The Metals Report: Your last interview with us took place in July. Have there been any real significant industry developments in the last six months that investors should be aware of?

Alex Knox: There are, actually. The tenor of the rare earth element (REE) space has changed quite dramatically in the last six or seven months.

TMR: What are the biggest factors that have influenced the business?

AK: The general lack of ability to raise financing has severely affected the junior companies, especially those that didn’t have a deposit or had a deposit at a preliminary economic assessment (PEA) stage. Investors have seemed to have lost interest, and certainly there is far less news about exploration for new deposits or developing deposits that hadn’t reached a PEA stage by last summer.

The focus has shifted from exploration to development. Because of the drop in prices for the commodities themselves since that time, costs have become extremely important, and that includes the costs of doing a feasibility or a prefeasibility study as well as production costs.

TMR: What has been the cause in the drop in prices for the elements during this time period?

AK: I’m no economist, but the lack of projected world growth plays a part. It was expected that these commodities were going to be needed in significant additional quantities, and the lack of growth has slowed demand. China, though it’s not in recession by any stretch, has slowed down its development.

TMR: China is now talking about tightening up its environmental regulations. Is that going to have a significant effect on either REE supply or prices?

AK: I think it’s going to. China is still in the driver’s seat, especially on the heavy rare earth element (HREE) side, it has said for years that it was going to try to reduce its output in order to conserve its low-cost sources of production of HREEs. Certainly, any spark that’s been left in the REE market is on the HREE side. We’ve all heard of the impending production of Lynas Corp. and Molycorp Inc., which, along with a few others, are probably going to satiate the light rare earth (LREE) market with the development of additional production. But because there is still no significant production of HREEs in the Western world and many of these deposits, half a dozen at least, have reached at least the post-PEA stage and are approaching a production decision, there is still a place for HREEs, despite the drop in prices and consumer attempts at HREE substitution or recycling.

TMR: Is the number of survivors in the industry going to be curtailed drastically?

AK: That was always going to be the case. Two years ago, when over 200 companies were exploring for REEs, the sensible companies were aiming to be low-cost producers. And when prices start to drop, the low-cost producer of any commodity, especially HREEs, is going to be the last one standing, and will be available to a) acquire additional sources of production from the failed producers or b) stay in production and wait for times to get better in this business. As long as we’ve been in this business, we know that prices fluctuate dramatically over the years. So investors have always been looking for the company that could either reach production and distribution first, and/or the company that had the lowest production costs so that when the free market price started to fall, this company would be able to hang in there the longest.

TMR: What’s the ballpark range of capital expenditure needed to put a REE mine into production?

AK: Again, specific numbers are not my bailiwick; I’m an exploration geologist. But proximity to infrastructure is a big cost factor. If you have to transport your chemicals, raw materials and construction materials a long distance and then transport your product a long distance back to be sold, that’s obviously going to be more expensive.

The second factor is metallurgy. You have to take these REE elements, break down the minerals that they occur in, get them into solution and then be able to precipitate them in a form that will allow them to be separated into individual elements so that they can be sold at a maximum profit. If your minerals are hard to break down, require expensive acid treatments or even an acid manufacturing plant at your site, which costs hundreds of millions of dollars, these are going to carry price tags that many companies can’t cover.

Another important cost factor is the cost associated with anomalous radioactivity. These deposits tend to accumulate uranium and thorium. That’s just the nature of the beast. The key question is, are these radioelements occurring within the minerals that contain the REEs, or are they in subsidiary minerals, such as thorite? The common REE mineral that contains significant radioactivity is monazite, which is commonly found in certain LREE deposits. If you have monazite or other REE minerals that contain the radioelements, then these will have to be disposed of later on, as opposed to on site. That’s going to be extremely expensive. If, on the other hand, the REEs are in a separate mineral, they can be left behind and put back in the tailings, which carries a significantly lower cost for the producer.

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WEST PERTH, AUSTRALIA - Jan 22, 2013) - Peak Resources Limited ("Peak" or "the Company"), the developer of a potentially low cost, long term rare earth project in Tanzania, today announced it has received final assay results for its 100%-owned Ngualla Rare Earth Project. Additionally, it has entered into agreements with two groups in Asia to assist in identifying and securing strategy funding partners for its Ngualla Rare Earth Project.

About Peak Resources

Peak is developing the Ngualla Project, a potentially low-cost, long term rare earth project located in south west Tanzania. Ngualla has been ranked as the fifth largest deposit in the world outside China, and the highest grade of the top seven.

Ngualla has a Mineral Resource of 170 million tonnes grading 2.24% of rare earth oxides (REO). Within the resource there is a highly weathered and near-surface zone estimated at 40 million tonnes at 4.07% REO, equivalent to 1.6 million tonnes of contained REO. Ngualla is also a bulk deposit which is largely outcropping. These attributes place the project among the world's most notable rare earth discoveries of recent years.

Ngualla is a potential low cost open pit mine due to its shallow outcropping high grade mineralization. The initial sighter metallurgical test work to date has been completed using a sulphuric acid leach process route suggesting a relatively less complex, potentially cheaper capital outlay and shorter time to production.

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Western Australia based St George Mining has used an infill MMI soil geochemical survey to identify anomalous and coincident heavy and light rare earth element values at the Red Dragon prospect.

The prospect in located on the company's East Laverton Property in the NE Goldfields region of Western Australia.

St George said that the high priority area forms an ovoid shape measuring 2 kilometres by 1.5 kilometres, which is situated within a large carbonatite alteration system covering over 60 square kilometres.

The company now has high priority targets for drilling in the June quarter of 2013, with the reconnaissance program at Red Dragon to include four reverse circulation holes each with a target depth of 250 metres.

St George is targeting to establish a third dimension to the extensive carbonatite‐REE surface alteration system which is indicated by the current geochemical and geophysical signature.

Government Drilling Grant

St George has also been awarded a grant of $122,000 to be applied towards the direct drilling costs of the drilling, which is under the West Australian Government’s “Innovative Drilling Program” within its Exploration Incentive Scheme.

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Water-shedding surfaces that are robust in harsh environments could have broad applications in many industries including energy, water, transportation, construction, and medicine. For example, condensation of water is a crucial part of many industrial processes, and condensers are found in most electric power plants and in desalination plants.

Hydrophobic materials — ones that prevent water from spreading over a surface, instead causing it to form droplets that easily fall away — can greatly enhance the efficiency of this process. But these materials have one major problem: Most employ thin polymer coatings that degrade when heated, and can easily be destroyed by wear.

MIT researchers have now come up with a new class of hydrophobic ceramics that can overcome these problems. These ceramic materials are highly hydrophobic, but are also durable in the face of extreme temperatures and rough treatment.

The work, by mechanical engineering postdoc Gisele Azimi and Associate Professor Kripa Varanasi, along with two graduate students and another postdoc, is described this week in the journal Nature Materials. Durability has always been a challenge for hydrophobic materials, Varanasi says — a challenge he says his team has now solved.

Ceramics are highly resistant to extreme temperatures, but they tend to be hydrophilic (water-attracting) rather than hydrophobic. The MIT team decided to try making ceramics out of a series of elements whose unique electronic structure might render the materials hydrophobic: the so-called rare earth metals, which are also known as the lanthanide series on the periodic table.

Since all of the rare earth metals have similar physico-chemical properties, the team expected that their oxides would behave uniformly in their interactions with water. “We thought they should all have similar properties for wetting, so we said, ‘Let’s do a systematic study of the whole series,’” says Varanasi, who is the Doherty Associate Professor of Ocean Utilization.

To test this hypothesis, they used powder oxides of 13 of the 14 members of that series (excluding one rare earth metal that is radioactive) and made pellets by compacting and heating them to nearly their melting point in order to fuse them into solid, ceramic form — a process called sintering.

Sure enough, when tested, all 13 of the rare earth oxide ceramics did display strong hydrophobic properties, as predicted. “We showed, for the first time, that there are ceramics that are intrinsically hydrophobic,” Varanasi says.

These rare earth oxides “are exotic materials, and interestingly their wetting properties have not been studied,” he says, adding that many of the properties of the entire series are not systematically documented in the scientific literature. “This paper also gives a whole host of the properties of rare-earth oxides.”

This includes, Azimi says, their morphology, surface chemistry, crystallographic structure, grain structure, sintering temperature and density — yielding “a catalog of information” about how to process and use these materials. The MIT researchers also showed that the materials have greater hardness than many others currently used in rough industrial settings.

Despite their name, rare earth metals are not particularly rare. “Some of them are as abundant as nickel or copper,” Azimi says — both of which are widely used industrially.

But separating rare earth metals from the minerals in which they are found can be costly and can leave toxic residues, so their production has been limited. China is currently the world’s major supplier of these elements, which have many high-tech applications.

The ceramic forms of rare earth oxides could be used either as coatings on various substrates, or in bulk form. Because their hydrophobicity is an intrinsic chemical property, Azimi says, “even if they are damaged, they can sustain their hydrophobic properties.”

To prove the point, the team exposed some of these ceramics to a steam environment, similar to what they would face in a power-plant condenser. Typical polymer-based hydrophobic coatings quickly degrade when exposed to steam, but the ceramics kept their hydrophobicity intact, Varanasi says. The materials sustained their hydrophobicity even after exposure to abrasion, as well as temperatures of 1,000 degrees Celsius, Azimi says

By coating nanotextured surfaces with these ceramics at MIT’s Microsystems Technology Laboratories, the team also demonstrated extreme water repellency where droplets bounced off the surface. “These materials therefore provide a pathway to make durable superhydrophobic surfaces as well, and these coatings can be fabricated using existing processes. This makes it amenable to retrofit existing facilities, Azimi says. Such extreme non-wetting properties coupled with durability could find applications in steam turbines and aircraft engines, for example.

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China exported 16,265 metric tons of rare-earth ore, metals and compounds in 2012, official data Tuesday showed.

That is a decline of 3.5% from 2011 and far short of the 2012 export quota of 30,966 tons.

In spite of China's near-total domination of the world's supply of rare earths, a collective name for 17 metals used in high-technology applications like mobile telephones and missile systems, prices have fallen sharply for more than a year owing to waning demand and ample supply.

The value of Chinese rare-earth exports fell 66.1% from a year earlier to $906 million, according to data from the Hong Kong-based China Customs Statistics Information Center.

In December alone, China exported 3,252 tons of rare-earth ore, metals and compounds, it said.

China's Ministry of Commerce last month set the first batch of rare-earth export quotas for 2013 at 15,501 tons saying it will account for around half the full-year quota. A senior industry official had earlier suggested that the 2013 full-year quota would be around the same as last year's.

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Some of the world’s most powerful magnets, not including electromagnets, are made from the rare-earth metals neodymium, samarium, or yttrium. As a result, Italian and Indian Research – Cheap and Safe Hydrogen Production are expensive, while magnets made of iron, ferrite magnets, are cheaper, but not nearly as strong.

Electric motors only function because of magnetism, and can be made up of arrangements of electromagnets and permanent magnets. By replacing ferrite magnets with neodymium magnets, an electric motor bound for an electric vehicle [EV] can be made smaller and lighter, weight being an important consideration in such an application.

In order to reduce dependency on rare-earth magnets, and therefore costs, Yaskawa Electric set out to produce an EV motor with a ferrite magnet core. The problem with the ferrite magnet, though, was strength, so Yaskawa had some work ahead of it to maximize the power output of the weaker core. First, the shape of the magnet had to be optimized to improve torque output.

Then, Yawaska made a change to the coil wiring itself. Instead of using the standard round-cross-section wiring, Yawaska switched to a rectangular-cross-sectioned wire, which stacks better on the rotor and stator. This resulted in a 30% increase in the number of windings they could put in the same space, increasing the power output over the standard round wire motor.

The resulting EV motor, about the same size as currently found in EVs and hybrids, weighs about 132 pounds and maxes out at 12,000 RPM. With a maximum power output of 80kW and 147 hp at zero rpm, the new motor fits in the range of what’s required for a small EV or hybrid vehicle.

By eliminating rare-earth magnets and combining new processing and optimization, the result is a cheaper motor, which would help to reduce costs of EVs and hybrids alike. Reducing costs would certainly help marketing these high-technology vehicles and help them gain acceptance in such a difficult market.

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Although they might have archaic-sounding names to the public, dysprosium, terbium, europium, neodymium and yttrium because of their rarity hold the secret to future technology as well as the success of clean energy and they are preoccupying the most powerful nations of the world.

Gaining access to these elements is a priority for U.S. energy strategy, which sees that China controls 95 percent of the production of the so-called rare earths, which are used in wind turbines, solar panels and the batteries of electric and hybrid vehicles.

With that situation in mind, the U.S. Energy Department mobilized scientists and experts from business and academia to seek solutions, a team that will be part of the new Critical Materials Institute.

Iowa-based Ames Laboratory and its director, Alex King, are heading up the project, which will receive $120 million in financing over the next five years.

The main aim of the CMI in the short term will be to detect possible deposits of these metals in the United States, as well as to work with existing operations to ensure that they are viable.

King gave the example of the Mountain Pass mine in California, which for decades was the biggest supplier in the world for rare metals but had to close in 2002 due to environmental problems.

The mine reopened in 2010, although it is facing a difficult market situation given China’s exercise of price controls by restricting rare earth exports.

That practice has been denounced by the European Union, the United States and Japan, while China insists that its intention is to put the brakes on excessive production to lessen environmental damage.

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Colorado-based Molycorp Inc. has had nothing but trouble since it reopened the only U.S. rare earth mine a year ago.

Sinking prices have shafted its market value, its CEO Mark Smith departed last month, it’s the subject of an investigation by the U.S. Securities and Exchange Commission, and it faces a lawsuit alleging citing engineering deficiencies at its Mountain Pass, Calif. mine, which Molycorp opened, after years of dormancy, to patriotic cheers last February.

With the plunge in its stock, various industrial companies may now be trying to acquire it at a bargain price to assure themselves a source of the vital metals currently controlled by China, which has a grip on 95 percent of the world’s supply. Manufacturers build rare earths into smartphones, computers, cars, hybrid and electric vehicles, wind turbines, missiles, light bulbs and many other products.

Suitors include German industrial giant Siemens as well as Japanese and South Korean car makers Nissan and Hyundai, according to a Bloomberg story early this month that cited several industry analysts.

“At this point, Molycorp is definitely in play,” Toronto-based Luisa Moreno of Euro Pacific Capital Inc. told Bloomberg. “It would be a very good target for companies that are interested in being in this space if they recognize the rare earth space is important and they have the cash to take Molycorp and make it a real producing company.”

GOIN’ DOWN DOWN DOWN
Molycorp’s difficulties socked investors with a 61 percent loss in 2012, Bloomberg noted. A stock that had traded as high as $77.54 in May 2011 had tanked to $9.44 on Dec. 31, 2012. Shares have been rising recently on takeover rumors.

One rare earth expert doesn’t believe that Siemens, Nissan and Hyundai stand a chance. Rather, China would be the most likely acquirer, further cementing its hold on the market.

“Molycorp has no value outside of Chinese control,” says Jim Kennedy, president of St. Louis-based rare earth and thorium consulting firm ThREEM3, which also owns right to rare-earth byproducts from Missouri’s Pea Ridge iron ore mine. China’s ability to influence supply and prices means that any other acquirer would struggle to survive, he said. “Why would any corporation buy Molycorp when 83 percent of its production will sell at a loss?” Kennedy wondered in an email exchange with me.

MEET ME IN THE MOJAVE

Adding legs to his assertion: According to one source, Chinese government officials recently toured Molycorp’s Mountain Pass facilities in Mojave Desert, near Nevada. They are not interested in the deposit so much as the company’s refining techniques, the source said.

The Chinese government owns many rare earth companies including giant Baotou Steel Rare-Earth. China has recently imposed production and export cuts in an effort to drive up the price of rare earths. It has also undertaken a massive industry consolidation.

One reason that rare earth prices - and thus Molycorp’s share value - tumbled is that manufacturers have been finding ways around their reliance on rare earths.

They have also been scrambling to circumvent China’s control. (Molycorp faced heavy domestic criticism earlier this year when it became obvious that it was selling much of its U.S.-mined rare earths to China.)

An acquisition of Molycorp would echo a similar move from earlier this year, when an affiliate of Toyota bought half a Canadian rare earth deposit.

Rare earth users have also been casting about for sources of rare earths outside of China. As I noted yesterday, Japan thinks it might have landed a gold mine, so to speak, in Jamaica.

Also as I said yesterday, there’s another country that holds great promise as a future source. It’s a country that you might say is the opposite of Jamaica.

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TUC Resources shares soar following intersections of very high grades of over 90% heavy rare earth at its Stromberg Heavy Rare Earth prospect in the Northern Territory. Shares were up $0.141 a share, up over 113% before trending down to 96.72% at $0.12 a share.

Diamond drilling at the prospect returned 4.2 metres at 0.93% total rare earth oxide with 92% heavy rare earth oxide and included 3 metres at 1.19% TREO.Other intersections included 3 metres at 0.59% TREO including 1 metre at 1.10% TREO with 94% heavy rare earth oxide.

The clay host rock allows the conclusion that the geological processes that have formed at the Stromberg Prospect are similar to those that produced the renowned Southern China Clay rare earth deposits.

The Chinese rare earth deposits are at the forefront of rare earth production because the majority have very low production costs.

TUC hopes to find mineralisation with similar mineral processing characteristics to these Southern China Clay deposits and theorises its chances of doing so are increased due to the large number of prospects on its ground. It recently made breakthroughs in land access that allows it to target nearby Skyfall and Largo prospects.

TUC intends to focus 2013 exploration efforts on this large district potential with work planned to commence next month. Separately, it has entered into a memorandum of understanding with China's Shandong Provincial Bureau of Geology and Mineral Resources to form an alliance for the exploration of eight heavy rare earth tenements in the Stromberg region.

As part of the MoU, TUC will place 22.5 million shares to Shandong at an issue price of $0.10 a share together with 9 million free attaching options to raise a total of $A2.25 million. The options can be exercised at $0.20 a share before 14 August, 2014.

This new partner would fully fund the feasibility , design and importantly construction in return for a 50% share of that project and certain off-take rights.

Stromberg REE tenements

TUC Resources Ltd holds approximately 15,000 square kilometres of prospective land package across 47 (28 under application) tenements making it one of the biggest ground holders in the Northern Territory of Australia.

Last year, TUC focused on developing its Stromberg heavy rare earth elements project towards resource status with additional metallurgical testing. It also undertook geochemical sampling on the nearby Scaramanga and Knightfall prospects.

The Scaramanga prospect was drilled and yielded promising results with first pass drilling  delineating more near surface mineralisation with a high HREE distribution. Dysprosium, Yttrium and Erbium at a high of 7.5%, 64% and 5% of TREO distribution respectively were found.

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Pele Mountain Resources Inc. announced initial drill results from recent drilling at the Eco Ridge Mine Rare Earths and Uranium Project at Elliot Lake.

Highlights from the first five holes drilled in the Northwest Extension (northwest of the Resource Wireframe) include: All five holes intersected the MCB along a strike length exceeding three kilometres; four of the five holes significantly exceeded the average U3O8 and average Total REO grade of the Resource Wireframe; Hole PM214 returned 0.063-percent U3O8 and 2,125 ppm Total REO over a true thickness of 2.99 metres, including 313 ppm neodymium oxide, 102 ppm yttrium oxide,and 22 ppm dysprosium oxide.

Pele’s President and CEO, Al Shefsky, said:

    "These results conclusively demonstrate that the Main Conglomerate Bed continues to the north and west of the current Resource Wireframe, which can potentially add significant resources and years of mine-life to the project. We are particularly pleased to see higher-than-average grades of U3O8 and Heavy REO in the Northwest Extension".

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