Rare Earths Outlook 2018: Diversifying Supply and Spotlight on NdPr

Critical Metals
Rare Earth Investing

The rare earths market began to awaken in 2017, with NdPr prices rising substantially. But what’s the rare earths outlook for 2018?

There are 17 rare earths, but the so-called “magnet metals,” neodymium and praseodymium (NdPr), have attracted the most attention in 2017.
These metals are used in the drive trains of electric and hybrid vehicles, as well as for wind energy generation, robotics and other clean energy applications.
In mid-August, Adamas Intelligence noted that spot NdPr prices were at a three-year high, having gained 50 percent year-to-date. David Merriman, deputy manager for Roskill Information Services’ minor metals division, said at the time that neodymium oxide was trading at $68 per kilogram, while praseodymium oxide was going for $85 per kilogram.

Neodymium spot prices were hovering around $95 per kilogram as of mid-September, according to Nikkei Asian Review. That’s a 90-percent increase from a year earlier and an 80-percent rise from the start of 2017. Meanwhile, terbium was going for about $600 per kilogram, up 36 percent from November 2016.

Rare earths outlook: Supply

Production in China — China accounted for over 80 percent of rare earths supply and over 66 percent of global demand in 2017. Environmental inspections, government stockpiling, increased trading activity and demand growth for many rare earths products have all tightened supply this year.
Adamas Intelligence notes that illegal rare earths production in China appears to have declined in 2017, “suggesting that a substantial share of illegal output in past years may have been the result of overproduction by authorized producers, many of which are currently operating under the microscope of central government inspectors.”
The inspections follow the consolidation of China’s rare earths enterprises into six groups. This move has been “effective in centralizing industry control, increasing government oversight, and strengthening the pricing power of China’s major rare earth producers,” the firm says.
Production outside China — The only current major rare earths producer outside of China is Lynas (ASX:LYC). Lynas operates the Mount Weld mine in Western Australia, and produces over 5,000 tonnes of NdPr per year. Most of its output is committed to Japanese buyers interested in diversifying their sourcing from China, as per Reuters.
However, increasing prices have accelerated the development of rare earths projects outside China, with projects in Australia, Russia, Brazil, Canada, Burundi and Tanzania set to enter production by 2027. “It will be interesting to see if Lynas announces any expansions to production, and whether any other REE project receives financing like Mkango Resources (TSXV:MKA) in November 2017,” said Merriman.  
In November, Mkango entered into an agreement with Noble Group (SGX:CGP) subsidiary Talaxis to develop its Songwe Hill rare earths project in Malawi. Under the agreement, Talaxis will fund a bankable feasibility study in return for a 49-percent interest in the project. Talaxis will also have the option to acquire another 26-percent stake by arranging further funding to develop the project.
The next month, Rainbow Rare Earths (LSE:RBW) sent the first shipment of rare earths concentrate from its Gakara project in Burundi to German steelmaker Thyssenkrupp. The company says it is now “the only producing rare earths mine in Africa, and the highest grade producer globally.” 

US developments — The Mountain Pass rare earths mine in the US, formerly owned by Molycorp, went up for auction in the summer, and was bought by a consortium of companies. In December, Neo Performance Materials (TSX:NEO), a company “carved from the remains” of Molycorp after its bankruptcy, completed an IPO. Neo describes itself as a leading supplier of advanced materials used in a wide range of technology applications across many sectors. 
Also this year, the US Department of Energy has funded research aimed at developing a cost-effective method of extracting rare earths from coal in order to establish domestic supply. In November, researchers at the University of Kentucky claimed to be the first to provide a 98 percent pure rare earth concentrate from a coal source. Professor Rick Honaker said the process will undergo further development and testing at a mobile rare earths pilot plant that will be operational in the spring of 2018.

Rare earths outlook: Demand

Neodymium and praseodymium demand represented 14 percent of total global rare earths demand in 2017, and that amount is expected to increase to over 24 percent by 2027.
“Price increases are expected to be more gradual in 2018, reducing price shocks to consumers and maintaining good selling conditions for producers. Supply in China is expected to remain at a similar level, causing neodymium oxide to move further into supply deficit and become increasingly reliant upon stockpiled material,” said Merriman.
Don Lay, president, CEO and director at Medallion Resources (TSXV:MDL), said a key challenge in 2017 has been “getting people to pay attention to the core drivers that are happening in driving new REE demand, [which] has little chance of being met by new projects. He added, “demand for the magnet metals is growing — and this is being reflected in the pricing and [with] a new bull market germinating.”
Medallion is pursuing production of rare earths by sourcing and processing the by-product mineral monazite, which is rich in NdPr. Lay said he expects a better market in 2018 as the company works towards the completion of metallurgical testwork and monazite feedstock agreements.
Adamas Intelligence estimates that the value of global annual rare earth oxides for the production of rare earth permanent magnets totaled $1.44 billion in 2016. The firm sees demand for magnet-oriented rare earth oxides increasing to $6.07 billion by 2025, representing a CAGR of 17.4 percent.
“The use of permanent magnet motors in new electric vehicle designs released in 2018 will be an interesting area to watch, as more and more models become reliant on permanent magnet designs. If more and more manufacturers switch to rare earths permanent magnet designs, demand will undoubtedly follow,” said Merriman.
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Securities Disclosure: I, Melissa Shaw, 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.
Medallion Resources is a client of the Investing News Network. This article is not paid-for content.

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