Whilst not maybe to the same extent of Baotou and their IO production for your first strategy, but Arafura’s Nolan Bore project and the range of by-products will very heavily reduce the cost of production of their REEs.

I’m surprised ARU hasn’t been mentioned yet, since although it is behind Molycorp and Lynas, it is far ahead in the path to production than any of North America’s other offerings.

Regards.

There is certainly no consensus in the market place on which future mines will be successful, and which ones won’t.

But there is no question that the only successful mines in the world today are in China.

Why do those mines succeed? Three reasons:

i) REEs are mined as a small by-product of a much larger iron ore operation;

ii) The Chinese government heavily subsidizes every step of the value chain for REE; Governments can afford to do crazy un-business-like things, such as, purposely create economic losses on production, in order to satisfy other strategic objectives, such as, create a monopoly;

iii) The Chinese have an enormous competitive advantage by their astronomic lead in technical expertise in all steps in the value chain over any other country or operator in the world.

Is there is any REE project anywhere in the world that purports to engage in one or more of these strategies?

When there is, then we will have our first successful REE play.

Any future producer that has aspirations to turn into a major company with a big market cap will need the earnings to justify that valuation. Mining companies like these that are already in production typically trade at a multiple of somewhere around 5 times their annual EBITDA. That means for a $1 billion market cap, the company will need to have $200 million in EBITDA per year. If you take a company that produces dysprosium ($100/lb), terbium ($500/lb) or europium ($450/lb) as it’s primary product and assume a 50% margin (this is pretty generous), those companies would need to produce 1,800 tonnes/yr of dysprosium, 360 tonnes/yr of terbium or 400 tonnes/yr of europium to justify a $1bn market cap. Contrast this with the current total global demand for dysprosium, terbium and europium; 1,500, 420 and 600 tonnes/year, respectively and I think you’ll see my point on what would happen to prices if anybody came into these markets with any sort of significant production.

This example of course does not take into account that any producer of one of the heavy rare earths will also produce significant amounts of all other rare earths, especially the light rare earths. However, it does demonstrate that although the value of the heavies is nice, and there is a looming shortage of them which will need to be filled, the reality of it is that a major mine cannot be justified on heavies alone. There may be one or two very small mines that can be supported on just heavies, but any big mine is going to have to derive most of its value from the light rare earths and in reality, the really big money in the sector is in more downstream products such as alloys and magnets (which require lots of neodymium and praseodymium).

read Moly’s new filing. If their technology works, they will be short of Ce very soon. Exactly showing the upward demand curve potential for REEs both LREE and HREEs. At least that should help you ease your concerns somewhat, as that is my concern too on the LREE front.

And they do not have a lot of critical HREEs such as Terbium, that’s a fact.

I guess my biggest problem with Mountain Pass is that, although they do have the HREE, they will have to produce so much La and Ce in order to get the level of HREE that they need to be economic, that the world market will be swamped with La and Ce.

I guess I’m not too worried about Molycorp succeeding. But what I am worried about is what will become of everyone else if Molycorp does succeed. No other mine in the world could be economic if Mountain Pass is.

Great thoughts thanks. But you are sorely mistaken on your heavies, big time. They are the market of the future – price alone dictates it.

With regard to the LREEs, did you see in Moly’s filing that they think they will run out of Ce due to the new water filtration system they were advancing.

I also think you underestimate the permit process for Moly quite a bit. Moly is the leader here, but they have several drawbacks that you do not appear to discuss.

I am not bashing Moly, quite the contrary. I am simply pointing out that it is not the be all and end all of mines and even if they’re up and running smoothly by 2012 this problem is not going to go away. Imo, in North America you have two contenders for HREEs and that is QUC and AVL. I like QUC much more for the reasons stated above.

This is going to be critical, supply of HREEs going forward. Prices of all REEs are about to skyrocket and are now in the process of doing so. John Kaiser has released an excellent piece this morning which should detail for the world that these prices are headed in one direction.

The light rare earths (primarily neodymium, praseodymium and lanthanum), by the way, are the only rare earth products that have a large enough market to ever support big new mines. The markets for the heavies are very small and any new big production (eg Strange Lake and Thor Lake) would have an immediate, significant negative impact on prices. Neodymium and praseodymium are the two primary components in the rare earth magnets that are necessary for the “green revolution” in hybrid cars, electric cars, wind turbines and just about any other product manufactured that requires light, high power electric motors or generators.

Combine this with the fact that Mountain Pass is an easily mineable open pit deposit sitting next to an interstate highway (approximately an hour from Henderson and Las Vegas), very close to a rail line with access to grid power and already has a developed site. This can be compared to Thor and Strange Lake which are remote, undeveloped northern sites without any infrastructure at all with Thor Lake a high cost underground mine (as far as I know, the mining method at Strange Lake has not been determined). Most other heavy rare earth deposits that are currently being pushed by junior mining companies (such as Bokan Ridge and Lemhi Pass) run into even larger problems with mining costs as they are very small dispersed deposits that would be extraordinarily expensive to mine (at least Thor Lake and Strange Lake have size as an advantage).

Of course the above points haven’t even started into the separation of the rare earth products, which is by far the most complicated and expensive part of producing rare earths. Mountain Pass has a well known, well established process to separate its rare earths from bastnasite which has been in use at Mt. Pass for decades and is well known to the company and its employees (everyone else has to hire all new employees while Molycorp carried over approximately 100 employees from the “old Molycorp” – in the S-1). The dominant rare earth minerals at Strange Lake and Thor Lake both do not have established separation processes which means those projects have years of testing and pilot work ahead of them before the processes can be optimized (if they end up working at all) and the cost of separations is as yet unknown. Avalon has only just had its first public release of the method of separation it intends to use and Quest is just getting started.

The reason that Mt. Pass was developed more than 50 years ago while none of these other projects were developed (even though none of them are even remotely new discoveries) is that it was (and still is for that matter) the most economically viable rare earth deposit out there. From someone that has been around mining their entire life, I can guarantee you that the mine with the biggest size, highest grades, cheapest mining and processing and best infrastructure is always going to be one of the lowest cost producers out there.

A few additional comments to correct some misstatements in earlier posts (all of this data is available in the S-1, which folks might want to read before making themselves look foolish by posting incorrect data):

The majority of executive management at Molycorp (including CEO, Chief Technology Officer and General Counsel) is intact from as far back as Molycorp’s days under Unocal (which purchased Molycorp in 1977 although management is from the 90’s and early 2000 era). The only member that did not come from the “old Molycorp” is the CFO.

Molycorp’s tailings do not overly any of its reserve (otherwise it would not be a reserve) and a 1,500 tpd mill (the size proposed in the S-1) costs around $30 million to build from scratch (not very much compared to an overall project capital required of $511 million – also in the S-1), the tailings in fact are a resource in themselves if you figure the historic mined grade at Molycorp is similar to its current average grade (around 8.25%) and historic mill recovery is similar to that reported in the S-1 (63%), then the average grade in Molycorp’s tailings would be around 3% TREO (not too far off from Bear Lodge’s resource grade).

Molycorp already has a permit for a 30 year mine plan and an approved Environmental Impact Report.

Molycorp will separate its rare earths into oxides onsite and has entered into a letter of intent to purchase an existing metal and alloy producer in the US for further processing – (i.e. its products are not being sent to China).

Molycorp does not have high concentrations of heavies, but they do have them and intend to produce them: “Upon completion of the modernization and expansion of the Mountain Pass facility and the full implementation of our “mine-to-magnets” strategy, we expect expect to produce cerium, lanthanum, neodymium, praseodymium, samarium, dysprosium and terbium oxide and metal products, europium and gadolinium oxide products and NdFeB and samarium cobalt alloys”.

Jack, did you get any intimation; from your chat; whether AVL had made any progress towards defining a viable metallurgical process for the recovery of REE mineralization from their Lake zone deposit at Thor Lake?

I grant you each point. However, the discount is ridiculous compared to the known resources, let alone the project’s potential.

They are building roads up that way and more will come. They’ve got 4-5 years to get the infrastructure up there.

They have crack geologists, I would suggest you read Mickey Fulp’s latest musing on Quest. As far as who discovered it first, who cares?

Grade is an issue, but that is solved by the actual value/critical mass of the deposit.

I am a shareholder in RES and believe in it big time, but RES is not the answer. And “mining friendly” Wyoming does not hold a candle to the friendliness of Quebec.

Imo, QUC has 30% more HREEs than AVL, does not have to underground mine, and does not have to worry about natives.

Thus, such a crazy discount to value in the ground is not warranted. At least that’s where I’ve staked my $.