On December 27, 2011 the Chinese Ministry of Commerce announced the first round of allocations of rare-earth export quotas for 2012, to individual companies operating in China. The total export quotas allocated during this first round come to 24,904 t of rare earths. Before we get into more specifics with the numbers, it is important to note that this announcement was unusual for three reasons:

1. The Ministry issued separate quota allocations for light (LRE) and medium / heavy (M/HRE) rare earth products, and not just for rare earths as a whole. We’ve been anticipating this change for some time, based on industry chatter from within China, but 2012 marks the first time, to my knowledge, that these separate allocations have been rolled out;
2. Also for the first time (again, to my knowledge), the Ministry clearly telegraphed the intended TOTAL export quota for the entire year, prior to making the usual follow up allocation announcement next summer; and
3. The Ministry separated individual companies into two groups – the first group received confirmed quota allocations, while the second received only provisional allocations. Companies were placed into one of these groups based on their progress towards implementing new pollution control regulations, with the latter group only getting their allocated quotas if they meet the various requirements by July 2012. Companies who fail to meet the new requirements, will have their quotas re-allocated to other companies.

In the announcement from the Ministry, it was stated that the first round of quota allocations (totaling 24,904 t) will represent 80% of the quota allocations for 2012, which indicates that the total for the coming year will be 31,130 t of rare earths, slightly higher than last year. Here’s how the two groups of allocations break down:

Let’s now break this down further – first, here are the companies that received confirmed quota allocations, divided into sub-lists for Chinese and Chinese / non-Chinese joint-venture (JV) companies. The two sub-lists are sorted from highest-to-lowest total allocation:

* Part of China Minmetals Group, which was allocated a confirmed total of 2,457 t.

Next, are the companies that received quota allocations that are provisional on them meeting the new pollution-control standards, again divided into sub-lists for Chinese and Chinese / non-Chinese JV companies. The two sub-lists are sorted from highest-to-lowest total allocation:

** Part of Baogang Group, which was allocated a provisional total of 3,450 t.

Finally, here is a comparison of the quota allocations for the past three years (compare to the projected total of 31,130 t of quota for 2012):

It can be seen that a significant majority of the Chinese / non-Chinese JV companies were placed into the provisional category, including both of the rare-earth enterprises operated by Rhodia (Baotou Rhodia Rare Earth Company and Liyang Rhodia Rare Earth New Materials Company) and one of the enterprises operated by Neo Material Technologies (Zibo Jiahua Advanced Material Resources Company).

As usual, in addition to the numbers, the Ministry also published its algorithm for assigning specific quotas to individual companies, out of the total allowed. This year, it was based on both the total volume (50%) and the total value (50%) of exported rare-earth sales for each company, in the last three years, compared to the industry as a whole.

Also as usual, a significant section of the media (both mainstream and industry-specific) got this story all wrong, incorrectly focusing on the difference between total quotas allocated and announced at the end of 2010 for 2011 (14,508 t), and the confirmed quota allocations noted above (10,546 t). The valid comparison has to be between whole-year allocations. We probably need to stop thinking about these quota allocations as being specific to six months of a given year only. The Chinese Ministry of Commerce has specified the details for 80% of 2012′s quota, and has indicated the total value of the quotas as a whole. We can expect an announcement in the summer of 2012 giving the details of which companies were allocated the remaining 20% of quotas, and whether or not the companies allocated provisional quotas, received them, or if instead they were reallocated to other companies, and which those companies might be.

There are still some unknowns about the recent quota announcement, which will be important to clarify in the near term. We need to see if any additional rare-earth product types have been added to the list that are counted for quota purposes. I’m also keen to confirm that the term “light rare earth” in the context of this announcement, refer to products based on lanthanum, cerium, neodymium, praseodymium and samarium, with the term “medium / heavy rare earth” referring to the rest.

A comment on the allocation of confirmed vs. provisional quotas: unlike a number of industry conspiracy theorists out there, I do not believe that the exclusion of the Baogang Group of companies (and others) from the confirmed quota category, until they complete efforts to clean up their environmental act, is some sort of smoke screen or ruse. Neither do I believe that any aspect (with perhaps one exception) of the announcement, was some sort of response to the approaching on-streaming of Mount Weld in Australia and Mountain Pass in the USA. It seems clear to me, based on discussions with industry insiders, that China continues to march to the beat of its own drum, and while potential new sources of supply from outside of China are of course on the radar in China, they do not drive internal policy.

That said, I will say that it seems curious to me, given the collapse in actual rare-earth exports from China in 2011 compared to the quotas allocated, that the total quotas planned for 2012 are actually higher than for 2011. We know that the significant price increases for these materials were the key factor in the demand destruction (temporarily or otherwise) seen in 2011 (with lanthanum- and cerium-based products seeing the largest declines in demand). It is possible that the authorities in China see prices falling much further than the recent decreases that we’ve seen, to such low levels that the demand for exports will return to 2009 / 2010 levels, which would “fill out” the 2012 quota allocations.

The questions in my mind then, are these: is the higher-than-2011 total quota level for 2012 simply an action taken passively in the face of anticipated price decreases (partially due to anticipated competition from Mount Weld and Mountain Pass towards the end of 2012)? Or is it in fact an indication that the authorities intend to actually step in and to intervene – forcing prices lower than their current levels, in a bid to get exports back up to the 30-31,000 tpa level? The answer remains to be seen…

One final note: although it is highly unusual for the Chinese Ministry of Commerce to make the allocation of quotas provisional on meeting certain regulations, it is actually not unprecedented. Last year, 62 t of quota were provisionally allocated to one company, Pingyuan Sanxie Rare Earth Smelting Company, on the proviso that its recent (at the time) infrastructure improvements were inspected and approved by a local regulatory agency in March 2011. The provisional nature of this quota allocation is the reason why you might see slightly different total quotas allocation numbers for 2011 – mine, above, includes the 62 t – many others do not.

Earlier today I got word that the US Department of Energy (DOE) has released an update to its Critical Materials Strategy, which was first published as a report in December 2011 2010. This document has helped to shape a fair amount of the debate on rare earths in particular, and critical & strategic materials in general, in the past 12 months.

You can download a copy of the report from here.

I’m still digesting the contents of the report; I can tell you that the DOE still considers the five rare earths dysprosium, neodymium, terbium, europium and yttrium to be critical in the short and medium term; indium is judged to now be near-critical in the near term, compared to being categorized as critical in the 2010 report.

New sections include one that covers the use of rare earths in fluid cracking catalysts, and how the petrochemical refining industry reacted to escalating prices of materials in 2011.

More to follow once we’ve had a chance to read through the report more thoroughly.

Update (01/17/12): the URLs for the report have been updated, since the original links no longer work.

I’ve received a number of emails today from people wanting to hear my thoughts on a news release from Northeastern University published earlier today, pertaining to a new magnetic material that researchers at the University have apparently discovered.

According to the announcement, the “super-strong magnetic material” may “revolutionize the production of magnets found in computers, mobile phones, electric cars and wind-powered generators“. According to one of the co-authors of the study, “[s]tate-of-the-art electric motors and generators contain highly coercive magnets that are based on rare-earth elements, but we have developed a new material with similar properties without those exotic elements“.

The material is apparently based on a compound of manganese (Mn) and gallium (Ga), with Northeastern claiming that the material “can be synthesized on the nanoscale to produce a coercive field that rivals materials containing rare-earth elements, which are considerably more expensive to process and mine“.

The message boards are abuzz with this announcement, apparently with many people (i.e. retail investors in the rare-earth sector) now worried that this material is the death knell for permanent magnets based on the rare earths neodymium / praseodymium (Nd / Pr), and thus the hopes and dreams for untold riches from these commodities…

Take a deep breath, folks.  Being a materials scientist by training, I am naturally a big fan of ongoing research & development work on new engineering materials, and I will read with interest more details on this research, in a forthcoming edition of Applied Physics Letters. I am much less of a fan of the now well-worn path of hype disguised as scientific (and more importantly engineering) breakthroughs, which this announcement represents.  Here’s why:

• While Mn is cheap as chips, Ga is at present 2-3 times more expensive than Nd / Pr;

• The production of Ga is approximately 200 tpa – of which perhaps 100 tpa comes from recycling – and it is presently all spoken for. Compare this to the more than 20-25 ktpa of Nd + Pr available each year, and the prospects for multiples of this production rate in the near future, from new sources of supply.

• All new Ga is produced as a byproduct of aluminum and zinc production. The supply dynamics of these two metals alone will determine future availability of Ga – not its potential use in a permanent-magnet material.

• Given the painfully long road to commercialization for other materials that rely on similar processing routes, it is highly unlikely that synthesis “at the nanoscale” will be less expensive than mining and processing rare earths any time soon.

• Finally, while we’re at it – a “highly coercive” magnet material, is not the same thing as a “super-strong” magnetic material. The former refers to the ability of a material to resist being demagnetized; the latter to the ability of the magnet to do work.

Last week I received some criticism via email, from executives at some of the companies that I did NOT mention in my most recently published TMR article, “Decoupling The Rare-Earth Junior-Mining Market From Emphasis On Molycorp And Lynas.” Each apparently assumed that absence of evidence was evidence of absence. Let me try to set the record straight by expanding the narrow coverage, which I purposefully chose in that article.

There are a number of potential new producers of LIGHT rare earths that I like the look of. I note that most blogger-commentators assume, wrongly, that by merely going into production at any level, Molycorp Inc. (NYSE:MCP) or Lynas Corporation Ltd. (ASX:LYC) will close the window of competition for the non-Chinese supply of rare earths. This is simply not true. There is absolutely no chance that the future rare-earth-demand market will simply replace one monopoly with another.

Last week it was my intention to publish an article speculating primarily and specifically on the survival of the heavy-rare-earth-themed junior miners beyond 2015. I assumed that my audience would understand that I was not writing about the future market for the supply of the light rare earths, but that I was writing specifically about the future market for the supply of the heavy rare earths. It seems that even within the rare-earth world, a lot of people do not understand that a monolithic rare-earth market, per se, does not exist, other than in the fertile minds of share-price promoters, and that there are individual active markets for just some of the rare earths, and just small, research-focused markets for the rest of them.

The most important of the light rare earths are in my opinion lanthanum (La) and neodymium (Nd). Low-cost producers of either or both of them, with low break-even points and high value-added entry points into the supply chain will be suppliers of these two materials in and after 2015, especially if these characteristics are combined with excellent marketing.

China has been operating without any serious competition now for more than a decade. Outside of China, in the short-to-medium term I see only four new producers capable of joining Molycorp (a well-established, existing producer looking to expand its operations) in making the cut, in some combination, in the La and Nd markets. Each appears to be a well-managed entity with good grades and significant deposits of light rare earths. These new companies should each be foremost in the minds of the business development and marketing staffs of Molycorp and of each other, because I consider each of them to be a potentially formidable competitor. Those four new producers are:

1. Lynas Corporation Ltd.
2. Arafura Resources Ltd. (ASX:ARU)
3. Frontier Rare Earths Ltd. (TSX:FRO)
4. Rare Element Resources Ltd. (TSX.V:RES)

I have followed these four companies quite closely. However I don’t have any direct knowledge of Lynas’ operations. I have met with and had extensive discussions with Lynas’ Matthew James and Eric Noyrez on different occasions, and I was very impressed by their respective knowledge.

During my visit to Australia in June 2011, my colleague Gareth and I were invited to visit the site of Arafura’s Nolans Project site. We toured the future mine site and its drilling camp guided by the operations manager, and I found him and his geological staff and workers to be outstanding. I have not had the chance to meet Arafura’s technical or senior management.

I first visited Frontier’s well-situated Zandkopsdrift project, right after the 2010 Mining Indaba, in Cape Town. I was privy to its original marketing to the institutional investment world, and I was compensated for some services rendered at the time.  I said at that time, and I repeat it now, that the Frontier offering prospectus was the best document of its kind I ever saw. Frontier’s senior management is top notch, administratively and financially. I have not met the company’s technical or operating management.

I have also visited Rare Element Resources’ Bear Lodge project, well-situated in Wyoming, and I have had extensive contact with its senior administrative and technical management and  staffs at both the mine-development site and at its administrative HQ. All are professionally of the highest caliber. I am currently a business-development consultant to Rare Element Resources.

I believe that if its Malaysian political issues are resolved, then Lynas will be the first NEW large scale, built from the ground up, producer of the light rare earths outside of China, since the Chinese achieved absolute dominance in the market in the 1990s. Lynas has top-flight technical and marketing management, and its Malaysian plants were designed by Rhodia, which is certainly one of world’s pre-eminent and ongoing centers of expertise, in the separation and purification of the rare-earth elements by solvent-extraction operations.

It is my belief that Chinese actions with regard to markets, both foreign and domestic, for anything (commodity, manufactured good, or service) with economic consequences, are driven by the state, in furtherance of well-planned industrial policies. Such polices, continually measured by performance to objective, are intended to raise China’s standard of living as uniformly as possible in the short term, and as widely as possible in the long term.

This means that if it is Chinese policy to switch its economy from one that is export-driven to one that is consumer-driven, and if its primary restraints are to control simultaneously both inflation and the value of its national currency with regard to the convertible currencies, then it is most likely today reacting to the fact that it is overproducing the light rare earths and under producing the heavy rare earths. The current five-year plan, which runs through 2015, calls for the elimination of corruption and environmental damage in the rare-earths mining industry. This is being accomplished in stages that encompass the consolidation of the industry followed by a strict internal control of production (licensing regime) and finally, I believe, by the potential creation of a transparent trading and futures market for the rare earths within China.

Exports of rare earths as raw materials will continue only so long as they are produced, for any reason, in excess of domestic needs. The result of the restructuring of the industry is to be the absolute control of the supply of the rare earths, so as to insure that they have as much value added as possible within China no matter what their ultimate destination. I believe that at the present time, or certainly by 2015, the heavy rare earths, terbium (Tb) and dysprosium (Dy), are essentially to be no longer exported in any form other than as contained in finished goods. I also believe that the light rare earths will be produced within China only to the extent needed by the market within China by 2020.

There will thus arise opportunities for any rare-earth-containing product desired to be produced outside of China, to have its rare-earth content be supplied from outside of China. This demand will arise solely in the event that the total supply chain for rare-earth-containing products exists outside of China. Today such a total supply chain, except for the first step, the mining, exists only in Japan.

Total supply-chain construction, for the above reasons, is now underway in Korea (utilizing non-Korean mining)  and in the EU financed by private enterprise, as it has also been financed in Japan. If the financiers and industrialists of the USA do not now immediately design, finalize, and implement total supply-chain re-construction, the USA will cease to be in the rare-earth-containing, end-use-product supply business. Of course the USA could remain a source of raw materials, if the criteria listed above for individual business survival are met by an American company.

I believe that along with Molycorp, the four predominantly light-rare-earth producers that I noted above, will all be in business at the beginning of 2015, and well under way, and in some cases will have either ramped up production or will be in the process of doing so.

The continued long-term survival of any and all of them, will depend on staying in business long enough to get to the point where their relatively small amounts of heavy rare earths will add substantial revenues to their balance sheet. In each case, this will require at least 20 ktpa of production. A combined 100 ktpa of production from these five producers would add around 14 ktpa of Nd to the global supply in 2015, and around 400 tpa of Dy.

I believe that the global demand for rare-earth permanent magnets will continue to grow at today’s rate of 10% pa. Therefore four years from now, in 2015, the demand will have grown by nearly 50%.

I do not believe that all four of the new companies I have discussed above will have reached a production rate of 20 ktpa by 2015, and I do not believe that any of them will recover more than 80% of their contained rare earths. Therefore this makes me believe that, if the Chinese do NOT increase their overall production of light rare earths from its present level, then Nd could be in short supply in 2015, and even if the Chinese should increase their current production rate of light rare earths, I do not believe that they can do so for the heavy rare earths. The result is that Dy production will be more seriously in deficit in 2015 than I believe it already is now.

This means that I think Nd oxide prices will bottom at $100/kg or more, although I think they are too high today, and that I think that Dy prices will continue to be strong.

All of this depends on the adoption of a rational marketing scheme by the non-Chinese rare-earth industry. The demand for Nd by the OEM automotive and alternate-energy industries is price sensitive, due to competition. “China Incorporated” is presenting an unprecedented challenge to both industries, because it will surely supply its own domestic industries before it even worries about export, and China Inc. will not put its domestic industries in a non-competitive position under ANY circumstances.

Non-Chinese end users that produce within China are already in a dilemma. They feel secure that in their Chinese operations they have security of supply based on the large numbers of Chinese workers they directly employ. Most think also that even if China directs the growth of its economy towards increasing domestic consumption they will still benefit financially. Therefore they are trying to source critical and strategic metals for their non-Chinese operations separately and outside of China.

But the end users will NOT pay any price. They must remain competitive in world markets in order not only to survive in their non-Chinese markets, but also to prevent Chinese excess production from undercutting them in the export (from China) markets. Keep in mind that China will not switch from an export-driven to a domestic-consumption-driven economy in one day. The transition will be gradual, and the Chinese will always want to be able to “dump” excess production offshore.

Note well that the heavy-rare-earth production-themed companies that I discussed last week, which survive, will all produce Nd and La along with Dy, Tb and yttrium (Y). The aggregate additional supply of this Nd and La will help keep the prices for those light rare earths in check, and it is trivially obvious that magnet producers and end users will have little choice in the matter, if the Dy producers insist on their taking Nd from them as well, in order to guarantee their supply of Dy or Tb.

The various rare-earth markets are interdependent in a complex way that depends on their end uses. Greedy stock promoters are no match for the forces of the market. “Announcements” are not solutions to problems of supply. Production levels are the only “announcements” anybody in the industrial world cares about. No assured production means no guaranteed demand.

by Brian Sylvester – The Critical Metals Report – published: Nov 22, 2011

Brian Sylvester: Gareth Hatch, co-founder of Technology Metals Research LLC, gives us the lay of the land in the rare earth sector. Many variables are shaping this developing market, and from calculating global demand to anticipating individual project costs, data makes the difference in determining viable investments. Gareth Hatch gets down to the nitty gritty in this Critical Metals exclusive, and comes up with some promising projects in the works.

The Critical Metals Report: Gareth, Greenland’s natural resource minister said that beginning in 2012, his country will take bids to develop its rare earth element (REE) deposits. What do you make of that?

Gareth Hatch: It was a little surprising, frankly. Of course it very much depends on the existing relationships in place between the private-sector companies and the government there, and how they intend to exploit those resources, but I might be a little concerned if I were one of the private companies and the government had not approached me first, before making this announcement.

TCMR: Are you talking about companies like Hudson Resources Inc. (HUD:TSX.V)?

GH: Possibly, yes. Of course we don’t know who has talked with whom. Hudson has its Sarfartoq project in the southwest. Greenland Minerals & Energy Ltd. (GGG:ASX) has its large Kvanefjeld deposit in the south, and a handful of others have projects, too. They have invested a lot of time, effort and money into their projects.

TCMR: Molycorp Inc.’s (NYSE:MCP) CEO, Mark Smith, asserts that the 30 thousand ton (kt) REE export quota issued by Chinese authorities for 2011 is equivalent to only 21 kt rare earth oxides (REOs). Considering that ferroalloys are included in the list of compounds covered by the quota, it seems like an even tighter quota than was expected.

GH: Including this new category of materials likely does reduce the equivalent REO to 21–22 kt, but in 2010, without ferroalloys, the equivalent was 22–24 kt. We have to compare the right sets of numbers. I agree that there has been a decline, even if it is not as dramatic as going from 30–21 kt. Whichever way you look at it, it is still less than the demand for rare earth oxides, although of course there are significant quantities of rare earths being exported out of China illegally.

TCMR: Electric vehicles are a key end-use for rare earths, particularly in permanent magnets. Is the recent, highly publicized combustion of Chevrolet’s Volt a threat to the sector?

GH: I don’t think so. If there were systemic safety issues that threatened the rollout of these vehicles, and subsequent market penetration, then there might be some concern about demand. But I think it’s unlikely. On the other hand, from a material usage point of view, if there really is a problem caused by Li-ion batteries, then this could be an opportunity: Prius-class hybrid vehicles use nickel-metal hydride batteries, which contain fair quantities of rare earths. Either way, I don’t see the industry being derailed.

TCMR: In Critical Rare Earths, you say that the world will break even on supply and demand for neodymium oxide by 2013, but not until 2015 for europium oxide. Meanwhile, Byron Capital says there will be 5 kt of annual oversupply of neodymium oxide by 2013, and 309 tons of extra europium oxide by 2015. Whom do investors believe?

GH: There are several differences between our numbers. Byron is predicting lower demand than the U.S. Department of Energy (DOE), whose projection numbers I used in my report. With respect to europium specifically, Byron includes some potential ionic-clay deposits outside of China in its projections. I suppose that one or two of these might exist. Byron assumes that they do and that they can be brought online faster than other sources of supply, which will generally come from hard-rock deposits; I did not factor hypothetical ionic-clay deposits into my calculations.

TCMR: Byron assumes there will be less demand for neodymium and europium because, if they are too expensive, end users find alternatives. In some cases, that has already happened.

GH: The DOE numbers were based on projections completed in the latter half of last year, and prices didn’t peak until this past summer. When the DOE updates its data, it will likely factor in current prices and potential effects on demand. If we look at downstream end uses, the price of raw materials directly affects the price of permanent magnets, for example, and motor engineers are already starting to choose designs that use fewer magnets, because the cost savings outweigh the additional manufacturing challenges of such designs. Thus, I can see current demand projections being quite different from where they were a year ago. Byron likely has a more up-to-date set of assumptions. We are waiting to see what updated figures the DOE puts out before the end of this year, and based on that, I would imagine that in the first half of next year we would revise our surplus/deficit projections accordingly.

TCMR: What numbers are rare earth companies using to project supply and demand?

GH: Most junior mining companies use the data that Dudley Kingsnorth puts out from Industrial Minerals Company of Australia (IMCOA). He typically updates his information two or three times a year. Mr. Kingsnorth recently reduced his demand projection for 2015 from about 190–170 kt of total rare earths. Other companies, most notably Lynas Corp. (PINK:LYSCF) and Molycorp, combine IMCOA’s numbers with their own research, but get roughly similar projections.

TCMR: You also said the grade and distribution of the critical REE (CREE) neodymium has the greatest influence on the rankings by grade, of CREEs present within specific mineral resources. Does that mean the higher the grade of neodymium present, the more likely a deposit is to be developed?

GH: Not necessarily. By mass, you would expect to see more neodymium than any of the other rare earths (i.e. europium, terbium, dysprosium and yttrium) simply because it is a light REE (LREE) and LREEs are more abundant; the other four are heavy REEs (HREEs) and generally occur in much lower quantities than neodymium. That said, there is increasing demand for neodymium-based permanent magnets, and thus neodymium (and praseodymium) and its usage in magnets will be a key factor in the potential development of early-stage projects. However, other factors must be considered, such as first-mover advantage and infrastructure. Some would argue that these are more important than the grade present of a particular element. You don’t have to have a top-five CREE distribution or grade to have a potentially successful project.

TCMR: In terms of the in-situ quantity of individual CREEs, what are the top-five deposits?

GH: If you look at the breakdown of in-situ tonnage of each of the five CREEs, for neodymium, the Kvanefjeld project in Greenland and the Nechalacho project at Thor Lake, owned by Avalon Rare Metals Inc. (AMEX:AVL), ranks highest. They both have well over an estimated 800 kt of neodymium within their respective mineral resources. You’ve also got the relatively new resource estimates for the Montviel project in Quebec from GéoMégA Resources Inc. (GMA:TSX.V) and the Eldor Project owned by Commerce Resources Corp. (CCE:TSX.V; D7H:Fkft; CMRZF:OTCQX). The fifth-ranked deposit by quantity of neodymium would be Strange Lake, owned by Quest Rare Minerals Ltd. (AMEX:QRM).

It’s important to bear in mind the maturity levels for each of the projects in this sector in terms of their mineral-resource estimates. Many of the early-stage exploration projects have Inferred resource estimates only, in contrast to, for example, Avalon’s Nechalacho deposit, which in addition to having a portion of its mineral resources at the Indicated level (which gives a higher degree of confidence in that part of the estimate than data at the Inferred level), is also one of the very few projects out there with an actual mineral-reserve estimate (i.e. a portion of the mineral resource has been independently determined to be economically viable). That gives you a particularly high level of confidence in the overall in-situ quantity data for a development project like that, versus those at a much earlier stage. If you look at europium, terbium and dysprosium, Nechalacho has the most of each in the ground, based on those resource estimates. You have Montviel and Eldor for europium, too. Mount Weld in Australia, owned by Lynas, has quite a bit of europium and terbium and Kvanefjeld again shows up on the list, for europium.

Other names that show up as you go down the line: the Norra Karr project from Tasman Metals Ltd. (TSM:TSX.V; TASXF:OTCPK; T61:Fkft) in Sweden would be one. Norra Karr features quite a bit of terbium and dysprosium, as does Alkane Resources Ltd.’s (ALK:ASX) Dubbo Zirconia Project in Australia. They make the top five for quantity of in-situ dysprosium and yttrium. Some of the same names show up repeatedly, reflecting the overall size and maturity of their rare earth estimates.

TCMR: What were your impressions when you recently visited Tasman Metals’ Norra Karr project? Can it supply European manufacturers with the rare earths that they need?

GH: Well, one has to remember that these materials are fungible, so you can use them anywhere, not just in one geographic region, but certainly, shipping costs do apply. What struck me about Norra Karr was that it’s maybe 400 meters from a major highway that comes southwest from Stockholm. From an infrastructure and accessibility point of view, it doesn’t get much better than that.

TCMR: Is the company planning to produce oxides or concentrate?

GH: The current plans go as far as the concentrate stage. Like a number of other rare-earth projects currently under exploration and development, Norra Karr contains zirconium silicate minerals, so Tasman will have to demonstrate that it can handle what are thought of by some, to be difficult minerals to process.

HREE concentrates are typically going to be separated via different processing circuits than the other concentrates potentially produced at such deposits; so the company may go elsewhere to get its concentrates separated; Tasman is keeping its options open. The company may not necessarily do the separation in-house.

TCMR: Isn’t that where the most value is?

GH: It is. Tasman won’t necessarily sell its concentrates; there are potential opportunities to do tolling or to maintain value and ownership in other ways. The key concept behind Innovation Metals Corp., the company that I recently co-founded with Patrick Wong, is the creation of centralized separation facilities for just this type of scenario—to provide services to companies that have concentrates, particularly HREE concentrates. The companies could toll those materials for a nominal fee, while retaining ownership of the separated materials afterward, all without having to invest extensive capital in big and expensive separation facilities of their own.

TCMR: Like a base-metal smelter.

GH: Yes; this tolling concept is a fairly well known concept in other industries. The key technical challenge of course, is whether you can take in concentrate feedstock from multiple sources. We think we can do that.

TCMR: What struck you when you visited Quest’s Strange Lake deposit in northern Quebec?

GH: Quest has a really nice deposit up there; a number of knowledgeable geologists walked us through the details on our visit. Quest also has a very professional organization and is well resourced. The challenge of course, is that Strange Lake is tucked away in a part of Canada that would require significant new infrastructure, to be able to properly service it and to get materials in and out.

When we were there, the company was just finishing up exploration and was starting the process of “handing over the reins” to the engineering people. Quest is now finishing up its prefeasibility study. The company has also recently added a director to its board with mining project experience. Quest is looking to expand and looking to put the right people in place to make this project a reality, if it can get the next stage funded.

TCMR: Quest President and CEO Peter Cashin has been talking about not only shipping concentrate, but separating the rare earths into oxides. What are your thoughts on the probability of that?

GH: These companies have to make a decision: at what point should they sell: at the concentrate stage or after producing oxides? If they can find the capital to build separation facilities and produce oxides and they have workable processes, then they will of course consider separating concentrates into oxides. Currently there aren’t many alternatives; no one processes commercially significant quantities of heavy rare earths outside of China, which is where a company like Innovation Metals comes in. If Quest doesn’t get into separating oxides, it has to figure out how to maximize its revenues from its concentrates.

TCMR: What other projects have you visited?

GH: I have visited Avalon’s Nechalacho project in the Northwest Territories, which is in the advanced stages of development. The company is currently looking to hire a number of additional production and engineering folks. I have always been impressed with the Avalon management team’s handling of technical development, especially its interactions with the First Nations people who live in that area.

TCMR: Nechalacho has some impact benefit agreements worked out with the local First Nations. However, there could be some issues as people learn about the environmental risks associated with rare earth mining. Do you think that Avalon’s exceptional relationship with First Nations will mitigate that?

GH: The plan for Nechalacho is to mine underground. Visually and physically, underground mining has less impact on the surface, though of course every project has supporting facilities above ground.

TCMR: But there will be tailings, right? And often these deposits have elements like uranium or thorium, which are radioactive. I’m not sure if Nechalacho has these, but it’s common.

GH: Certainly some groups are likely to be concerned about the effects, sure, but that’s not unique to Nechalacho. As I said, I have always been impressed with Avalon’s corporate and social responsibility initiatives; I think that the company has a genuine desire to do the right thing, and yes—it has very good relations with the local people—exemplary, in fact.

We need education on this. Environmental protection is extremely important, but some companies are actually prepared to invest in the technology and careful planning that can be used to reduce and to mitigate environmental impact. The industry as a whole needs to get that story out there. It is also important that consumers realize where the magnets in their cars and hard drives, the phosphors in their computer screens come from— ultimately from minerals that you have to get out of the ground. That is not an excuse to rape and pillage the land, and some companies in the industry are better than others in doing their bit. But this is not just a rare earth issue; it’s a mining issue in general.

TCMR: Among the projects you named, what’s a rough estimate of the average cost of development?

GH: At a minimum you’re talking in the low hundreds of millions of dollars. Larger projects with higher production rates or HREE-rich deposits tend to run from half a billion to over a billion. Projections for the Kvanefjeld project in Greenland, for example, are over $2.3 billion (B). There is quite a range for different types of projects in different stages of development. Of course, if a project has already completed a prefeasibility study, the current cost estimates should be closer to the actual final costs, than those in a scoping study or other earlier-stage estimates.

TCMR: Are any projects going to be developed for under $200 million (M)?

GH: The Tasman folks have said that Norra Karr is looking at $200M for getting to the concentrate stage. Its relatively low number for a HREE project is influenced by the presence of existing infrastructure. Smaller projects, like the Bokan-Dotson deposit in Alaska owned by Ucore Rare Metals Inc. (PINK:UURAF), and the Zeus/Kipawa project in Quebec owned by Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX ), are fairly modest from a production rate point of view. Assuming these companies can sort their metallurgy and flow sheets out, my understanding is that current estimates for Bokan-Dotson are around $175M for development, and for Zeus / Kipawa, probably closer to $300-350M.

TCMR: Much like Tasman Metals, Matamec is also close to infrastructure and located in a mining-friendly area.

GH: I had the chance to take a trip out to Matamec, and it was pretty close to power lines and logging roads and not far from paved ones. It was a short hop from North Bay, and Quebec is by all accounts a mining-friendly jurisdiction.

TCMR: What are some promising projects in Africa?

GH: One is the Steenkampskraal mine in South Africa, which I visited earlier this year, and is owned by Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX). It is a former thorium mine with historical estimates of very rich REE grades. It is currently being refurbished. Also in South Africa is Zandkopsdrift, the project owned by Frontier Rare Earths Ltd. (FRO:TSX), which has Indicated and Inferred mineral-resource estimates. It is going through the scoping study for Zandkopsdrift right now, more usually known these days as the preliminary economic assessment (PEA). Montero Mining and Exploration Ltd. (MON:TSX.V) recently published an Inferred mineral-resource estimate for its Wigu Hill project in Tanzania. The other project that some folks will be familiar with is Kangankunde, in Malawi, currently owned by Lynas. Those four have the most public-domain data available on their exploration activities, out of all of the REE exploration projects currently underway in Africa.

TCMR: Frontier and Montero both have deals with Korea Resources Corp. (KORES). Do you think that that gives them an advantage?

GH: It depends on the scope and scale of KORES’ involvement, but in terms of financing and support, there is a potential distinction in the investor’s mind between them and other companies at similar stages of development. Some see it as offering increased confidence that the company will have access to funds and other resources. On the other hand, there is potential concern from the supply chain that once such resources are developed, they won’t be available on the market, so the deals would have little direct benefit to non-Korean end users. I think it’s too early to say, but it is clear that non-private-sector actors are looking to establish long-term relationships with the owners of potential sources of supply, on behalf of end-user companies in their respective countries.

TCMR: Why do you think KORES chose those two deposits?

GH: Their mineral-resource estimates show that they have good grades (over 2%) of LREE materials, contained in minerals that should be fairly straightforward to process. Do remember that LREEs are still required for a wide range of applications; I think that this simple fact gets lost in the stampede of interest in HREE projects sometimes.

TCMR: What is the production timeline for Frontier’s and Montero’s projects?

GH: Montero has just recently defined its resource, so I would be surprised if the company was throwing around production dates yet. Frontier is estimating that its Zandkopsdrift project will enter production in about 2014. Some investors would probably stick their neck out and use such dates, but for me, the scoping study/PEA stages are perhaps a little early for decent estimates.

TCMR: Is there anything you’d like to leave our readers with?

GH: They need to realize that the investor’s point of view is very different from that of the supply chain. Investors are looking to grow their investments through dividends and increased share prices, while supply-chain folks are looking for production—they need metals and other finished goods. They really don’t care which projects succeed in the stock market, so long as some do. They are also not going to wait forever for projects to come onstream, in the face of escalating prices; they will do what they need to, whether that is engineering re-design work, or reducing the per-unit quantities of materials that they need. Therefore, investors need to keep a close eye on demand estimates. The conversation about Byron’s numbers versus mine was a good illustration of that. The supply chain ultimately dictates demand, and understanding the individual rare earths, each with their own demand profiles, will give some clues about where the supply chain is going, and thus the potential future market as a whole.

TCMR: Are you saying there isn’t room for all of these projects to be developed?

GH: TMR is tracking well over 390 different rare earth projects at present; I can’t see more than 8-10 coming onstream in the next 5-7 years. My colleague Jack Lifton recently got some heat for saying something similar recently, but it should be pretty obvious that that’s the nature of the beast. Projects already well past exploration and into the development and engineering stage, and beyond, clearly have first-mover advantage. As demand grows, other projects might become viable.

TCMR: Thank you, Gareth; it’s been a pleasure.

DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Quest Rare Minerals, Matamec Explorations Inc., Ucore Rare Metals Inc., Commerce Resources Corp., Tasman Metals Inc., Montero Mining and Exploration Inc. and Frontier Rare Earths Ltd.
3) Gareth Hatch: I personally and/or my family own shares of the following companies mentioned in this interview: Innovation Metals Corp. I personally and/or my family am paid by the following companies mentioned in this interview: Innovation Metals Corp.

Yesterday I listened to a conference call hosted by Molycorp Inc. (NYSE:MCP), to discuss the company’s Q3 2011 financial performance. The call covered the expected ground, going over the financials and milestones that the company achieved in this last period. No surprises there; Mark Smith, the company’s CEO, pointed out the record revenues that the company earned in this period, which of course is great news for Molycorp shareholders.

As the call proceeded, Mr. Smith started to review what he called the company’s “multi-pronged heavy rare-earth strategy” for the mid- and long term. My ears pricked up at this point, to see if he would confirm some important information about the heavy rare earths at Mountain Pass that I had heard about for the first time earlier this week, from someone else at Molycorp. Unfortunately he did not; later in this article I will share with you what I heard earlier in the week anyway, and let you come to your own conclusion.

Mr. Smith described four different parts to the Molycorp’s heavy rare-earth plan. These include recycling, increasing the efficient use of heavy rare earths in key applications, and deploying new cracking technologies at Mountain Pass, to enable both bastnaesite and monazite ores to be processed at the facility. In the past, Mr. Smith noted, only bastnaesite was processed, with the monazite present in the ore body going into the tailings basin. Mr. Smith noted that with this capability, the new cracking facility would be capable of processing mineral concentrates from other rare-earth resources as well, and in response to a question from an analyst, named this capability as the most important part of the overall plan.

Mr. Smith also mentioned the recently announced strategy from Molycorp, to look at additional properties known to Molycorp, which contain minerals with significant heavy-rare-earth element (HREE) content. While he gave no further detail on the make-up or location of these projects beyond that which has been previously provided, given his statement about the cracking facility at Mountain Pass, one could reasonably surmise that such deposits are likely to be dominated by monazite, since there is usually very little HREE content in bastnaesite minerals.

Molycorp has consistently stayed “on-message” with its statements that it will be producing 10 rare earths in “commercially significant quantities”, from the Mountain Pass ore body. This was re-iterated once again in the company’s October 2011 presentation, titled “Rare Earth Resurgence: Molycorp’s Plan to Increase Global Diversity in Rare Earths Through Technology Innovation” and available on its Web site. In this presentation the 10 “significant REEs” are listed as lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), and yttrium (Y). I’ve re-ordered the list shown on the Molycorp slide, to reflect ascending atomic number. The slide includes a statement below the list which says that “Molycorp intends to produce all 10 of these rare earth elements commercially”.

Later in the slide deck, in a separate section titled “Project Phoenix Update”, is a chart which shows which rare earths and metals Molycorp plans to produce during Phases 1 & 2 of their new production capabilities. The list includes oxide equivalents of Ce, La, Nd-Pr (together known as didymium), as well as La metal and “other”. The first four items on the list total around 99% of production, if I read the chart right; looking at the REE distribution in the Mountain Pass ore body, that makes sense, since it matches the average content of those items in the ore body.

One might infer from my last two paragraphs above that, although the REEs Sm-Eu-Gd-Tb-Dy-Y are a small proportion of the Mountain Pass ore body, that they will still be processed into finished products in the near future, just like their more dominant Ce-La-Nd-Pr counterparts.

A reasonable inference, but, it turns out, an erroneous one.

I’ve wondered for a long time now, just how Molycorp intended to produce these “other” REEs in “commercially significant quantities”, given the small quantities present in the ore body. Surely it wouldn’t make sense, I thought, to build HREE separation circuits, given the significant costs associated with such a capability, for such a small quantity. I know others have wondered the same thing, how such capabilities could be accounted for in the $781 million budget for Project Phoenix.

Well finally, all appears to have become clear, following some comments that I heard this week from a Molycorp official other than Mr. Smith.  The first comment concerned the fact that the quantities of Dy and other HREEs to be produced from Mountain Pass remain to be determined, in part because there is still work to be done to quantify the distribution and quantity of Dy and the other HREEs present in the Mountain Pass ore body.

The official then mentioned that the separation of MREOs / HREOs (i.e. oxides of Sm-Eu-Gd plus the remaining HREOs) would likely form part of a “Phase 3″ for Project Phoenix, and that until then, any MREE / HREE-rich concentrates produced in the new cracking facility, would likely be stored as concentrates, for future disposition. When I asked if the official could confirm that the costs for such a Phase 3 MREE / HREE separation facility, were NOT included in the $781 million budget for Project Phoenix, he indicated that they probably weren’t. Therefore, if I understood this official correctly, it appears that Molycorp has no plans at this time, to produce separated MREOs / HREOs at Mountain Pass, during the first two phases of Project Phoenix.

Now technically, to my knowledge Molycorp has never actually explicitly said that they would produce separated MREOs / HREOs as part of the ramp up to 40,000 t of product, but the company’s assertion that it will produce such elements in “commercially significant quantities”, made in the same “breath” as reference to the others that we know are going to be produced, certainly implied otherwise, and obviously could well have given many in the market the wrong impression, if what the aforementioned official said, is accurate…

One other comment on the call yesterday caught my attention, because I believe it is also misleading. This relates to the assertion that the 30,000 t of rare-earth export quota issued by the Chinese authorities for 2011, is actually equivalent to only 21,000 t of REOs, because of the inclusion of ferroalloys on the list of compounds covered by the quotas. This was the same assertion made by Molycorp in a New York Times article at the end of July 2011.

The article stated:

“Everybody seems to be relaxed because the year-on-year number for 2011 versus 2010 is basically the same amount of materials, roughly 30,000 tons of export quotas,” Molycorp Inc. CEO Mark Smith said in an interview. “The discrepancy is created because China continues to add more products that are covered by the quotas, but we never seem to want to take that into account.”

So far, so good.

Doing an apples-to-apples comparison, Smith says, China’s export quota is really closer to around 20,000 tons. Meanwhile, he predicts the global demand to be much higher.

And here’s the problem – that was NOT an “apples-to-apples comparison”. Apples-to-apples would be directly comparing the 20-22,000 t REO equivalent in 2011 with the 22-24,000 t REO equivalent in 2010 that IMCOA and others estimated on the same basis – the difference being accounted for by the inclusion of ferroalloys this year. The same applies to previous years too, of course.

In the original NYT article, the comparison was instead made between the 30,000 t figure for 2010, and the equivalent of a figure of 21,000 t for 2011. The same (in my mind flawed) logic is contained in the summary comments on the conference call yesterday. In the absence of the fuller comparison described above, using this 21,000 t figure in this way is in my mind potentially misleading, and should be discouraged.

Anyway – that’s it for now. Check out the TMR Web site again soon for more comments and perspective on the rare-earths sector.

UPDATE #1 (11/13/11): Since posting the original piece above, we’ve received unsolicited feedback from recent visitors to the Mountain Pass project, who were apparently told that MREE/HREE-containing concentrates from Phase 1 & 2 processes, would be stockpiled for further processing at some indeterminate point in the future.

The rare-earths community has been all a-buzz these past 24 hours with news from Molycorp, Inc. (NYSE:MCP) that they are looking to develop a heavy rare-earth element (HREE) prospect in the USA.

Things kicked off yesterday evening with the publication of an article by Keith Bradsher on the New York Times web site, titled “Molycorp Set to Announce a Rare Earth Rediscovery“. In the article, Mark Smith, CEO of Molycorp, is quoted as saying that “the company might be able to begin producing heavy rare earths in a little over a year from now”, and that the prospect is near to the existing Mountain Pass facility in California.

The article went on to say that

“The company still needs to do extensive test drilling to determine the quality and quantity of the rare earth ore. [...] Geologists first noted the outcropping in 1950 while mapping the area around what is now the Mountain Pass mine. But back then, Unocal, the oil company that acquired the mine, was mainly interested in light rare earths used in either oil refining or color televisions. So the company began mining a nearby lanthanum-rich deposit instead. Information on the heavy-ore outcropping eventually became buried in Unocal’s vast archive of maps and mineral analyses from rare earth deposits around the world, said John L. Burba, Molycorp’s executive vice president and chief technology officer.”

TMR has been doing some homework on the new HREE prospect, and may have found its possible location – but more on that in a moment…

This week the European Institute at the Cosmos Club in Washington, DC is hosting the Trilateral EU-Japan-U.S. Conference on Critical Materials for a Clean Energy Future, an event jointly organized by the European Commission, the Japanese Ministry of Economy, Trade and Industry and the U.S. Department of Energy. In a presentation titled “Environmental Technology Innovation: Key to Sustainable Rare Earth Development”, Molycorp’s Dr. Burba outlined Molycorp’s approach to the so-called HREE issue, including the company’s efforts to “identify and develop new HREE resources”.

Confirming the comments in the New York Times article, Dr. Burba’s presentation indicated that after reviewing historical exploration data, the company apparently identified four new HREE prospects that:

• All have >4% total rare earth oxide (TREO) material grades, and “very significant HREE content”‘;
• All have mineralizations that can be processed by the company, presumably at Mountain Pass , once the new facility is in place;
• Have not previously been discussed publicly, and are not currently associated with “publicly traded rare earth mining companies”.

Dr. Burba went on to state that one of the four deposits is located in the USA, “within easy access” of Mountain Pass, and that the company owned “all necessary mining claims” for it. Apparently containing “high ore grade and high HREE content”, Dr. Burba indicated that the material could be “readily processed” at the company’s facility. Apparent preliminary results indicate that the total rare earths present contain 0.8% europium, 1.6% terbium, 0.5% dysprosium and 2% yttrium.

It’s something of an understatement to say that these communications from Molycorp contain some pretty bold claims. To be able to process the materials at the new HREE prospect in little over a year, as claimed by Mr. Smith, likely assumes that there are no modifications to either the budget, schedule or construction plans for the company’s new processing facility. Does this mean that Molycorp knew all along that it would potentially be including materials from this prospect, in its overall processing capabilities? We’ve heard mention of potential monazite deposits at and around the Mountain Pass facility – what is the specific mineralogy of this prospect?

Successfully exploiting this deposit obviously assumes that there is even an actual resource present – there is certainly no indication of just what data Molycorp has based these announcements on. The New York Times article mentioned earlier states that “the company still needs to do extensive test drilling to determine the quality and quantity of the rare earth ore”. We won’t even get into the business of securing permits…

The most frequently asked questions though, that I’ve received from folks on this story today, revolve around its timing. It’s no secret that Molycorp recently has its investment rating cut from overweight to neutral by JP Morgan, and that the company’s share price is at a fraction of its 52-week high. On the other hand, the entire rare-earth sector has been similarly hit by declining share prices, and it’s sometimes hard to tell what is cause and what is effect.

So, where might this HREE prospect actually be? Earlier today, I took a look at some of the public records pertaining to mining claims in San Bernardino County in California, home to the Mountain Pass project. There were several claims listed as being owned by Molycorp or its predecessor companies; all of them appeared to be at or adjacent to the existing Mountain Pass location… all except for one. This latter claim appears to be located about eight miles east of Mountain Pass and from the Google Maps satellite photo, it appears to have been the site of previous activity, although there are no buildings or pits present. Take a look at the two figures below for more details.

In the meantime, I’ve put in a note to Molycorp asking if I can pose some questions to get clarification on this story, and if I am able to get some answers I will follow up with a posting here at the TMR Web site.

UPDATE 1 (Oct 5, 2011 12:30 AM CDT): MarketWatch is reporting that Dr. Burba said on Tuesday that “the company took 26 surface samples at a stretch of land that is located within four miles of the company’s Mountain Pass operation”, which if accurate, would mean that the mining claims mentioned above would not be the location of the new prospect. Interestingly they also quote him as saying that they are looking at three, not four deposits…  Dr. Burba is further quoted as saying that although Molycorp has mining rights for the prospect, they would still need “regulatory approval from a number of government agencies before it could begin production”.

UDPATE 2 (Oct 5, 2011 1:00 AM CDT): The Form 8-K filing that Molycorp made to the SEC, prior to mentioning the deposit at the conference on Tuesday, can be found here. It includes the statement that “Molycorp must do extensive test drilling to determine the quantity and quality of the deposit. Accordingly, there can be no assurance as to the quantity or quality of such rare earth deposit or that such deposit will become proven or probable reserves.”

UDPATE 3 (Oct 7, 2011 11:30 PM CDT): Molycorp has now added a copy of the slide presentation to its Form 8-K filing on the EDGAR Web site. Also, “Valley Boy” recently posted the following at SeekingAlpha.com: “[The above] article is mistaking Molycorp’s old wastewater holding pond for the new mining claim. The holding pond is located at the southwestern edge of Ivanpah Dry Lake just north off of Nipton Road several miles east of Interstate 15. That is why the land shows up in the county records as belonging to Molycorp.

The holding pond and the drainage pipe coming down from the mine to the pond has been discontinued. That was part of the environmental responsibilities the company had to take in order to obtain the necessary permits from the government agencies. That must have probably happened during the reconstruction of Interstate 15 in Wheaton Canyon in 2008 to 2010. The pipeline went down the middle of the canyon from the mine to the holding pond partway in the freeway median strip. The canyon is the median strip itself with both freeway directions cutting the northern and southern slopes of the canyon for a couple of miles.” – Thanks for the clarification, Valley Boy!

Last week, Mickey Fulp, the “Mercenary Geologist”, published a piece on the topic of material grade for exploration projects. He has given us permission to reproduce an extract from that article. The second part can be read directly on Mickey’s Web site, via the link below. Your comments are welcome and can be posted below.

—

by Mickey Fulp – Published: August 29, 2011

Economic geologists are a rare breed and quickly are becoming an endangered species.

Every year it seems there are fewer of us in the field, pounding on rocks, mapping their distributions and contact relationships, developing promising drill targets, and evaluating projects for economic merit. The exploration science of boot leather and drilling may soon be a lost art. I wrote about this subject previously (The Trouble with Geologists; The Importance of Mentors).

The scarcity of qualified economic geologists is nowhere more apparent than in rare earth element space. According to Intierra Mapping, there were more than 200 public companies worldwide with rare earth element projects and many analysts are on written record that there may be sufficient demand for only four or five new rare earth producers outside of China within the next five years. An optimistic supply/demand scenario would allow 10 success stories in the longer time frame of 10 years. If true, that means 95-98% of current junior REE companies will fail.

For the diligent speculator, it makes sense to eliminate the many pretenders from the few contenders as quickly and efficiently as possible. We can accomplish this task by employing simple economic parameters.

There is a popular saying amongst economic geologists: Every good geologist knows that grade is king.

By applying grade comparisons, we can select the few companies that have potentially economic REE deposits from the multitude that are merely promotional and exist to “mine the stock market”.

Firstly, let’s separate REE deposits into three basic types so we aren’t comparing a bushel of apples to a bag of oranges to una mano de platanos (a bunch of bananas):

• Light rare earth-dominated deposits (carbonatite-hosted);
• Heavy rare earth-dominated deposits (alkalic intrusion-hosted);
• Small vein-hosted deposits.

LREE-rich carbonatite deposits have a much lower unit value per tonne than HREE-rich alkalic intrusion deposits. Therefore, a LREE deposit will require a much higher grade to be profitable than a HREE deposit. Because vein deposits are narrow, steeply dipping, and of small tonnage, they must be mined underground and at high cost. Therefore, vein deposits will require a much higher grade to be profitable than a large LREE or HREE deposit that is mineable by cheap open-pit or bulk underground methods.

Secondly, let’s compile the published resource grades of six projects that appear likely to achieve commercial production within the next five years. In this analysis please note that I am listing only those projects presently in development or in advanced exploration with at least a pre-feasibility study in progress. There may be other worthy candidates in the REE sector that are not as far advanced and do not qualify for the list below. For example, I am a committed shareholder of Tasman Metals Ltd, which has an interesting HREE project with excellent infrastructure in southwest Sweden, but is likely a year away from completing a pre-feasibility study.

Note: COG = Cut-Off Grade and is the economic break-even grade in a producing mine.

I submit that this treatment, although admittedly simple, can be utilized as a top cup to separate various deposits that stand a chance of sending rock to the ore bin from those hopelessly destined for the waste dump. Only the best projects will deliver product to the marketplace in 2012-2017 while the remainder will be shut out.

Low-grade LREE deposits cannot compete with Molycorp at 7%, Lynas at over 10% and Rare Element Resources at over 3%. MCP and LYN will be in production in 2012; REE has a growing deposit with excellent infrastructure, significant HREE values, new discoveries, and good location in the very mining friendly jurisdiction of Wyoming.

HREE properties with grades a fraction of the TREOs of Avalon Rare Metals at 1.5% and Quest Rare Minerals at 1.6% are also problematic.

Finally, when we look at small vein-hosted deposits, we should compare them to Great Western Minerals Group Ltd’s small historic resource at Steenkampskraal in South Africa. It grades 11.7% TREOs, mainly as LREOs but with 0.89% HREOs.

Having determined some of the advanced projects contending for success, take a look at some of the glaring pretenders that have been presented to me over the past year by clicking here.

Ciao for now,

Mickey Fulp

MercenaryGeologist.com

Contact: Contact@MercenaryGeologist.com

The Mercenary Geologist Michael S. “Mickey” Fulp is a certified professional geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia. Mickey has worked for junior explorers, major mining companies, private companies and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping, property evaluation, and business development.  In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia. Mickey is well-known throughout the mining and exploration community due to his ongoing work as an analyst, newsletter writer, and speaker.

Disclaimer: I am a shareholder of Avalon Rare Metals Inc, Quest Rare Minerals Ltd, Rare Element Resources Ltd, and Tasman Metals Ltd. Quest and Tasman are sponsors of my website. I do not hold long or short positions in any of the other companies mentioned in this report. I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, this website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, this website, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, this website, interview, and other content reflect my personal opinionsand views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.com LLC.

Copyright © 2011 Mercenary Geologist.com LLC. All Rights Reserved.

Since publishing the Critical Rare Earths report earlier this month, I’ve received plenty of feedback on its contents, and the approach that I took with it. I particularly appreciate the interest in, and coverage of the report by RareMetalBlog and REE World. I’ve had some great dialog with folks who don’t necessarily agree with some of the findings of the report, but who were capable of having such discussions in a civilized and cordial manner. That is always appreciated.

For the most part, such discussions (and subsequent disagreements) have focused on what it means to be a “leading contender of supply”. I recognize that using such a term can be provocative. In the context of Critical Rare Earths, I was as clear as I think I could have been in indicating that my use of the term related to the potential strategic value of deposits, by virtue of the presence of appreciable quantities of specific critical rare-earth oxides (CREOs), not to their potential financial value. This will always be the first “port of call” from the strategic perspective, a perspective not necessarily shared by individual junior exploration and mining companies and their investors, who are first and foremost interested in the opportunities to make money.

Despite my best efforts, this important (albeit nuanced) distinction was perhaps lost on the intended audience. It led to a few misleading headlines and write ups on the document. Some would argue that the risk of misinterpretation of complex information outweighs the value of publishing it, but on this, I would (perhaps obviously) have to disagree. In any future edition of Critical Rare Earths I will obviously look for ways to improve, to clarify and to update the contents; it will still be the responsibility of the reader, however, to thoroughly read this (or any other) document, before being able to assess its contents.

I stand by my perspective that deposits with a significant presence of particularly important CREOs have specific strategic importance, beyond that of dollars and cents. However, in the absence of the intervention of a government entity who could theoretically acquire and bring any project on-stream, by circumventing the usual “go / no go” hoops to be jumped through for the purposes of raising private money (such as Preliminary Economic Assessments, Pre-Feasibility Studies and the like), we are reliant on the market as it is actually unfolding today. Regardless of which projects “should” be developed for strategic purposes alone, I willingly acknowledge the important role that the most advanced rare-earth development projects of today will potentially play, in providing the supply chain with future means of accessing important elements and compounds.

When we look at the market as it is unfolding today, the reality is that there is only a small group of rare-earth projects that are currently beyond the exploration stage and well on their way to full development, assuming that they can raise the money to get the job done. That is certainly not a knock on companies that are still doing exploration on their projects; but clearly such projects will have to transition from exploration, to advanced-development mode, before they can be further advanced, commercially.

Such advanced projects have clearly defined resources at the indicated and / or measured levels, and, in a few cases, their owners have been able to formally convert part of those resources to reserves (i.e. they have been deemed to be economically mineable). They have successfully completed comprehensive pre-feasibility studies, and / or are either on their way to developing definitive / bankable feasibility studies and / or have already started the construction of their mining and processing operations. As such, at present they probably stand the highest chances of commercial success, if for no other reason than that they’ve “made it this far”, ahead of everyone else.

The list of privately (i.e. non-government) financed projects that meet the above description includes (in alphabetical order) Dubbo, Mount Weld, Mountain Pass, Nechalacho, Nolans and Steenkampskraal. In terms of actual new non-Chinese output in the next few years, (as opposed to the theoretical, projected outputs examined for the purposes of establishing best / potential worst-case supply scenarios in the Critical Rare Earths report), it is to these projects that we are surely going to be looking first (assuming that any monies still to be raised, have been raised).

The next “tier” of privately funded projects, currently undergoing pre-feasibility studies, includes Bear Lodge, Kvanefjeld and Strange Lake, and depending on the outcomes of those studies, we can expect one or more of these projects to potentially join the others in the latter stages of the development lifecycle, sometime in the near future.

Including those mentioned above, TMR currently tracks 20 different rare-earth projects in its Index; in the near future we’ll be adding additional “color” to that Index, using criteria including those described above, to help folks further differentiate the different stages of development at which each of the various projects curently finds itself.

In the meantime, I look forward to seeing the successful completion of each important developmental milestone in this sector. The supply chain beyond is counting on it…

(first published at RareMetalBlog).

It’s been a few months in the making, but it’s finally here. Just a few days ago I put the finishing touches on a brand-new, 75-page report on the critical rare earths. Built with independent data from the ground up, the report features the following:

Download your complimentary copy of the Report today, from:

http://www.CriticalRareEarthsReport.com

Be sure to pass the link along to anyone you think might be interested to read it too!

In the next couple of weeks we’ll be doing a free Q & A teleconference for everyone who downloads a copy of the Report via the above link – look out for the details soon.

In the meantime, feel free to post your comments and questions in the section below.