As I mentioned in my article posted earlier this week, I had the opportunity to attend Mining Indaba 2011 in Cape Town, South Africa last month. With a record 5,700 attendees this year, this is the premier annual mining event in Africa.

I’ve already mentioned the presence of Great Western Minerals Group (GWMG) (TSX.V:GWG) in an earlier article. They were about the only recognizable exploration & development company with an advanced rare-earth project, officially exhibiting at the event – though there were representatives from other well-known companies present. There were also exhibitors present with projects on the 300+ long TMR Rare-Earths Project List, with names that might not be as familiar to folks watching the rare-earths sector as others.

Avonlea Minerals (ASX:AVZ) has the Hoarusib project in Namibia that is prospective for rare earths, but their main focus appears to be on the Abenab project, a historical vanadium mine which they’re looking to develop for base metals. I spoke with folks from Montero Mining & Exploration (TSX.V:MON), who have the Wigu Hill project in Tanzania. Since Indaba they have listed on the TSX Venture Exchange and now that they’re through that process, they’ll be focusing back on development work. The company has taken over a couple hundred grab samples from the property, and claims to have seen significantly high grades of rare earths in some of them.

Also present was Peak Resources (ASX:PEK), who has the Ngualla project in Tanzania. They had recently completed a drilling campaign at Ngualla, and the company felt that initial drill results appear to be encouraging. They will follow this program up with more drilling before the summer. I also spoke with the guys at African Consolidated Resources (AIM:AFCR), who have the Nkombwa Hill project in Zambia, a joint venture with Rare Earth International, and, if I recall correctly, one other entity called Ferrex. They commented that the project was “highly prospective” for rare earths.

Also present during Mining Indaba 2011 were representatives of Namibia Rare Earths, who have the Lofdal property in Namibia, and who are in the process of getting ready to roll out an IPO for their company.

James Kenny, CEO of Frontier Rare Earths

I then had the opportunity to spend some time with James Kenny, CEO of Frontier Rare Earths (TSX.FRO), which not too long ago went public on the main TSX exchange and which has the Zandkopsdrift project in the Northern Cape of South Africa. This project is a member of the TMR Advanced Rare-Earth Projects Index and has both inferred and indicated rare-earth resource estimates per NI 43-101. It is not too far away from GWMG’s Steenkampskraal project. Mr. Kenny reviewed the recent presentation that Frontier put together on the project. We discussed the (at the time) new numbers for supply and demand that Dr. Chen of the Chinese Society of Rare Earths had included in the Vancouver presentation given just a couple of weeks prior to our meeting. If a production cap of 110 kept of rare earths really is put in place in China,this could mean shortfalls of supply for both China and the rest of the world, at levels greater than previously expected.

Mr. Kenny pointed out the proximity of the Zandkopsdrift to the Saldanha deep water port on South Africa’s West coast. He commented that they saw the Zandkopsdrift deposit as being a solid peer of other 200 kt+ rare-earth mineral-resource projects. The project would consist of extracting materials from a 50 m high hill on the property, before drilling down a further 30 m. The rare earths are present via supergene enrichment, in the form of fine-grained monazite, similar to the Mount Weld deposit in Australia. Mr. Kenny said that the initial mining campaign would focus on high-grading the deposit, in phases. Frontier is looking to do further drilling over the next six months, including in-fill drilling at intervals of 40 m.

Mr. Kenny said that the goal was to get a significant fraction of the deposit’s mineral resource estimated into the measured category. When I asked him about the challenge of processing fine-grained monazite such as that at Zandkopsdrift, he said that the company was working with SGS to get a flow sheet for the project following the completion of metallurgical studies, and he was (naturally) confident that an effective flow sheet would be produced. Mr. Kenny said that Frontier planned to complete their Pre-Feasibility Study by Q1 2012 and a Bankable Feasibility Study by the end of 2012.

We then discussed the novel approach to presenting value estimates that Frontier adopted in recent presentations. The company has focused on the use of a neodymium (Nd)-equivalent value for its project; this type of approach is used quite often for base metal and other projects, to attempt to determine the equivalent value of auxiliary metals and minerals, in terms of the primary material of interest. To my knowledge though, this is the first time that it’s been used in the rare-earths sector in this way. In the case of Zandkopsdrift, Frontier used Nd as the basis for the metric, it typically being the overall most-valuable rare earth present in many deposits. As an example of how this works, let’s assume that Nd oxide is currently trading at $100 / kg, and that La oxide is trading at $50 / kg. At this ratio of prices, every 1% of La oxide present in the material grade is equivalent to 0.5% Nd oxide – from the potential value point of view. This of course assumes similar recovery rates for either rare earth.

A couple of other observations from Mining Indaba 2011: I saw fewer Chinese delegates present than I was perhaps expecting; and I found it slightly odd to see pavilions / booths from the Czech Republic and the Afghanistan Ministry of Mines here… still – it was a very interesting experience, and I want to thank the folks at Resource Investor for facilitating my attendance at the meeting.

Disclosure: at the time of writing, Gareth Hatch is not a shareholder of any of the companies listed above, or of any other publicly traded junior-mining company. He did not receive compensation from any of the companies listed above, in return for writing this article.

In the past couple of weeks or so we’ve seen a number of news releases from Great Western Minerals Group Ltd. (GWMG) (TSX.V:GWG, OTCBB:GWMGF), concerning efforts to move their Steenkampskraal rare-earth project forward. After announcing a new exploration program at the site, and the “advanced discussions” concerning the construction of a separation plant in South Africa, the company announced the completion of the purchase of Rare Earth Extraction Co Limited (Rareco), the operators of the Steenkampskraal project.

Last month, while in South Africa attending Mining Indaba 2011 in Cape Town, I was able to sit in on an extended update from GWMG and Rareco management on their recent activities, some of which has subsequently been published in the above press releases and reported elsewhere. I also had the chance to visit the Steenkampskraal property itself.

Trevor Blench, Chairman of Rareco

Trevor Blench, Chairman of Rareco, said that the company acquired its 20-year mining license for Steenkampskraal in June 2010, and that a condition of its issuance was that the project had to commence within one year of issuance. He noted that the Rareco environmental management and social & labor programs had been approved and that arrangements to fully implement the Black Economic Empowerment (BEE) initiative were well underway. The BEE program was created by the government of South Africa after the end of the apartheid era, as a means of trying to give so-called Historically Disadvantaged South Africans (HDSAs) economic opportunities not previously available to them.

Mr. Blench noted that the previous operators of the mine site at Steenkampskraal, which was originally established to produce thorium in the 1950s and 1960s, left it in an appalling state. In return for the company agreeing to conduct appropriate remediation and rehabilitation work on the site over the life of the future mining campaign, associated mineral royalties normally payable to the state, have been waived, until the cost of the work has been met. My subsequent discussions with GWMG management indicate that without this arrangement in place, a royalty of up to 5% of gross revenues on refined mineral products, and up to 7% of gross revenues on unrefined mineral products, would normally have been due. GWMG and Rareco will not be obliged to spend money on rehabilitation at the same rate that royalties would have been due; the company has already placed R0.5MM in a rehabilitation fund and the fund will be reviewed annually.

Mr. Blench went on to note that a nuclear license is required for the Steenkampskraal project, in order to deal with the radioactive materials resent, and that this was previously approved by the authorities. The Steenkampskraal mine is an approved site for the storage of thorium as a result, a fact which Mr. Blench deemed to be a critical success factor for the project. It should be noted that under the existing nuclear license from the National Nuclear Regulator (NNR), GWMG / Rareco has to submit for approval, a detailed work program for each activity planned on the Steenkampskraal site, so that the NNR can provide the appropriate guidelines required while conducting such programs. The company also has a Draft Scoping Study out for public comment at present, prepared in support of the Environmental Impact Assessment Report, which is required in order to obtain a Waste Management License for production.

He also noted that the historical rare-earth ore reserve numbers for Steenkampskraal were established using a 5% cut-off grade, and given today’s pricing, the potential reserve would increase significantly if a lower grade was used (this is actually a similar cut-off grade to the one used by Molycorp for the Mountain Pass mine, which would probably also benefit from a lower cut-off grade value).

Gerrit Horne, Independent Trustee of the BEE Trust Fund

We also heard from Mr. Gerrit Horne, a labor lawyer and an independent trustee of the BEE trust fund to which Rareco donated 26% of its shares in Steenkampskraal Monazite Mines Corp (SMM). SMM is the specific legal entity that owns and controls the Steenkampskraal property, with Rareco retaining 74% ownership of SMM following the transaction. The fund will have a total of three trustees; one independent (Mr. Horne), one from SMM (Mr. Blench) and a third trustee who will be elected by the future HDSA employees of the mine, once it is operating. In addition, this third trustee will also serve on the board of SMM. The BEE trust fund will receive 26% of the revenues generated from the production of monazite concentrate at Steenkampskraal, without being required to put up capital in return. Mr. Horne commented that Rareco’s approach to the BEE initiative is viewed by the South African authorities as a good model for such initiatives within the mining industry.

Mohamed Mahdi, President of Rareco

Finally, we heard from Mr. Mohamed Mahdi, the newly appointed President of Rareco. He said that the South African government is keen to exploit its natural resources intelligently, through the extraction and subsequent beneficiation of minerals inside South Africa – leading to the creation of new jobs and bringing further competencies and enhanced competitiveness to South Africa. He built on Mr. Horne’s comments concerning the efforts built-in to the Rareco plan, to uplift communities local to the Steenkampskraal project, through the BEE program. Mr. Mahdi’s comments were actually quite striking, really bringing home the South-African perspective, and just how much the authorities want projects of this type to succeed. Those of us staring at rare-earth material-grade spreadsheets all day, can sometimes forget the human dimension inherent to projects located in historically disadvantaged areas such as South Africa or the First Nations territories of Canada.

Per GWMG management, Mr. Blench will continue on as the Chairman of the Rareco Board of Directors. GWMG has now acquired 92.6% of Rareco’s shares. A 75% ownership stake would have meant that there was no longer a requirement for the company to solicit votes from minority shareholders on important issues; going past the 90% mark means that the remaining minority shareholders are obliged to tender their shares to GWMG.

On the last day of the Mining Indaba event, I had the opportunity to accompany the GWMG and Rareco management team and directors, analysts and others on a visit out to see the Steenkampskraal project first-hand. Following a short 40-minute flight from Cape Town to Vredendal, the group took a 90-minute drive out to the mine, where the Rareco team gave us a tour of the site. Photos from the tour can be seen by clicking on the thumbnails below. The site is reached via a hard-dirt track across the back country.

The thorium at Steenkampskraal was discovered in 1949. Anglo-American mined from the top of an original outcrop down 100-120 meters, with stopes going along strike. Mr. Blench said that a monazite concentrate was produced on-site, and that mineral-bearing rocks were manually hand sorted during processing. Anglo-America was only interested in materials with 2% or greater Th, which contained 15% total-rare-earth oxides (TREOs) or more – anything else was simply tossed into the rock waste dump. The existing dump contains an average 7% TREOs. Also present are slime dams, containing very fine materials that are hard to recover.

Mr. Blench indicated that the plan is to blend surface materials and underground broken ore ahead of processing. There is apparently 2-3 years-worth of broken ore already present in the mine, available for immediate processing, with the ore below ground averaging around 17% TREO content.

Mr. Blench commented that in the early days of Anglo-American’s original mining campaign, the ore body was high-graded, in some cases resulting in materials containing 80% monazite, and up to 50% TREOs! Little peripheral drilling was undertaken outside of the main ore body, at that time, which was simply followed into the ground. GWMG’s recent press release indicates that exploratory drilling will be undertaken in the vicinity of the original ore body and beyond, to ascertain potential resources elsewhere on-site. The company has also acquired significant data sets from the previous mine operators. Mr. Blench noted out that there are potentially recoverable quantities of copper (with grades up to 1%), silver (Ag) (up to 18 g Ag / t) and gold (Au) (up to 1 g Au / t).

I asked the management team how the original connection between GWMG and Rareco came about, and why Rareco did not decide to simply develop the mine itself. I was told that in fact Rareco did want to develop the mine itself, and that the company received a mining license for the project in 1997, was financed and all ready to go – only for rare-earth prices to drop. The company tried to make a go of things a second time around, when prices started to recover in the middle-to-latter part of the last decade, but the recession hit, making it difficult to finance such mining projects, so Rareco decided to look for a partner. This was around the same time that GWMG acquired Less Common Metals (LCM), and according to GWMG, they were looking for a project that could be fast-tracked into production (in contrast to the other projects in their portfolio such as Douglas River, Hoidas Lake or Benjamin River). GWMG were introduced to Trevor Blench and GWMG made its first visit to South Africa to evaluate the Steenkampskraal project, in September 2008.

I also asked what sort of cost savings, from LCM’s point of view, that LCM would see on an annual basis, by procuring material via the mine at Steenkampskraal, as opposed to buying it from China. I was told that by flowing through the margin through to LCM, the margin jumps from 10-15% EBITDA / revenues to around 70% at today’s pricing.

There has been a fair amount of discussion on the projected start date for Steenkampskraal, and how that depends on whether or not a Bankable Feasibility Study (BFS) is completed. GWMG management indicated that the lion’s share of the timeline is still the construction phase, with production slated to begin by mid-2013. Should the company decide to complete a full-blown report, it would be finished by the end of this year. The decision to complete a BFS, depends on whether or not GWMG decides to try to use debt financing to raise the money to cover capital costs. Not going with the full BFS would bring production forward a few months, but would likely require GWMG to fund the costs via alternate means.

Finally, I asked about the processing of materials, once they are mined from Steenkampskraal. GWMG issued a news release a couple of weeks after the site visit, indicating that they are in “advanced discussions” with a number of companies, with the goal of constructing a rare-earth separation plant in South Africa. Each alternative being considered will involve the acquisition of separation expertise. GWMG management indicated that a rare-earth chloride would be produced at the Steenkampskraal site, with the subsequent separation done at a site in South Africa with appropriate supplies of water, power and available reagents and chemicals. Per GWMG management, a decision on the final partner for the separation project would be made within the next 2-3 months.

My thanks go to GWMG for facilitating my visit to the Steenkampskraal mine site.

Disclosure: at the time of writing, Gareth Hatch is neither a shareholder of, nor a consultant to, Great Western Minerals Group (GWMG), or any of its subsidiaries, or any other publicly traded junior-mining company. He did not receive compensation from GWMG or from anyone else, in return for writing this article.

by Irma Venter- Mining Weekly – Published: September 17, 2010

Earlier this year, the increasingly tight rare earths supply situation prompted one environmental journalist in the US to exclaim that we should all kiss our wind turbines goodbye.

To be fair, he did lean towards the more apocalyptic scenarios favoured by the more extreme proponents of the green agenda, but he did have a point.

Last year, China produced 97% (120 000 t) of the world’s rare earth oxides, while it also controls half of the earth’s known reserves. India, Brazil and Malaysia made up the rest of 2009’s rare earths production volumes.

So what, you may ask. South Africa has 75% of the world’s known platinum-group metals (PGMs) reserves, used in industrial applications such as car exhaust catalysts and fuel cells, and nobody is crying foul?

But what if South Africa decided to cut exports dramatically, and prohibit any company outside its borders from obtaining PGMs mining rights?

To some degree, this is what has been happening in China. The Asian giant in July slashed its export quota by 72% for the second half of 2010 in a bid to force international companies to manufacture rare earth products within its borders.

Speculation is rife that these cuts are not the last.

It also appears that China aims to limit mining rights for rare earths to a few State-controlled mining companies.

Again, to be fair, China may not be as villainous as painted, but rather, perhaps, starving for more.

Rare earths guru Jack Lifton, once a product developer using rare earths, in August reported at a conference in China that this country may need to import rare earths from 2015, such is demand for the 17 elements from the middle of the Periodic Table, used in hybrid electric motors and batteries, computer hard drives, mobile phones, cameras, stadium lights, fibre optics and energy efficient light bulbs . . . and, yes, wind turbines.

Lifton even noted that China was hoping that it would be able to, one day, buy rare earths from sources such as the US Mountain Pass mine, which Molycorp Minerals is struggling to revive. It currently only produces rare earth oxides from ore mined years ago.

This comes as China installed 13 GW of wind turbine electricity generating capacity last year, using rare earth permanent magnets for increased efficiency, and to ensure low maintenance costs.

By 2020, says Lifton, it is predicted that China will install a mind-blowing 330 GW more wind capacity, with each 1,5-MW generator requiring 1 t of neodymium-iron-boron magnet alloys. This would mean that China would require a further 70 000 t of the rare earth neodymium, which is around 3,5 times the 2008 production of that metal.

Rare earths demand is expected to increase to around 180 000 t/y by 2014, up from the current 120 000 t.

To make matters even more interesting, the current rare earths supply chain has forced a situation where the world may now face the stuff the more gripping political thriller is made of: the US Department of Defence DDG-51 hybrid electric drive ship programme uses permanent-magnet motors using neodymium magnets from the country rivalling it for political and economic dominance, China.

One more example: the same department’s M1A2 Abrams tank has a reference and navigation system that uses samarium cobalt permanent magnets, with the samarium coming from China.

However, now a dormant production site called the Steenkampskraal mine may deliver marginal reprieve as Canadian-listed Great Western Minerals Group (GWMG) and South Africa’s Rareco push to deliver rare earths from the Western Cape location by late 2012.

It may make only a small contribution to the global rare earth numbers, but its significance as a non-Chinese producer is such that South Africa was mentioned in a US Government Accountability Office report on rare earth materials in the defence supply chain made to the committees on Armed Services of the Senate and House of Representatives earlier this year.

A History Lesson

Steenkampskraal, in the Western Cape, has an interesting history.

It is owned by Rareco.

The deposit, with a significant amount of thorium present, was discovered in the late 1940s, and then mined by Monazite & Mineral Ventures, a wholly owned subsidiary of Anglo American, from 1953.

The mine produced the fuel for the thorium-based nuclear power reactors operating at the time, says Rareco CEO Robbie Louw.

However, by the late 1960s these reactors were decommissioned as uranium reactors were built, and the market for thorium collapsed, he explains.

The Steenkampskraal mine closed in 1963, and Monazite & Mineral Ventures was liquidated in 1967.

“The discovery of high-temperature superconductors in the late 1980s was a milestone in the development of the market for rare earths,” says Louw.

This triggered the acquisition of Steenkampskraal by European investors, and Rareco was formed shortly thereafter.

The company was listed on the venture capital board of the JSE in 1994, but then delisted in 2006.

The company is now owned by the people who bought shares on the JSE. Most of the founding members who formed Rareco in the late 1980s are also still shareholders of the company, says Louw.

The Steenkampskraal Workers Trust owns 26% of Rareco, and is the black economic-empowerment partner.

So, what went wrong in 2006?

At the time of the formation of Rareco, rare earths prices were high and the planned venture appeared very profitable, explains Louw.

“It was, however, at this time that China started flooding the market with low-priced rare earths, produced as by-products of iron-ore mining.

“Prices collapsed to a level so low that it was not economically viable to reopen Steenkampskraal.” (The US and Australia were the predominant suppliers of rare earths until China’s price position forced them out of the market.)

Louw says the prices for rare earths remained low during the recent commodities boom, with the recession not helping either.

However, prices have now recovered, and the prospects for Steenkampskraal with it.

Rare earths prices have doubled, and doubled again over the last 18 months, says a pleased GWMG vice-president of operations, Richard Hogan.

GWMG is a major consumer of rare earth compounds in its US and UK factories that produce magnetic alloys and battery alloys. What it boils down to is that GWMG owns two companies – one which develops magnets, and one which develops batteries. Securing supply from Steenkampskraal is vital in securing the company’s future.

In August, GWMG signed an offtake agreement with Rareco, covering all the rare-earth metals to be produced from the mine, which would be settled at market prices.

The deal is conditional on GWMG either completing a feasibility study for the mine by the end of 2011, followed by financing for the project outlined in the study two months later, or on providing certain financing outlined in the agreement before the end of 2010, thereby fast-tracking the development process.

Hogan says there are ongoing talks with regard to GWMG possibly buying the Steenkampskraal mine.

He believes developing Steenkampskraal is important as it creates an alternative source of rare earths for the world, with China “requiring its production more and more for itself, thereby shutting down supply to the outside world that depends on rare earths”.

“We are determined that Rareco and GWMG will become the first producer of heavy rare earths outside China,” says Hogan.

Why Steenkampskraal Could Be First

Hogan describes developing Steenkampskraal as a “big opportunity”, as it is the highest grade known rare earth deposit in the world.

He says: “We can produce a large amount of rare earth material by processing small amounts of material compared with the rest of the world. What we consider waste is considered the cutoff grade at other operations.”

Hogan says there are many known deposits of rare earths in the world, belying the name ‘rare’ earths, but adds but that the “vast majority” are populated with metals which do not allow for efficient extraction.

Also, most deposits do not have the heavy rare earths currently in demand, but rather the light rare earths.

The Mountain Pass operation does not, for example, have significant deposits of heavy rare earths that are used in the magnets that power hybrid electric vehicles, for example.

Steenkampskraal contains heavy rare earths.

In essence, it is a monazite mine. Monazite is a reddish-brown phosphate mineral containing rare earth metals, and is an important source of lanthanum and cerium.

It also has thorium, which can be used as an alternative to uranium as a nuclear fuel.

Rareco chairperson Trevor Blench says that the thorium can become an additional asset to the mine as it develops in stature as a nuclear fuel.

“We plan to extract the thorium and secure it on site while we wait for the market to develop.”

This is exactly why Rareco executive director Berry van Biljon believes mining Steenkampskraal will provide another service to the community – apart from the 150 to 200 jobs it can create in a economically depressed area – as it will remove the radioactive thorium material from the ground as the slimes dams and mine dumps are also to be remined.

Blench also emphasises the importance of the lanthanum to be mined at Steenkampskraal.

“Lanthanum is a vital catalyst in oil refineries. Oil refineries produce jet fuel, and China almost has a monopoly on lanthanum. This means China can close down the whole US air force, navy and so forth, within months, for example.”

“You can’t have a cat scan without a rare earth magnet,” adds Hogan. “Our lifestyle is very fragile.”

Development Timetable

The plan is for Steenkampskraal to be commissioned in late 2012, says Hogan.

“This is a very [hectic] schedule.”

He believes the bankable feasibility study for the project can be delivered in November next year, and then used to possibly fund mine rehabilitation and construction.

South Africa’s Department of Mineral Resources has already granted the project neworder mining rights.

Following the start of mining, Hogan says GWMG aims to beneficiate the ore mined at Steenkampskraal.

The first step would be to create monazite concentrate, followed by the production of mixed rare earth products, with this mixed compound then split into each rare earth.

“Each step adds further value, creating more jobs,” explains Louw.

Hogan says one of the biggest advantages Steenkampskraal can deliver – apart from being a previously mined deposit, which erases many unknowns – is that its high grade equates to a low-cost development.

“Mining and two stages of beneficiation could cost between $30-million and $50-million,” says Blench.

Production could reach between 2 500 t and 2 700 t of rare earth oxides a year, which would be 2% of the global market, he adds. There are around ten years of known reserves in the ground.

Hogan emphasises that this “is very low cost” compared with the costs of other projects in the world – which is indeed so when considering that it would probably cost $500-million to revive the Mountain Pass mine.

Rareco and GWMG do not want to stop there – their ambitions go much further.

“Rareco has applied for prospecting rights on more than 53 000 ha of farms surrounding Steenkampskraal,” says Van Biljon.

What About The Rest Of Africa?

Exploration capital expenditure in most African countries is mostly focused on precious and base metal discovery, says Council for Geoscience economic and exploration geologist Dr Elisa Long’a Tongu.

He says diversifying into rare earth metals would benefit economies such as Ghana, Nigeria and Zambia, “through technology transfer and human capital development, and so contribute to local production, industrial and technological innovations”.

Tongu adds that it is likely that, because of their tropical locations, most African countries unknowingly possess significant ion-adsorption rare-earth element resources of the type presently exploited in China.

He notes that he knows of a number of rare earths projects that exist within Africa, including one in South Africa’s Northern Cape, but adds that he cannot discuss these owing to confidentiality conditions.

The television commentator and former Jesuit, John McLaughlin, used to make me laugh when he would tell a panelist of an opposing political view: “Once again you’ve stumbled upon the truth, even though you don’t know how you got there.”

The New York Times recently reported the facts of a story entitled, “China to Invest Billions in Electric and Hybrid Cars,” but failed to stumble upon the truth. So let me do that for the Times and for your benefit, dear readers:

China, as part of its national plan, a goal centrally set by those in overall charge of its economy, announced yesterday that its motor vehicle industry will be required to build one million electric and hybrid motor vehicles in the next few years. I believe that this means that the industry will be required to reach a production rate of one million electrifed motor vehicles, the size of passenger cars, per year.

This is part of an overall plan to marshal and deploy China’s natural resources and its resources of intellectual property for the benefit of its own people, first. How much more logical can it get than that as a reason to conserve precious natural resources such as the rare earths?

The New York Times points out in the above story:

“The announcement, analysts say, is another example of how China seeks to marshal resources and tackle industries and new markets. The plan also underlines what China describes as its growing commitment to combating pollution and reducing carbon emissions.”

When I was in Beijing in the first week of August, three weeks ago, one of the other (I was a speaker at the plenary session) speakers at the Chinese Society for Rare Earths 6th Annual Rare Earths’ Summit, stated that a goal of the next two five-year plans, to be completed in 2020, was to have 330 GW of wind-turbine-generated electricity installed by that time. The speaker pointed out that this would take 59,000 metric tonnes of neodymium, calculated as 28% of the rare earth permanent magnet alloy, neodymium-iron-boron, since each 1.5 MW wind turbine generator will require one tonne of rare earth permanent magnet alloy.

The same speaker who was from the Chinese rare earth permanent magnet manufacturing industry didn’t mention how much of the heavy rare earths would be required for the project. I will estimate that at most it would be one thousand tons of terbium and three thousand tons of dysprosium.

In any case the total requirements for these new (not replacement) uses for neodymium, would be the total production for three years at the most recently achieved high production rate of neodymium, and as much as five years of terbium and two to three years of dysprosium.

If the neodymium demand is to be met, and this means that China, AS THE SPEAKER SAID, decides to use only rare earth permanent magnets for its wind turbine electric generator program, then it would require that three years’ production of the contained neodymium, at the rate it was mined in China in 2008, among all the rare earths mines there, be reserved for Chinese domestic magnet and wind equipment manufacturers and be targeted for the Chinese domestic market!

I think that it is crystal clear, that China is not reducing the production of rare earths on a long term basis and is not reducing their export on a short term basis. It is in fact pausing to:

• physically clean up the rare earth mining sector;
• eliminate illegal mining and smuggling of this precious green resource;
• consolidate the rare earth mining industry under the largest state-owned base metal producers of iron, copper, and aluminum, to prepare to ramp up the Chinese domestic production of rare earths both to meet and to guarantee the success of its long-term green strategy.

This is called long term strategic planning for those in Washington and on Wall Street who don’t understand why the Chinese are ‘depriving us’ of this vital resource. This process is also called ‘conservation of domestic resources’, by the way.

As to electric and hybrid cars, they require neodymium, dysprosium, and terbium for the magnets in the rare earth permanent magnet electric motors – both that drive them and that power their accessories. Some or all may also use lanthanum in nickel metal hydride batteries, as all hybrids made today currently do. A. In any case, whether or not the Chinese electrified cars use NiMH batteries, they are being designed to use rare earth permanent magnet electric motors. A million such vehicles will probably require just one million kg (1,000 metric tonnes) a year. Oh, did I mention that they will need also 10-20 tonnes of terbium and up to 50 tonnes of dysprosium. All of this new demand will be added demand not replacement demand, by the way.

I have no doubt that China will remain the world’s largest producer of the rare earths indefinitely. In the near term, perhaps over the next 5-10 years, China will need to import the ‘light’ rare earths lanthanum and neodymium, to make up any shortfalls created by its proposed quantum leap in demand in the face of the temporary reduction of production, for environmental and reorganization reasons. If the non-Chinese light rare earth miners get their acts together in time so that they can produce light rare earths at a lower cost than their Chinese competitors are able to do, then both Molycorp and Lynas have a good chance of success even in the long term.

The real issue for the future of rare earth utilization and therefore of mining, is the continued growth of the use and need for the heavy rare earths, terbium and dysprosium.

These ‘heavy rare earths’ are believed by the Chinese to be in short supply domestically. China today is the world’s only producer of heavy rare earths, mostly from southern Chinese deposits known as ‘ionic clays’, although significant quantities are also produced from the Bayanobo region (even though they report in Bayanobo only in small quantities) due to the overall massive amounts of rare earths mined there. Nonetheless, China believes that its own domestic supply of the heavy rare earths has between 5 and 30 years remaining at present levels of use.

This means that the real supply opportunity in the non-Chinese rare earth mining sector, is for those deposits that have above average proportions of heavy rare earths, to be brought into production as quickly as possible.

It is a horse race among those non-Chinese juniors with commercially (i.e. economically) recoverable heavy rare earths.

They are:

Canada

1. Great Western Minerals Group
2. Avalon Rare Metals
3. Quest Rare Minerals

(Note: some of my colleagues have urged me to add other Canadian juniors to this list, such as Matamec Exploration, but I know little about that company and will reserve my judgement on them for a future time, when I have had time to study Matamec Exploration and to visit its site.)

USA

1. Ucore Rare Metals
2. Rare Element Resources (a light rare earth deposit but with significant europium only)

Republic of South Africa

1. Rareco (in conjunction with Great Western Minerals Group)
2. Frontier Rare Earths (private at this time)

The success or failure of any of the above, will depend on the quality of their deposits, the efficiency of their extractive metallurgy, the ability of the global rare earth refining industry to service them, and the growth of the Chinese, Japanese, Korean, and Indian domestic markets.

Disclosure: I own shares in Great Western Minerals Group, and I am a paid consultant in business development to Ucore Rare Metals and to Frontier Rare Earths.

On Friday, February 5, I flew from Cape Town in a small plane, to Springbok, Northern Cape Province, Republic of South Africa, to visit a privately-owned rare earth exploration site there. I was impressed by two aspects of the deposits that the owners had discovered so far:

1. The grades presented were as high as 21%, and
2. the proportions of high atomic-numbered, so-called “heavy,” rare earths, such as dysprosium, terbium, and europium were high enough to make these ore bodies, if they are proved to be extensive, valuable enough to bring them into contention, even at current prices, as economically developable today as concentrate producing mines.

The next afternoon, Saturday, February 6, I was walking down the street that runs along a beautiful beach, Camp’s Beach, west of the Cape Town waterfront when I spotted the Chairman, President, and in- house publicist for Canada’s Great Western Minerals Group (GWMG) sitting in a sidewalk café drinking what I can only assume was sarsaparilla, since it was only 1:00 PM, local time.  GWMG had invited me to visit their rare earth property also in the Springbok area at a place called Steenkampskraal, but I was unable to go as I had already agreed to go to the other site when the GWMG invitation was proffered.

I did agree to go to Steenkampskraal in the near future on my next trip to South Africa, and I am looking forward to that visit. Gary Billingsley, the chairman and founder of GWMG, who himself is a geologist , has in my opinion been very good at finding rare earth deposits of excellent potential for commercial development. Gary is also the originator of the “mine to market” strategy for rare earths, which today is recognized as the “must-do” paradigm for any low-volume, high-value technology metal producer, because most often it is only when you vertically add downstream value to a rare metal mining operation that you can achieve enough margin to make the return on the investment in the extended value chain attractive to private capital.

I was surprised to learn from Gary that Steenkampskraal had previously and fairly recently been placed in development by its then owner/operator, South Africa’s Rareco, in the late 1990s and then, like Molycorp, it had become uneconomical because of aggressive Chinese pricing.

Steenkampskraal was developed originally by Anglo-American in the 1950s as a thorium mine, to supply the United Kingdom and the USA with thorium for reactor fuel at a time when the decision had not yet been made whether to go with uranium or thorium for civilian nuclear reactors. The mine shut down new production in 1962 but I was told that it still retains its status as a legal repository for thorium; perhaps the only privately owned such facility in the world. Gary said that he is in negotiation with existing refiners to build a separation plant at or near the Steenkampskraal site, and that although its first priority would be to be designed to process ore from Steenkampskraal, he thought it could be developed as a contract processor also, because of its unique attribute of being able to legally store thorium removed during rare earth ore separating processes.

But the most important aspect of Steenkampskraal is its ore grades. If you look on the GWMG web site you will see the data for the grades, weights, and elemental distributions on the Steenkampskraal ores discovered so far. In addition to that data I was told there have been examined monazite samples assaying at 80% which present as net 48% TREOs. Gary believes that this result is not from an anomolous one time grab sample, but from a substantial body of ore. Such material would be worth as much as $60/kg in concentrate; this is 6 times the values today, theoretically, for other better-known lower atomic-numbered (light) rare earth deposits in Australia and the USA, and 3 times the average values previously stated for high atomic number-enriched rare earth deposits from southern Africa. Even without factoring in the extremes of concentrate value, there is still a greater likelihood of a South African deposit being able, within two or two and a half years, to produce a per kg value high enough to justify investment, than at any other place in the non-Chinese world

GWMG’s web site has quite a bit of data on Steenkampskraal, but Canadian security regulations do not leave much latitude for speculation. I can say though, that I think that the Northern Cape Province of the Republic of South Africa is the best hope in the world for a source in the very near term of high atomic-numbered rare earths to replace the rapidly diminishing Chinese ionic clay sources. By restarting and redirecting the purpose of Steenkampskraal GWMG may well be, as I said in San Francisco in December, the winner of the horse race to be the first outside of China to produce commercial quantities of high atomic numbered rare earths.

GWMG is uniquely situated to gain the most value by winning the horse race, because it is the only truly vertically-integrated rare earth producer. Instead of needing to market its separated rare earths it would be able to use them as feed for its Less Common Metals wholly-owned subsidiary in the UK and the US, where if GWMG also refined the separated rare earths to pure metals, they would be made into permanent magnet alloys, which it makes now from Chinese high purity rare earth metals. The customers of LCM form permanent magnets for various uses from the powdered goods they buy from LCM.

With the known ore bodies at Steenkampskraal, GWMG and LCM would be independent of outside raw material suppliers for 14 years at current capacities. If there were additional resources discovered on the Steenkampskraal property and/or if Canadian resources at Douglas and Benjamin Rivers in Saskatchewan were developed during those 14 years, GWMG would become a player in the global raw material supply  industry.  If, as I think, Avalon Rare Metals comes into production of total rare earths by 2014-15, then South Africa and Canada will join China as dominant players in the rare earth space. At the moment I see Avalon and GWMG possibly emerging by mid-decade to make Canada the dominant rare earth producer outside of China, even if it isn’t then the largest such non-Chinese producing nation in terms of tonnage, because Canada will be able to produce the total resource – but there is tremendous potential for South Africa as Canadians have already realized.  There’s a horse race to produce a total rare earths supply outside of China. The long term winner is Avalon Rare Metals, and in the near term the winner will be Great Western Minerals Group. In the long term GWMG will be able to supply its own upstream needs.

In the long run the supply base for rare earths will surely be and must become global but may, in my opinion, never be sufficient to keep up with the growth of Asia’s economies. Even very good projects  with very long time lines in places like Greenland and Viet Nam and Russia, will be as much as a decade and a half in development. In the near term the race will go to those already under development with the broadest and most comprehensive range  of rare earths. These are Canadian and South African operations. In the US the broadest range of rare earths is held by US Rare Earths, Inc., a privately held junior for which I consult.  It is today America’s only hope for self-sufficiency in total rare earths; it would be best developed as a balancing resource adjunct to Molycorp Mineral’s Mountain Pass operation but even on its own, US Rare Earths could conceivably supply the US with its current needs for total rare earths for a period of about 20 years at contemplated full production. Note that in contrast, Molycorp could supply the entire world with the lower atomic numbered rare earths indefinitely just from its Mountain Pass deposit.  The problem for US self-sufficency is that Molycorp is ready to start and US Rare Earths is 5 to 10 years from production, but for the domestic concerns of the US with regard to making its civilian and military industries safe from supply interruptions, even this time scale may well be appealing because it is critical and thus mandatory.

The USGS predicted 20 years ago, that South Africa would become the world’s major player in rare earths production.  Right at that same time, China pulled out all of the stops to developing the production of rare earths in its Bayan Obo region of Inner Mongolia.  By the end of the century, China dominated the rare earth production space. But Chinese zeal to create jobs in China did not contemplate the realities of the market or of mining engineering. The market growth has now overwhelmed China’s ability to maintain and expand production, with regard to continuous exploration, continuous improvement in refining, and maintenance of peak efficiency while obeying environmental regulations and following environmental common sense. The Chinese government recognizes these issues and is moving to consolidate rare earth mining to achieve efficiencies and environmental control. This must mean a temporary slowdown in production as any consolidation and restructuring means. We can be certain of only one thing: China’s first priority is its own economy. It is therefore entirely our fault if we dawdle while there is a serious threat of supply interruption.

I personally think, based on data, that the sleeping giant of global rare earths has probably already been discovered and its development is underway, but it may take a while to come to large scale production. I do not wish to mention which of the above non-Chinese rare earth ventures I am speaking of at this point. The race to avoid a supply interruption crisis is well in hand. I don’t know if a rare earth supply gap, especially of the high atomic numbered (heavy) rare earths can be avoided due to the long development times needed even for mines that are in development. But I now think that 2015 will mark a turning point in global rare earth supply dynamics.

Canada and South Africa are excellent places to seek out investments in the future of the rare earth supply. I guarantee that the Chinese already know this.