Lynas’ new rare earths facility in Malaysia will have the capacity to supply two-thirds of current demand outside of China within the next few years, and along with other projects close to production could crowd many junior miners out of the market.
By Robert Sullivan – Exclusive to Rare Earth Investing News
The approval of Lynas Corp.’s (ASX:LYC) advanced materials plant (LAMP) in Gebang, Malaysia last week could start the clock ticking for many rare earth junior miners, as the facility, and others slated to come online in the next few years, is expected to increase non-Chinese output 10-fold by 2016 and a create a surplus of supply in rare earth markets.
The two year temporary license awarded on February 2 by Malaysia’s Atomic Energy Licensing Board (AELB) allows Lynas to begin processing rare earths imported from its Mount Weld property in Austalia. If Lynas complies with the terms of the license during this period, a permanent license may then be considered by the AELB.
Initial capacity at the $200 million plant will be 11,000 tonnes of rare earth oxide (REO) per annum when operations begin midway through the year, and this will eventually be ramped up to 22,000 tonnes per annum of REO.
But with 11,000 tonnes per annum of REO already one-third of current demand, first-movers such as Lynas could end up supplying the bulk of the rare earths market outside of China and squeezing out juniors who need strong rare earth prices to raise capital and to keep their projects commercially viable.
Improving supply could force many juniors out of the sector
With some experts forecasting production of REO outside of China to reach 60,000 tonnes per annum by 2016 and demand of just 55,000 tonnes per annum, rare earths markets could see a surplus of supply within 5 years that could restrain rare earth prices and trim the playing field down from the hundreds of companies that are currently operating in the industry.
In an interview with Mining Weekly on February 1, Jack Lifton of Technology Metals Research suggested that “clammed-up capital markets coupled with lower prices” would put close to 90 percent of publicly-listed rare earth juniors out of business over the next two years.
Riding soaring rare earths prices over the past two years following cuts to China’s output and export quotas, the number of junior miners in the rare earths sector ballooned.
A fallback in rare earths prices over the last half of 2011, however, was painful for many juniors who had been baking sky-high prices into their business models.
As the market continues to search for an equilibrium, Lifton believes that there will be at most 30 to 40 companies left by 2014.
“There are too many companies in the supply side and not enough on the demand side, so a lot of the supply side will be eliminated by the market effect that they will get no money,” remarked Lifton.
Great Western and Alkane nearing production
Among those that should be able to avoid being squeezed out of the market by entering into production within the next few years are Great Western Minerals Group Ltd. (TSXV:GWG) and Alkane Resources Ltd. (ASX:ALK).
According to Dudley Kingsnorth, Executive Director of Industrial Minerals Company of Australia, Great Western’s Steenkampsraal project in South Africa and Alkane’s Dubbo project in Australia, which is composed of more than a 25 percent mix of heavy rare earth elements (HREE), are two of a handful of projects that are more than likely to be fully operational by 2016.
Both companies have previously indicated they could begin initial production as early as 2012/2013, and although Kingsnorth’s projections are more conservative than those provided by the two companies, he believes Great Western and Alkane should be joining the ranks of active producers within the next four years.
Securities Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.