Should I Visit A Chinese Rare Earth Processor?

by Jack Lifton on August 19, 2012 · 16 comments

in China, Rare Earths

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I frequently get inquiries from clients and others about conferences. The most common question is “which are the most important conferences for me?”. We all know that sector- or topic-specific conferences are great networking opportunities. Junior miners look forward to them as places where they can make a presentation and impress an institutional investor, or meet a large producing company’s acquisitions specialist to talk with them.

However when the market for junior-exploration plays is as dead as it is now, it’s time to reconsider whether or not a conference can be a productive use of capital that is being burned without any way in sight of being replaced or augmented.

I just did a road show (i.e. the taking around of a new [to outside financing] venture to see as many institutional, high-net-worth, and retail investors as possible). Today, in mid-August 2012, I wouldn’t dream of asking the potential investors that I know, to listen to a presentation about an exploration play in any commodity metal. I would however be interested in and inclined to take a novel, or more productive, or lower-cost metal-processing technology venture to see the investment community.

So would I recommend a certain conference next month in China, which includes a visit to a Chinese rare-earth processing company? I would not recommend it to the majority of junior rare-earth-element (REE) ventures that are just now discovering, that they really don’t know what to do with their increasingly less-valuable, mechanically beneficiated ores. Even those who have managed to find an efficient process for the extraction of the critical REEs will, for the most part, only have a process leach solution (PLS) with few places to go but China.

But! What’s Jack saying? Shouldn’t these producers of PLS, obtained by extracting the desired metal values from their ore concentrates, be rushing to offer them for sale to Chinese processers? Well there are several problems. Let me count the problems that come to mind:

  1. The chemistry of the PLS has to be tailored to match the capability and chemistry of the processor’s solvent-extraction (SX) REE separation system. This means trivially that if the processor is running REE chlorides and you show up with sulfates, oxalates, oxides, or carbonates, for example, then there will be a discount, an upcharge, based on the cost of “conditioning” your PLS (or process leach solids, if you have dried your solution to save freight and hazardous material handling charges);
  2. Anything shipped out of or into a civilized country must obey the contained radioactivity rules for those countries. as well as the international UN laws of carriage of such substances upon the sea, so, if you have not figured out a way to remove or reduce thorium and uranium to legal levels for shipping at the mine site then forget about the whole thing;
  3. Chinese companies can only import feedstock materials on a case-by-case basis, and I have personally seen such proposals rejected by the Chinese central authorities that have sole power to make those decisions. The fantasy that many people have, that you can just export any materials to China that are produced in large quantities within China continues to amaze me;
  4. It should come as no surprise that Chinese processors can neither process nor export processing technology without the specific permission of the central government. This is done on a case-by-case basis, and the only application that I personally know of that has been successful, is the arrangement that Great Western Minerals Group (GWMG) has with GQD. This arrangement is technology- and site- (South Africa) specific. It is highly unlikely that GWMG could transfer the acquired refining technology to any other site, even within South Africa; the Chinese company cannot construct or solicit to construct another such plant without prior authorization from the Chinese technology export licensing authority;
  5. In all cases that I know of, the importer can only dispose of raw materials imported into China for processing with the express permission of the government. This means that Chinese refiners will try to BUY PLS or dried PLS materials but will certainly not pay until they have a specific import license. The license cannot be obtained until the deal is specified. This would mean that a seller would cool his heels and sit on his inventory until the authorities decided to rule on the deal. Even worse it means that the seller can only get the value of the PLS. The added downstream value will be the Chinese importer/processors. Note that a wily Chinese buyer (or one trained in Western trading) might just wait it out to get the prices down by delaying the application for the import license. It is he who must apply (not the exporter) until the PLS supplier is in (more?) desperate shape.

So now I will make a recommendation. If you are attending the Metal Pages conference in China next month, and have never seen a Chinese REE processing plant before, then you should go on the tour – if only to see what the challenge are in the building and operating of such a plant as a business. Attending for networking purposes alone is probably not a sufficient-enough reason, but your mileage may vary. Just remember that the investment community does not want to see a Chinese processing plant; it wants to see a competing plant in a country with a convertible currency.

If you are going to China looking for a technology partner, then I suspect that you will be inundated by Chinese fixers, who say that they can get you a deal. The word to describe these gentlemen is the same as the one used to describe men who prostitute women for their own profit. I don’t doubt that the processing company being visited will also be telling any juniors who show up, that they would like to work with them and that they have an “in” with the government technology licensing or import control agency.

This kind of hustling goes on all of the time inside China, which is a very competitive culture. It reminds me of Vancouver when the independent analysts are promoting a boomlet. The Chinese independent processing business is being condensed by the new superintending reorganization imposed by the central government. To survive independent processors need feed stock. They will try to do a deal but only on their terms.

If you must go please have a nice trip and please don’t call me when you get back; instead, Americans should call the Centers for Disease Control and Prevention (CDC) directly, to receive the morning-after pill. I don’t know how that works in Canada or Australia.

Oh, and if you have time, I’d like a fake Rolex. A friend of mine bought one from a street vendor in Beijing nearly three years ago – it’s still running and it hasn’t turned green. He sure was lucky. He only paid one dollar for it, so he still had money in his pocket when he left China…

Disclosure: at the time of writing Jack Lifton is long on Great Western Minerals Group (TSX.V:GWG).

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1 Steve Mackowski August 19, 2012 at 7:20 pm

Jack, I am indeed going. Presenting on Dy supply issues. I agree with your comments on conferences at this time (and always for the most part). Conferences are valuable to meet people. But, and a big but, these meetings have to be pre-arranged to make the visit worthwhile. So a network is needed, or someone with a network, to get the arrangements in place. A trusted translation service is also a must.

2 Michael Chan August 19, 2012 at 9:10 pm

Jack, absolutely concurred with your comments
Current issue faced by the current Western rare earth projects is the challenge to derive an economic concentration/beneficiation process which is deemed necessary which otherwise would end up a downstream separation process which is either too complex ( too much impurities to be removed) or too costly ( high chemicals consumption)
Chinese tolling could only accept restricted feed specifications which thus limits the suitability of PLS from different mineralogy or sources.

3 Gennady August 19, 2012 at 9:28 pm

Hello!
Thank you. Valuable information. I want to help(?).

1- The rights to the licensing area «T», «M», «ZK» (Russia.Chukotka)
The area of . 1975 : 2076 sq km:
Au -833, Ag -322, Sn-217, Cu -185, Bi-153, Mo-122, Pb -111,
W -50, Co -38, Be -35, Zn -12, Y -10, Yb -3.
Very good 22 area. Near the mine Valunistoye(Au-36t, Ag-1500t).
Forecast: Identified ore junction: Au(5.3 – 60.8gr / t) Ag-(3564 – 19818gr / t) .Copy Kupol.
The area of 1982: 2279 sq km:
Au -1110, Sn> 250, Pb -208, Mo-115, W -55, Bi -25, Cu -20,
Zn -20, Be -10, Cr -15, Ag -6, Zr -5, Y -5.
7 prospective area. Identified ore junction: Sn -16%, (30 000 tons) . Near the mine Tumannoe (Au-100t), Iultin (Sn> 180000t., W ->80000t), Riveem (Au->300t). Forecast: In addition to the known deposits of Sn, Pb, Zn, Mo may 2 deposit Au – (260t), up to 10g/t
The area 1994: 700 sq.km.
Pd -200, Au -190, Ni -193, Cr -82, Hg -58, As -39, Bi -47, Sn -30, W -24, Ag -18, Co -8, Ge -6, Ti – 5, P -4.5, Cu -4, (Sc, Zn, Mo, Nb, Ba, Mn, V, Be, Y) – 1 to 3
Near the mine Hg (Astra) and Sn (Erutta).

2- The search continues. The sponsor will receive a share.
2012: 3,000 square miles of British Columbia (Canada): area, prospects:
Au (6354), Ag (24.8), Sb (15.6), Cu (10.6), As (9.3), Cd (7.2), Ba (5.9), Mo (5.40) ,Bi (5),
Tl (4.5), Hg (4), Se (4), Cs (3.7), Pb (2.9) and TR:
Nb-40.3+B>34+Zr-18.5+Hf-18.5+Li-10.4+Re->8+Sc-7.8+La-7.0+Ce-6.7+Be>5+Se>5+Te>4+Tl>4.5+Rb-4.4+Cs-4.4+Ge>2+Y-2.4

3- Consultation: Rapid and efficient methodology of geochemical prediction, prospecting, evaluation of deposits ore.
I speak Russian. Question: Is there interest?
Best wishes. Gennady . Gennady.kaplenkov@gmail.ru. Vancouver
I don*t speak English, sorry. Do you speak Russian?

4 blackjack August 19, 2012 at 11:49 pm

Jack
again interesting reading and in particular the licensing and shipping of radioactive materials. Shades of Lynas there?

Jack i suspect that you have researched and looked over every aspect of what Lynas is doing in Malaysia. When all is said and done Lynas is down to ONLY 2 conditions as all others have been met.

In your expert opinion and as a World leader in the REE sector what is your opinion on this incredible hold up with the AELB in Malaysia?

5 Alexis August 20, 2012 at 4:02 am

I just hope the “visit” this year isn’t as vague and redundant as last years! Don’t get me wrong, I loved presenting at the event (and writing the MP report has been awesome) but the visit to Baotou was basically a royal run around with some vaguely interesting moments. I just hope Nigel and Co have set this one up proper for those going :-)

6 Positroll August 20, 2012 at 5:37 am

“Just remember that the investment community does not want to see a Chinese processing plant; it wants to see a competing plant in a country with a convertible currency.”
Well, there is one e.g. in Japan. Owned by Shin – Etsu (who just concluded a MoU with Alkane and wants to build another plant in Vietnam). Any chance you or Gareth could do a piece on them? The English language part of their homepage ( http://www.shinetsu.co.jp/e/index.shtml ) isn’t that great and the Petra report is a little short on the details (though the fact that they got ~ 3 billion cash on hand lets me sleep a lot better)
http://www.alkane.com.au/reports/broker-media/brokers/20120716.pdf

7 gunnvald solli August 20, 2012 at 9:22 am

Vi own a Ree mining in Norway,and we shall find a partner who can
help us with separsjon,and find a market for the products..see the
website http://www.reeminerals.no..We have reg 500.000tons of different
Ree..

8 J.-. Bünzli August 20, 2012 at 3:23 pm

Solli,
In Europe, Rhodia is the best. The La Rochelle plant started recyling business this year; they should be able to separate your stuff
J.-C.

9 Jim Obel August 20, 2012 at 10:08 pm

can you please add me to your email list of news from your site techmetalsresearch.com. thanks. Jim Obel

10 gunnvald solli August 21, 2012 at 8:31 am

j.-Bunzli…
thanks for your information,we are a small company,so we seeks
contacts..Have you contacts/know the firm ..Rhodia ?
Regards: G.Solli

11 Louis Pearson August 21, 2012 at 12:09 pm

Jack,

We hear a lot about company and national efforts to find substitutes for the critical rare earths in various applications. To your knowledge, is their much research going on to find innotvative and more cost effective separation and processing technologies? Is this the type of basic materials science research that needs to be subsidized by governments?

I always appreciate your insights. Lou

12 Tim Ainsworth August 21, 2012 at 12:20 pm

Thnx Jack, interesting comments re concentrate which I’m not sure I’ve seen all in the one article before. Certainly an issue which most investors in juniors have totally ignored until fairly recently although many are now looking at the Alkane deal for inspiration while probably ignoring the required volumes and Alkane’s initial process.
Your point re the processors controlling the deal is a logical one and begs the question what is the value of concentrate as a percentage of separated REO? Ok, I understand there are huge numbers of variables as you touch on above but is there a range that may apply generally? I’ve seen numbers from 25% to 70% but wondered if you could offer a little more guidance?

13 D. Carlton Rossi August 21, 2012 at 9:56 pm

Jack,

I’m not so far from Guangzhou where the conference will be held. It’s only about 40 minutes away. My internet connection was cut off accidentally on August 18th and 19th so I was unable to read your column. It’s accidentally back on-line now. For me it is a simple choice whether or not I attend the rare earth conference. The choice centers on informatiON and discloSURE. If I have a reasonable expectation to receive both then I attend the conference. On the other hand, if I have a reasonable expectation to receive full informatiON and discloSURE of any listed REE stock that has potential then I invest the money in the stock.

14 hackenzac August 23, 2012 at 11:33 am

While we’re on the subject of separation, Chinese or otherwise, if I may ask you Jack, what do you think about solid phase extraction and the potential for it to bring the industry back to North America? It seems like a pretty big deal to me.

15 ME August 25, 2012 at 12:01 am

SIMPLE JACK. REE THE REE. IT IS IN THE WATER AND THE SITTIN THAT THE MONEY IS MADE. IT HAS BEEN SHOWN TIMEAND TIME AGAIN THAT ON WALL STREET PEOPLE VERY OFTEN FAIL TO SEE THE THING THAT IS RIGHT IN FRONT OF THEM. I HAVE THE CHINESE TRANSLATORS AND MY INSECT SPEAKS BOTH DIALECTS, HAD A PHD IN PHYSICS, IS A CERTIFIED FINANCIAL ANAL IST(AND HE IS INDEED ANAL) AND A CERTIFIABLE ORCL DBA. BUT HE IS AN INSECT AND MY WIFE SHOULD HAVE SWATTED HIM. THE POWER IS NOT IN THE FUTURE BUT THE PAST BUT ONE MUST LOOK. THE FLYING TURTLES ARE THE KEY.

16 ME August 25, 2012 at 12:08 am

QUITE SIMPLE. THE MONEY CAN BE MADE IF ONE RESEARCHS THE TRIAL AND TRIBULATIONS OF A HOZER, WHOM THE US GOVT TRIED TO DESTROY. ALL HE DID WAS WANT TO MAKE THE WORLD A BETTER PLACE AND NOW HE IS SUCCESSFUL AT REMOVING THE DU FROM THE GULF. ANOTHER COMPANY WHICH IS UNKNOWN HAS A 1000X EFFECT IN BOTH PRODUCT DESIGN AND MANUFACTURING EFFICIENCY. AND AS JL STATED IT HAS BEEN SHOWN TIME AND TIME AGAIN THAT ON WALL STREET PEOPLE VERY OFTEN FAIL TO SEE THE THING THAT IS RIGHT IN FRONT OF THEM.

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