If you listen to the rhetoric (for example these articles one and two), you could be forgiven for thinking that the world is confronting a shortage of these 'rare' earth elements. You might have thought that any element with 'rare' for a name, must be 'rare'. On the contrary, some of them are not rare at all, and more importantly, they are quite expensive to recover. The reality is that there geochemistry is often unique, and judging from the Mt Weld and Greenland rare earth deposits, they have a long development lead time. I first discovered Lynas Corp 10 years ago. I rushed over to Perth to meet the MD, which was then the current MD of Marengo Mining, Les Emery. I made a lot of money to be sure, but to what end? It will be a project until next year, when it starts production.
The attention has been drawn to rare earths because they were rarely used in industrial applications, but today there is a lot of interest in them. The reality however is that offtake will be limited until there is more supply, and supply is coming. Not simply from Mt Weld, but also from deposits in Africa, Australia, Canada, USA, Greenland and Russia.
There is a huge REE resource in Greenland, which has significant concentrations of zinc and uranium. This project, if it can overcome the obstacle of its 'uranium' content, will supply 40,000 tonnes of REEs a year. Its a $1.5 billion development, dwarfing the Mt Weld project. I suggest the strategic reasons and the importance of the project will justify development for this small, newly self-governed Dannish territory. This project is scheduled to start production in 2015/16. That is some time off, but consider all the other sources. The Dubbo zirconia-rare earth-tantalum-yttria deposit is another huge resource. It has a 100 year supply of material.
Now, the fact that China is restricting supply in the short term is interesting. Might I suggest this has nothing to do with Japan. China loves embarrassing Japan. Its all about money. Some officials in China I suggest see some opportunity to make some money in the West buying up stock in some emerging rare earth producers. My guess they will be looking at Lynas Corp. This is a more common scam than you think. Remember, China controls 95% of the world's current production. Certainly it should take advantage of that opportunity to extort value from industry. The reality is that it will simply defer the increase in consumption of these metals, and probably spark greater research into alternatives. In the meantime of course, some executives around the world are going to make some money. This could be an exit strategy for some investors.
If you want to know more about the rare earth industry, I can suggest several sources of information:
1. Government agencies like US Geological Survey and Minerals UK
2. Corporate presentations and quarterly announcements to stock exchanges - look at Alkane Exploration, Greenland Minerals & Energy, Lynas Corp, Global Metals & Mining.
When you reflect on the long development lead time for these projects, the costly process flow sheet, you tend to get the impression that this industry is not as promising as some others with more proven processes. Who wants to compete with the Chinese anyway, they are fickle, government-sponsored enterprises, with the lowest conversion costs in the world. The fact that there are several projects around with cross-subsidised metal supply capacities makes me think that large inventories in these metals could accumulate. Given the small size of this market, I think I would be more inclined to invest in this sector after production is established and prices are subdued. They will make great counter-cyclical investments.
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