Big News From China On The Future Of The Heavy Rare Earths Industry

by Jack Lifton on March 31, 2012 · 36 comments

in China, News Analysis, Rare Earths

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The China Daily, the official newspaper of the Communist Party of China, publishes an English-language version each day, to which I am a subscriber. I just now received my Sunday edition - it is still Saturday evening in Detroit as I write this. I ask you to read this story in its entirety and then I will make few comments. I have outlined some sections in red (a good color for reporting from China) for emphasis...
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Rare earth association 'to launch next month'

Updated: 2012-03-31 08:07
By Zhou Yan (China Daily)

China's long-awaited rare earth industry association is due to be established early next month and will cover the majority of companies in the industry chain, in the latest move to consolidate the ill-regulated sector.

The association, which will have more than 100 members, will be formally launched in Beijing on April 8, according to people with direct knowledge of the situation, who declined to be named.

Several rare earth exploring and processing companies confirmed they have received notification to attend the launch ceremony in April, without elaborating.

There has been widespread market speculation for years that the government would set up an official organization to strengthen ties among the industry's players.

Such rumors have been escalating in recent years as rare earth prices have experienced heavy volatility amid rampant illegal exploration.

For example, neodymium oxide, one of the major rare earth oxides, rose by as much as 82.7 percent since early 2011 due to speculation, but its price has plunged about 70 percent within the past six months, said Chi Weishan, a researcher at Shanghai Metals Market.

The association will be supervised by the Ministry of Industry and Information Technology, according to a report in the National Business Daily, citing anonymous sources.

The major functions of the organization will include providing production guidelines, market research and channels of communication between companies and the government, the newspaper said, adding that the association will play a role in influencing rare earth import and export quotas.

China, which accounts for about 97 percent of the world's output of the strategically important minerals, faces pressure from the European Union, the United States, and Japan, which filed a joint cased to the World Trade Organization against China over its alleged unfair controls on rare earth exports.

Minister of Industry and Information Technology Miao Wei was quoted by Xinhua News Agency as saying that China's policy on rare earths exports does not target any specific country.

China holds about 36 percent of the world's total reserves of the minerals and has paid the environmental cost for its largely unregulated and heavy exploration of rare earths.

Facing possible trade disputes between China and Western countries on rare earths, one of the industry association's pressing tasks should be to proactively deal with the disputes and guarantee the interests of the Chinese, said Yuan Zhibin, an analyst at the Beijing-based CIC Industry Research Center.

Other responsibilities will include strengthening communications among companies, and also encouraging mergers and acquisitions in the industry, he added.

The State Council issued a document in May to develop China's rare earth industry, in which it said the government aims to consolidate 80 percent of the heavy rare earth mining assets in southern China in the three biggest companies in the next one to two years.
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This announcement is really about the heavy-rare-earth elements (HREEs) extracted today from the so-called ionic-clay deposits in southern China, by the method of heap leaching. First of all, please note that the Chinese government seems to feel that the cost of environmental remediation has not yet been realized. This means that the HREEs have been produced far too cheaply. I predict that China will not increase its production of HREEs until the environmental issues have been dealt with.

Since Chinese domestic demand for consumer goods utilizing rare-earth-containing components in general, and HREEs in particular, is growing and may well be the fastest growing market in any one nation or even region for such goods, this means that Chinese HREE prices in the short term will immediately come under pressure and then trend upwards. However I think that when China is finished consolidating and remediating the environmental damage caused by the HREE extraction techniques used and by illegal mining it is possible that China may make the decision that it should seek to source HREEs from outside of China, because it may not be possible to increase, or even maintain, current HREE production rates and levels safely from the ionic clays.

I note that this edict covers the supply “chain” and that “exploration” companies in the rare-earth sectors have been “notified to attend.” I suspect that such notifications are identical to “offers” that can’t be refused in Hollywood speak.

I don’t know if there are any hard-rock deposits in China that compare to those in North America, Europe, Australia, and Southern Africa in having relatively high ratios of heavy rare earths to light rare earths. I have never heard of any, but I also know that  legal exploration geology in China is highly regulated, and that no licenses will be issued for rare-earth exploration until this June at the earliest, after a nearly two-year hiatus in their issuance.

Most (but not all) of the hard-rock HREE  deposits outside of China are of the type that contains significant thorium and/or uranium, so, in those cases, their production technologies must conform to very strict health and safety rules. They have also turned out to be mostly of the types of minerals that form silica gels when “cracked” with ordinary reagents, so their further treatment is a chemical engineering challenge that has been little researched up until the critical nature of these specific metals was recognized, just in the last few years.

I am aware of very significant progress in the cracking chemistry for hard-rock HREE minerals, and I am aware of the existence of large deposits of such hard-rock deposits that are essentially thorium/uranium free.

Japanese heavy industry and Chinese commodity powerhouses are now on the hunt worldwide for these deposits, because of the above-discussed impediments to any increase in their production in China at least for the next few years.

The United States has discouraged Chinese investors from buying control of American rare earth, or indeed of any mineral commodity, deposit or mine. Canada is I believe less reluctant, and, in the case of Japan’s Toyota Tsusho, may in fact be encouraging foreign ownership if it leads to the development of mining and refining jobs in Canada. I note that that the Toyota group has invested tens of billions of dollars in Canada and annually produces nearly ten billion dollars of products within Canada.

The European Union is, like the USA, not so eager for Chinese direct investment, but the heavy industry of the European Union, like Japanese heavy industry, has recognized the security of supply problem specifically with regard to the HREEs. Europe is well on the way to having a total domestic (EU) supply chain in place to produce HREEs by mid-decade. Japan, like Europe, needs only a mine to complete its existing total domestic supply chain.

Note that the world’s largest producers of the light rare earths in Inner Mongolia do not seem to be mentioned in this press release. This is not, I think, because their production has been free of environmental or safety problems, but because such consolidation has already occurred to a great extent under the aegis of BaoSteel’s subsidiary. This is not a good sign for light-rare-earth producers outside of China, because the Inner Mongolian rare-earth deposits are the largest known in the world, and are mined at less than 50% of capacity.

Small investors and the American government need to pay attention to the list of HREE  juniors I noted elsewhere last week. A far larger percentage of them will survive the current market cull and go on to profitable production than will survive of the more than 225 light-rare-earth-themed companies.

The American government has done an abysmal job of securing its supply of HREEs and of supporting the re-creation of a total domestic American supply chain.

The Chinese are clearly worried about their domestic security of supply of the heavy rare earths. They are, as the official article above states, going to be proactive in solving that problem. These movements by the Chinese were set in motion long before anyone in the US government finally learned how to spell WTO. The Chinese will not be deterred from their long term goal.

We need to re-learn how to compete not just to whine.

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{ 36 comments… read them below or add one }

1 Dr Robert Olson April 1, 2012 at 3:09 am

Excellent.

Spot on and right to the point.

How can anyone doubt the focus and intent of the Chinese?

Japan and perhaps EU are becoming proactive?

USA: clueless or idiots?

HREEs main focus inside China and ROW to the proactive.

Kind regards as always Jack.

2 David Kyagulanyi April 1, 2012 at 3:59 am

Jack, thanks for sharing your truly expensive knowledge for free. Some of us have learnt and are learning a great deal from you and making truly financial-life changing investment decisions based on your sharing. Thanks.

3 SouthernX April 1, 2012 at 4:28 am

This past week Orbite Aluminae had its proprietary aluminium extraction process validated by Rusal via a MOU. Part of this process has LRREs and HREEs as a byproduct. From a metallurgical point of view are the Chinese clays amenable to this beneficiation? For that matter is xenotime based HREEs, eg. NTU:ASX deposit a candidate?

Thank you.

4 Milan Arvensis April 1, 2012 at 4:56 am

Finally some positive news from US, Japan and the EU - but still be vigilant of Chinese "stone faces".

5 Jim Bond April 1, 2012 at 7:37 am

Jack:
As always a very cogent and thought provoking analysis. One question where is the list of rare earth juniors you refer to posted.
"Small investors and the American government need to pay attention to the list of HREE juniors I noted elsewhere last week" a reference or link would be appreciated.

6 Phil Dalbroi April 1, 2012 at 8:00 am

Jack another excellent article, thank you

What do you think of NTU's (listed on the ASX) prospects now ?

7 Slim Tim April 1, 2012 at 8:02 am
8 Moneir April 1, 2012 at 8:22 am

Dear
Thank you for this recent valuable knowledge.
We have a special case related to our country.
We, the Egyptian Nuclear Materials Authority, have a great REEs resource.
The Egyptian black sand monazite is widely distributed along the Mediterranean beach. Part of which was already evaluated giving promising data. We are looking for a sort of coordination / collaboration with an international company for monazite and/or heavy minerals processing. This project is so vast and need financial support which will return back again to both sides with great earnings. If it is possible, please state the way for going forward to activate this
Yours:
Moneir

9 Jim Bond April 1, 2012 at 8:25 am

Tim:
Thanks, I appreciate the link I normally follow the Rare Metal Blog but last week was very hectic and I missed that particular article. I appreciate your response

Jim

10 Yves De Moor April 1, 2012 at 8:38 am

I'm curious to find out who is doing what to secure a domestic chain of supply in Europe? Will processing take place in Estonia? Can we really talk about a domestic supply chain when you know that our deposits in Portugal are in the hands of Sojitz (Japan), and in Sweden and in Finland owned by Tasman Metals Ltd (Canada). I'm upset that our European investors have been sleeping. When I look at the RMS (Raw Materials Strategy) of EU-Commissioner for Industry Mr. Antonio Tajani, then I see no particular incentive to develop a European processing and mining strategy for rare earth metals, nor does the RMS include in general a pragmatic geopolitical strategy to secure access to minerals.

11 Ttrain April 1, 2012 at 9:20 am

This link helps with people asking about economically viable juniors:

http://dragonmetalsreport.com/

12 Tekton April 1, 2012 at 9:55 am

"Small investors and the American government need to pay attention to the list of HREE juniors I noted elsewhere last week. A far larger percentage of them will survive the current market cull and go on to profitable production than will survive of the more than 225 light-rare-earth-themed companies."

It seems we have come full circle over the past few years, and still, even a small investor can throw a blanket over the few true contenders outside of China. This is still a horse race, but the lead pack is far, far ahead of the rest of the field. Unlike a horserace though, we can still place bets during the race, with better odds.

Jack, I would especially like to know which HREE deposits have the lowest levels of radioactivity, and are they among the list you provided in the GWG article?

13 Jimp April 1, 2012 at 10:25 am

I believe Tasman and Lynas have very low thorium levels and very high amounts of HREEs.

14 Veritas Bob April 1, 2012 at 10:31 am

Ttrain,

Thanks for your shameless promotion of the 49 buck report. Unfortunately, I don't have much basis to assess what the quality of the report is, except by their own sales page. Is the lack of quality control (2010 vs. 2011) evident in the sentence "Most REE stocks have corrected at least 50% from the highs of 2010 and that has scared off many investors." perhaps reflective of the level of quality and insight to be expected in return for my 49 bucks?

15 fran April 1, 2012 at 11:28 am

AMEN, MR. LIFTON. a truthful statement/conclusion for ALL commodities in our resource constrained predicament.

16 Jack Shijun April 1, 2012 at 1:13 pm

Actually, any Chinese association of industries has difficulties to control the commercial actions of the members, although those members are under the same association, but they are also competitors in the same market in the same time, everyone will treat their own benefits more important than the interest of the association.

The association has the function to organize information exchange in between the government and members, but the real influences are limited. The Rare earth raw material price will be defined by the market demand, and the RE magnets are even driven by the final applications at the end. 2011 was a disaster year for the entire industry, however, the RE pricing are dropping down in the meantime due to numbers of the final applications had switched to other materials.

People from outside of China, has the difficulty to understand the complicated relationship in this industry, and also the difficulty to well understand the benefits in between the central government and local governments. It is just like to view the nice peony flowers in the strong fog.

Jack Shijun

17 Jack Lifton April 1, 2012 at 1:35 pm

Mr Shijun,

Thank you very much for reminding us that "capitalism with Chinese characteristics" is a lot more like capitalism with no regualtion by the state than it is like facsim, or "state capitalism." The intentions of the Chinese central government to exert total control is clear. Human nature with Chinese characteristics makes this a never-ending battle. Frederich Hayek would look favorably I am sure upon this "creative destruction' now going on in China in just this tiny sector of the huge economy based on the supply of critical technology metals being secure enough to limit the risks of investing strategically for growth. As China attempts to switch gears from an export led to a consumer demand led economy this kind of "consolidation" will be the rule.

Best regards and thank you for your insight,

Jack Lifton

18 Staber Dearth April 1, 2012 at 4:00 pm

I believe we in the US are now paying for our short term driven mentality based on election cycles and in business wanting to turn a buck quarter by quarter with no tolerance for long term investment. Also an over reactionary knee jerk political reaction to enviro whackos ( the granola eating California disease) and their over the top hyperbole that literally ensures that we dream about the impossibility of a 100% pure environment while we languish in any ability to be as close to self sufficiency as we can be. Sure, the Chinese must correct their bad environmental practices before too many of their people die and the protesting uprisings by their significant population begins to gain a head of steam.

We in the US have been dictated to by the utopian dreamer faction of tree huggers. Far better focus on balance between pollution and the necessity of extracting resources for economic flourishment is not only called for, it has to be sped up due to the far extremes we have all tolerated for far too long. We can't pollute with abandon, but neither can we stay in the polar opposite direction either. Too many politicians are non technical cretins when it comes to this sort of decision making and have been influenced far too greatly by the enviro wackos out there!

19 blackjack April 1, 2012 at 10:31 pm

We need to re-learn how to compete not just to whine.

Possibly truest thing you have said about the USA.

I maintain that the USA and the World got caught with its pants down.

Now its catchup

BTW the LAMP in Malaysia is finished - god bless Lynas and Australia for thinking outside the box

AND yes Lynas does have a share in ASX NTU for its HREE's and this will be in stage 2 of the LAMP or maybe due to issues in Malaysia it maybe built in Australia

20 Jack Lifton April 1, 2012 at 10:41 pm

Blackjack,

I am pleased to hear that the LAMP is finished. Is it operational yet? If so, what is it's planned ramp-up profile? I have been invited by the Malaysian Academy of Sciences to speak at their International Rare Earths Symposium in Kuala Lampur on May 7, and this is to be followed by a tour of the LAMP facility on May 8. If I can make it I will, and, of course , I will report what I see here at TMR.

Jack

21 Langstrumpf April 2, 2012 at 5:53 am

Blackjack,

my last information is that the project would not be finished until the second quarter of this year.

22 Veritas Bob April 2, 2012 at 8:08 am

I am pleased to hear that blackjack apparently has inside sources regarding LAMP completion, as Lynas has made no such public announcement.

Perhaps blackjack would care to share the basis for his rather dubious claim.

23 Jake April 2, 2012 at 11:54 am

staber dearth
talk about "over the top hyperbole"....

24 4now April 3, 2012 at 2:15 pm

Are you still
waiting for govermental action ? I dont believe that there will be one outside china. So companies/market has to take action. Molycorp seems now to have a vertical integrated process from mine to magnet but they plan to buy HREE at the market. BASF bought ovonic NIMH patents in mid February 2012. And they have a LOI with Lynas like Siemens but Lynas plans to separate HREE via Tolling agreement outside of china. Ucore,tasman,northern minerals, alkane can produce HREE concentrate but have no separation for them. So at best they are slaves delivering concentrate. Toyota has a deal with Matamec but can they separate HREE without chinese support? Frontier has Kores and plan to separate but as I know only LREE. So who can really deliver separated HREE? Great Western can. Molycorp will buy it in China? who can make HREE metals? Great Western can and Molycorp will also. Is that enough ? Will Great Western buy a REPM manufactoring company?

25 Veritas Bob April 3, 2012 at 2:18 pm

Follow up re: blackjack's statement above that LAMP is finished.

A Lynas Managing Director has just stated that the first phase of the LAMP is 97% complete. Last I knew, 97% is less than 100%. http://thestar.com.my/news/story.asp?file=/2012/4/3/nation/20120403152437

26 4now April 3, 2012 at 3:20 pm

Yes it will be like a car without a driving license,... Tomorrow
is a court decision for the first legal complaint against LAMP but according to Stop Lynas Initiative they plan a second one. So maybe a lot of years at the court or bankrupt earlier?

27 Jake April 3, 2012 at 6:43 pm

Lynas chart still looks horrible.

28 charlie April 3, 2012 at 8:41 pm

Jack,

could you give any incite on this recently signed excecutive order from the President

http://www.whitehouse.gov/the-press-office/2012/03/16/executive-order-national-defense-resources-preparedness

in particular Section 306

Sec. 306. Strategic and Critical Materials. The Secretary of Defense, and the Secretary of the Interior in consultation with the Secretary of Defense as the National Defense Stockpile Manager, are each delegated the authority of the President under section 303(a)(1)(B) of the Act, 50 U.S.C. App. 2093(a)(1)(B), to encourage the exploration, development, and mining of strategic and critical materials and other materials.

thanx,
charlie

29 Jack Lifton April 3, 2012 at 8:53 pm

Charlie,

Thank you for bringing this to my attention. It is a sad commentary on the US Federal Governemt that the Chief Executive sole act to resolve an issue that is critical to our future well-being is by "passing the buck" to his unelected subordinates, responsible to no one, and giving them the powerful mandate to "encourage the exploration, development, and mining" of strategic and critical materials...." This is the same as encouraging them to brush their teeth after eating; it is of no effect whatsoever for the country's well-being; its just more hot air to cover indecsion and cluelessness. The issue is the deploying of a total domestic supply chain for as many of the critical and strategic materials as we have in our country or have acess to through ownership anywhere (I know, I know: This is the Chinese, Japanese, and European goal already). I suspect that the president does not understand the issue or the problem. That is truly a sad commentary on our judgement not on his.

Jack

30 Slim Tim April 5, 2012 at 11:56 am

Hey Charlie, do you really want Jack to "incite" some extreme reaction or do you want some penetrating views into the recently signed executive order. God save us!!!

31 Jake April 5, 2012 at 12:17 pm

Jack,
Do you think it is likely that China starts restricting the the export of HREEs citing domestic use? That would a be response to the WTO.
Where would that leave the West?

32 Leon Think April 7, 2012 at 11:59 pm

Hi, Jack
I noticed that you believe the Rare Earth Association seems to be the long term national strategy. But the truth is that the approval of REA was in debate for several years. As Mr.Shijun mentioned before, the main problem of China REE resource is that the local gov was not willing to give up their benefits on REE exploration, and the central gov did not have the effective approach to control this situation. So I believe that the launch of REA is far from a national strategy, it's just a reaction to the pressure from WTO.

33 robit April 8, 2012 at 9:42 pm

" “passing the buck” to his unelected subordinates, responsible to no one,"
Often it is not written directives and regulations that are the main movers of government action. There are often verbal directions that flow like a stream of molten lava down the chain of command. When these directions come down there is no questioning or fooling around. Everyone knows that their future depends on doing the maximum they can to get whatever it is done.

We do not know if such a direction has been expressed, but we should allow that it either may have or may be coming.

34 blackjack May 4, 2012 at 11:14 pm

The LYNAS LAMP is finished and one of the engineers said in a TWEET that they were in pre commissioning phase and had completed some most tests already. FACT. THis is why they say 98% complete as some test cant be done as the license to import the concentrate to put through the system hasnt been issued. No license no product. However when the TOL is issued some concentrate will be on a plane so the LAMP can be completely tested and approved.

Maybe you people dont read!

LYNAS is waiting on the AELB to sign off on the TOL.

3 Licenses HAVE BEEN granted. But the anti Lynas group was feed information and used it as disinformation to delay the issuing of the license.

Lynas is ready to go and will be warming the kilns in anticipation of the first concentrates arriving.

ALSO LYNAS has started work on phage 2 of the LAMP. This part deals with HREE's that they will possibly get from the their 10% stake in ASX NTU - or ASX ALK is one of the richest deposits of heavies in the World.

People do your own research and find the facts instead of rehashing what others tell you. Keep up to date.

Jack please dont start dumping on the Chinese when doing your presentation in Malaysia next week. There are several Chinese business owners, that are supplying chems to Lynas, that will be there.
This China bashing is not productive.

ALSO please stop using these presentations forums for ramping GWG as they are years away from anything - Thanks

35 blackjack May 9, 2012 at 5:35 am

While we measure our loss in monetary terms ie SP plummeting

Lets spare a moment to reflect on the current losses that Malaysia is racking up!

For each and every day that they delay the Lynas LAMP, they lose.

They lose exponentially in terms of international credibility, jobs, GDP, foreign investment and on and on it goes, as all this has a knock on effect.

Malaysia have been busting a gut to attract investment away from Vietnam, Thailand, Cambodia and the new kid on the block Myanmar (Burma). Large businesses and investors are watching this play out and how its been plagued by special interest groups.

I am afraid that its been one step forward, 2 sideways and now backed up over the cliff. And for what?

This self inflicted damage will stick and add itself to the already unbelievable history and current affairs of Malaysia.

Free, transparent and fair elections?
Setting up Anwar?
Using Lynas as a political tool?
Being true politicians by delaying the issue until the issue goes away?

Take your pick?

The above, all fodder for the SP manipulation of what is to be a great company and a great stock.

The talk of Lynas packing up and moving on is not going to happen.

Why? because Malaysia like it or not needs Lynas more than Lynas needs Malaysia. If Lynas cut its loses and walked off then where does that leave Malaysia and all the countries begging for this kind of investments.

Answer is it would leave Malaysia back where it was, except with a savage downgrading in the World Banks business friendly countries list and a notice to the World as to where not to invest.

It would give the surrounding countries more credibility in being more business friendly.

Last, if Malaysia issues the TOL and the other licenses NOW, then large companies (Siemens, BASF etc.) and their spinoffs may feel relieved and step up to the plate. After time things will be forgotten. If no TOL then Malaysia will be wiping it off for a long long time.

This political football may be stroking someones vanity but it is doing absolutely NOTHING for Malaysia's international image! There's more to this than rare earths!

36 blackjack May 10, 2012 at 12:10 am

for those that consider its a Chinese conspiracy then this should be interesting
as Japan is the biggest investor in Malaysia

http://biz.thestar.com.my/news/story.asp?file=/2009/12/8/business/5256615&sec=business

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