Two Big Rare Earth Players Outside of China Change the Landscape

The diversification of world rare earth supplies is closer to reality this week as Lynas Corp, which formally started production of rare earths at its LAMP facility has been fully cleared of any legal encumbrances, lifting any lingering concerns for its long term plans. The Federal Court in Malaysia has upheld a decision of a district court, which ejected a complaint against Lynas’s LAMP rare earth processing plant in Kuantan. This is a major legal blow for the “Save Malaysia, Stop Lynas” group, which was intent on blocking Lynas from operating in Malaysia, challenging the Malaysian government’s own license granting Lynas permission to process rare earths.  In February, Lynas formally exported its first batch of processed rare earths from LAMP. Lynas’s legal battles have come to a close (at least for the time being) just days after Molycorp announced its yearly and fourth quarter results.

The results showed a USD$ 362 million net loss but investors rewarded the new management, which acknowledged some of the previous errors–excessive exuberance for one-while noting that Molycorp’s situation should improve in the latter half of the year as production at Mountain Pass increases to achieve full commercial production. Molycorp also expects that the global demand and supply will be balanced in 2013, so both suppliers and customers will benefit from the prices of many key rare earth applications. Rare earth demand should also increase as they are increasing applications requiring permanent magnets, rechargeable batteries and catalysts for reducing pollution, electronics and portable equipment. While the current indicator of resource success is the percentage of heavy rare earths (HREE) in a given deposit, cerium, lanthanum and neodymium are the most used rare metals accounting for over three quarters of consumption. However, demand for other members of the rare earth ‘family’ such as praseodymium and dysprosium is expected o increase significantly with the development and improvement in permanent magnets and rechargeable batteries.

China will continue to dominate the market; however, now that Lynas and Molycorp have overcome some lingering shadows over their short term future, the gradual shift in production westward (if only in ‘ideological’ terms) has started and China itself can be expected to help boost that demand if Beijing continues to reform the rare earth industry, controlling production and enforcing unprecedented environmental and safety standards. Scandium is another metal that has been gathering attention as small quantities used in special alloys can drastically affect their performance. Scandium also increases stiffness and stress resistance when compared to alloys in the same class and it improves ‘quality’, durability, inhibiting the re-crystallization of aluminum alloys showing improved resistance to hot cracking during welding. Metallica Minerals is developing a high grade scandium and cobalt-nickel project (known as SCONI). Last week, Sumitomo Metal Mining Company announced plans to build a scandium recovery plant at its Coral Bay Nickel subsidiary in the Philippines.  Sumitomo’s plans came after the discovery of small quantities of scandium in the Coral Bay ore resource that is used in nickel-cobalt mixed sulfide production.

                  

Rare Element Resources, meanwhile, released last year’s assay results for the remaining core holes in its Bear Lodge Drilling program in northern Wyoming. The results were encouraging, and showed that high grades of total rare earth oxide (TREO) are contained in the deposits along with large amounts of combined critical rare earth oxides. The company’s Whitetail Ridge project uncovered large quantities of heavy rare earth elements (yttrium, dysprosium, europium, and terbium) in 2011, and these latest assay results confirm those discoveries. Peak Resources announced progress in the beneficiation process for its Ngualla project in Tanzania, saying that costs can now be reduced significantly using early stage concentrate mineralization (prior to leach recovery). Peak will quantify the reductions in cost as it revises its scoping studies, and a full economic assessment is expected in June.

The continuing weak or lackluster share price performance of rare earth stocks – the ProEdgeWire rare earth and critical mineral sponsors showed a weekly loss of -0.98% has resulted from continued market uncertainties even if some good news is slowly  emerging. The US Congress reintroduced the Resource Assessment of Rare Earths (RARE) Act, which aims to reduce China’s monopoly on the rare earths market and secure additional materials supply through mineral assessments by the US Geological Survey (USGS).  With China controlling the vast majority of global REE production (and expressing an interest in the restriction of REE exports), the bill is aimed at constructing a comprehensive approach to remain competitive with China and Germany when dealing with future supply and demand limitations in REEs.

Last week’s economic data showed that manufacturing activity in the US rebounded for the month of February, with Factory Production numbers rising 0.8% (after a 0.3% increase in January) thanks to higher vehicle production data rising by 3.6% (after the 4.9% drop seen in January).  The data is encouraging for demand prospects in the metals space after the strong employment figures posted earlier this month but some of this optimism is being offset by debt issues in Cyprus, which are seen adding an element of macroeconomic uncertainty near term.  Elsewhere, the Bank of Japan announced additional fiscal stimulus to revive the country’s struggling economy while US President Barack Obama expressed support for diverting $2 billion in oil and gas royalties into research projects in clean energy, creating a more supportive scenario for green metals.

Light rare earths (particularly neodymium, lanthanum, cerium and praseodymium) saw some of the biggest losses as weakness in demand and increased output continues to add to the broadly softer environment.  Heavy rare earths (terbium, yttrium, and europium) were stable, with no reported exchanges. Citing broader increases production costs, suppliers say they unable to accept lower prices for rare earths, and with weakening demand in downstream industries (such as magnetic materials and fluorescent powders), near term forecasts suggest that prices are unlikely to see significant upward changes in coming weeks.


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