$23.8-million deal made it 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 to 50%, together with an offtake right and obligation for up to half of the production from the project.

Further, Kores has 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, con- struction and operation of the Zandkopsdrift facilities.

Frontier added that it was willing to cooperate with Kores with regard to downstream opportunities in the area of rare-earth metals, alloys and magnets.

Frontier said its cash balance was boosted to C$52-million by the transaction and was expected to be sufficient to fund the completion of a preliminary feasibility study (PFS) and a definitive feasibility study at Zandkopsdrift, work on the company’s other proposed exploration and development programmes as well as for corporate overheads.

Kores is also required to pay Frontier 10% of all operating costs and expenses related to Zandkopsdrift from July onwards, amounting to about C$400 000 as at the end of November.

In April 2012, Frontier started work on a Canadian National Instrument 43-101- compliant PFS on Zandkopsdrift. Kenny said most of the requisite ancillary studies were now either completed or were at an advanced stage.

“The group of REE development companies have indeed already become smaller, as pressure on rare earths prices have made many projects uneconomical,” he said.

However, he believes prices have bottomed out and, with growing demand from producers of smartphones, electric vehicles and magnets, REE prices are expected to climb.

Kenny pointed out the Zandkopsdrift project would be an integrated operation, meaning it would export the separated REEs to Korea.

The highest-value heavy rare-earth oxides, namely europium, terbium and dysprosium, are contained at elevated levels at Zandkopsdrift, compared with several other deposits being evaluated in Australia and North America.

Canadian rare earths producer Great Western Minerals Group (GWMG), which is also developing a South Africa-based project, Steenkampskraal, in the Northern Cape, recently said its subsidiary, Great Western Technologies (GWTI), of Troy, Michigan, was in October selected by the US Department of Defense to conduct a supply chain assessment of military use of high-purity yttrium oxide and a study of material optimisation and recycling methods. The company said the study is now under way and is being undertaken by a team comprising GWTI personnel and external consultants.

GWMG said it expects the project could position the company as a participant in the US rare earths industry, and once its Steen-kampskraal project was on line, would transform it into another integrated player in the rare earths market.

Primary vs Integrated

Investment bank Headwaters MB minerals, capital and advisory practice MD Joel Schneyer told Mining Weekly that, of about 50 known projects around the world, only five or six had the correct ingredients to become successful operations.

He pointed out potentially successful projects would require a significant tonnage of high-grade ore being present in the deposit, with a minimum of about a million pounds of rare earths being present for any project to get off the ground.

Schneyer said beneficiation was not always a moneymaker, compared with primary pro- duction, as was being demonstrated by Moly-corp struggling to keep its head above water.

He pointed out a primary producer model had its benefits in allowing the product to be sold to a wider range of customers, whereas a more specialised beneficiated product narrowed the range of customers down to specific customers and resulted in higher risk.

MacDonald believes an integrated model is the best way to develop a project, despite being more difficult to pull off. He pointed to investors listening with more interest when hearing about integration, owing to potentially more value being created at every level downstream.

He pointed to the example of American Vanadium, although not in the rare earths market, while making the paradigm shift from only selling high-purity vanadium in the US to becoming an active partner in eventually producing and marketing vanadium- redox flow batteries, which are expected to play an increasingly important role in future power grids.

“By adopting an integrated model, the company would be able to deliver far more value to shareholders than being only a primary producer, as initially intended,” he said.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor



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