We are five years into this new market for rare earths: five years that
dawned with higher rare earth elements prices, that unfolded with a new
generation of publicly listed junior resources companies with REE properties
and projects, and that saw a vicious bear market spread across the domestic
and global mining sectors. But soon we will turn the page, says Ryan
Castilloux, founding director and market research analyst with Adamas
Intelligence, following a price rally for magnetic REEs that could regenerate
investor interest and further buoy the sector. In this interview with The Mining
Report, Castilloux discusses four REE projects that continue to
advance, as well as companies making strides with REE extraction and
separation technologies.
The Mining Report: This year we've seen a modest rally for
specific rare earth elements (REEs), namely terbium, dysprosium, praseodymium
and neodymium. Has this bolstered the near-term outlook for rare earth
exploration and development projects outside of China?
Ryan Castilloux: It has. The recently announced supply agreement
between Molycorp Inc. (MCP:NYSE) and Siemens AG (SI:NYSE) is a reflection of
how the outlook is improving. The rally we saw earlier this year is an
indication that markets for certain rare earth elements are becoming
increasingly tight. Without a boost in global production to meet growing
global demand, we will see continued strength behind magnetic rare earth
prices and several others.
Until a few weeks ago the Chinese FOB price of terbium oxide was up nearly
50% year-to-date and dysprosium oxide and neodymium oxide were up about 30%.
Prices for these oxides have since given up some of their gains as a result
of slow buying ahead of China's upcoming export tariff changes, but I expect
the prices of these rare earths will resume their upward momentum once buying
resumes midyear. Exasperating the future supply/demand imbalance of certain
rare earths is China's continued effort to suppress unregulated rare earth
production, particularly in China's heavy rare earth-rich southern provinces,
which will result in declining global production of terbium, dysprosium,
yttrium and other heavy rare earths if new sources of supply don't come
onstream.
TMR: Do you think this will spur much investor interest?
RC: The rally in the early part of 2015 pushed a lot of marginal
projects into the economically attractive category, but with the volatility
that we've seen in recent years we need to see prices not only rise, but
maintain a level that will restore investor confidence. We're not likely to
see investors flood back into the market in the near term. We need to see
sustained support at these prices, perhaps even a rise moving forward.
TMR: With sparse amounts of investment capital entering the REE
space, how are these tiny companies creating value?
RC: In many cases there's been a shift from creating external value
through things like exploration drilling, defining larger resources and identifying
high-grade zones, which are generally capital intensive activities, to
creating greater project value internally through improved flow sheets,
innovative processing methods and other means that boost margins at
relatively low costs.
TMR: What are three or four projects that continue to advance
despite a stagnant market?
RC: As many as 20 projects continue to make tangible headway
despite the tough economic conditions of recent years. Among those that have
recently issued major announcements are Tasman Metals
Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE), Northern
Minerals Ltd. (NTU:ASX), Greenland
Minerals & Energy Ltd. (GGG:ASX) and Namibia Rare
Earths Inc. (NRE:TSX; NMREF:OTCQX).
TMR: Let's start with Tasman.
RC: In January Tasman announced results of a prefeasibility study
for its Norra Kärr project in Sweden. That study proposed a 20-year initial
mine life, producing around 5,000 tonnes of rare earth oxides yearly,
including more than 200 tonnes of dysprosium oxide. These rare earths will be
contained in a mixed REE concentrate product that Tasman will look to have
toll separated by a third party. The initial capital required for Norra Kärr
development is under $400 million ($400M), which is a plus considering Norra
Kärr's relative richness in heavy rare earth elements (HREEs) versus lights.
What's also a plus is the project's proximity to existing infrastructure,
Solvay's processing facility in La Rochelle, France, and European end users,
particularly in Germany.
TMR: How has Tasman factored in the cost of that third-party
processor and are there any negotiations underway with a particular party?
RC: Tasman is undoubtedly talking with several potential processors
and it is likely looking close to home, which would be Solvay's La Rochelle
facility. As for toll separation costs, typically companies take the
anticipated revenue from REE production and deduct from that revenue the
anticipated toll-processing costs. Essentially, they're skimming
toll-processing costs off of future revenue. That allows a company to keep
on-paper operating costs looking better. Tasman, however, has taken the
responsible approach and incorporated its toll-processing costs into its cash
cost structure in its prefeasibility study. Tasman is recognizing that toll
processing is a cost it is incurring on its value chain from ore to final
product, but other companies generally ignore that. On paper, Tasman's cash
costs versus similar projects are seemingly higher, but when you look at
those fine details you see that it all comes out in the wash.
TMR: Does Siemens' deal with Molycorp preclude a deal with Tasman
or any other emerging rare earth recovery (REO) producers?
RC: Not necessarily. The Siemens/Molycorp 10-year deal announcement
didn't discuss any specific numbers for offtake tonnage. It's my
understanding that Siemens had a previous deal with Lynas Corp. (LYC:ASX)
that is still alive. It could just be that Siemens is looking to diversify
its supply sources.
TMR: Tell us about Northern Minerals.
RC: Northern Minerals has also been plowing ahead with its Browns
Range HREE project in Australia. In October 2014 it announced an increased
mineral resource, as well as encouraging prefeasibility study results, and
then announced a further mineral resource increase in February 2015. A month
later the company announced an increased ore reserve for the Browns Range
project and simultaneously announced the results of a definitive feasibility
study. That's an unprecedented advance for the REE industry. Northern Minerals
also signed a AU$49.5M partnership in February with Jien Mining, the
Australian subsidiary of Jilin Jien Nickel Industry Co. Ltd. The funding will
help move the project to production. Like Tasman's Norra Kärr, the Browns
Range project also has an initial capital requirement under $400M, with the
aim of producing over 200 tonnes of dysprosium oxide annually.
TMR: Browns Range is situated in Western Australia and a steady
stream of ships containing raw materials like coal and iron ore travel from
Australia to China. Does its location give it a significant advantage over
others?
RC: The location helps but its richness in valuable heavy rare
earths, namely dysprosium, has had the project in the sights of Chinese
investors for some time now. A major shareholder in Northern Minerals is
Australia Conglin Investment Group, which has deep roots in China's resource
and steelmaking industries. And the partnership with Jien Mining is giving
Northern Minerals the funds to bankroll the project from definitive feasibility
study to bankable feasibility study and engineering and construction. Browns
Range has moved at record pace compared with any other REE project in the
last 20 years. Lynas took about 15 years to go from acquiring a project to
developing it into production. Northern Minerals has cut that by almost 10
years.
TMR: What about Greenland Minerals and Energy?
RC: Greenland Minerals and Energy's Kvanefjeld project is on the
southern tip of Greenland. The project's future was hit with uncertainty in
late 2014 when the Greenland government collapsed, but the newly elected
government leadership has reaffirmed its commitment to mining. In February
the company announced an updated mineral resource for Kvanefjeld and in March
announced the purchase of an outstanding 2% net profit royalty on the project
from the previous owner. And in April it announced the signing of a second
memorandum of understanding with NFC, its Chinese processing partner. The
company should announce the results of a feasibility study on the Kvanefjeld
project in the coming weeks. I expect the feasibility study to come with a
smaller, staged-growth production plan that aligns future output volumes from
Kvanefjeld with NFC's processing capacity in China. As a result, I also
expect to see costs reduced from the initial Kvanefjeld development plan,
which aimed to separate REE oxides in-house.
TMR: And Namibia Rare Earths?
RC: Lofdal is located in Namibia and Namibia Rare Earths announced
the results of a preliminary economic assessment (PEA) on Lofdal in late
2014. It proposes an initial 7.3 year mine life producing approximately 1,500
tonnes of REE oxides per year, of which 94% will be HREE oxides—an extremely
high proportion of heavy rare earth content. The PEA proposes production of a
mixed REE concentrate in Namibia and further toll separation by a third party
overseas, which eliminates a lot of technical risk for the project. It also
has a low initial capital requirement, under $150M. Like the Tasman example
cited earlier, Namibia Rare Earths also incorporated a toll-separation cost
into its cash cost structure for the Lofdal PEA, which is a transparent and
responsible practice.
TMR: Does the concentration of heavy rare earths at Lofdal provide
Namibia with an advantage over some of its peers in attracting investment
capital?
RC: It certainly helps, but having the right mix of rare earths in
the project basket, whether it is HREEs or light REEs, is only important if
they can be produced at the right price. Other factors in favor of HREE
projects, like Lofdal and Browns Range and Norra Kärr, are the relatively low
preproduction capital requirements, which in most cases can likely be funded
by one or two major investors. You don't need a baker's dozen of different
companies with investment capital; you can cover the bill with one or two.
TMR: Could the project be fast tracked to production given that
it's in Namibia?
RC: It can likely be fast tracked given that it's located in
mining-friendly Namibia and the preproduction capital requirements to develop
the project are relatively low. But there are no risk-free projects in the
rare earth industry. The future balance of the yttrium market, of which
Lofdal is heavily endowed, hinges largely on China's continued ability to
reduce illegal production in the nation's south going forward. Ongoing
consolidation of China's rare earth industry will help enable that reduction
but over the long term the proof will be in the pudding.
TMR: A number of companies are touting new methods for processing
and separating REEs. Can you separate the pretenders from the true
innovators?
RC: In my opinion there are no pretenders but a limited number of
innovators. A lot of the new methods and processing innovations are coming
from third-party expertise. Technical consultants who have applied innovative
processing methods in other metal industries are finding that these methods
may be amenable to REE extraction and separation. For example, in March Ucore Rare
Metals Inc. (UCU:TSX.V; UURAF:OTCQX) announced that through the use of
molecular recognition technology (MRT) the company had recovered and
separated 15 REE carbonates of 99% purity or greater from feed stock from its
Bokan Mountain project in Alaska. MRT technology is used in metal processing
operations globally, generally for platinum group and other high-value
metals. Ucore's lab-scale results suggest that it may also be amenable to
commercial processing and separation of REEs.
In March, Orbite
Aluminae Inc. (ORT:TSX; EORBF:OTXQX) received U.S. patents for its
proprietary red mud processing. The Orbite process uses red mud waste
generated from aluminum refining as a feedstock from which it extracts and
separates REEs, rare metals, alumina, magnesium oxide, titanium dioxide and
other economically significant metals and oxides. Orbite proposed using a
very similar process in its 2012 PEA of its Grande-Vallée project in Québec.
The process it proposed at that time included a bolt-on solvent extraction
circuit for extracting and separating rare earths and rare metals.
Québec junior GéoMégA Resources Inc. (GMA:TSX.V), in cooperation with
FFE Service of Germany, conducted lab-scale tests using free flow
electrophoresis technology. The tests suggested, at least at lab-scale, that
REEs can be separated simultaneously from one another—rather than
sequentially—in a single step and can be done to a high-purity level without
costly solvents and significant amounts of energy. The company did a lot of
additional optimization work in 2014, including testing with a commercially
sourced REE concentrate. In early 2015 it announced that it would begin
bench-scale production of REE concentrates from its Montviel project in
Québec in order to prove out the recovery rates on its own material. In March
2015 the company spun out its separation rights and lab equipment into a
company called Innord Inc., which I think is a smart move as it allows
strategic partners to invest in specific activities under the GéoMégA
umbrella.
In late 2014, Rare Element Resources Ltd. (RES:TSX; REE:NYSE.MKT)
produced a thorium-free mixed REE oxide at 99.999% purity from its Bear Lodge
project in Wyoming. The company employed a patent-pending selective
separation and solvent extraction process that enables full extraction of
thorium and around 85% of cerium in a single step. That significantly reduces
the amount of material that needs to be treated in subsequent steps, while
boosting the relative value of the remaining REE oxides contained in the Bear
Lodge basket.
In February, Texas Rare Earth Resources Corp. (TRER:OTCQX), owner of
the Round Top REE and uranium project in Texas, signed a letter of intent
with K-TECHnologies Inc. to form a joint venture that will develop and market
K-TECH's Continuous Ion Exchange (CIX) and Continuous Ion Chromatography
(CIC) technologies for the extraction separation of rare earth elements. CIX
and CIC have been used in other metal industries for decades and appear to
hold promise for the REE industry, too.
Finally, DNI
Metals Inc. (DNI:TSX.V; DG7:FSE) is looking to heap leach REE oxides, as
well as a suite of other metals and products, from its Buckton project in
Alberta. In a 2014 PEA on Buckton, DNI proposed a large-scale bioleaching
setup with subsequent separation and refinement to produce rare earth oxides,
uranium oxides, zinc, copper, nickel, cobalt and 280 tonnes of scandium oxide
per annum—a staggering amount. The Buckton PEA came with relatively high
capital and operating costs but I think there's great potential to scale down
the project and pursue a more investor-attractive staged growth plan like
that proposed by Texas Rare Element Resources for its Round Top project.
TMR: You recently visited Innovation Metals Corp.'s lab-scale REE
processing/separation plant near Toronto. Tell us about what is happening
there.
RC: It was impressive. Innovation Metals is participating in a REE
supply chain development program, which is being led by Technology Metals
Research and funded by the U.S. Army Research Laboratory, a division of the
U.S. Department of Defense. Technology Metals Research is operating a
120-stage, lab-scale rare earth pilot plant that's using solvent extraction
to liberate and separate rare earth elements with a major focus on separation
of individual heavy rare earth oxides. The 24/7 facility processes REE
mineral concentrate feedstock sourced from the commercial market. The goal is
to bolster North American expertise and knowledge of REE processing,
specifically the separation of heavy rare earth elements of which China has a
near 100% monopoly. We don't hear much about the results of the ongoing work
in the press because it's not a commercial venture, but it's genuinely
impressive in scale and scope. The amount of tacit knowledge the team has
amassed through hands-on experimentation is amazing.
TMR: What happens next?
RC: I can't comment on behalf of those involved in the project, but
I see two likely outcomes. First, the results from this initial stage will
determine and inform what the next steps will be toward the project's goal of
bolstering North American expertise and knowledge around REE processing and
extraction. That part of the equation is funded by the U.S. Army Research
Laboratory. Another outcome of this research will be the advancement of
Innovation Metals' development plans for a toll-separation facility in
Bécancour, Québec. This facility would serve the array of emerging producers
in North America or abroad that don't want the risk and added capital expense
of developing and operating their own separation facility.
TMR: Would Innovation Metals' plant be the only REE toll-separation
facility in North America?
RC: It would, although some industry followers have suggested that
if Molycorp doesn't opt for its phase 2 expansion to 40,000 tonnes per annum
via production from its Mountain Pass ores, it could still build-out its
processing capacity to toll-separate for emerging producers in North America,
whether for Avalon Rare Metals Inc.'s (AVL:TSX; AVL:NYSE; AVARF:OTCQX)
Nechalacho or for another company. That's a plausible scenario, but not one
that will unfold immediately.
TMR: Does Molycorp have the facilities to separate HREEs?
RC: Perhaps not at Mountain Pass but through some of its
subsidiaries, such as at Silmet in Estonia and Jiangyin in China, it has
capacity to separate HREE oxides.
TMR: Many of these companies have seen their share prices drop to
pennies. Are companies closing the doors and waiting it out? Are they selling
assets? What is happening in this space behind the scenes?
RC: It's fair to say that a large number of REE juniors have placed
projects on hold until conditions improve. In many cases they've turned their
attention to other projects in their portfolios or are simply hiding under
their desks until markets turn. About 60% of the 55 REE projects that we
cover have been shelved, in some cases leaving cashless and projectless
zombie owners with little left but a ticker symbol. There are also a number
of REE projects that are quietly up for sale. As I mentioned, a good 15 to 20
projects continue to forge ahead.
TMR: Parting thoughts?
RC: What we've seen in late 2014 and so far in early 2015 are
indications that markets for certain REEs—neodymium, praseodymium, terbium,
dysprosium, the ones generally used heavily in permanent magnets—are becoming
increasingly tight. The supply–demand fundamentals are falling into imbalance
and are only surviving based on preexisting stockpiles. That's what has
buoyed prices and that's what's sending end users into partnerships with the
likes of Molycorp and others. Rare earths prices have again soured in the
last month, but as soon as the uncertainty surrounding Chinese export tariffs
goes away, we'll start to see more positive momentum behind REE prices and
more positive market sentiment toward REE companies.
TMR: Thank you for your insights, Ryan.