Rare Earth News From Shanghai

by Jack Lifton on May 18, 2010 · 10 comments

in China, News Analysis, Rare Earths

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I’m in Shanghai at the CLSA China Forum 2010, and I just saw this story, ”Baotou Rare Earth Kicks off Reservation Plan,”  on a locally produced web news site in English translation.

It basically states that China’s largest producer of rare earths, which is identified as Baotou Rare Earths, is going to build a stockpile of 300,000 tonnes of rare earth ore concentrates over the next three years.

The story denies that this is a government mandated but does say that Chinese “experts’ are divided among themselves on the value and the meaning of this move. Some think it reflects a government interest in building a strategic stockpile and others say it is to make sure that prices of the rare earths continue to be set by China even if foreign production should occur.

I want to contribute for my readers a third even more plausible explanation. I think that the rare earth mining industry in China is now facing a large environmental cleanup program; the Chinese government has decreed a halt to new mining projects including expansion of existing operations until 2015 or until environmental pollution due to a history of mining for volume without regard to environmental consequences has been “remediated.” This can take years and huge amounts of money. But, in any case, there is already too much dependence on this mining at many stages in the supply chain for components and finished goods, and simply stopping mining during the “clean up” and restructuring, which would be normal at some point, could well be an economic disaster for China.

I think that Baotou is building a large stockpile in anticipation of a supply interruption to be caused by the clean up and restructuring of the mining industry in general and the rare earth mining sector in particular.

I therefore repeat my admonition to those who are impeding the startup and restarting of the non-Chinese rare earth mining industry: hurry up, you’re running out of time. If Baotou reaches its goal of a 300,000 tonne reserve of ore concentrate by 2013 then the Chinese rare earth mining industry could shut down for as long as two years to give itself a window for remediation. This, of course, would mandate a cessation of exports of rare earths during that period in order to be able to provide for the demand of the domestic Chinese market.

I think that my theory of why Baotou wants to create a large stockpile of ore concentrates is the right one.

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1 John Petersen May 18, 2010 at 11:56 am

The problem with theories like this one is they make more sense that folks would like to acknowledge. One issue that I’m unclear on is the typical rare earth metal content in a ton of concentrates.

2 Edmund Brooke May 18, 2010 at 12:16 pm

May 13, 2010
Dacha Adds to Strategic Stockpile of Rare Earth Elements
TORONTO, ONTARIO–(Marketwire – May 13, 2010) – Dacha Capital Inc. (“Dacha” or the “Company”) (TSX VENTURE:DAC)(OTCQX:DCHAF) is pleased to announce that it has acquired 39,000 kilograms of Rare Earth Elements from China destined for its primary London Metal Exchange (“LME”) approved warehouse in Busan, Korea.

For an aggregate price of US$5.8 million, Dacha has acquired sixteen metric tonnes (16,000 kg) of Dysprosium metal, twenty metric tonnes (20,000 kg) of Yttrium Oxide and three tonnes (3,000 kg) of Terbium Oxide.

Scott Moore, President and CEO of Dacha commented; “Dacha continues to demonstrate it has the expertise to acquire significant amounts of heavy Rare Earth Elements within China. We expect to make additional purchases in the coming weeks as well as announce additional exports”.

Dacha recently closed a $22 million equity financing with the proceeds to be utilized to acquire and export Rare Earth Elements from China to create a strategic stockpile outside of China.

Dacha is also pleased to announce its new website located at http://www.dachacapital.com is now active and we hope it will provide more detail into Dacha, its business model and its holdings.

About Dacha

Dacha is an investment company focused on the purchase, storage and trading of certain strategic metals. Its shares are listed on the TSX Venture Exchange under the symbol “DAC” and on the OTCQX exchange under the symbol “DCHAF”

3 Aat T. Oskam May 18, 2010 at 12:17 pm

Jim,

thank you for your warning. I agree with your point of view. I’ve seen pictures of the damage that is done to the environment, I regretfully have forgotten where I found them, but they were made by people who care for the environment…

So, I’v upgraded my position in Lynas, who will be producing by the end of 2010 and refining starts 3rd Q 2011 in Malaysia.

Thanks again for your point of view!
Regards, Aat T. Oskam

4 Peter Borten May 18, 2010 at 12:22 pm

Jack, in the light of this development, would you care to comment on the recent slide in the share price of Great Western Mineral Group, the company you’ve identified previously as being one of the first non-Chinese organizations that will bring new rare earths to market?

Thank you.

5 sauro May 18, 2010 at 1:59 pm

Jack in the past issue you told us that in may you would have given some advice on some mine of rare heath.
I have an italian restaurant in Beijing “meeting point” is the name of the restaurant,you are welcome if you are in Beijing.
ciao
sauro

6 Spac3y May 18, 2010 at 2:36 pm

Jack,

Thankyou for the latest updates on the news from Shanghai. It would fit my model that China have ploughed on through the whole ecology of getting mines into production at any cost.

Mabye now I should be applauding China for trying to rectify one of the problems they have created in order to meet domestic requirements, ie, the pollution caused, however, given the “stranglehold” they have on REM`s at present, it seems quite convenient to now “stockpile” and rectify the situation.

What this means for the global supply of REM, well, price spike springs to mind.

Thankyou for the latest update Jack, certainly very much food for thought, Im now wondering if some “environmental” considerations through the rest of the world may just be put on the backburner, only for in a few years time, those countries then look to do what China are looking now to do interms of environment.

Steve

7 Jesse May 18, 2010 at 3:27 pm

Just for clarification, the stockpile will be of REE concentrates deriving from bayan obo, correct? How will this move affect the supply of the yttric group of REEs? I was under the impression that the HREEs in the south did not produce concentrates.

8 ltoro43 May 19, 2010 at 7:51 am

I also believe that China is stepping up to join the rest of the World in cleaning up their environment. They also realize that they have burned through a good portion of their assets in REM’s and other semi rare minerals, such as niobium and tantalum in Mongolia. In my opinion, their attempt to buy a large deposit in Australia confirms this theory.

Look to Canada for new sources. Sarissa Resources has a huge deposit of Niobium and Tantalum that is the host material for what appears to be a very substatntial REM deposit.

9 Tek May 19, 2010 at 10:22 am

Jack, I agree with your assessments and they should serve as clear warnings that we need to develop the mines and production facilities in the Western Hemisphere ASAP.
There have been a number of articles from Chinese news services have well documented the horrific degradation of Baotou and the mining areas. If you type Baotou China into Google Earth, you will see huge black swaths smeared across the landscape. The destruction to the environment as well as the outright health issues which are now driving workers away, has mandated that the REE industry in China will have to make dramatic adjustments before continuing, and the costs will be immense
Secondly, the I think the Chinese no longer wish to effectively be the sole international supplier of REES, partly because the low. low prices have not provided the economic boon they had hoped for. The problems and international attitudes associated with being the defacto sole supplier of these critical materials p0rtends large, unaticipated exposure for Chinese politics as well.
To this layman, all the above point to dramatically higher prices as a necessity for not only China, but for a stable international supply from various sources, which is also in China’s interest

10 Prescient11 May 19, 2010 at 12:27 pm

Mr. Lifton,

Thank you for this update. I want to echo one of the previous commenters and ask for your thoughts on the supply/demand/price dynamic that this seems to indicate. It seems price spikes, at least for exports of REEs, are definitely in the cards.

China will protect its REE industry, that is certain. But it is gobbling up these metals as much as it is producing them. In your earlier update, you discussed your conversation with an “old hat” Chinese miner that said that the margins were not very profitable for Chinese REE miners, and they would not be sustainable at current prices if China is seriously going to impose a lot of the environmental restrictions.

If your thesis is correct that China IS SERIOUS about imposing an environmental clean up on their REE mines, then doesn’t it necessarily follow that the price of REEs will be demanded higher so that its own mines can operate profitably under the new environmental constraints coming down the road.

It just strikes me that when you combine the new environmental stance of China along with its anti-smuggling stance (assuming they’re serious and I believe that they are) end-users of REEs are going to have to step in and get a damn mine to production as soon as they can, a non-Chinese mine. I think this bodes well for both AVL and QRM given the diversity of their deposits and the sheer size of those deposits.

When will they listen? If you’re the canary in the cold mine I am glad you have survived this long. Safe travels.

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