Rare Earth’s Trade-War Woes
Rare Earth metals have made their way back into the news because of the trade war with China. We are fortunate that it has because it is emphasizing a huge problem. Months back, I wrote a piece about the US government announcement of the 23 crucial minerals/elements for the United States; and quite frankly it should be for us in Canada if we had leaders focused on the environment and in the future. These were mainly Rare Earth elements (REE) and vanadium which China dominates substantially. Countries, like the US get 60% of their REE from China. This is a problem. It is a serious problem. A Reuters report on Oct. 25, citing data from Dutch market research firm Adamas Intelligence, that said Beijing was curbing domestic production of the elements, used in electric vehicles and electronic devices including phones and computers. On Tuesday October 30 China denied that they are curbing stockpiling reserves. Whether you believe them or not, just as whether you believe their financial numbers or not one thing is clear in history: one of the key preludes to war is the stockpiling of resources.
This grouping of esoteric sounding minerals, with names like lanthanum, cerium, praseodymium, neodymium had an amazing run 10 years ago as the market exploded but cooled off. That pullback came from the market being essentially one country, China. Second, there can be a heavy environmental cost which can be associated with some of these by products from other mining. The cost of meeting responsible regulatory environmental standards in the West is almost cost prohibitive by past standards; this, of course is not a concern for China. This is not a foray into the environmental discussion on REE but it can be easily addressed by a couple Canadian upstarts mentioned below.
The name itself, Rare Earth is interesting, perhaps misleading as Rare Earth Elements (REE) are not actually rare to find but found widely dispersed, not likely clumped in high grade deposits. The elements are associated or a byproduct of other types of mining and require a chemical process to derive. Due to this dispersion the grade is often low. These metals derive their name because they have many similar properties, and that often causes them to be found together in geologic deposits. They are also referred to as “rare earth oxides” because many of them are typically sold as oxide compounds. This is vital because the future of the West may be in chemistry, as much as mining. The oxides are demanded within the high technology and low carbon industries. For example, REOs have played an important role in helping reduce energy consumption in many of today’s electronic, audio visual, photographic, and music devices. In 2018, the cost for an oxide of neodymium, is US$107,000 per metric ton. The price is expected to climb to $150,000 by 2025.
Part of the reason is that rare earth elements can be chemically difficult to separate from each other to get a pure substance. But there are a couple of companies based in Canada that are attacking this problem and meeting with some great success.
Before we highlight some interesting companies let us look at where this story gets interesting. You will be amazed at how in demand these oxides and metals are whether it is in Industrial, automotive emission control, energy storage; electronics and glass manufacturing which includes UV absorption, plasma TV’s and monitors.
The list is impressive.
Whether we discuss REE in special steel alloys making steel lighter and less brittle; or, magnets enabling lighter and more efficient motors in EVM’s and the stora.ge of energy through NiMH batteries. Of course, in electronics: semi-conductors manufacturing, micro-motors for computers, acoustic devices including earphones and high-quality speakers, and micro-capacitors used in many electronic devices. We require these technologies but nowhere does the issue come into full size and scope until we consider the militaristic use of REE.
The most ominous sector is of weaponry. Rare earth is crucial in guidance or ‘smart’ weaponry, high energy storage or ‘jamming’ technologies; ‘white noise’ production used for stealth weaponry and vehicles, electric motors, night vision goggles, communications and jet engines! It is becoming clear why this is an issue. Dave Dickninson writes that F-16 and F-15 jet engines contain 3 percent rhenium, while next generation engines used in the F-22 Raptor and the F-35 Joint Strike Fighter will require twice as much. Currently, jet engine makers General Electric, Rolls-Royce, and Pratt & Whitney account for over half of rhenium use worldwide. The future is determined by who has the resources of the future. Is there enough for everyone, as many idealists say? No. There most certainly is not. Then who controls the use of the resources to administer to other countries? Worried, yet?
There is an awful lot that rare earths can do but when I was speaking with Kiril Murgmann from GéoMégA he explained that the best way to consider the use of rare earths is in the electric vehicle market. Kiril was an analyst at Macquarie and has a degree in geology and chemistry. He is smart and deeply knowledgeable about this space. He explained that rare earths make the magnets of the future, creating incredible amounts of force and torque. The Government of Canada Natural resource site states that permanent magnets represent the single largest and most important end use for REEs, accounting for 24% of total consumption. This matter because right now there are two major forces in the EVM space the battery and its capabilities both in power and reserve and then of course the engine, which is not an internal combustion and this requires incredible force from magnets! The future is being developed in both these markets, but we mainly hear about the battery side. The big scope is the engine side and the long-term necessity of powerful magnets.
A powerful article came out on the MIT technology review by James Temple. The article captures the imagination of those of us who envision a better world. The piece on sustainable energy discusses a ‘manufacturing trick with magnetic fields produces a battery that may discharge fast enough to get an aircraft off the ground’. Part of what makes covering mining so fascinating is when you come across metals that are fundamental in the future. By creating this type of battery with zero carbon emission would be a marvel. Taking this one step further we already know that companies like Uber, Airbus, and Boeing, are already exploring the potential to electrify small aircraft, like taxis that can cover 100 miles on one charge. These autonomous one and two passenger crafts would revolutionize cities, and this sounds like a dream from the Jetsons!
If you want to be ahead of the curve on information, then rare earth and magnets are an area that you should consider!
Where can I find rare earth companies in Canada? There is not a lot of companies in the space that the US government considers crucial to the future of the nation. We are not focused on developing assets I think because of an insanely naïve notion of global cooperation. China has roughly 80% of this asset. How much cooperation will there be in that scenario? The obvious solution is working with our best and brightest on mining solutions, chemistry solutions, green tech and energy so that we position of nation in a position of strength. To anyone who studies politics or history this seems like an obvious statement. There is some encouraging news from GéoMégA point of view as they just received a grant.
Lynas Corporation is a strong, undervalued rare earth producer focusing on delivery of metal to consumer. The company’s flagship deposit at Mt Weld, Western Australia is one of the highest-grade deposits in the world. According to Daniel Morgan of UBS has the valuation of this company as about half of what it believes it should be!
On their website Medallion Resources recognized that, except for Australian producer Lynas, none of the existing rare-earth projects could economically solve the world’s long-term critical rare-earth supply issues. In brief, their strategy centers around the metals needed for magnates and especially Monazite, a by-product from heavy mineral-sands operators worldwide. Whether it is Australian, North American or African companies, Medallion believes that this is the best new non-Chinese source of NdPr and other rare earths.
I have had the pleasure to speak with Kiril Mugerman, President and CEO, director GéoMégA Resources which owns 100% of both the Montviel lanthanides/niobium project and the Anik gold exploration project. An exploration and discovery company focused on the sustainable development of economic deposits in Québec. Kiril Mugerman is quoted as saying:
“As society emerges from fossil energy to a more efficient and sustainable source, GéoMégA believes that the future of clean energy resides in the lanthanide called neodymium. Neodymium is vital to produce high-performance permanent-magnet motors, used in a wide variety of electrical devices. Such applications are already in increasing demand with the growth of sustainable-energy initiatives including hybrid and electric vehicles and direct-drive wind turbines.
Furthermore, to develop such neodymium deposits, GéoMégA believes it makes much more investment sense to have internal rare earth processing technology and in that way avoiding sending off your concentrate to companies in China for poor returns and no global supply advantage.”
The global demand for electric vehicles, consumer electronics, energy-efficient lighting, and catalysts is expected to rise rapidly over the next decade. Rare earth magnet demand is expected to increase, as is the demand for rechargeable batteries. It is clear there is an opportunity to focus a long-term position. It is crucial that North America step up funding both from private and public sector to meet the demand of Rare Earth, as well as Vanadium. These are crucial as the US states, it should be crucial for any Western civilization. If you think fundamentally opposed peoples, beliefs and ideologies can live harmoniously I caution you to read all of history. The mainstream media is downplaying how big an issue China has become both in spying, technology theft, and debt. This one REE commodity is not about trade it is about controlling one’s own destiny.
Securities Disclosure: I, Andrew O’Donnell, hold no direct investment interest in any company mentioned in this article. I was not paid for this article.
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