Where Are The Non-Chinese Heavy Rare Earths Going To Come From And Who’s Going To Buy Them?

The iconic mid-twentieth century American bank-robber, Willy Sutton, is famously reputed to have answered the question “Why do you rob banks?” with “because, that’s where the money is.”

So, by analogy, I am going to answer the question “Why are Chinese rare-earth producers looking for rare-earth deposits outside of China?” by using Willy Sutton’s logic – “it’s because that’s where the heavy rare earths are.” China has been and remains at this moment the only commercial source, and the only commercial source that there has ever been, of the critical heavy-rare-earth elements (HREEs) dysprosium (Dy), terbium (Tb) and yttrium (Y).

Chinese geologists and resource economists have been openly saying for several years that China has at the most, if demand remains at present levels of growth, between 5 and 30 years of production of the HREEs remaining at present levels. This would mean, for example, that China could continue to produce 1400 t of Dy per year for perhaps another generation. But this fails to take into account the steady growth in demand for Dy, Tb and Y. Even if less of them can be used in each unit of production, the number of units of production is growing much faster than any thrifting can possibly contain. A Chinese and/or Indian consumer driven economy would (will) turn the rare-earth market inside out.

Chinese HREEs are almost entirely produced from very low-grade, highly weathered (broken down from hard rock into finer grain material) deposits that today present themselves as surface clay that has absorbed and adsorbed rare-earth elements (REEs) washed through them from rocks disintegrating over many millions of years in the rain and snow. In China these clays have advantageously not retained the radioactive components of the hard-rock REE minerals from which their REE content originated; the typical concentration of the total REEs in a clay deposit, however, is just 0.03%. However of this the element Dy, for example, constitutes 2% or more.

The processing of these clays consists of washing them with chemical reagents into which the REEs dissolve and from which the REEs do not redeposit into and onto the clay minerals. This process is mechanically simple. The selected reagents are pumped to the highest point in the “deposit” and then allowed to drain through it. The drainage is directed by piping or plastic lined channels to catch ponds, and is recirculated until the solution is measured as near saturation (it will hold no more REEs without their precipitating out). Then the material flow is stopped and the REEs are chemically precipitated in the catch ponds as compounds that are no longer soluble in the extracting reagents. The mixed REE solids (usually carbonate or oxalate compounds) are removed and new reagents are added to the reactants to make up the losses and the cycle is repeated until no more REEs can be extracted (economically) in a reasonable time.

This same method when used in gold mining is called heap-leaching, and it typically uses a cyanide solution as the extracting reagent. The solubilized gold is recovered by adding zinc, carbon, or a similar reducing agent to the near saturated extractant. This “heap leaching” is done in many locations in the USA, but, obviously not near populated areas or arable land. Cyanide is easy to destroy chemically but it is one of the deadliest poisons to life so that it must be handled very carefully.

REE extractants used in heap leaching are nowhere near as toxic as cyanides and in fact some of them can be beneficial to the soil (ammonium compounds are used that give a net increase the nitrogen content of the leached through material). Notwithstanding this purported fertilizing benefit, heap leaching of the REEs from adsorption clays is a messy business on a large scale.

It has been stated to me in China that as much as 40% of all REE production may be illegal. This means that health and safety are not considered in those (illegal) operations, and where heap leaching is used without proper safeguards the societal damage may exceed the value of the recovered material.

In the next five years the illegal mining of REEs both light and heavy will cease as China’s total restructuring of the industry takes effect. Production levels and sales levels will be licensed and monitored. A company or a trader who has unlicensed material will have that material seized and confiscated and be subject to severe punishment. Cynics claim that illegal production and trading cannot be totally stopped in China. I will bet that the 40% figure today becomes less than 10% in the future and that no illegal production of HREEs will occur in China sooner than that. Environmentalism is a source of social instability and therefore a threat to the power of central authority in China.

Although the production of HREEs by heap leaching will continue in China it will get much more expensive to do as illegal operations and inefficient or dangerous operations are shut down and costs which have been socialized and distributed by criminal elements are returned to where they belong – a charge against the cost of production.

The continuing problem and the reason that such costly production methods continue to be in use is that the HREEs are critically important to the greening of China. Unlike the USA where environmental improvement is today incremental or marginal, there is a lot left to do in China, where major environmental issues are just now impacting future planning and must be addressed if China is to on the green path that the government has promised.

The Chinese are openly worried about the availability of enough Dy and Tb for their planned development of a consumer=driven economy, based on domestic manufacturing of consumer goods. Perhaps 99% of the global demand for HREEs is for non-military civilian industrial use. The tiny amount required by the militaries of the current “great” powers is blown all out of proportion by the promoters of rare-earth mining and refining for the purpose of raising capital.

In August, 2012 the English language version of the China Daily, carried an article headlined “Firm seeks foreign partners”. The article said, in part:

“Zhang Zhong, general manager of Inner Mongolia Baotou Steel Rare Earth (Group) Hi-Tech Co Ltd [IMBSREHTCOLTD], said that with more discoveries of heavy rare earths overseas [outside of China], the company is in discussion with some foreign companies. The company’s pursuit of heavy rare earths comes as a result of its goal to develop products that use both light and heavy rare earths. The company is expected to form the North Rare Earth Group to consolidate small and medium-sized rare earth enterprises in the north and some in the south, where heavy rare earths are available [at this time in China]…”

I do not personally have any knowledge of which “foreign companies” that IMBSREHTCoLtd is speaking with, but I can tell you which ones they should be speaking with.

I have been working directly as an advisor on marketing and processing to the HREE sector of the junior-mining industry for the last 5 years; I have visited a number of the sites of these companies, and I have been monitoring the developments in REE extraction from ores and concentrates as well as separation , metal production, and alloy making, in great detail, outside of China.

Today I will give you a list of ventures that are the ones I know of that I believe are in the running to produce HREEs in this decade. Most of these companies have published target dates for meeting the various stages of the deposit credibility requirements published by Canada’s securities regulators and known as the NI 43-101 requirements. Other have met the requirements of Australia’s JORC Code. Those that have already met these requirements are on the TMR Advanced Rare-Earth Projects Index. Extensive data for thee projects of the same companies that I am going to list are available via the previous TMR Index hyperlink.

In the categories that follow I will identify the companies by geological type and geography and list them in their category in the time order in which I think they COULD come into commercial production.

All mining companies must be legally permitted to operate a mine and/or a processing company, before they can mine. These requirements make all lists such as mine speculative, because no one can predict with certainty the outcome of local and national politics in any country.

In addition just a very few of the companies on the list are vertically integrated beyond the primary production and extraction of desired metal values from ore concentrates. But this does not mean that there is no place in the market for the products of any of them that have no further downstream processing. In fact those companies that can “job” out the processing to an existing separation facility in the USA, Canada, China, Viet Nam, Thailand, India, Estonia, or France or can work with one of the contract processing facilities outside of China now in advanced planning may be in better shape than those facing the daunting challenge of engineering and building a costly and complex separation plant and refinery.

The next step after separating and refining is a bigger challenge. I personally know of just a handful rare-earth metal producing operation outside of China and one more coming into production in the next year. All of these operations are company specific, so they may be willing to buy separated and purified REE chemicals for reduction to metals, but the amounts of those they can process will be limited.

Therefore even the HREE producers coming on stream in the next two years will have little choice but to sell their products to Chinese or Japanese rare-earth metal and alloy producers. There is no other location for them to go.

The companies above are listed geographically by their stage of production of separated purified HREEs. That does not mean that I necessarily believe that they all will ever achieve that goal on their own. However I do know from direct observation that Orbite Aluminae, for example, has already produced the first pilot-plant samples (200 grams each) of the spectrum of individual high-purity (99.99%) REEs as oxides (including scandium) as well as gallium. This was done in Germany from Canadian-produced ore concentrate, itself produced as a byproduct of their high purity (99.99%) alumina production process. I predict that Ucore Rare Metals will be the first to produce commercially separated, purified Dy from an American ore deposit, in pilot plant quantities, in 2013, and I project that Great Western Minerals Group will be in commercial production of Dy from its South African mine before the end of 2013.

I cannot overemphasize that no matter where the HREEs come from, the markets for them as raw materials for producing metals are overwhelmingly in China with the balance in Japan. The real challenge for the non-Chinese world is the choice of whether just to be a supplier to southeast Asia of REEs as raw materials, the position China was in with regard to the rest of the world in the last quarter of the 20th century, or whether to revive the total supply chain outside of China and to compete with China in downstream products including end-use products.

It is my belief based on my own observations that REE total supply chains, mine to market, are under construction in the USA, Europe, and India at this time.

Disclaimer: at the time of writing, Jack Lifton is long on Great Western Minerals Group (TSX.V:GWG); he holds no shares or stock options in any other publicly traded rare-earth company. He is a member of the supervisory board of Tantalus Rare Earths AG (F:TAE) and a non-executive director of AMR Mineral Metal Inc. He also does ongoing paid consulting for Ucore Rare Metals Inc. (TSX.V:UCU), Rare Element Resources Ltd. (TSX:RES), Tasman Metals Ltd. (TSX.V:TSM) and for Orbite Aluminae Inc. (TSX.V:ORT). He does no paid consulting for any other publicly traded rare-earth company.