The battle over the world's rare earths

Consumers fear export cuts in essential minerals, but China defends its actions on preservation grounds and companies see an opportunity.
George Bauk
George Bauk

China’s trade policies have again been under the spotlight in the past few months. Of course, the renminbi exchange rate has never left the agenda. But recently, another more esoteric, albeit equally important, issue for the preservation of our gadget-ridden, high-tech world has risen to prominence and captured the global headlines.

In July, China said it would cut export quotas of “rare earths” by around 40% from 2009 levels, citing a need to protect its reserves. Exports in the second half of 2010 will be 72% lower than in the second half of 2009.

Rare earths have magnetic and luminescent properties and are used in a myriad technologies. These range from military uses to personal gadgets, such as mobile phones and computer hard drives, to green technologies, including hybrid cars, long-life batteries and wind turbines.

“The rare earth industry is small, but immensely important. Annual production is worth only $1.5 billion to $2 billion – and that’s after the recent surge in prices. Yet, the minerals are essential components of major technologies and products,” George Bauk, managing director of Northern Uranium, told FinanceAsia in an interview.

Northern Uranium is a uranium exploration and development company listed on the Australian Securities Exchange (ASX), with a large and prospective landholding in the Australian states of Western Australia and the Northern Territory that also includes high-value rare earth projects. Heavy rare earth elements, including xenotime, have been discovered at the Browns Range area of its Gardiner Tanami Project. The company has a strategic alliance with French nuclear group Areva through two subsidiaries.

On October 5, Northern Uranium successfully completed a A$9.5 million ($9.48 million) rights issue.

Bauk’s company is one of several that are taking advantage of the sudden identification of a need to diversify sources of rare earth supplies.

“Miners in the US, Australia and elsewhere in the world withdrew from rare earth exploration and excavation a couple of decades ago, largely because production wasn’t cost-effective or economically worthwhile. It was simply too small for the mining giants whose energies were focused on iron, copper and other bulk minerals, and the processing was too expensive and time-intensive. Only China continued operating, subsidising its state-owned miners, and now the country is in a powerful position,” said Bauk.

China has about a third of the known, exploitable global reserves of rare earths, and now supplies about 97% of the world’s demand. It mined 120,000 metric tonnes of rare earths in 2008. The biggest single producer is Inner Mongolia-based Baotou Steel and Rare Earth Company.

The most important rare earths are the two light ones: lanthanum oxide and cerium oxide, and there are 17 minerals in total. The other heavy rare earth minerals are: praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, yttrium.

Japan and Korea consumed a fifth of the world's rare earths last year, while Europe and the United States are also big importers, especially for use in making catalytic converters. China has ambitions to be the leading manufacturer of green technologies, such as wind turbines and hybrid vehicles; and rare earths are also used for high-tech military weapons, as well as a wide range of electrical goods.

Japan, in particular, is concerned that China is using its monopolistic power as a political tool in diplomatic and territorial disputes. Recently Japan agreed with Vietnam at an Asian regional meeting in Hanoi to join together to mine minerals in Vietnam.

Cuts in export quotas have caused prices of rare earths to soar. For instance, the price of cerium is up nearly 10-fold since 2009, and prices of neodymium and terbium are up more than 40%.

Meanwhile, the share prices of the two biggest non-Chinese rare earth companies, Lynas and Molycorp, have more than doubled since July.

But, in the past week, Chinese commerce officials have tried to reassure consumers. On October 30, they told US Secretary of State Hillary Clinton that China will not withhold rare earth minerals, and on November 1, they reiterated that rare earth export quotas for 2011 will not be significantly reduced from recent levels. China insists that the quota system is a way of managing their scarce resources.

New supplies

Diversification of supply sources is certainly a trend, and seems to be an urgent requirement. The United States plans to re-open Molycorp's Mountain Pass mine in California (closed in 2002), and Lynas's Mt Weld in Australia is close to reaching its production stage. Together, analysts believe they will have the capacity to meet at least two-thirds of non-China world demand within three years.

An additional 115,000 tonnes of rare earths could potentially be mined in Australia, Brazil, Canada, Greenland, India, Kazakhstan, Mongolia and Vietnam -- although excavating in Greenland, in particular, is likely to prompt opposition from environmental groups.

There are also technical difficulties for miners that can make investment unproductive and expensive. “Processing rather than excavation creates the greatest problems,” said Bauk. Although rare earths are quite common, they are diffusely spread, which usually makes the mining of them uneconomical.

Yet, demand is expected to grow at about 10% a year, and China is expected to supply only about 160,000 to 170,000 tonnes of these minerals versus forecast demand for 200,000 to 210,000 tonnes by 2014.

In a recent interview with Dow Jones Newswires, Nicholas Curtis, chief executive of Lynas, said that he expects China to be a net importer of rare earth metals by 2015 as Chinese domestic demand will exceed production by 10,000 tonnes. So, he concluded, China’s export quota cuts are less to do with flexing political muscle, and more about simply protecting supplies.

On the other hand, industry consultant Dudley Kingsnorth said that, while China’s resources of scarcer heavy rare earths could run out in 15 to 20 years, its light rare earths would be hard to use up any time soon.

And Northern Uranium’s Bauk is optimistic. “China is looking to the future, and is keen to preserve and protect its rare earths – that gives companies such as ours an opportunity,” he said.

¬ Haymarket Media Limited. All rights reserved.
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