A look at rare earths in 2015 and the rare earth market outlook for 2016.
At the end of 2014, analysts and company executives were not expecting much in terms of the rare earth market outlook for 2015.
Most said that they did not expect prices to improve, and that prediction was certainly accurate; as Jon Hykawy of Stormcrow Capital recently explained, rare earth prices looked to be stabilizing at the end of 2014, but ended up falling along with most other metals prices over the course of the year.
Prices for commonly oversupplied rare earths — such as cerium and lanthanum — were on the downtrend, but the more in-demand phosphor and magnet rare earths were hit hard as well.
“Yttrium oxide was only US$10.50 per kilogram at the start of 2015, but now it’s US$4,” Hykawy said. “Dysprosium oxide was US$290 per kilogram at the beginning of the year, now it’s US$218. Terbium oxide and europium oxide, respectively, were US$550 per kilogram and US$550 per kilogram in January of 2015; now they are US$380 and US$100, respectively.”
Hykawy added that those prices are also “low by any historical standard.”
A challenging year
Indeed, lower rare earth prices meant that rare earth junior mining companies had a tough time of it in 2015. “We expected 2015 to be a challenging year, and it certainly proved to be,” said Mark Saxon, CEO of Tasman Metals (TSXV:TSM). “With the pullback in metals prices and the broader mining markets, there were not many exploration and development stories that could shine through.”
Robbin Lee of Rare Element Resources (TSX:RES) stated that her company had a more positive rare earth market outlook for last year — Rare Element expected to see some signs of improvement in the resource sector in 2015, as well as some price recovery in the rare earth market. “We weren’t expecting a full recovery, but the green shoots that indicate the bottom,” she explained.
Of course, that’s not quite how things turned out. “We did not anticipate China’s apparent economic weakness, sector-wide pressure on resource prices, continued stock market negativity toward small-cap companies or the full impact of Molycorp’s (OTCMKTS:MCPIQ) bankruptcy,” she said. While many, including Rare Element Resources, may have seen Molycorp’s bankruptcy coming, Lee said her company underestimated the overall impact Molycorp’s troubles would have on the rare earth market outlook.
While Molycorp’s bankruptcy further dampened an already difficult capital market, the weakness in China’s economic performance punished the entire resource sector, Lee noted. More specifically, the gap between eliminating tariffs and implementing resource taxes brought large amounts of rare earths to the market at artificially low prices.
“The stockpiles acquired by users during this period have dampened demand for the last several months,” she said. “They have also eliminated any sense of urgency that the market had on developing alternative non-Chinese sources.”
Despite those challenges, both Tasman and Rare Element Resources managed to hit a few milestones this year. Tasman released the results of a prefeasibility study for its Norra Karr project in Sweden this January, while Rare Element Resources completed bench-scale testing and a portion of pilot plant testing on its separation technology.
“We believe this technology represents a real, tangible advantage to the company in the anticipated lower costs associated with the recovery of the individual end products, and because it is significantly more environmentally friendly than traditional methods,” Lee explained.
Unfortunately, those achievements did not translate to higher share prices. While Lee stated that many technically oriented individuals and entities recognized the significance of Rare Element Resources’ breakthrough, the milestone went largely unnoticed by the broader market. Similarly, Tasman saw its share price rise for a short period following the release of its prefeasibility study, but as Saxon noted, the company’s share price soon fell in line with broader market trends.
Indeed, neither company has remained immune to broader pressures on the resource sector as of late. Rare Element Resources recently announced plans to implement additional cost-reduction measures in light of continued weakness in the market.
Rare earth market outlook
Unfortunately, the rare earth market outlook for 2016 is not looking much better. Hykawy has argued that the issue is with “a lack of demand for legally produced quantities of rare earths,” since a lack of secure supply for the metals has led to avoiding using them altogether.
“I believe, based on conversations with management groups and with R&D teams, that the issue is many companies, especially in the western world, have decided that they simply don’t want to take the risk of including rare earths in their supply chains,” he explained.
Separately, he stated, “I’d like to say I am hopeful moving into 2016, but I don’t see much in the rare earths business to be hopeful about.”
Similarly, while Saxon said that he is seeing a slight lift in pricing for magnet rare earths, he does not anticipate a strong move in either direction for the rare earth market outlook in 2016.
For her part, Lee was slightly more positive. “We expect to see some of the larger market issues moving towards resolution,” she said. “Rare earth pricing should improve as new supply from China reflects the full impact of the fairly substantial resource taxes. China’s campaign against illegal mining should take hold and remove some of the volatility in pricing.”
For investors who might be concerned about the market, Lee stated that industry analysts are expecting magnet materials to experience significant demand growth over the next five years. “This is supported by the current administration’s green energy initiatives,” she said. “We also expect that the availability of a secure, domestic source of rare earths will promote the types of innovation and technological advancement that can only be brought about by the unique characteristics of rare earths.”
Meanwhile, in the face of continued weakness in the market, Saxon reminded investors that “[t]he rare earth exploration and development industry is not one for short-term thinking.”
“The need for process development and the opaque nature of the market mean timeframes for development will be longer than they are for other areas of mining,” he argued. “Projects with high exposure to the magnetic metals, low-cost mining and good infrastructure provide the best opportunities.”
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. 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.
Rare Earths Outlook 2015: Another Tough Year Ahead