Clint Cox: No Premium for Non-Chinese Rare Earths Supply

Companies developing rare earths projects and hoping to charge a higher price for their product simply because they are outside China are in for a rude shock, according to Clint Cox, the founder of rare earths market research company the Anchor House.

Speaking at the Vancouver Resource Investment Conference, Cox said, “A lot of companies think that if they get to production, end users will pay a premium to have a source outside of China.

“I work with end users all the time and that is not the case. (They’re) not going to get a premium to be outside of China. (They) have to be able to produce at the Chinese cost,” he said, noting that Chinese costs are heavily subsidized by all levels of the Chinese government.

Cox’s talk, “Rare Earths: What Will it Take to Compete with China?,” didn’t answer the question posed in the title, but rather painted a dire picture for the supply chain outside of China.

“China right now controls a large portion of this industry depending on which part of the supply chain — anywhere from 70 percent to, say, 95 percent of the industry. … If we’re going to be competing with China and having trade wars and things like that, we should probably have a way to produce (rare earths) outside of China,” he said, noting that the weaponization of the commodity is already something China is looking at.

The Chinese domination of the commodity is monolithic right now, with the country winning out in subsidies, geology, environmental standards, the black market, governance and investment.

“(The major Chinese producers) are all subsidized. Every last one of them. They’re subsidized at the local level, the provincial level and at the national level. This could be free power, this could be interest-free loans, loans that never have to be paid back, or sometimes just flat-out cash payments,” he said.

Another challenge facing western companies in the rare earths space is the ability of Chinese operators to dabble in the black market.

“A lot of material is flowing through the black market and they legitimize it because once it enters one of their supply chains — the big six — they can stamp an official stamp on it and it becomes official material,” he said.

“In general, western companies can’t utilize the black market like China can. That’s a big deal; that is a huge edge. Some of the black market material can cost one third of what regular material costs, and that is really difficult to compete with.”

China’s geology and the fact that it is a totalitarian regime are also factors that make the country hard to counter, said Cox, who noted that if China wanted to produce more, it could.

One area China is being held back is in environmental issues related processing rare earths, said Cox. He said that the government is aware of issues in containing radioactivity and is seeking to shut down rare earths mining in the southern areas of the country.

What is holding China back has stopped competitors elsewhere dead in their tracks, however.

“In China, the China nuclear authority basically takes the radioactivity. And you can handle that in an appropriate way inside China. (In Canada), you have to worry about where you’re going to put the radioactivity, and if you can’t find a spot, you can’t mine. And so that’s one of the biggest issues (for the west).”

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