Rare Earth Takes The World By Storm

- November 17th, 2009

The world has woken up to rare earth’s inherent potential given its intrinsic usage in several applications. Global consumption was around $1.5 billion to $2 billion in 2008, forecast to grow by 65% by 2012 from 2008 levels.

Putting the pieces together

Putting the pieces together

By Kishori Krishnan Exclusive To Rare Earth Investing News

It is a tiny and illiquid industry, with global demand of around 135,000 tonnes a year. And its elements have unpronounceable names like terbium, dysprosium, holmium, cerium, europeum, and Ytterbium, to name just a few.

Yet it has taken the world by storm.

Called Rare Earth Elements (REE), the world has woken up to its inherent potential given its intrinsic usage in many hundreds of day-today applications.

Global consumption of rare earths last year was estimated at around $1.5 billion to $2 billion in 2008. Demand is forecast to grow by 65 per cent by 2012 from 2008 levels.

Almost simultaneously, there is a growing concern that the world may soon face a shortage of these materials. And where there is shortage, there is clearly a huge investment opportunity waiting to unfold.

Tech savvy

Mined from under the earth, these metals are used in the latest gizmos that adorn consumers daily life.

The versatility and specificity of the rare earths has given them a level of technological, environmental, and economic importance considerably greater than might be expected from their relative obscurity.

All of the rare earth metals are found in group 3 of the periodic table, and the 6th and 7th periods.

The elements range in crustal abundance from cerium, the 25th most abundant element of the 78 common elements in the Earth’s crust at 60 parts per million, to thulium and lutetium, the least abundant rare-earth elements, at about 0.5 part per million.

Demand set to rise

Analysts maintain that REE demand, which has been growing at about 10 per cent a year, is set to soar given the global need and growing use of green technology.

Not just hybrid vehicles, they are increasingly being used in gasoline vehicles-emission controls, LCD and PDP displays, and are used to make high-strength magnets. They are also said to have the potential to replace diamonds.

Several REE are essential constituents of both petroleum fluid cracking catalysts and automotive pollution-control catalytic converters.

They have applications in many electronic devices. Even your favourite digital camera has REE.

Some even potray its effective use in military defense systems and insist that it is bound to be a $1-billion industry in the United States in the near term.

Why is it so important?

Because there is so little.

Though more abundant than many familiar industrial metals, the REE have a tendency to become concentrated in exploitable ore deposits. Consequently, most of the world’s supply, largely from monazite-bearing placers, comes from only a few sources.

A huge chunk of the global rare earth element production from 1950 through 2000 came from the United States, almost entirely from Mountain Pass, California.

A major North American source of rare earth metals is the Mountain Pass mine in California, which is owned by private company Molycorp Minerals LLC.

From 1990 to 2000, however, the attention shifted to China, from several deposits.

And therein lies the problem.

There has been a dramatic shift in the last three years from oversupply to demand shortages. And some experts fear that China is set to engineer a supply crunch to suit its own domestic industries. An idea that is gaining ground and is sending a wave of panic across the globe.

Initially, the United States was largely self-sufficient in these critical materials, but over the past decade it has become dependent upon imports from China.

Even as far back as 1999 and 2000, more than 90 per cent of REE required by the United States industry came from deposits in China.

The situation has only escalated since.

With 90 per cent of the world’s rare earth metals now under China’s control, it could soon be impossible to produce a wind turbine or electric vehicle without Beijing’s blessing.

“The world has to wake up and start thinking of this group of elements as the ‘technology metals’, without which there will be no technology,” says metals analyst Jack Lifton.

All mine

China clealry wants more for itself.

As China diverts reserves to build domestic solar panels and modernise its army, the price of these non-exchange-traded metals are only bound to escalate.

Already, it has come to pass that the Chinese government has talked about placing export quotas on some rare earth metals.

Incidentally, China has only allocated 38,000 tons of rare earths for export this year, yet demand from Japan alone is expected to be 40,000 tons this year.

To shore up some more, state-controlled Chinese companies have also sought out investments in two rare earth miners outside its borders: Australian firms Lynas Corp (ASX: LYC) and Arafura Resources Ltd (ASX: ARU).

And that is when the whip has come cracking down.

Australian regulators recently blocked a US$ 220-million investment in Lynas by China Non-Ferrous Metal Mining Group Co.

No fear

On its part, China is attempting to allay fears of cornering all the REE possible.

The Chinese government official involved in drafting the much publicised proposal for rare earth conservation, tried some face-saving gestures recently, over reports that the country would ban exports of these strategically important materials.

Wang Caifeng, deputy director-general of the materials department of the Ministry of Industry and Information Technology (MIIT), which issued the draft plan for the rare earth sector development to 2015, said China will continue to supply the international market and “will not take the road of closing the door” on rare earth exports.

Although rare earth quotas have been decreasing, they are not likely to fall to zero, she commented at a Rare Earth Conference in Beijing.

Risky play

Of all the rare earth metals miners operating outside China, Lynas Corp (ASX:LYC) is closest to production and is high on investors radar.

Mining the MountWeld project in Western Australia, the group plans to double production as it moves into the second phase of mining. Lynas is also constructing a plant to process the ore in Malaysia.

MountWeld is touted to have the world’s richest rare earth deposit, and is expected to produce some 1.1 million tonnes of rare earth oxides. That’s enough to supply up to 20 per cent of the global market for 30 years, according to some analysts.

Greenland Minerals and Energy, with access to what it says are probably the world’s largest deposits of rare earth metals and uranium plans also plans to list in London next year. The firm is already listed on the Australian exchange.

In Canada, the best-known junior is Toronto-based Avalon, which has advanced-stage properties. Shares of the company are up about 350 per cent since the spring.

Smaller Canadian juniors include Rare Element Resources Ltd and Quest Uranium Corp, whose stock has jumped up more than 5,000 per cent.

The company recently completed a $6.3 million private placement.

The firm is focussed on the identificaiton and discovery of World-class uranium and rare earth element deposit opportunities throughout North America.

Jump expected

Given that environmental applications of REE have only increased markedly over the past three decades, analysts maintain this trend will undoubtedly continue, given growing concerns about global warming and energy efficiency.

For the immediate future, there appears to be some investment plays for rare earth metals. And if one believes that the future holds large numbers of hybrid cars and that catalytic converters will continue to be used to clean the exhaust of the world’s internal combustion engines, then rare earth is clearly where the action lies.

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