Heavy Rare Earths In America, Crystal Balls & Brass Balls

by Jack Lifton on August 4, 2011 · 23 comments

in News Analysis, Permanent Magnets, Rare Earths

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Rare Element Resources (RER) (AMEX.REE) today issued a press release that makes very good reading for the American civilian and military industrial manufacturing sector. The company now joins Ucore Rare Metals (Ucore) (TSX.V:UCU) as having a high potential for producing the critical rare earths, dysprosium (Dy), terbium (Tb), europium (Eu), and neodymium (Nd) in commercial quantities. Additionally RER could produce samarium (Sm), gadolinium (Gd), and yttrium (Y) in notable and certainly commercial quantities, thus joining Ucore in that capacity too.

So now there are two potential domestic American heavy rare-earth element (HREE) producers, which I think are viable and have high probabilities of commercial success.

The sole free-market criterion for measuring the value of a company is profitability. "Junior" mining companies are mineral-exploration ventures organized to explore for, and verify, valuable deposits of minerals that can be either developed by the junior or sold by it to a mining company for development as a profitable venture. Profitability in the junior-mining space almost always means the difference between the sale price for the deposit and the cost of getting to the next saleable point.

Thus junior miners are speculative ventures, which, in a fair and balanced world, would be rated as much by their management experience and marketing skills as by the economic value of their deposits.

Unfortunately this is not the case. The measure of success (metric) used in the junior mining world is the previous experience of the particular promoters involved in successful past promotions, especially in gold, the forever fad and, most recently, uranium.

Human nature is to create fads and measure the worth of individuals by their adherence to the particular "narrative" of the latest fad. For the last three years, the promotional aspect of the stock markets based in Vancouver, Toronto, Sydney, Perth, Frankfurt, London and New York have been suucessfully promoting a rare-earth boomlet. Various pundits and money managers have spun stories of the importance of the rare-earth elements (REEs) beyond any recognizable common-sense logic, in order to lower the bar for entry to the rare-earth junior-mining corral.

Some REEs are indeed very important for the maintenance of the mass production of the miniaturized electronic devices, which the younger members of society (and many others) seems to believe have always existed, and have always been available cheaply and abundantly.

The conversion of our technological society's electric motors and generators to smaller and more powerful versions using rare-earth permanent magnets (REPMs) continues unabated. REPMs, particularly of the neodymium-iron-boron (Nd-Fe-B) type, dominate the market in terms of value, for permanent magnets for all uses.

Interestingly enough, of the small percentage of rare-earth-based magnets, powders and alloys imported into the USA, most is used by high-tech civilian industry, such as that for medical imaging devices. Only a smaller amount of the total is used for significant military devices. For example, just a tiny amount of the REE Sm is imported into the USA, for direct conversion here into samarium cobalt (Sm-Co) alloys for REPMs used extensively for the US military.

I doubt that more than 500 tonnes in total of magnet alloy as raw materials are imported into the USA each year for magnet fabrication, and of that amount, I seriously doubt that more than 100 tonnes is used exclusively for military production.

Over 90% of the world's REPMs are made in Asia (60% in China and 30% in Japan). The alloys from which they are made are produced almost entirely  in China, from REEs produced domestically there.

Anyone in the USA who is planning to manufacture REPMs from domestically (USA) produced REEs is facing the situation that:

  • No rare-earth ores have been mined in North America in the 21st century;
  • No American company, using American-developed technology, has produced pure REEs in the USA in the 21st century (do note that I'm referring to metals here, not oxides);
  • No American company has made Nd-Fe-B magnets from the individual REEs in the USA since at least 2004. Electron Energy  in Lancaster, Pennsylvania has however been making Sm-Co-based REPMs and alloys for decades. The company has, I believe, recently entered into an off-take with Great Western Minerals Group (GWMG) (TSX.V:GWG) for rare-earth metals to be produced by the latter company's Less Common Metals subsidiary, which will eventually use feedstock for GWMG's future mining and refining operations in South Africa;
  • Only a small overall tonnage of REPMs are currently produced in the USA, from a rare-earth-metal base, and, critically;
  • All of the commercially available Dy used to modify the heat cycle sensitivity of REPMs, which is critical in their largest end-use, "under the hood" applications in the OEM automotive industry, as well as in their military use, is and always has been produced in China.

Just two of the US junior-mining ventures currently in development, Ucore in Alaska and RER in Wyoming, are likely to produce Dy in significant quantities in time for the American military and industrial complexes to free themselves of Chinese monopolizing of the rare-earth space in general, and of the HREEs in particular, before the possible discontinuing of the export of Dy by China by 2015.

America needs between 5,000 and 10,000 tpa of lanthanum (La) (90%) and cerium (Ce) (10%) in order for the fluid cracking catalyst (FCC) manufacturing industry to remain based mainly in the USA. America also needs 4,000 tpa of Nd at most,  to manufacture all of the REPMs used in every application in the USA today, rather than import most of them from China and Japan - this estimate may even be too high -and America needs between 400-1,200 tpa of Dy to modify those magnets so that they can be repeatedly exposed to heating and cooling cycles (such as "under the hood") and retain their original properties. Also, if America has 100 tpa of domestically produced Tb, it could dominate the world of non-incandescent lighting if it so desired.

Some of the above high-tonnage production is simply not possible in the USA. For critical applications, investors should look first to those who can in fact produce Dy and Tb and, of course, La and Nd.

All of the emphasis so far has been on La, Ce and Nd, but only one of those, Nd, is really a critical metal that I believe is even now in short supply.

The important critical heavy rare-earth metals for America are now Dy and Tb because they are not produced in the USA, but are necessary for the high tech devices of which America is the largest per-capita consumer.

The smart play, is clearly to support those who can produce the most critical of the rare earths, by also buying all of the La, Ce and Nd that they can produce. Rare Element Resources and Ucore Rare Metals should be the choice for end users of magnet materials and of lighting materials and of fluid cracking catalyst materials, because by buying out the production of these two companies in total, American companies can be assured of independence from Chinese decisions on allocation.

I also urge American civilian and military industry to support vertical integration in the REPM and the phosphor industries. America has all of the technology to transform rare-earth-ore conentrates, the first item in the rare-earth end-use product supply chain, into finished magnets and CFLs. Yet we have simply abandoned these industrial steps, all of them, actually, for momentary cheaper prices.

Since neither Ucore nor RER could provide individually or even together enough La and Nd for the American FCC industry, or a revived domestic magnet manufacturing industry, the smart play for end-user procurement is to form a buying group, and to enter into off-take agreements for the entire outputs of these two companies and to divide up the critical materials among themselves

Additional LA, Ce and Nd needed by American industry can be purchased from Molycorp (NYSE:MCP), which can then dedicate the balance of its enormous production of light rare earths to rich overseas markets such as Japan, Korea, India and China itself.

I urge the management of RER and Ucore to determine their actual cost of production of all of the rare-earth metals individually, and then to offer them to a procurement operation at a known level of profit and a predictable cost for the buyer.

The two mining companies should be very profitable, and the end users will continue to be able to utilize rare earths in their products. They will thus compete with Chinese industries that will continue to have easy access to raw materials the prices of which are now climbing within, China along with labor, regulatory, health, and safety costs.

It is obvious that if Molycorp's projections are accurate, then it will be producing at lower costs than the Chinese. At that point Molycorp can sell its output to the world's largest growing consumer of its products, China, as well as to Japan, which today sources from China exclusively.

If American self-sufficiency is important, to insure that our civilian and military manufacturing industries retain their market share and can grow, then those sectors of our economy must strike bargains with and buy from Rare Element Resources and Ucore Rare Metals to ensure their own prosperity, as well as that of you and me.

I urge industry, both civilian and military, to grow a pair, work together, and get the ball(s) rolling before America becomes an industrial backwater.

Disclosure: At the time of writing, Jack Lifton is long on Great Western Minerals Group (TSX.V:GWG). He is also a consultant to Rare Element Resources (AMEX:REE) and to Ucore Rare Metals (TSX.V:UCU).

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1 Jake Roberston August 7, 2011 at 12:55 pm

Jack,
Would a merger between UCU or REE and Great Western make sense for Great Western. I see them as an acquirer in the future and wondering what fits for them.

Thanks
J.

2 Jack Lifton August 7, 2011 at 1:22 pm

Jake,

A well thought out merger AMONG them would create in my opinion the world’s pre-eminent rare earth optimized supply chain group. The new company would have and produce all of the critical rare earths and could produce magnet alloys in-house as well as have the technical expertise to j/v with both phosphor makers, rare earth permanent magnet manufacturers, and even fluid cracking catalyst producers.

This combination is eminently logical if the goal is the lowest cost production of the highest value products OUTSIDE of China.

If any strategic investors are reading this I hereby offer to be the non-executive chairman of the new company in its foundation period. All you will need is access to capital and negotiating skills to iron out differences among the three current managements.The synergies among the companies are striking.

The new Triventure will have sufficient resources to make NA completely independent and self sufficient in rare earths

.Its really a shame that the driver in the USA has been the pumping up of share prices. Had the goal been actual production the Triventure could have been put together for a fraction of what has already been wasted on too-large ventures and wealth would have been flowing already into Canadian and American worker’s pockets along with the treasuries of the Provincial, State, and Federal governments of both great nations.

Note well that poly-metallic deposits in Canada and Africa and Australia are beginning to look to me like they can become lowest cost rare earth producers. Their main limitation is the volume of rare eraths they can produce, because their principla revenues will come from technology uses of metals such as iron, aluminum, niobium, tantalum, zirconium, and titanium.

Jack

3 wwwater August 7, 2011 at 2:32 pm

Jack, just to add to you comment, the other properties that GWMG has in their portfolio such as Hoidas Lake, Douglas River and Benjamin River just as a few along with joint venturing with Ucore and Rare Element Resources would in my opinion and also with the current developments within GWMG would create a dominant Rare Earth Enterprise that would provide for the needs of the America rare earth industry and in turn make available to other jurisdictions the requirement of heavy rare earths.

4 wwwater August 7, 2011 at 2:50 pm

Is it feasible that such a merger could develop. In my opinion it is very likely that a merger is currently under discussion as GWMG now has access to Separation and Extraction expertise that the two other ventures are in dire need of and also GWMG has the alloying capabilities that the other two are also in dire need of. In my honest opinion GWMG is the dominant partner in the three way partnership as GWMG now has ALL THE COMPONENTS of a fully integrated rare earth alloy producer.

5 Alexander Tibor August 7, 2011 at 3:07 pm

Wwwater, you astonished me! Langstrumpf.

6 wwwater August 9, 2011 at 12:23 pm

Jack, you have my vote to head as Chairman of the TRIVENTURE in its foundation period

7 Don Ellwood August 9, 2011 at 1:13 pm

Quest, and its very lsrge Dy supply, seems glaringly absent from your analysis. Could you share your reasoning as to why investors in it (and apparently in any north american ree projects other than REE and Ucore) are apparently doomed?

8 Anon August 9, 2011 at 1:38 pm

Hi Don,

I think Quest will do very well in the long-term. However, it’s very early in its development, but it has strong management and a good reserve of heavies, so I’m confident that everything will come together. There’s a good report on the Rare Metal Blog on Quest, heres the link if you have not already read it:

http://www.raremetalblog.com/2011/08/the-strange-lake-diaries.html

The one thing that Ucore has going for it is that it has managed to connect itself well with Alaska state government. They have gotten strong support in Washington, and these connections will go a long way toward helping the company’s momentum. Alaska just passed a bond issue that will help many companies (including Ucore) to build additional infrastructure (Roads and power) to remote areas. In addition, there are now 4 bills (2 House resolutions and 2 Senate resolutions) that are making their way through Congress. All of them will benefit Ucore and other US-based REE companies. As investors– we should not underestimate the power of government (however dis-functional it may be) to move markets.

Disclosure: I’m long on Ucore and Quest

9 Jack Lifton August 9, 2011 at 3:57 pm

Don,

At this moment Gareth is at Strange Lake on an analyst site visit, and I’m sure he’ll write a detailed report when he returns.

I am not trying to omit anyone or any project; I am basing my “proposal” on three ventures that I have been following extensively for some time-more than 4 years in the case of Great Western. Succinctly I am trying to to put the USA in the business of producing enough rare earths of all types to be self-sufficient from DOMESTIC SOURCES. At this point in time I believe that GW, although not planning to produce from ore bodies in the USA has two advantages for my proposed project:

1. It will have a SX plant designed and engineered by EXPERIENCED people up and running before anyone else does, and
2. GW has a high tech operation, Great Western Technologies, Inc, in the USA, so it has strong connections with the USA, and can make a credible request for tax breaks and/or subsidies for a processing facility in the USA..

Both Quest and Matamec are contenders to put Canada on the world heavy rare earth map as is Tasman in Sweden for Europe.

My goal here is to suggest a way to get America self-sufficent for the least cost and at the lowest cost of production.

Some want to flood the world with material and make billions of dollars. I want the USA to have a secure supply of what it needs as fast as possible and at the lowest cost to its taxpayers and investors.

I told you before I’m not a stock picker or a get rich quick kind of guy.

10 Steve Moriarty August 9, 2011 at 6:02 pm

Jack/Gareth,

Firstly thank you for all the information that you convey here. Rare earths metals or technology metals is certainly an interesting world. I have received Gareth’s latest report regarding the future supply and demand but I was wondering is there any way (although I suspect not) to determine what the impact of government assisting companies to make it through to development at whatever level of the supply chain?

In line with Jack’s objective of US self sufficiency, I would assume that the value of REE companies would rise if government’s were to subsidise the necessary requirements (infrastructure, water, energy) so that these REE companies would be a “success”.

That said, and given the projections of supply and demand balance in Gareth’s report, is there a long term need for government’s assistance or is it a case of simply letting supply catch up with demand?

Regards

11 prescient11 August 9, 2011 at 10:53 pm

Jack,

Thank you for this piece. REE’s results appear to be fairly significant. Also, thank you very much for your work and especially with your analysis on global metals consumption. I think you really are first in the field to start pointing out the obvious.

Those on wall street seem to think that merely jack up the price and someone will supply more copper, without figuring out what is required to do so and the lead times. Just in time procurement shall soon be the dinosaur it should be, I think.

I also apologize to you for my comments on the prior GWG article. I believe I misread your analysis on that front. My own personal view is that REE, AVL, QRM and perhaps ALK must be brought into production if China truly has around 10-15 years left of ionic supply.

Best regards.

12 veryrare30 August 10, 2011 at 1:47 am

Prscient11,
Oh, what have we here!! So Jack makes one comment about Quest and you get all warm and fuzzy, pretending to be a nice guy.
You have repeatedly criticized GWG time and again to the point of being utterly obnoxious. Your pet Quest…well, let me just say this – you will learn very soon that Karma is a b…. what goes around will come around.
I for one, will never feel sorry for you.

13 prescient11 August 10, 2011 at 10:08 am

Veryrare,

You can kindly shove it. Good luck with GWG, which I continue to think is a bad investment anywhere near a $1.

I can give reasons for this. All you have done is carp. Nice talking to you as I will not again.

14 Jim Bond August 11, 2011 at 9:23 am

Excellent Article, as always. Some excellent and very insightful comments also as always,

My personal gripe I read this article several days late. Why not notify the TMRI members when a new article by either you or Gareth is posted on the TMR open site

15 robit August 11, 2011 at 2:17 pm

Let me try this without the link. I sent it to the RMB, but I will post it here too because it is an interesting jab by the DOE:
August 11, 2011
UQM Selected to Receive $3M DOE Funding to Develop Non-rare-earth
Magnet Electric Motors for Vehicle Electrification
• This award is part of the DOE Advanced Vehicle Research and Development Grant
• UQM will develop a unique motor design to use non-rare-earth magnets
• Non-rare-earth magnets may lower overall motor cost while providing better efficiency than other alternative motor technologies….snip

16 jjl2u August 11, 2011 at 3:45 pm

Jack,

Just curious about whether you’ve heard of, or had any contact with Dr.Stephen Leeb? He wrote the following article, and just like you, has concerns, ideas, and opinions, about how the US may find ways to become self sufficient, with regard to REE’s in the future
.
http://seekingalpha.com/article/284147-consequences-of-the-debt-extension-resolution-for-commodities?source=yahoo

Previously, in comments/exchanges from his readers, he initially poo-pooed GWM, as a pretty much, non-issue, mere .70c stock. When he made those comments, it was pretty clear that he really didn’t know much, if anything about the company. He was looking at larger, macro issues, and not so much concerned with smaller players, even if they might eventually be part of the overall solution for the US (again, he wasn’t up to speed on GWM, imo). He was more focussed on AVL and QRM, companies with large deposits, but facing many obstacles/challenges still in the way, as far as being any part of the solution in the near, or even distant term.

That said, he appears to have changed his tune a bit, and included GWM within the conversation (and his recent article) of which REE companies may be worth a look going forward. Again, just curious as to your thoughts, and if you’ve had any contact with this individual? I value your opinion in this sector, and think that if anyone could or should point out where GWM fits in the overall equation, who better than you to do so?!

The reason for my question is because he apparently has been involved with “think tanks” and the like, relative to arriving at possible courses of action for the US to take domestically, with respect to future REE self sufficiency. Again, I’m just curious if two of the greater minds working on the same problem, are comparing notes, or going to in the future? Thank you again, for your input, time and consideration, it is very much appreciated. Take care.

17 Walter Jensen August 11, 2011 at 4:03 pm

Jack: Why do you not mention Lynas in your analysis? Lynas will meet the 3 requirements required by the AELB in Malaysia this month to certify their processing plant for Reo products. They are projected to produce 11,000 tons of Reo products in 2012 and 22,000 in 2013. They are well financed and have at least 8 supply contracts in hand. Their long term 10 year agreement with Japan for 8500 =or-500 tons of Reo products/year and their joint venture with Siemens to supply Neodyinium for magnets should generate significant earnings. Your thoughts?

18 Jack Lifton August 11, 2011 at 4:27 pm

Robit,

Last March I spoke to a meeting of the SAE International’s Hybrid & Electric Powertrain group in Indianapolis. Ther topic, chosen for me by the SAE, was “Is neodymium becoming too expensive for OEM automotive applications?” My answer was “No.” The problem is secuirty of supply. At that meeting there were at least 4 large-scale electric drive motors using non REPM technology on view. Ther was a detailed technical discussion of the various types of automotive drive motors, which concluded that REPM using motors are a bit more efficient and significantly lighter in weight than motors using ferrite type magnets or electromagnets.

I do not understand why the DoE is doing what it’s doing, because the ultimate choice fo such motors will be made by the OEM automotive industry, which is spending, along with its suppliers, quite a bit already on such development. These non REPM motors are not from your faher’s Oldsmobile they are up-to-date electrical engineering wizardry. I sometimes think that government think tanks run on empty. I wish the DoE would put into domestic American mining and refining of rare earths the money it has thrown away on soalr and battery research that has led nowhere.

Its politics I know, but its still disheartening.

19 Jack Lifton August 11, 2011 at 4:29 pm

jjL2u,

I don’t know Dr Leeb. I may have met him on the trail, but I don’t recall that either.

Jack

20 robit August 11, 2011 at 5:12 pm

Jack > Considering UQM’s research partners in this program:
>>Under the award, the engineering team at UQM will work collaboratively with Ames Laboratory, the National Renewable Energy Laboratory and Oak Ridge National Laboratory to develop and apply these new magnet materials in a high performance permanent magnet motor.<<
I would think they will be looking more at combinations of non-ree elements for "exotic" magnets rather than those screw-ball windings and controls in the non-ree motors. This should be right up Gareth's alley.

21 Toly August 20, 2011 at 2:57 am

Jack, a couple of comments, then a question…

1.) I have not seen you discuss Lynas Corporation and their position in the upcoming REE supply chain… Lynas is the closest to the production of substantial quantities the entire range of REO’s and has a number of contracts in place… Could you take a little time to comment on this?

2.) In your proposal of a Triventure REE project you say:

“All you will need is access to capital and negotiating skills to iron out differences among the three current managements.The synergies among the companies are striking.”

In looking at the balance sheets of all three companies you are proposing to merge the book value (and cash on hand), varies greatly as between the companies and none of these companies has significant capital resources to begin such a venture…

Of course, as you allude to, capital raising activities can be conducted to begin such a merger but it is unclear to me just which venture would be selected to develop first… That said, if I was an investor in one of the acquired juniors, I just might object to taking a back seat to another companies resources being developed before my own… It seems to me that a merger would not have any advantages unless all resources were developed concurrently which would be a monumental task…

3. A question… Little is discussed about Erbium an REE who’s use is accelerating every day… The applications for Erbium are many and just one use, in the doping of fiber transmission media (i.e. Oclara, JDS Uniphase, or Finisar) to amplify light signals used in internet applications… Obviously the quantity of Erbium necessary for these applications will grow with this rapidly expanding industry… Can you shed a little light in this area?

Thanks for your article and I am looking forward to your response….

22 Peter Griffin August 27, 2011 at 8:34 pm

Hello Dear Jack,

Hello Dear All,

It’s my first message on your blog. Thank you very much for the great information and analysis you provide to the whole community of rare earth fans.

Concerning a possible “triventure”, at the head of which GW would perform the separation and further value chain steps, I feel still quite unconfortable with their capex assumptions, especially when we compare them with Molycorp and Lynas … and even without taking into considation neither scale effets nor technical complexification of the process at the Lynas scale of production.

You explained that these low capex (30M$ for a 2500tpa separation plant – I assume we shall add to this the mine refurbishment, the concentration plant, and all studies, enginnering and project management costs …) may be explained by the experience of their chinese partner.

However, Lynas also entered into a partnership with Rhodia (that has operated for years a separation plant in France, and that still operates 2 separation plants in China) to help them develop the separation and oxides refining process. Several chinese engineers are also working right now on the LAMP construction plant. As a consequence I don’t understand well the GW competitive advantage on Lynas as the Capex point is concerned.

What are according to you the key parameters that influence the “per ton” capex necessary to develop separation plants ? Is the type of mineral a key point ? Or this parameter is only key for the concentration value chain step ? What shall we look for according to you when analysis the different projects to guess whether they are suitable for low capex separation plants or not ?

Thank you very much !

23 YORGINA November 28, 2011 at 2:34 pm

Nov 28 (Reuters) – Molycorp said on Monday that it has signed a deal with Japan’s Daido Steel Co and Mitsubishi Corp to manufacture and sell high-powered rare earth magnets.

Stock of Molycorp, a rare earth producer, spiked after the deal was announced, up 11 percent at $29.97 on the New York Stock Exchange.

Molycorp will own 30 percent of the joint venture, which will produce sintered neodymium-iron-boron magnets at a facility in Nakatsugawa, Japan.

Work on the new facility will start next month, with plans to expand to the United States eventually, Molycorp said.
WHAT DO U THINK OF THIS JACK???

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