Will Changes In The Chinese Yuan Really Affect The Rare Earths Industry?

by Gareth Hatch on June 22, 2010 · 9 comments

in China, News Analysis, Rare Earths

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Over the weekend, Jack wrote some commentary on news that the Chinese were considering linking the value of the Chinese yuan, or renminbi, to that of a basket of currencies, instead of directly to the US dollar. He indicated that this could have an effect on the rare earths sector outside of China.

I decided to get further clarification from him on some of the points that he raised and have shared some of my questions and Jack’s responses below for your reference.

Gareth Hatch: Jack, appreciation of the renminbi would make mining costs relatively cheaper for the Chinese rare earth element [REE] and other industries, compared to those outside of China. When it comes time to selling products, wouldn’t buyers outside of China actually see no difference where pricing is set in dollars, as it frequently is, with the Chinese sellers actually losing out because they’d get less renminbi back per dollar of material sold [a classic case of an appreciating currency negatively impacting exports]?

Jack Lifton: If REE concentrate prices go up inside China due to supply reduction, with increasing demand, then it takes more dollars to buy them.  Such an increase in ‘real prices’, is certainly the hope of both the Chinese REE mining industry and of the non-Chinese junior REE miners. I guess I wasn’t clear on that. Any price appreciation due solely to renminbi re-valuation, is just a general problem for Chinese exports of all types, as you point out.

GH: The vast majority of junior REE exploration and mining companies do not yet have a mine with which to produce concentrates, nor do they actually carry much debt on their books – the money invested into these companies is usually converted into an equity position. So would there really be much significant direct impact of a re-valuation of the renminbi, on such junior miners, besides theoretical income statements that won’t be realized for years? If so, then the re-valuation of the renminbi would not be expected to really have much impact on the value / perceived value of non-Chinese junior REE miners, would it?

JL: Without the sale of actual concentrate or other products, the balance sheets and income statements of such junior miners may show diminishing shareholder value over time. Cash flows must be refreshed from time to time with new cash infusions. Private miners either invest their own money or have private placements which tend to dilute the shares. Renminbi appreciation will most likely be slow and may even go the other way if the US economy picks up. It will not, as you say, have much real effect on the real value of junior miners. Again only ‘real’ price increases will matter.

GH: Let’s talk about future price increases. Is it not the prospect of the environmental clean up and consolidation of these REE mines, both of which will potentially take REE capacity offline in China, that is going to be the likely key driver of increasing prices of REEs, primarily to buyers outside of China? If this is the case, then the re-valuation of the renminbi would not be expected to really have any impact on end price, would it?

JL: That is the case, yes. A re-valuation in and of itself will have little direct impact.

GH: A common debate in some circles relates to whether or not US and Canadian REE separation technology is more or less advanced than that used in China. If it is less advanced, then anyone seeking to sell US or Canadian separation technology, not tied to a specific proprietary process or deposit, is not likely to get very far in China, surely?

JL: Much of the development of such technology in North America is today only theoretical, while that in China is practical, because of their long experience. Until someone is up and running, it’s at best a toss up without a clear resolution.

GH: OK – thanks Jack.

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1 Tek June 22, 2010 at 10:41 pm

For the time being, I would assume that any western miner/company producing concentrate in the next 3 years will have to find a separation facility in lieu of building one. How would this be accomplished?
Would the miner send a sample for analysis and take a quote for the facility to set a contractual timeline and price for developing their own proprietary separation process.
Or, if the company had resolved their own specific ore body separation metallurgy, would they risk sharing their process?
I imagine a third option would occur if the separation could be accomplished by currently known conventional means, and simply bid out as using that process, even if there were a better and more efficient one out there.
This all comes back to resetting the price, and China will have a ringside seat to watch the international progress.

2 Alec June 23, 2010 at 11:29 am

Tek (or anyone else),

Do we know what REO recovery percentages are being achieved in China right now–namely with Bayan-Obo Bastnasite?

3 REE1 June 23, 2010 at 2:21 pm

You have this fancy new web site, and still no Print button. C;mon guys!

4 Admin June 23, 2010 at 2:48 pm

Thank you for the feedback, REE1 – we’ve now added a Print link before and after each posting.

5 D. Carlton Rossi June 23, 2010 at 4:14 pm

It may be useful to examine the issue of deflation and inflation. The United States seems to be in a period of deflation marked by falling wages and incomes, real estate prices, stock prices, interest rates and expectations. China seems to be in a period of inflation marked by rising wages and incomes, real estate prices, stock prices, interest rates and expectations. However, it may be that there will be a reversal within the not too distant future. In this scenario, printing money and loose credit in the United States may trigger inflation while in China the speculative buying of real estate may cause a collapse in the market. This might mark the start of a deflationary period in the Chinese economy. Does this mean that REE projects that are planned now in the West will perhaps meet unexpectedly high future costs while at the same time there may be a deflationary impact on the price of the metals if Chinese demand weakens.

6 Tek June 23, 2010 at 5:32 pm

Alec,

Avalon is quoting about 80% TREO recovery in the floatation process for their Thor Lake mine (see Rare Metal Blog). Ucore’s government program in the 1980’s reported 95-100% recovery of Yttrium from the the concentrate at their Bokan Mountain site, though that does not necessarily reflect what their TREO recovery would be.
As I recall, the general figures from insitu to refined 99.999% was in the area of a total 70%, meaning a 30% loss overall. I’m sure that it will vary according to each orebody, but Jack would be a much better source for this answer.

7 Hansel4 June 23, 2010 at 6:31 pm

Hey guys, going of the ARU’s website and their research these are some of the recovery rates for the existing and up and coming REE projects in the world.

http://www.arafuraresources.com.au/nol_res.html

8 Alec June 29, 2010 at 1:03 pm

Hansel and Tek: Thanks for the info.

Tek, was your last figure (70%) referring to recoveries from Bayan-Obo?

Also, Molycorp’s S-1 form contains the following statement:

“We are now achieving greater than 98% recovery in our solvent extraction units at commercial scale for lanthanum, didymium and SEG concentrate…”

9 Tek June 30, 2010 at 10:32 pm

Alec, 70% was a ballpark average , but it may be more like 60% from mine to finished metal. Each orebody and each metal oxide within that orebody will have varied extraction rates, so there probably isn’t any one figure that would apply across the board. You just have to wait along with everyone else until the company has done a complete metalurgical analysis and is willing to publish it.

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