The issue of creating a secure rare earth supply outside of China is one that most within the rare earth space are familiar with.
China is still responsible for roughly 95 percent of the world’s production of rare earth elements, and has gotten itself in hot water with the World Trade Organization (WTO) for imposing export quotas in the past. However, outside of the space, the general public is blissfully unaware of the importance of rare earths in their daily lives, never mind the dangers that a lack of supply would pose.
That’s where Silicon Valley author Ann Bridges comes in. Her book,”Rare Mettle,” shines a light on the difficulties that might arise from a fictional Chinese embargo of rare earth elements. Both government and private industry interests are affected, and challenges escalate quickly for both parties in the fast-paced novel.
Lack of secure rare earth supply
Certainly, a Chinese embargo on rare earths isn’t an impossible scenario. In 2010, China cut off rare earth exports to Japan following an incident between the Japanese Coast Guard and a Chinese fishing boat. That issue was resolved fairly quickly, but the US and other countries are still largely dependent on China for rare earths.
While the overall question of a secure rare earths supply is now getting a bit more attention, Bridges believes that the public is still not nearly as aware enough of the rare metals that are so important to our daily lives.
“I think what’s happening with China from a political perspective is fascinating to me,” she said. “I think that the General Accounting Office reports that are coming out on the Pentagon and the department of defense’s lack of solutions is getting attention in the political dialogue now.”
The General Accounting Office (GAO) found that the US Department of Defense (DOD) had “not taken a comprehensive, department-wide approach to identifying which rare earths, if any, are critical to national security.” It also recommended that the DOD put together an approach to help ensure a secure supply.
However, the problem is that China produces rare earths far more cheaply than any other country, a factor that has encouraged countries to buy from China rather than invest in development of their own supplies. Amidst a rare earth price surge in 2011, a flurry of rare earth juniors came into the market, and producers Molycorp (OTCMKTS:MCPIQ) and Lynas (ASX:LYC) saw their share prices skyrocket.
However, prices have since fallen, leading Molycorp to shut down its operations in California and file for bankruptcy protection, and both Molycorp and Lynas have seen their share prices drop to a fraction of what they once were.
That being said, reports show that the Chinese government has wheels in motion to ramp up rare earth metal exports if the country is able to regain control of rare earth pricing policy.
More support needed for rare earth projects
Certainly, countries such as the US, Canada and Australia have much stiffer environmental controls than China, making it much more difficult for rare earth companies to compete.
“I do think it’s wrong that we just decided to export our pollution to China and then simultaneously complain about the fact that they don’t have environmental controls,” Bridges said.
While she noted that mining methods have improved over the years, she argued that there’s still a lack of investment in the space due to regulatory risks.
“The key problem seems to be the commitment to investment dollars,” she said. “I think that will come from the private market as long as regulatory risk and uncertainty is removed.”
When asked what changes she’d like to see, Bridges stated that it could help to remove some of the regulatory road blocks that typically hold projects back, at least on a trial basis.
“From a public policy point of view, I think that the regulations need to be revamped,” she said. “I think there needs to at least be some sort of prototype allowed with a purchase order from the Department of Defense, that says yes, we are going to buy x thosand kilograms of product, so that they can can set up an entire supply chain. That is what’s going to be necessary. You have to have that end customer.”
Of course, in terms of pricing, it still makes sense for most customers to buy rare earths from China at cheaper prices. But Bridges argued that “the pricing can be dictated if there is a broader purpose.”
For example, she pointed out that California has higher gas prices since refineries are required to produce both a winter and summer gas due to strict environmental controls. “In this case, the state of California decided the broader purpose was air pollution control,” she said.
“If you start looking at military defense [and rare earths], I think it becomes a pretty important issue for our country to take a look at seriously.”
Rare Earth Market Outlook 2016
A look at rare earths in 2015 and the rare earth market outlook for 2016.
Examples of rare earth companies outside of China
Given the importance of a secure rare earth supply outside of China, critical metals investors may still be interested in companies attempting to succeed in the space.
Certainly, it’s been difficult for rare earth companies as of late, especially given the broader commodities price rout that’s dampened investor interest in the mining sector as a whole. Still, there are a number of innovative juniors taking different approaches to developing rare earths projects. Here are a few examples:
- Medallion Resources (TSXV:MDL, OTCQX:MLLOF) is targeting the production of rare earths from monazite, available as a byproduct from existing mineral sands mining projects. As Luisa Moreno, senior analyst and managing partner at Tahuti Global, has noted, one of the positives of this model would be that Medallion could buy the material from mineral sands companies without having to incur the costs of a mining project itself.
- Texas Mineral Resources (OTCMKTS:TMRC) is an exploration stage company, with its flagship property, Round Top Mountain in Texas. In 2015, the company has signed on with K-Technologies for a joint venture to develop, refine and market K-Tech’s Continuous Ion Exchange and Continuous Ion Chromatography technology for the extraction of rare earths. In July 0f 2016, the company noted that it–together with K-Technologies–successfully completed the rare earth strategic materials research contract for the US Defense Logistics Agency.
- Alkane Resources (ASX:ALK) is advancing the Dubbo zirconia project in Australia. In April 2016, the company secured a toll processing agreement for rare earths at the project. Ryan Castilloux, founding director of Adamas Intelligence has stated that Alkane is taking a proactive approach to optimizing its flow sheet in order to keep expected production costs down. The company is targeting production of hafnium, which could significantly bolster the project’s economics.
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This article was originally published on the Investing News Network on April 11, 2016.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any of the companies mentioned in this article.
Editorial Disclosure: Medallion Resources is a client of the Investing News Network. This article is not paid for content.