Rare earths – the answer to China’s monopoly?
Michael Schwartz looks at the current status of these valuable materials.
Recent developments in the rare earths sector have challenged several preconceptions – that China’s 90% dominance of global production has to be accepted, that rare earths must automatically and rigidly be classified as heavy or light, and that because they are called rare they are all in short supply (earths, incidentally, is simply the traditional name for the oxide form of the metal).
In fact, a glance at the US Geological Survey (USGS) interactive map of October 2014 shows that many rare earths are anything but rare – outside most of Western Europe, deposits can be found in abundance almost everywhere. As the USGS states on its rare earths microsite, ‘The rare earths are a relatively abundant group of 17 elements composed of scandium, yttrium and the lanthanides. The elements range in crustal abundance from cerium, the 25th most abundant element of the 78 common elements in the Earth’s crust at 60 parts per million, to thulium and lutetium, the least abundant rare earth elements (REEs) at about 0.5 parts per million.’ Generalisation is difficult.
Heavy or light?
Is the distinction (which is based on atomic weights) between heavy and light justified? Don Bubar, President and CEO of Avalon Rare Metals Inc, Canada, says, ‘First, it is important to make the distinction… as there is new supply of the light rare earths emerging outside China, in the USA (Molycorp) and Australia–Malaysia (Lynas). There is no new supply source coming into production for the heavy rare earths. Currently, Avalon’s Nechalacho is the most advanced heavy rare earth (HREE) project outside China, by virtue of a completed feasibility study, approval of its environmental assessment and receipt of early works construction permits.’
The US Department of Energy identifies some REEs as critical. In addition, the recent EU Report on Critical Raw Materials has heavy and light rare earths (LREEs) listed separately – HREEs have the highest supply risk relevant to economic importance.
As if this was not a major cause for distinguishing between heavy and light, the Chinese authorities are currently debating whether to impose 22% taxes on LREEs (mainly found in northern China) and 35% on the HREEs from the south.
One factor that is, at least, consistent is that both LREEs and HREEs will be taxed by sales rather than by volume. Richard Spencer, President and CEO of U3O8 Corporation says, ‘With regard to the taxes levied by the Chinese, I think this underscores the bullish case for the REE market in the rest of the world. The increased taxes should tighten the supply-demand situation outside of China.’
When it comes to exports, there is some uncertainty. To comply with World rade Organisation conditions, China has just scrapped its export quota system for rare earths. A new licensing regime now applies to REEs – intending exporters have been told to apply to nine customs ports for their licences. Some analysts have suggested that China, albeit by different tactics, will still control the supply of REEs.
It cannot be disputed that China has, in recent years, been the dominant supplier of REEs. Import sources for 2009–12 for the USA, according to USGS, reveal the following percentages for imports of REEs and compounds – China 79%, France 6%, Japan 5%, Austria 3% and other countries 7%.
Most REEs produced under these monopoly conditions are delivered to enterprises within China. Relatively little is exported, so perhaps the USA has been lucky to receive any at all.
Further complications lie in the uncertainty arising from the merger of China’s leading rare earth producer – Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co, or Baotou – with five smaller firms, to form China North Rare Earth Group Co. Baotou’s grip on rare earths is even more intense. In total, the five small companies process 73,500t/y of REEs. Lynas and Molycorp anticipated respectively 11,000t/y and up to 10,000t/y for 2014.
It has not always been so. REE production has passed from one part of the globe to another. In the 1940s, placer deposits in Brazil and India yielded most of the REEs obtained. A decade later, South African veins were the source.
Finally, from the 1960s through to 2002, California’s Mountain Pass mine was the leading generator of REEs. Declining production from the leading country offered China a virtual monopoly.
…and the fight back
Not every mining enterprise or nation is willing to accept China’s domination and economic opportunities have recently emerged. There are currently:
- companies moving towards their own purpose-built REEs operations
- some companies oriented towards other minerals but still extracting REEs, albeit as a minority output
- producers in countries that used to have flourishing REEs operations before going into decline and now contemplating a comeback
- new national entrants
Canada is especially ambitious. In January 2014, the Canadian Parliament commissioned a review of existing REEs and the Canadian Rare Earth Elements Network (CREEN) was established, with a goal of providing funding money for relevant R&D. CREEN submitted a budget request for R&D support of CAN$25m over five years as part of 2014 pre-budget consultations. CREEN was, in fact, established by industry players and facilitated by Natural Resources Canada. Quite simply, Canada’s aim is to supply 20% of the world’s REEs by 2018.
Avalon Rare Metals has 100% ownership of the Nechalacho Rare Earth Elements Project at Thor Lake, Northwest Territories. Nechalacho offers high concentrations of the HREEs in oxide form, namely europium, yttrium, terbium, dysprosium, holmium, erbium, thullium, ytterbium and lutetium.
With the documentation previously referred to in place, Nechalacho is, in Avalon’s opinion, ‘uniquely positioned to bring a new supply of critical rare earth materials to the marketplace’. Key to this prominent position is its 10-year arrangement with Belgian company Solvay, an REEs refiner with a plant in La Rochelle, France, which enables Nechalacho’s HREEs to be processed.
Avalon has invested around CAN$100m since 2005 and has also signed an accommodation agreement with the Deninu K’ue First Nation. Next steps include securing remaining operating permits and licences, completing hydrometallurgical process pilot plant work with Solvay, securing off-take agreements with consumers and arranging financing. Initial production could be achieved as early as 2018.
When it comes to production shifting away from China, Don Bubar’s confidence in Avalon is immense. ‘According to Industrial Minerals Company of Australia, there will likely be significant new LREEs production outside of China, perhaps accounting for 20% of global supply. However, China has suggested that it could be an importer of the heavy rare earths this decade, which means that new production of HREEs will need to emerge from outside of China to meet the growing demand. Avalon is the leading potential new producer.’
On occasion, a mining operation might yield REEs as a minority of the operation’s total output. That output still contributes to overall global production – and there can even be unexpected results. Toronto-based U3O8 Corporation is developing uranium projects in Colombia, Argentina and Guyana, focusing on low-cost production.
From a Preliminary Economic Assessment (PEA), U3O8’s Berlin Deposit in Colombia could become a zero-cash-cost uranium project due to revenues from byproducts of phosphate, vanadium, nickel, yttrium, neodymium and other metals. REEs recoveries currently stand at 86% for yttrium and 60% for neodymium.
The PEA at Berlin has been, to date, based on the initial uranium deposit alone, but the project economics should become more accurate as the size of the deposits, REEs or not, increases through further resource drilling. Exploration drilling has shown similar grades extending over a further 3.3km of the Berlin trend. Trenching shows that the remaining 4.2km of the Berlin trend is REE mineralised, although this portion has yet to be drilled.
Spencer believes Canada can extract 20% of global rare earth production, saying, ‘I think that it’s feasible to achieve this target. Economic extraction of rare earths from the ore remains the main challenge on many projects. However, it appears that economically viable methods of extraction have been achieved on a couple of potentially large projects that should allow Canada to achieve this 20% goal.’
Spencer’s enthusiasm for Berlin is evident from many perspectives, ‘U3O8 Corp’s potential REEs production from Colombia is a somewhat special case. REEs are byproducts that are extracted from the ore by the same process that we use to extract the principal metals from the deposit, so they are readily available – we get them whether we like them or not – which is in marked contrast to most REE deposits, in which the extraction is complex and expensive.
‘One of the characteristics that makes the Berlin Project interesting is the suitability of the metals that it contains to the alternative energy and energy storage markets. For example, the deposit contains neodymium, which is used extensively in powerful magnets that make electric motors more efficient and is also used extensively in electricity generation from wind turbines.
‘Our market is companies and countries that have a clear strategy for clean energy generation and storage. China’s recent commitment to cleaning up its air pollution makes it a particularly exciting market for the metals to be produced from the Berlin Project.’
And the newest sources?
And then there are the emerging players. Toronto-listed Namibia Rare Earths is the 100% owner of the 420km² Lofdal Rare Earth Project. Although in the early stages, Lofdal’s potential is leaning towards abundant HREEs.
In 2001, Namibia Rare Earths completed a public offering in Toronto. As Materials World went to press, the company had just announced its PEA results. Area 4 of Lofdal has the potential to produce an average of 1,500t/y separated rare earth oxides – enough to generate post-tax cumulative cashflow of US$259m with a net present value of US$148m and an internal rate of return of 42%. The PEA also indicates potential to expand the current mineral resource and recommends additional drilling to provide an extended mine life in conjunction with a six-month pre-feasibility study programme.
REEs at Lofdal enjoy not only this heavy preponderance but also the fact that it is a new district-scale discovery – this is no rebrand of a previous resource and no rethink of prior exploration. It was only when Namibia Rare Earths carried out its regional prospecting programmes in 2008–2010 that the extent of Lofdal’s potential was realised. The company is even stating that parts of Lofdal boast the highest HREE enrichment anywhere in the world.
The REE sector is not helped by the term ‘rare’. The division between light and heavy rare earths is primarily based on atomic weight, but has recently led to fiscal divisions. Most crucially, China’s position of dominance is under challenge – from the small-scale return of historical producers such as India and Brazil, to large mines in major mining countries, to rare earths extracted as a minority product and even to countries previously uninvolved in the market.
Materials World asked Avalon Rare Metals and U3O8 if historical producers such as India, Brazil and South Africa might return.
Avalon (Bubar): ‘These countries all have potential for rare earth production. The USA (Molycorp) has been a historical producer of light rare earths and is back in production. There is some small scale production coming out of India, but no production coming out of South Africa at this time. Brazil has been a small volume producer (hundreds of tonnes in a market of more than 100,000t) and does have potential for new HREE production. It is a long process to go from discovery to production, often 10-15 years, due to challenging requirements for environmental assessment in most countries.’
U3O8 (Spencer): ‘Production from these countries is dependent on two main factors. If rare earth prices recover in response to declining production from China, deposits in these countries should come back into focus. Secondly, recovery of the resource equity market is necessary – currently, funding is extremely difficult in the resource sector. Until funding is available with less extreme dilution, companies will not be able to advance projects towards production, irrespective of their location.’