Critical Metals

China has released the total mining output quota for 2011. The country has increased the level of the total by a modest 5 per cent over 2010. Along with the announcement officials stated that new permits for prospecting and mining will not be granted until June, 2012, which further exacerbates supply issues going forward.

By Michael Montgomery—Exclusive to Rare Earth Investing News

Last month Chinese officials stated that information on this year rare earth quotas would soon be released, with a special consideration of the world’s rare earth needs. The story was covered on Rare Earth Investing News on March, 22. Over the weekend China announced that the total output quota for 2011 would be 93,800 tonnes, an increase of over 5 percent in comparison with 2010. The Chinese output quota of 93,800 tonnes from mines equates to 80,400 tonnes of ‘light’ rare earths, and 13,400 tonnes of ‘medium and heavy’ rare earths. The government has also stepped up enforcement of illegal mining which added an estimated 10,000 tonnes of material into the market. If the government can eliminate all the illegal sales, this increase in production may be null and void in relation of supply and demand fundamentals.

This announcement follows the creation of a new tax on rare earth purchases, which signaled a paradigm shift in the countries attitudes towards the block of 17 elements, dividing them into two specific groups, light and heavy rare earths. This is particularly important because the demand levels for the various elements differ greatly, and the policy made for inequality in the markets. This development was covered on Rare Earth Investing News on March, 28.

Alongside with the announcement of mining quotas, the government has also stated that new licenses for prospecting and mining will not be granted until June 30, 2012, almost certainly ensuring tight supply chains will remain.

“The government is very serious about tidying up this industry in China, rationalizing it for Chinese use… China is going to turn into a net importer of rare earths over the next four to five years,” stated Nick Curtis, chairman and chief executive officer of Lynas Corp.

The ban on new mining licenses may be the most important part of the announcement because China has stated a desire to create a stockpile of rare earth for domestic purposes. The lack of new mining means that China, as Mr. Curtis stated, may become a net importer of the metals, further exacerbating supply issues.

The government has yet to release export quota figures for the second half of 2011, which may be the most important figure in the rare earth market. It has been proposed that through export controls China is trying to entice foreign firms to move production facilities to the country for greater access to the materials needed for their products. This would increase high tech manufacturing jobs in the country, increasing salaries and quality of life for the Chinese worker. No date has been set for the announcement of export quotas as of yet. Last year, the figures were released in July.

Following this latest announcement shares of many rare earth companies have responded positively as the increase in production is small, and the ban on new mining ensures that tight supply of REE’s will continue in the medium term. Rare Element Resources (TSXV:RES) and Lynas Corp. (ASX:LYC) both gained more than 5 percent, Avalon Rare Metals (TSX:AVL) gained nearly 3.5 percent on the day. However, the market was not as kind to Quantum Rare Earth Developments Corp (TSXV:QRE) and Stans Energy Corp. (TSXV:RUU) as both company’s shares dropped 5 percent on the day. For a look at how rare earth companies were affected by the news don’t forget the Rare Earth Investing News Stock Index for a collection of 28 rare earth related firms.

Rare Earth Mining Company News

Molycorp (NYSE:MCP) shares have gained more than 12 percent on news that the company has acquired Estonian rare earth producer Silmet. The deal with Estonia’s Silmet Grupp worth $89 million gives Molycorp a 90 percent stake in the processing facility that processes rare earth from Russia for the European market. Currently, the facility produces roughly 2 percent of world supply, producing “up to 3,000 tonnes rare earth products and 700 tonnes of rare metal products annually,” reported A. Ananthalakshmi, for Reuters.

For Molycorp, the deal provides a European center for operations, as well as a larger customer base. Reports of the processing facility do not mention the breakdown between heavy and light rare earths. However, the deal may help the diversification of Molycorp’s rare earth holdings, as their Mt. Pass mine does not have a high concentration of heavy rare earths, such as terbium & dysprosium, which are of higher value but are consumed less than light rare earth like neodymium and praseodymium.

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