Rare earths done & dusted? Or is it Xeno-time?

FNArena News
August 02 2012

By Greg Peel

“While some companies can point to good access, and a few can also claim to have ways to raise the money required, there remain very few that can talk a cogent gathering of sentences about how they intend to process their minerals AND do it profitably.”

Christopher Ecclestone, Hallgarten & Company

Ecclestone’s statement sums up why last year we saw a rare earth element (REE) bubble, and this year we’ve seen a bust. I have often made note in past articles on the subject of REEs that the hysteria engulfing these elements has been more than reminiscent of the uranium bubble-and-bust of the last decade. Spot uranium traded at US$20/lb at the beginning of 2005, hit US$138/lb in early 2007, and fell to US$40/lb by 2009. There was no nuclear disaster to prompt the price collapse, no demand crash and no sudden supply surge. The run-up in price had simply been the result of speculative nonsense, and it was always going to end in tears.

The uranium price has not much recovered today, with Fukushima ensuring such. However, China’s nuclear ambitions are back on track, and it was largely China’s nuclear ambitions which drove the speculative bubble in the first place. Hedge funds began buying uranium, and the herd followed. Suddenly there was a global explosion of junior mining companies declaring uranium deposits in their mix, and so their share prices were sent to the moon. And, ultimately, back again.

The story has repeated with REEs. China is again involved, but this time in a reverse role. While the rest of the world was paying little attention to REEs at the beginning of the new century, China was providing around 95% of global REE supply. Modern technology has since extensively boosted global REE consumption and demand, prompting the rest of the world to quickly get in on the act. Not being one to miss an opportunity, last year China attempted to corner the market in processed REEs by imposing export restrictions. Already strong ex-China REE prices “went parabolic” as a result. Consumers were priced out of the market, prices peaked, and sensing a potential shooting- oneself-in-the-foot experience, China relented and eased export restrictions. The price of valuable heavy rare earth element dysprosium, for example, has fallen from a US$2500/kg peak to US$1200/kg.

It was easy for junior miners to claim uranium deposits in 2006 – it’s very hard to mine anything without finding at least some small level of uranium. The share market did the rest. Yet large, commercially viable deposits of uranium are rare. So are large, commercially viable deposits of REEs very rare, but that’s not why they’re called REEs. The label “rare earth” is a scientific classification, not a qualification. Cerium, for example, is more abundant than copper. It’s not that difficult to find traces of the more valuable and scientifically defined REEs either, but it’s very
difficult to find grades worth even considering. Yet as was the case with uranium, this fact did not stop geologists jumping out of their skin to inform the market their company’s deposits contained REEs. Once again, the share market did the rest.

Ahead of the REE price peak, over 200 global mining companies of varying sizes were quick to declare REE deposits within their resources. As was the case with uranium, wild-eyed investors
responded accordingly. It was not long, however, before investors came to realise that finding traces of REEs was one thing but that finding commercially viable traces was another, and that viability came down to composition of the relevant REE basket discovered. Furthermore, each REE must be processed out of the mineralisation in a very elaborate and costly process. Investors were soon to learn that the sheer extent of capital expenditure required was enough to kill off any less than ideally positioned REE aspirant. Notes Ecclestone:

“While the investing audience initially knew nothing about even the REE basics, the basics are now taken as given and corporate presentations have run to the end of the rails on processing platitudes. As we have said ad nauseum before, REEs are about ‘chemistry, chemistry and chemistry’. That is all one needs to know and if one doesn’t have the chemistry right, then grade, sheer quantity, a nearby highway or a friendly Japanese offtaker won’t save a project from an ignominious fate.”

The analyst suggests a “sheer credibility gap” has opened up in the REE space over the last year, and it all comes down to three issues. Firstly, simple access. Some projects touted in Canada, for example, have proven so isolated they cannot be viable under “even the most rosy price scenarios”. Secondly, financing. Capex spend required can drift from the low hundreds of millions of dollars into the billions. Thirdly, processing. Plausible and cost-effective processing exists for only some of the complex mineralisations with which REEs are associated.

Ecclestone’s statement, which opened this article, will now make more sense. Let’s review:

“While some companies can point to good access, and a few can also claim to have ways to raise the money required, there remain very few that can talk a cogent gathering of sentences about how they intend to process their minerals AND do it profitably.”

 


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