Chasing the rare earth dragon

Nick Evans
MiningNewsPremium.Net

CHINA has stitched up control of more than 95% of the rare earth supply across the globe, sparking fears the supplies for non-Chinese manufacturers will someday be restricted. But are the concerns justified? Nick Evans reports.

Control of rare earth production is becoming one of the looming issues for the global resource industry and high-tech manufacturers. While rare earths aren’t being consumed in great volumes, and analyst estimates indicate there are several hundred years of supply left based on current estimates of demand and known resources, they are vital components of many high-tech products, with control of supply emerging as a key marketplace, and even security, concern in the west.

Rare earth metals are vital to the production of many high-tech products – including hybrid vehicles, mobile phones, computers, television and even smart missiles. Chinese domination of the global rare earth market is well documented. While China consumes only around 60% of rare earth oxides (REO) currently produced, the Asian nation controls around 95% of global production, according to respected local rare earth research house Industrial Minerals Company of Australia.

Those figures caused alarm in developed nations late last year, particularly after a draft policy statement released by the Chinese government in August 2009 indicating China may cut the availability of some rare earths for export.

China has restricted rare earth export quotas in recent years, exporting 65,000 absolute tonnes of rare earth in 2005, and only an estimated 50,000t in 2009, according to IMCOA figures, even as world demand has been growing.*** China gives its export quotas in absolute tonnes, however, rather than REO, making direct comparison to demand figures difficult, according to IMCOA.

The decision alarmed Japan, in particular, which consumes around 20% of the global supply of rare earths, buying mostly from China, and Japanese industry figures have moved to try to ensure supply from other rare earth deposits. To put it in context, Japan's demand for rare earths is 40,000 absolute tonnes, according to IMCOA. Those concerns were exacerbated earlier this month, when Baotou Rare Earth announced to the Shanghai Stock Exchange that the company intended to up its stockpile of rare earths, winning approval from the government of inner Mongolia to build reserve stockpiles of up to 200,000t of REO. Baotou’s Bayan Obo mine produces around 50% of the current supply of rare earths globally, and the move to hive off a greater proportion of production is expected to push REO prices higher this year.

But concerns about Chinese dominance of the market may be unnecessarily alarmist, according to IMCOA executive director Dudley Kingsnorth, who told MiningNews.net he believes the Chinese government will continue to ensure a REO supply is available to other nations, even though the Chinese domestic market will remain its first priority. “I think [the concern] is alarmist – I think it’s overplayed,” he said. “About a year ago, one of the internal departments in China recommended they cease exports of rare earths.

Now that was just a draft that was put forward, somebody leaked it – the Japanese think the Chinese deliberately leaked it to fly a kite and see what the reaction was – and there was a very strong reaction to it. “People were saying that this is economic warfare, and there were going to be serious questions asked in the US congress and this sort of thing.

But there was such a serious reaction to it the Chinese backed off very quickly, and ever since then China has gone out of its way to say they won’t ban the export of those rare earths – and I don’t believe they will,” Kingsnorth said. But Kingsnorth still believes it is unhealthy for one nation to play such a major role in the production of rare earths. And since concerns first started to emerge, companies around the world have moved to aggressively explore for new minable deposits, and have stepped up plans to begin production. Kingsnorth says he believes that rest of world production of rare earths is likely to move from 5% of global supply up to around 20% by 2014, with Australian companies likely to be at the forefront of that shift.

First cab off the rank will most likely be Australian Securities Exchange-listed Lynas Corporation, which has completed a $450 million capital raising in September last year to move its Mount Weld mine into production. Construction at the Mount Weld mine is likely to begin early in the second quarter, according to Lynas, and the company will likely begin shipping REO to its Malaysian materials plant late this year. Second off the rank will be Molycorp’s US Mountain Pass project, in the final stages of bankable feasibility studies, with a likely start-up date of 2012, according to Kingsnorth. Mount Weld will produce around 10,500t of REO in 2011, according IMCOA figures, with Mountain Pass likely to produce 18,000 tonnes per annum when its production facilities fire up.

Other likely producers include Alkane Resources, Arafura, and ASX-listed junior Greenland Minerals and Energy, which claims reserves at its Kvanefjeld prospect could make the area the second-largest REO production facility in the world, after Bayan Obo. Those projects are in the relatively early stages, however, according to Kingsnorth, and none are likely to begin production before 2014. “The problem is that it takes a very long time from drilling to going into production in rare earths,” Kingsnorth said. “Firstly, all of the ore bodies are different, so therefore you have to develop a process for each ore body because the mineralisation is different.

“Secondly, all of these companies are single project companies, so they don’t have a balance sheet to raise the money on. “And rare earths are not a commodity – the only way they can raise the money is to have contracts from end consumers. And to get those they have to demonstrate they can produce REOs, which means they have to run pilot plants,” he said. And Kingsnorth doesn’t see much danger in the new Chinese strategic reserve, either.

“That’s a good thing for the industry. Bayan Obo supplies 40 to 50 per cent of world demand for REOs – and if something were to happen to it – a natural disaster or something like that – it would be an absolute disaster. “So establishing a larger reserve is good as it means supply is less likely to be interrupted – for example China is basically shut down for a week because of the Chinese New Year,” he said. “And a stockpile should cut out some of the spikes in prices for REOs. So I view it as quite a positive move for the rare earth market.” ***Correction. This article originally stated that China allowed the export of only 17,689 tonnes of REO in 2005 and 16,845t in 2009. That was based on a misreading of IMCOA figures and was not correct.