Rare earths are a “hot topic” in Southeast Asia. I’ve just arrived back from Hong Kong and Tokyo. In both cities I had private meetings with the clients of CLSA, a large Hong Kong based brokerage, which advises institutional investors. I also spoke at the CLSA “U” Forum in Tokyo where that company brings together sector experts to give analytical talks. Mine is “Rare Metals in the Age of Technology”.
I made a similar visit to New York City in December and next month I will be in Europe talking to a number of very large institutional investors. Let me give you a synopsis of what I am being asked and of my responses.
First of all I specialize in the market fundamentals and future use trends of the “technology metals.” These are the rare metals for which I have now published an operational definition, which has already been posted elsewhere at The Jack Lifton Report. I speak on the current production, the potential production, and the natural limits on production and production rates of a suite of metals that I tie together as the “technology metals.”
Yet invariably, in the last year in particular, I will be asked only about the rare earth metals. That is why I conclude that the rare earth metals are a hot topic among institutional investors.
Having studied the rare earth production sector for some time, I conclude and I tell institutional investors that the crisis in the supply of rare earths, now and into the near future, is one of finance and timing. Current rare earth pricing at the mine face is too low to make rare earth mining a profitable investment. This means that if a large investor in the development of a mine wants a return on his investment in less than several years, perhaps as many as 10 or as little as 3-5, then he should consider not investing in rare earth mining. There are some projected balance sheets that are much better than others, so that even with current prices they would be able to return a profit on a large investment within a reasonable short time. This in fact is the normal time frame for mining finance to bring in new production from existing or in-process operations.
For example, because Canada’s Great Western Minerals Group has a degree of vertical integration, which no other Western company similarly situated has at the moment, and because it has a relatively low cost for re-opening a former working thorium/rare earths mine in South Africa, then I think that an investment in GWMG could bring a good return within 3 years if all of the known issues are resolved favorably.
Last week I was informed that Mark Smith, CEO of Molycorp spoke recently of his cost of producing at Mountain Pass and that he stated that Molycorp could produce its Mountain Pass concentrate for a figure of what would be about one-half of today’s selling price. If this guidance is accurate, and I have no reason to doubt it, then Mountain Pass would be a good investment indeed, with a good prospect of short term return on investment and, based on past production, a good chance of large revenues.
In the long term Avalon Rare Metals will likely be the global major supplier of heavy rare earths from its Nechalacho mining facility at Thor Lake, when its development reaches the production stage. This does not mean that Avalon will supplant GWMG or Molycorp; it means that for North America to be self sufficient and to become a world supplier of “all” of the rare earths, it will need the Canadians and Mountain Pass to all succeed in both the short and long terms. If America itself is to become self-sufficient and to have the capability to export all of the rare earths, then it will need to add a source of heavy rare earths within the USA. I think that US Rare Earths, a private venture at the moment, has the right deposit for that (note: I am a paid business development consultant to US Rare Earths).
There are rare earth deposits at various stages of development outside of North America, in Australia in particular. Lynas of Australia is funded and on the way to mining and refining its rare earth ores outside of China within 2-3 years. In the world market it will compete fiercely with Molycorp but not with GWMG or eventually Avalon. The deposits of the Canadians are rich in heavy rare earths and although GWMG will most likely be the first to produce heavy rare earths outside of China, the eventual world supplier will be the massive deposits of Avalon. I predict however that China will remain the principal and by far largest user, and by 2015, the largest buyer (yes, I said buyer) of rare earth metals.
There are, notwithstanding recent ill-informed commentaries, significant minable deposits of heavy rare earth rich ores in Southern Africa. Some of these have been producers in the past, although not of heavy rare earths for which there was no market prior to the year 2000. One that I investigated while I was there recently, was producing thorium at one time; another was being developed when Chinese low pricing closed out the non-Chinese producers in the late twentieth century.
There are other large and small deposits claimed around the world, but the overwhelming majority of these are far, far, from production. None of them could be profitable at current rare earth pricing coupled with enormous development costs, but some of them are the world’s reserves for the future.
If rare earth pricing improves shortly, then the rare earth supply crisis will end within 3-5 years. Even if pricing does not improve there may yet be government subsidies in the USA for strategic purposes that will end the crisis within the USA. If neither of these contingencies occurs then no mining development in the rare earths will occur outside of North America and Australia, except for the potentially already profitable companies I have named above.
I have in recent months received thinly-veiled threats of legal action from certain rare earth juniors who claim that by not mentioning them, or by quoting from their written record, that I am in some way disparaging them. This is illogical and it shows significant ignorance of marketing dynamics. I welcome constructive criticism of any and all of my remarks; if I can be shown where I am wrong, I will publicly say so, and will adopt your reasoning and conclusions. This is what reasonable people do.
The rare earth supply crisis is entirely man-made, and it can be, must be, and can only be resolved by the actions of men and their bankers and leaders.
Next week I’m in San Francisco. I’ll report from there.