Medallion Resources: A Unique Approach to Rare Earths

As the rare earths market looks to settle following this summer’s WTO ruling on China, focus is shifting to companies looking to produce rare earths outside that nation.

Rare Earth Investing News (REIN) recently had the chance to speak with Don Lay, president and CEO of Medallion Resources (TSXV:MDL,OTCQX:MLLOF), a company that is looking to do exactly that. In the interview below he explains Medallion’s unique approach to the rare earths market — processing monazite — also touching on what monazite is and why he believes so strongly in it.

REIN: Even though some rare earths, such as neodymium, have seen stronger prices this year, the rare earths market has been less than stellar overall. How has that affected Medallion Resources’ approach?

DL: Our economics are very robust at today’s rare earths prices, so the biggest effect has been that investor interest in the sector has waned somewhat as prices went down from their peak. But there is still significant interest in the sector because of its importance in high-tech electronics, military applications and energy-saving applications and the like. None of that has gone away and the uses are increasing.

All in all, the decline of rare earths, the pricing of it, hasn’t really affected us that much directly because our proposed operation is expected to be very profitable even at current pricing.

REIN: Do you have a long-term prediction for the rare earths market?

DL: I think it’s found a bit of a balance here. A balance between cost of production in China — which has increased given Chinese government controls — and China’s desire to keep a significant amount of its rare earths production.

There’s still a lot of supply in China, and although some of it is illegal, costs are increasing because the government is clamping down on production; it’s also forcing environmental controls, which China never followed before. Generally there’s growing demand for rare earths and supplies are becoming available outside of China. The two dominant suppliers are Molycorp (NYSE:MCP) and Lynas (ASX:LYC), which are now getting into significant production of rare earths.

It is just a bit of a balance. I expect prices to be relatively stable and trending upwards over time, but with no big spikes.

REIN: Not many companies are pursuing the processing of rare earths. Can you explain the economic benefits of Medallion’s unique approach to rare earths?

DL: There are a number of small monazite processing facilities in India, China and Southeast Asia. Like them, we’re buying the monazite concentrate, which is a by-product of another industry, then doing the extraction phase. Really, we’re doing a part in the middle of the value chain, which is to take a mineral concentrate, extract a chemical rare earth concentrate and then market that to firms for separation into rare earth oxides. Those are then sold down through the value chain to individual users or processors.

REIN: What is the benefit of taking this approach?

DL: We’ve got to pay directly for the raw material, but we’ve got significantly reduced capital costs because we don’t have to mine [the monazite] and operate a huge milling and metallurgical operation. And we’re avoiding a whole bunch of capital infrastructure costs. We’re in a place that already has excellent infrastructure. Operational costs are low and predictable.

REIN: How does Medallion get its monazite?

DL: The by-product we buy is the mineral monazite. It is basically in sand form. We buy it as a by-product of the heavy mineral sands business. So when they process a beach for the heavy minerals they’re after, they process the whole beach and separate the heavy minerals — such as titanium and zircon — and they end up with a small, but not insignificant, stream of monazite, which is a rare earths phosphate mineral. That ends up being concentrated as part of their milling process. We can buy that monazite in a relatively pure form and process it for its rare earths. So it’s not like they’re mining the beach to get the monazite, they just end up getting the monazite.

REIN: How unique is monazite?

DL: It’s found in many beach sand deposits. If the beach is being mined for heavy mineral sands, then the heavy minerals they’re after are usually about 4 to 5 percent of the beach. Those heavy minerals might be magnetite or ilmenite or zircon. Those are the types of things they’re after. About 95 percent of the beach is light minerals, such as quartz, and those get put back on the beach. The heavy minerals then get separated into their economic minerals, such as titanium, zircon and maybe magnetite. Then they end up with some monazite. So 1 percent of that 5 percent, say, will be monazite. You wouldn’t mine the beach sands specifically for that because it wouldn’t be that high of a grade. If you’re already separating the heavy minerals then it comes out of those streams quite easily.

REIN: Where is monazite commonly found?

DL: Most of the heavy mineral sand mining operations happen in Brazil and the Indian Ocean basin: Australia, India, South Africa, Mozambique, Southeast Asia. Those areas typically have good monazite availability.

REIN: How far along are you in your processing facility?

DL: We haven’t started building a plant yet, but are looking to start some studies going forward, once we’ve gotten the go ahead from the local authorities, as well as the feedstock arrangement. We are currently conducting lab-scale extraction tests of rare earths from monazite to produce a rare earth chemical concentrate, as well as co-products and waste materials of the type expected from a commercial operation. The rare earths concentrate will provide a sample product for discussions with potential customers.

REIN: Medallion is planning to use Oman for processing — why?

DL: We looked at the Middle East as the Middle East has a desire to get into the value-added processing business. They’re looking for opportunity in a post-petroleum future, and they’re very keen to get into projects that do this kind of high-value processing. We thought it was an ideal place to investigate and to use for our plan.

REIN: How important is it to have started laboratory-scale rare earths monazite processing?

DL: It’s quite important as it demonstrates some important aspects of our strategy. First, that we have sufficient supply of a monazite feedstock from a mineral sands producer to test commercial extraction of monazite. Second, that there is interest from rare earths processors that are keen to test the concentrate and ultimately get more product to market. Lastly, it’s a very inexpensive program because monazite has a well-known metallurgical process. That’s not true of many hard-rock rare earths properties.

REIN: Chinese producers have long been able to undercut those outside of China. What do you think the future holds for Medallion and other producers outside of China?

DL: I think in the long run, the future is bright for rare earths production outside of China. Because Lynas and Molycorp have gotten themselves into production and spent significant capital to get there, they have a leading position outside of China. I do think it will be difficult for expensive projects — those with high capital costs, challenging metallurgy and new infrastructure. They are going to face some challenges for some time. We have relatively low operating and capital requirements, so it’s a different story for us. That said, we have to fit within the existing market paradigm.

REIN: What can investors expect next from Medallion?

DL: They can expect further progress with end-user agreements, long-term feedstock suppliers and confirmation of a processing plant location. Financing of course is part of the mix as well.

Securities Disclosure: I, Nick Wells, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Medallion Resources is a client of the Investing News Network. This article is not paid-for content. 

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.