Rare Earths, Lynas And Hastings

This story features HASTINGS TECHNOLOGY METALS LIMITED. For more info SHARE ANALYSIS: HAS

By Greg Peel

Jack Lifton has had more than 50 years experience in the global automotive, heavy equipment, electrical, electronic, mining smelting and refining industries. His background includes sourcing, manufacturing and sales of platinum group metals, rare earth compounds and specialist ceramics used to make catalytic converters, oxygen sensors, batteries and fuel cells. Lifton is an expert in analysing supplies of a wide range of “minor metals”, including the rare earths. This week Resource Investor interviewed Lifton on the current state of the global rare earth metal market.

The following is a summary of what Lifton had to say.

Last year's rare earth element (REE) bubble was an anomalous speculative blip and today the market is going through a shakeout. Junior miners were coming to fruition at the time and most were overvaluing their projects “something fierce”. The bubble has since burst, which has a lot to do with China repositioning itself in the market. The reality is that of some 250-260 globally listed companies claiming REE production potential, it appears only one – Molycorp in the US – is in current production. The valuations of others are “coming back down to earth”.

Some 90-95% of remaining junior miners will be wiped out. [This is commonly held opinion, and not sensationalist.] Investors should note there is no “single” REE market. Different REEs are used for different purposes and while there is a market for a handful of critical REEs, for at least half of all REEs there is no “market” at all given minimal consumption. For many REEs, production exceeds demand and will continue to do so for the foreseeable future.

There are only five critical REEs which have individual markets. Neodymium is one, given it is the most important REE used in permanent magnets, while the others are heavy rare earth elements (HREE) including europium, terbium, dysprosium and yttrium. Yttrium is not strictly a REE on a periodic table basis but is included by association. Now that general REE prices are correcting to “reasonable” levels, investors are coming to understand the importance of these individual metals over other REEs. [And many metals are labelled as REEs even though, like yttrium, strictly they are not.]

It is important to understand this distinction because many assume all REE prices must collapse, but in truth these critical REEs will remain in strong demand and prices will be supported. There is no significant production of the critical REEs outside China. If both Molycorp and Australia's Lynas Corporation ((LYC)) reach full production potential by 2015, as their guidance suggests, about 60kt of new REE production will hit the market. However only 13% would be neodymium and none would be HREEs. 

Global production of neodymium is currently running at 21-25kt per annum, and projections have demand growing at around 8% per annum. New mine supply will only grow as fast as demand, thus maintaining neodymium pricing. But the big issue in the magnet world is dysprosium. There is not now, nor has there ever been, any production of dysprosium outside China. 

No ex-Chinese mine is at the stage for which first dysprosium production is readily predictable, although two to four years is a best guess. Dysprosium is already in short supply. Total world production last year is unlikely to have exceeded 1400t and if demand for REE magnets increases, a deficit is likely. Demand growth of 8% per annum would require an additional 100t of dysprosium each year. Only 4-5 HREE producers could be in production in 3-4 years.

The price of dysprosium has nevertheless crashed from a peak above US$2500/kg to US$1200/kg, prompting the less knowledgeable to suggest the game's all over. Yet it was all to do with an unjustified, runaway speculative bubble and the reality is the current price of dysprosium is significantly higher than the long term average. The current price should be maintained.

Dysprosium is the “problem metal for everyone”. Molycorp has suggested it will be meeting US demand for the metal by end-2013 but if demand projections of 7t per annum are accurate, Molycorp would have to recover 100% of metal from its deposit. And all of it will go to the US military, which has decided it will need 160t per annum of REEs, of which 7tpa would be dysprosium.

South African miner Great Western Minerals Group claims it will commence REE production in less than two years and will produce 34tpa of dysprosium. While Great Western's REE deposit is one of the richest on earth, it doesn't boast a lot of dysprosium. The 34tpa expected is enough only for the company's internal consumption and will not be sold onto the market.

Ucore Rare Matals, operating at Bokan Mountain in Alaska, and Sweden's Tasman Metals will both have REE production coming on line eventually, and on estimates will produce 120tpa and 350tpa of dysprosium. Rare Earth Element Resources of Wyoming could also boast a significant desposit. There are other deposits that are less well known and could be “sleepers”. One is Lynas' Duncan deposit in Australia. There are also significant dysprosium deposits in Australia owned by Hastings Rare Metals ((HAS)) and Northern Minerals ((NTU)), although these projects are “quite early”.

With regard to terbium, all dysprosium hard-rock deposits show significant terbium. If Ucore in Alaska and Rare Earth Element Resources in Wyoming are producing significant amounts of dysprosium they should also be producing significant amounts of terbium, and of yttrium. The same applies to Tasman's Swedish deposit and to the Australian deposits of Hastings Rare Metals and Northern Minerals, although again it is early stages.

“No matter what we do right now,” suggests Lifton, “we're going to be short of dysprosium for at least the rest of this decade, if not permanently. If dysprosium supply limitations are not addressed, growth in the use of REE permanent magnet devices for rapid heating and cooling environments will be affected”.

Last week Jack Lifton visited the new Lynas Advanced Materials Plant (LAMP) in Malaysia, having previously helped to comprise the international team asked by the Malaysian government to inspect it. This is what he found:

The plant will reach 11,000tpa of light rare earth element (LREE) production after two building phases. Phase 1 is complete and Phase 2 is half complete. Had the Malaysian government approved a licence to import ore by now, the LAMP would be in production. Full capacity of LAMP Phase 1 would take between six weeks and six months to achieve once the first imported ore arrives from Lynas' mine in Australia. None has yet arrived, but there is two year's supply sitting back at the mine.

The reason the Malaysian government is yet to approve the licence is because of strong opposition from the Opposition, which has claimed the LAMP will be the “Fukushima of Malaysia”. The statement is political dynamite of course, but also quite ignorant. While radioactive thorium is used in the refining process, amounts are so small any radioactivity would barely register over existing background radioactivity. The LAMP is really no more than a chemical factory, and nothing like a nuclear reactor.

Unfortunately, try telling that to the Malaysian Opposition [which no doubt is thoroughly enjoying the political mileage it can achieve through such resistance].

So it is still unclear as to when the LAMP will start production. Notably, however, despite LAMP producing only LREEs and not the more highly sought after HREEs, Lynas claims it has already pre-sold its entire Phase 1 output into long term contracts. “Overall,” suggests Lifton, “the actual amount of supply could exceed demand. But that doesn't mean that a lo-cost producer can't sell and make money”.

Previous FNArena stories on the subject of rare earth metals: 

Hastings Rare Earth Development Begins
Whereto For Rare Earth Prices?
Rare Earths Overcooked
Lynas Approaching Blanket Coverage
Make Mine Rare 
 

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