WTO to China - They're not THAT Rare!

On the wire (NYT):

BRUSSELS — In a dispute that highlights growing tension between China and its Western trading partners, the World Trade Organization ruled Tuesday that Beijing violated global rules by restricting exports of nine raw materials used in the manufacturing of high technology products.

The case, lodged by the United States, the European Union and Mexico, dates from 2009 and underlines the anxiety in the West about the way China is consolidating its trading dominance.

Significantly, the ruling strengthens other European arguments against Chinese restrictions on another category of exports — rare earths, 17 minerals also used in the high-tech industry. However the case also demonstrates how dependent technology industries have become on some exports from China.

The W.T.O. panel rejected China’s argument that its restrictions were motivated by a desire to protect the environment and prevent a critical shortage of the materials.

The decision on Tuesday concluded that Chinese quotas, export duties and license requirements put in place a discriminatory system for the sale overseas of industrial raw materials widely used in the steel, aluminum and chemicals industries, including coke, zinc and bauxite.

“This is a clear verdict for open trade and fair access to raw material,” Karel De Gucht, the European trade commissioner, said in a statement. “ Furthermore, in the light of this result, China should ensure free and fair access to rare earth supplies,” he added.

The E.U. quota of Chinese raw earth elements declined to 30,000 tons in 2010 from around 50,000 tons in 2009, according to an E.U. official who was not authorized to speak publicly.

The U.S. trade representative, Ron Kirk, called the W.T.O. decision on the raw materials “a significant victory for manufacturers and workers in the United States and the rest of the world.”

“China’s extensive use of export restraints for protectionist economic gain is deeply troubling,” Mr. Kirk added in a statement. “China’s policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials. They have also caused massive distortions and harmful disruptions in supply chains throughout the global marketplace”

Americans and Europeans had challenged China’s environmental protection argument by pointing out that the raw material consumption was not being controlled domestically.

China must now either appeal the ruling or comply with it. If it fails to do so the United States, Europe and Mexico could eventually be allowed to respond with equivalent trade sanctions.

In a statement issued by its mission to the W.T.O. in Geneva, China said “that although these measures have certain impact on domestic and international users, they are in line with the objective of sustainable development promoted by the W.T.O. and they help to induce the resource industry toward healthy development.”

The nine raw materials covered by the ruling on Tuesday are used in medicines, CDs, electronics, the automotive industry, ceramics, refrigerators and batteries among other products.

Of all the E.U. imports of some categories of magnesium, 95 percent are sourced in China, as is 91 percent of imports of some categories of manganese while almost 30 percent of E.U. phosphorous imports are Chinese.

European officials say the export restrictions increased the global price for the raw materials, and gave Chinese companies a clear commercial advantage which, in effect, constitutes a hidden subsidy. They also made it harder for non-Chinese companies to source the raw materials by making them less readily available on the global market.

The impact can be to increase the price of some products by as much as 100 percent, according to E.U. officials.

The ruling was welcomed by BusinessEurope, the lobbying group. “The W.T.O. panel decision clearly stipulates that almost all export duties and restrictions imposed by China are incompatible with W.T.O. rules,” it said in a statement. “If confirmed, this decision will require China to remove all unjustified restrictive measures on raw materials.”

Certainly won't help the price of rare earth (not raw earth as stated in the article) companies which have been getting whacked over the last few sessions.  That said, I will believe it when I see it.

Rare Earth Processing - A Primer

I just wrote a piece on my rare earth thesis on Seeking Alpha, and thought I would put a primer on the processing of rare earths on the blog, so here it is (from Kidela Capital):


Cell phones, iPods, LCD screens, hybrid cars just some of the many devices containing Rare Earths that we’ve come to rely on in this green information age. While there’s a growing awareness of the importance of Rare Earths in these new technologies, the same can’t be said for the illusive question of just how Rare Earth Elements end up in these products. Mining REs is relatively simple but producing individual elements from the ore is tremendously difficult. Rare Earth processing often requires dozens of procedures each resulting in minute changes in the complex RE stream.

Separating and extracting a single Rare Earth Element especially one of the Heavy Rare Earths takes a great deal of time, effort and expertise. Not to mention money processing facilities cost hundreds of millions of dollars to build. It’s something to think about, next time you text a friend or take your Prius out for a spin. But wrapping one’s head around the vast array of separation and extraction techniques for REEs is far easier said than done. It’s terribly complex and there just isn’t much information out there. For your benefit, here’s a basic primer on RE processing.

1. Milling
After rocks containing REEs are removed from the ground, they go to a facility where the valuable mineral material in the ore is separated from impurities. This process is known as milling or beneficiation. Here’s how it works: The mined ore is crushed into gravel, which in turn is ground up into progressively smaller particles.

These particles are sifted and sorted by such means as flotation and electromagnetic separation to extract usable material and set the waste products called tailings aside. This milling process is usually carried at or near the mine site with the tailings stored in special facilities built to rigorous engineering and environmental standards.

For scarce resources like Heavy Rare Earths, this beneficiation process could be considered critical because it takes advantage of every scrap of material available. This practice can also make a marginal mining facility more practical than it might otherwise be and may in fact be used to extract ore from a facility previously believed to be exhausted.

2. Electromagnetic Separation
This milling method uses magnetic principals to separate Rare Earth bearing minerals from other materials in the mined ore. Monazite along with bastnaesite the primary commercial source of REs mined around the world is highly magnetic, meaning it can be separated from non magnetic impurities in the ore through repeated electromagnetic separation.

This technique uses a magnetic separator device that consists of a belt moving on two rollers, one of which contains strong magnets. When powdered ore is dropped onto the belt, magnetic and non magnetic particles within the ore will fall away differently from the magnetic roller.

3. Flotation Process
This is another beneficiation method that’s used to separate bastnaesite from other minerals. First, the ore is ground into a fine powder and added to liquids in flotation tanks. Chemicals are added to cause impurities to settle out and air is pumped in to create air bubbles. The finer bastnaesite particles stick to the bubbles which rise to the top and form a froth that is then skimmed off.

4. Gravity Concentration
Although they are commonly used in the gold industry, devices called Falcon Concentrators are also used in Rare Earth extraction at the milling stage. These concentrators contain rotating cones or bowls that are spun at high speed to generate a gravitational or centrifugal force which acts to separate small particles by exploiting minute differences in density and specific gravity between the valuable minerals and waste products.

Compared to other beneficiation technologies, gravitational separation offers lower installed and operating costs. It also tends to also have less environmental impact as gravity concentration does not require the use of chemicals. All of these milling processes produce mineral concentrates that contain a substantially higher proportion of REs. But there’s still much work to be done to separate the concentrate into its constituent REEs and this is why things start to get really tricky.

5. Hydrometallurgy
As the generations of scientists who have tackled the problem can attest, isolating REs safely and effectively is not only a very long and costly exercise but extremely complicated. The complex separation and extraction techniques in use today like ion exchange and solvent extraction are rooted in of a branch of geologic science known as hydrometallurgy.

In hydrometallurgy, mineral concentrates are separated into usable oxides and metals through liquid processes, including leaching, extraction and precipitation. By these means, the elements are dissolved and purified into leach solutions. The RE metal or one of its pure compounds is then precipitated from the leach solution by chemical or electrolytic means.

Although hydrometallurgy originated in the 16th century, its principal development took place in the 20th century. The development of ion exchange, solvent extraction and other processes now permits more than 70 metallic elements to be produced by hydro metallurgy including the REEs. Here is a run down on some of these techniques.

6. Fractional crystallization
Devised by British chemist Charles James in the early 1900s, fractional crystallization is based on differences in solubility. In this process, a mixture of two or more substances in solution is allowed to crystallize either through evaporation or by a changing the temperature of the solution. This precipitate will contain more of the least soluble substance. The process is repeated until purer forms of the desired substance are eventually attained.

Like all early extraction techniques, fractional crystallization is very slow and tedious. James found that an enormous number of stages of crystallization were required to get the high purity of individual REEs. Despite these constraints, James’ methods were widely adopted by other chemists. Fractional crystallization continued to be considered be the best technique of separating REEs until the discovery of ion exchange technology in the 1940s.

7. Ion Exchange
The ion exchange method was first used during Second World War as a way to separate fission products obtained from nuclear reactors. In this process, a solution containing a RE mixture is filtered through minerals called zeolites or through synthetic resins that act as zeolites. Zeolites exchange ions in the ion exchange process, zeolite ions are added to the solution and RE ions bind tightly to the zeolites.

Various solutions are then used to wash out elements one at a time. Each is then mixed with acid to create an oxalate compound and then heated to form the usable oxide. These oxides which are a mixture of various REEs and oxygen are now ready to be broken down into their constituent elements albeit through yet more complicated processing steps that we’ll talk more about later.

8. Solvent Extraction
The process of solvent extraction uses chemical agents to break down the components within a substance. Those materials which more soluble or react more readily to a particular acid or base get separated from the rest. The separated materials are then removed, and the process begins all over again with the introduction of more chemicals to leach out more components.

When it comes to Rare Earths, these steps need to be repeated again, again and again sometimes hundreds of times, depending on which REE you’re trying to produce. The solvent extraction method used today to separate REEs relies on the slightly different solubility of rare earth compounds between two liquids that do not dissolve in each other.

Because the Rare Earths are all so close to each other in terms of atomic weight, chemical separation methods require multiple stages to complete the extraction process. One stream in this process often takes hundreds of steps, involving a cascade of dozens of different tanks and machines for mixing, settling, filtering and evaporating all the various solutions. One advantage solvent extraction has over ion exchange is that it can be continuous a counter current system can be employed in which the many, many extraction steps are carried out in a continuous stream, progressively increasing the degree of separation until the substance in one phase in nearly pure.

9. Rare Earth Metals
These methods produce compounds like RE oxides, which have a growing number of useful applications today and as such can be considered end-products in the Rare Earth supply chain. However, demand is also growing for RE metals which means even more refining in the long hydro metallurgic process.

As is the case with every preceding step, it’s not easy turning chemical compounds into a single metal. Several techniques have evolved to meet the tremendous challenges associated with distilling Rare Earths down to their purest form. The primary types of metal recovery processes are electrolysis, gaseous reduction and precipitation. A common technique for REEs is metallothermic reduction which uses heat and chemicals to yield metal from RE oxides. In this process, the oxides are dispersed in a molten, calcium chloride bath along with sodium metal. The sodium reacts with the calcium chloride to produce calcium metal which reduces the oxides to RE metals.

Calcinations is an extraction technique that also employs thermal principles. In this instance, ovens and other devices like induction furnaces and arc furnaces are used to heat up substances to the point where volatile, chemically combined components like carbon dioxide are driven off. Another extraction technique is sorption, in which one substance takes up or holds another. It is actually a combination of the two processes absorption, in which a substance diffuses into a liquid or solid to form a solution, and adsorption, in which a gas or liquid accumulates on the surface of another substance to form a molecular or atomic film.

(Sourced from www.proactiveinvestors.com.au)

March 8th News and Thoughts

Some news items that caught my eye today:


March 8 (Bloomberg) -- Dynegy Inc., the third-largest U.S. independent power producer, likely won’t be able to comply with debt covenants this year, which may trigger a default, the company said in a regulatory filing. The company’s auditor, Ernst & Young LLP, raised “substantial doubt” that the company can continue as a going concern as the power producer said it may violate a credit facility covenant in the third and fourth quarters, according to a filing today with the U.S. Securities and Exchange Commission. Dynegy said in its filing it may need to amend or replace its credit facility or secure additional capital to continue as “a going concern over the next twelve months” as its cash flow has been reduced by low power prices. The company may also seek additional sources of liquidity through assets sales, public or private issuances of debt, equity or other securities. Its been a long road down for Dynegy. Some of their gas fired CCGT assets look attractive (at least at current prices) although coal must be causing pain.  I will have to do some additional work on this name to see if it presents any opportunities.


WASHINGTON – The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.  About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That's up from 22.5 percent, or 10.8 million households, in the July-September quarter.  In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point. This obviously does not bode well for the housing market or, for that matter, the banks. Jingle mail, jingle mail.... What this might help is the building materials sectors as people cant sell their house to do the American "trade up" dream and are "forced" to renovate their homes on much smaller budgets due to lack of equity loans.

ANCHORAGE, Alaska – Exxon Mobil Corp. has won a round in a dispute with environmentalists who want more money to clean up oil left on the shoreline of Prince William Sound from the 1989 Exxon Valdez tanker spill.
U.S. District Judge H. Russel Holland ruled Monday against a request from former University of Alaska marine science professor Rick Steiner. Steiner had filed a motion trying to force the oil company to pay a $92 million claim failed in 2006 by the state and federal governments.
Government lawyers are waiting for studies on the remaining oil and the effectiveness of cleanup techniques before pursuing the claim, the Anchorage Daily News reported Tuesday.  "The court urges the governments and their trustees to proceed with all possible speed to complete studies that are under way and any necessary evaluation which they may require," Holland wrote.
Exxon says it doesn't have any obligation to pay more. The Irving, Texas, company paid $900 million in restitution in a 1991 settlement. But the settlement also had a "reopener" clause allowing the state and federal governments to later claim up to $100 million more from Exxon if there were unforeseen damages.
$100MM to XOM is nothing, but it is better in their pockets than in someone elses (from a credit and equity point of view).  Moral of this story is that the effect - and cost - of environmental disasters does not go away quickly.

Today's $32 billion 3 Year auction closed at a 1.298% high yield: a slight decline from last month's 1.349%, which coupled with the pick up in the Bid To Cover from 3.013 to 3.219, explains why the auction prices inside of the WI at around 1.305%. Overall, Primary Dealers and Directs once again were responsible for two thirds of the auction, with just 34.4% going to Indirects, which nonetheless was an improvement from February's 27.6% which was the lowest since 2006. Look for the primaries to flip 'em to the Fed. Nonetheless, the auction went well.


American International Group Inc. (AIG)’s jet-leasing unit said it will buy 100 Airbus SAS aircraft and 33 Boeing Co. (BA) 737s, $11.8 billion in planes at list prices, as airlines refresh their fleets amid rising travel demand.
International Lease Finance Corp. said its deal with Airbus consists of 75 A320neo narrow-body jets, as the model fitted with new, more fuel-efficient engines is called, and 25 A321neo planes. That replaces a plan to buy 10 A380 superjumbo jets, which list for about $375 million each, ILFC said today.   ILFC chose Pratt & Whitney’s geared turbofan engine to power 60 of the twin-engine Airbus planes, giving the unit of Hartford, Connecticut-based United Technologies Corp. (UTX) its biggest order to date for the technology.

Good win for EADS and a decent day for BA and UTX. ILFC being back in the market for planes also says something about the nature of the business from AIG's point of view. I would not think that the company would place $12B in orders if it were getting ready to get sold or spun. Also bodes well for other plane lessors. Look for a good amount of EETC deals when delivery dates near. I still think there is value in select EETC deals with a majority of narrowbody planes. The new deals have attractive LTVs as well.

Deutsche Telekom AG (DTE) has held talks to sell its T-Mobile USA unit to Sprint Nextel Corp. (S) in exchange for a major stake in the combined entity, said people with knowledge of the matter.  Talks have been on and off, and a deal may not be reached, said the people, who spoke on the condition of anonymity because the talks are private. The companies haven’t been able to agree on the valuation of T-Mobile USA, which reported a drop in profit in the fourth quarter, the people said. Sprint and Deutsche Telekom shares jumped.
A merger of Sprint and T-Mobile USA would combine the third- and fourth-largest U.S. wireless providers behind Verizon Wireless and AT&T Inc. (T) T-Mobile USA may be worth $15 billion to $20 billion, according to Michael Kovacocy, an analyst at Evolution Securities in London. Sprint’s market value was $13.6 billion as of yesterday’s close.
T-Mobile USA is also discussing buying wireless spectrum from Clearwire Corp. (CLWR) as an alternative to a merger with Sprint, two people said. Deutsche Telekom’s Hoettges said last month that buying U.S. wireless spectrum from Clearwire is only one option for the German phone company. He ruled out an outright sale of T-Mobile in the U.S. Okay, think about this - Deutsche paid what $45B for T-Mobile (was Voicestream) in 2000, now it is being valued at $25B. Remember the good old tech/telecom boom - bet DT wishes they didn't. I think the combination of the two carriers would be attractive and would allow S to reduce wholesale revenues and increase ARPU as well as helping the two companies to compete with T and VZ. Even without a deal, if T-Mobile buys spectrum from Clearwire, it would certainly help Clearwire and therefore, to a smaller degree, Sprint.

Sprint bonds and equity were up over 4% on the news.

From BusinessWeek: "Laurent Gbagbo has announced on state TV that the government will now be the only entity authorized to buy or sell coffee and cocoa, the country's two main exports. The move to nationalize the country's lucrative cocoa and coffee sectors comes as financial sanctions begin to take effect against the rogue leader who has refused to leave office. International pressure has resulted in a ban on cocoa exports and Gbagbo has also been frozen out of the state's accounts at the regional central bank. The decree made public late Monday states: "The purchase and sale of coffee and cocoa will be undertaken exclusively by the state." 

Don't understand why the nationalization as exports have been crushed by his refusal to leave office. That said, it will only help provide upward pressure on Cocoa and coffee - even if just for the optics of the news.

Cocoa prices:

Coffee Prices:

Yeah, no inflationary pressures here - apparently FOMC offcials and other government officials only drink water and tea.

NEW YORK—PepsiCo Inc. is raising prices for its Tropicana juice line by as much as 8% after record cold temperatures slashed this season's orange crop, the company said Tuesday.
"After evaluating the increased pressures on our business, which include a smaller-than-expected crop for the second year in a row, two extreme freezes and the coldest December on record, we've made the difficult decision to implement a price increase in the 4-to-8% range," Ok, add Pepsi to the list of things that don't spell inflation - FOMC must be caffeine free.


KUANTAN, Malaysia — A colossal construction project here could help determine whether the world can break China’s chokehold on the strategic metals crucial to products as diverse as Apple’s iPhone, Toyota’s Prius and Boeing’s smart bombs.  The site of the rare earth refinery Lynas is building at the Gebeng industrial area, Kuantan, Malaysia. As many as 2,500 construction workers will soon be racing to finish the world’s largest refinery for so-called rare earth metals — the first rare earth ore processing plant to be built outside China in nearly three decades.
All of this helps explain why a giant Australian mining company, Lynas, is hurrying to finish a $230 million rare earth refinery here, on the northern outskirts of Malaysia’s industrial port of Kuantan. The plant will refine slightly radioactive ore from the Mount Weld mine deep in the Australian desert, 2,500 miles away. The ore will be trucked to the Australian port of Fremantle and transported by container ship from there.  Within two years, Lynas says, the refinery will be able to meet nearly a third of the world’s demand for rare earth materials — not counting China, which has its own abundant supplies.  Nicholas Curtis, Lynas’s executive chairman, said it would cost four times as much to build and operate such a refinery in Australia, which has much higher labor and construction costs. Ok, those who know me, know I follow rare earth markets and companies. Malaysia is setting itself up to be the new China as China has reduced exports AGAIN because of "environmental" concerns. This story follows on a story I saw yesterday about Molycorp potentially looking for acquisitions to help increase its heavy rare earth production. Personally, I like Lynas and great Western more than Molycorp. (disclosure: I am long Great Western)

NEW YORK—Oil prices should average $105 a barrel in 2011, the U.S. Department of Energy said, raising its forecast for this year due to the disruption of crude exports from Libya.
The DOE also said there is a 25% chance that gasoline prices would average $4 a gallon or more during the summer driving season.
The DOE's Energy Information Administration last month said it expected the price of oil—West Texas Intermediate as well as other crudes—to average $91 a barrel in 2011. That was before a wave of popular unrest swept the Arab world, deposing Egyptian President Hosni Mubarak and threatening the rule of Libyan dictator Moammar Gadhafi.
"Continuing unrest in Libya as well as other North African and Middle Eastern countries has led to the highest crude oil prices since 2008," the EIA said in its monthly Short-Term Energy Outlook. The EIA said it expects crude prices to continue rising in 2012, averaging $106 a barrel. West Texas Intermediate crude, the main oil contract traded on the New York Mercantile Exchange and the primary price benchmark used in the U.S., will cost an average of $102 a barrel this year, the EIA said, raising its forecast by $9 a barrel. In 2012, WTI will average $104 a barrel.

Really? I got long oil a while ago expecting per barrel prices to average $105-115 as the tension in the middle east is only going to increase. Watch Iran and the house of Saud.

Light crude:

TOKYO—Japanese core machinery orders rose a stronger-than-expected 4.2% in January from the previous month, the government said, as orders from manufacturers were strong on the back of fast-rising overseas demand. The figures released Wednesday by the Cabinet Office add to a recent run of data showing that Japan's economy is again growing after a contraction in the fourth quarter of 2010, when the country's gross domestic product fell 1.1% at an annual rate. The core machinery figure, fueled by a 7.2% gain in demand from manufacturers, was larger than the 3% increase expected by economists surveyed by Dow Jones Newswires and the Nikkei. Core orders had risen 1.7% in December. Overall orders, which include more volatile data for big-ticket items such as orders for new ships or electric power equipment, jumped 19.4%, the data showed. If Japan can just continue showing positive growth data, it would be encouraging. Rock in a hard place.

Rare Earths - China Tightens the Noose

China has further tightened the rare earth noose as it has invoked a seldom-used mining law to take direct control of 11 rare earth mining districts in southern China.

The ministry said in a statement, posted on its Web site Wednesday and briefly mentioned Thursday by the state media, that rare earth mining in those districts, all at the southern end of Jiangxi Province, had been placed under its national planning authority.

Interestingly, this is an area that produces HREE, which are more valuable and necessary to make magnets requires in hybrid vehicles and wind turbines.  China has been in the news with their export reductions over the last few months and this move, essentially, helps them enforce their export quotas.  Some feel that a large percentage of HREE production is illegal and can therefore take place under China's radar.

I still believe there is a strong case to be made for investment in rare earth operations such as Great Western (GWMGF), Lynas (LYSCF), Molycorp (MCP), Avalon (AVL) and Ucore (UCU) among others.  While these have run up, I still believe there is significant upside left as everyone seems to be focused on electric vehicles (I personally believe natgas is as viable, but we want to invest, not pontificate) and green power such as wind (which I do not believe to be a viable source without significant subsidies).

Rare Earths - A Brief Summary and Focus Elements

I have occasionally written on rare earth elements and some of the factors influencing prices.  What I have never written is a background report on rare earths, the uses of them and market conditions.  Here is my attempt at rectifying that oversight as well as addressing those rare earths that I feel will offer the most upside potential.

There are many who currently believe that the rare earth market is super hot, on the verge of bubble. To this I offer the following:

• One country controls the supply chain, and when that one country decides to tighten supplies (export quotas) while demand increases, price increases naturally follow.
• While I believe that China is currently "flexing its muscle" with export quotas, and that these quotas will be loosened somewhat, China will be increasing domestic usage that will ultimately catch up with production capacity.
• Given defense concerns (in the US and abroad), countries will be forced to diversify their raw material sources, leading to further development of non-Chinese mines and production facilities.
• The lead time required to begin mine production is significant enough that demand will continue to outpace supply in the near-term. This will continue to drive prices of rare earth elements up until production capacity comes online.  

With that said, I continue.

Description

There are 17 rare earth elements (REEs), 15 within the chemical group called lanthanides, plus yttrium and scandium. The lanthanides consist of the following: lanthanum, cerium,
praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium,
dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. Rare earths are moderately abundant in the earth’s crust, some even more abundant than copper, lead, gold, and platinum.

The lighter lanthanides, when compared with their heavy analogues, have an enhanced distribution in the crust. This crustal enrichment relative to the mantle is most pronounced for Lanthanum and tails off relatively smoothly towards Lutetium, the last member of the series. The light lanthanides are thus significantly more abundant than the heavies.

Rare-earths production is derived from the rare-earths ores bastnasite, monazite, xenontime, and ion-adsorption clay. Bastnasite is the world's principal source of rare earths and is produced in China and the United States. Significant quantities of rare earths are also recovered from the mineral monazite. Xenotime and ion-adsorption clays account for a much smaller part of the total production but are important sources of yttrium and other heavy-group rare earths.

In 1990, rare earths were produced by at least 14 countries. The United States was the largest rare-earths-producing country, followed by China, Australia, India, and Malaysia. Except for one primary mine in the United States, essentially all rare earths are produced as byproduct during processing for titanium and zirconium minerals, iron minerals, or the tin mineral cassiterite.


Location

Most rare earth elements throughout the world are located in deposits of the minerals
bastnaesite and monazite. Bastnaesite deposits in the United States and China account for the largest concentrations of REEs, while monazite deposits in Australia, South Africa, China, Brazil, Malaysia, and India account for the second largest concentrations of REEs.

Rare earth element reserves and resources are found in Colorado, Idaho, Montana, Missouri, Utah, and Wyoming. Heavy rare earth elements (HREEs) dominate in the Quebec-Labrador (Strange Lake) and Northwest Territories (Thor Lake) areas of Canada. There are high-grade deposits in Banyan Obo, Inner Mongolia, China (where much of the world’s REE production is taking place) and lower-grade deposits in South China provinces providing a major source of the heavy rare earth elements.  Areas considered to be attractive for REE development include Strange Lake and Thor Lake in Canada; Karonga, Burundi; and Wigu Hill in Southern Tanzania.  



End Uses

Clean energy technologies:  Lanthanum, cerium, praseodymium, neodymium, cobalt and lithium are used in electric vehicle batteries. Neodymium, praseodymium and dysprosium are used in magnets for electric vehicles and wind turbines. Samarium is also used in magnets. Lanthanum, cerium, europium, terbium and yttrium are used in phosphors for energy-efficient lighting. Indium, gallium and tellurium are used in solar cells.

The U.S. Department of Energy (DOE) released a report examining the role of rare earth metals in clean energy based on data collected and research performed during 2010 . Its main conclusions include:
• Several clean energy technologies—including wind turbines, electric vehicles, photovoltaic cells and fluorescent lighting—use materials at risk of supply disruptions in the short term. Those risks will generally decrease in the medium and long term.
• Clean energy technologies currently constitute about 20 percent of global consumption of
critical materials. As clean energy technologies are deployed more widely in the decades
ahead, their share of global consumption of critical materials will likely grow.
• Of the materials analyzed, five rare earth metals (dysprosium, neodymium, terbium,
europium and yttrium), as well as indium, are assessed as most critical in the short term. For this purpose, “criticality” is a measure that combines importance to the clean energy economy and risk of supply disruption.

Defense and military systems: The primary defense application of rare earth materials is their use in four types of permanent magnet materials commercially available: Alnico, Ferrites, Samarium Cobalt, and Neodymium Iron Boron. Neo magnets, the product derived from Neodymium Iron Boron, and Samarium Cobalt, are considered important to many defense products. They are considered one of the world’s strongest permanent magnets and an essential element to many military weapons systems.

Here is a brief summary:

Supply and Demand

World demand for rare earth elements is estimated at 134,000 tons per year, with global

production around 124,000 tons annually. The difference is covered by previously mined above-ground stocks. World demand is projected to rise to 180,000 tons annually by 2012, while it is unlikely that new mine output will close the gap in the short term. New mining projects could easily take 10 years to reach production. In the long run, however, the USGS expects that global reserves and undiscovered resources are large enough to meet demand.

The following is taken from the US DoE Critical Materials Strategy report dated December 2010 (full report here: DoE critical-materials-strategy well worth the read):

 

And the medium-term assessment:

What these graphs mean to me is that the rare earths that should be focused on are:  Dysprosium, Neodymium, Terbium, Europium and the quasi-rare earth Yttrium.

Future Production Potential

While given the current market for REE many companies are in the process of beginning or expanding REE production capacity, there are currently some companies with recognized (ie, on the map and feasible) plans for increased production of REEs.

Molycorp, which has an exploration program underway to further delineate its rare earth mineral deposits, has plans for full mine production in the second half of 2012 and has plans to modenize its refinery facilities. Molycorp’s Mountain Pass deposit contained an estimated 30 million tons of REE reserves and once produced as much as 20,000 tons per day. Mountain Pass cut-off grade (below which the deposit may be uneconomic) is, in some parts, 7.6%, while the average grade is 9.6%. U.S. Rare Earth (another U.S. based company), in the pre-feasibility stage of mine development, has long-term potential because of its large deposits in Idaho, Colorado, and Montana.

Canadian deposits contain the heavy rare earth elements dysprosium, terbium, and europium, which are needed for magnets to operate at high temperatures. Great Western Minerals Group (GWMG) of Canada and Avalon Rare Metals have deposits with an estimated high content (1%-2%) of heavy rare earth elements.  Avalon is developing a rare earth deposit at Thor Lake in the Northwest Territories of Canada. Drilling commenced in January 2010. Thor Lake is considered by some in the industry to contain one of the largest REE deposits in the world with the potential for production of heavy REEs.

GWMG owns a magnet alloy producer in the U.K. When GWMG begins production in Canada and elsewhere, they plan to have a refinery near the mine site allowing greater integration and control over the supply chain. Great Western’s biggest advantage could be its potential for a vertically integrated operation.  


Regulatory Sidebar

Rep. Mike Coffman (R-CO) made the following statement on the House Floor today during consideration of an amendment he has offered to the National Defense Authorization Act for Fiscal Year 2011.  Coffman’s amendment, which builds on the GAO report he pushed for in last year’s defense bill, would require the Department of Defense to develop a plan for establishing a domestic rare earth magnet capability.  Rare earth magnets are currently used in many critical weapons systems:

“The Department of Defense is facing a near-term shortage of key “rare earth” materials necessary to support our defense weapon systems, and rare earth magnets are especially critical.  Currently, over 97% of rare earth production is controlled by China.”

“Today, the United States does not have a manufacturer of neodymium iron boron rare earth magnets, yet they are found in our precision guided munitions, ships, aircraft, and other critical weapons systems.”

“One key finding of the GAO report was their determination that some U.S. defense contractors are currently utilizing “neo” magnets from Chinese sources and incorporating them into the weapons platforms delivered to the Department of Defense.   At present, we have almost no alternatives to these Chinese components, as the United States is not currently producing these magnets.  Though America is not currently producing these magnets, we have the technological know-how to do so, combined with significant deposits of rare earths.”

This is a brief overview of the rare earth market, I hope it helps.  The next part of my analysis (due very soon) will focus on the firms that are involved in the mining and production of the critical rare earths identified earlier.

Rare Earths - No Good News Goes Unpunished

More news out of China today on rare earth quotas.  Quotas are getting cut (again) which will shrink supply.  Normally, I would expect this to be greeted with REE stocks a jumping like sailfish.  Today, a jump then a dive.

(Reuters) China's Commerce Ministry said on Wednesday it would not issue more export quotas for foreign companies as it did last year and the first set of volume totaling 14,446 included those for foreign firms.

That means China's first batch of export quotas for rare earth fell by 35 percent as compared with the volume issued a year-ago.

In March, the ministry issued 5,978 tons of quotas for foreign companies, in addition to 16,304 tons of the first batch of 2010 export quotas issued to Chinese companies in late 2009.

"We have included the volume (for foreign firms) in the first batch of quotas and will do so in future," said one official with the ministry's export division of industry products. He said the ministry will issue more rare earth export quotas for this year, but declined to give the total volume.

The ministry said it has not decided full-year rare earth export quotas and urged concerned parties not to estimate full-year quotas by just looking at the first set of quotas, in an apparent move to soothe market concerns.

So the reaction (in terms of Molycorp -MCP):

Spike - splashdown.

Rare Earth Project Metrics

The following is an article reproduced in its entirety from Resource Investor that I thought was very well done.  There is limited thought out and researched information on rare earths (alot of spec though) so I thought it would be worth the reproduction.  Take a look at resource investor (resource investor.com), I read it often for insight into the various resource markets and information on resource driven companies (no, I am not compensated at all by the site or any of its affiliates).

As of the beginning of November 2010, there are 251 individual active rare-earth projects in the TMR database, being run by 165 companies in 24 different countries outside of China. It will be no surprise that these projects are in a wide variety of development stages, ranging from being prospective for rare earths on the basis of a grab sample or two, to full-blown mining operations.
When working with clients to analyze the sector from a strategic point of view, I generally filter this list of projects and focus much of my attention on what I call advanced rare-earth projects – those that meet one or both of the following criteria:

1. The deposit associated with the rare-earth project has been formally defined as a mineral resource or reserve under the guidelines of a relevant scheme such as NI 43-101 or the JORC code;
2. The deposit has been subject to past mining campaigns for rare earths, for which reliable historical data is available, even if the data is currently not compliant with a relevant scheme in terms of a resource of reserve definition.

Based on these criteria, at this time the TMR Advanced Rare-Earth Projects Index comprises 13 projects, being run by 12 companies in six different countries.  These projects, in alphabetical order, are:

• Bear Lodge (Bull Hill Zone) - Wyoming, USA : operated by Rare Element Resources Ltd. (TSX.V:RES, AMEX:REE);
• Dubbo – New South Wales, Australia : operated by Alkane Resources Ltd. (ASX:ALK, PK:ALKEF);
• Hoidas Lake – Saskatchewan, Canada : operated by Great Western Minerals Group Ltd. (TSX.V:GWG, OTCBB:GWMGF);
• Kutessay II – Chui, Kyrgyzstan : operated by Stans Energy Corp. (TSX.V:RUU);
• Kvanefjeld – Kujalleq, Greenland : operated by Greenland Minerals and Energy Ltd. (ASX:GGG, PK:GDLNF);
• Mount Weld – Western Australia, Australia : operated by Lynas Corporation Ltd. (ASX:LYC, PK:LYSCF);
• Mountain Pass – California, USA : operated by Molycorp Inc. (NYSE:MCP);
• Nechalacho (Thor Lake Basal Zone) – Northwest Territories, Canada : operated by Avalon Rare Metals Inc. (TSX:AVL; OTCQX:AVARF);
• Nolans Bore – Northern Territory, Australia : operated by Arafura Resources Ltd. (ASX:ARU, PK:ARAFF);
• Steenkampskraal – Western Cape, South Africa : operated by Great Western Minerals Group Ltd. (TSX.V:GWG, OTCBB:GWMGF) in association with Rare Earth Extraction Co. ;
• Strange Lake (B Zone) – Quebec, Canada : operated by Quest Rare Minerals Ltd. (TSX.V:QRM);
• Zandkopsdrift – Northern Cape, South Africa : operated by Frontier Rare Earths Ltd. (TSX:FRO from 11/17/10 onwards);
• Zeus (Kipawa) – Quebec, Canada : operated by Matamec Explorations Inc. (TSC.V:MAT, PK:MTCEF).

There are a number of ways to compare the technical merits of rare-earth projects; we covered just one potential metric recently in the review of Dr. Sered in’s outlook coefficient for rare-earth deposits. Whatever we choose, at some point these have to be translated into economic merits, on the basis of the material grade, distribution of specific elements, and the prevailing market conditions at a point or range of points in time of particular interest – past, present or future. We also of course have to consider the merits of the individual companies that own or operate the projects, as well as the infrastructure, mineralogy and subsequent processing costs for exploiting the deposit and other parameters.
Two common metrics used to give a quick snapshot of the potential value of a deposit are:

1. The unit basket price (in US$/kg) : this is the theoretical price that could be obtained for one kilogram of fully separated rare-earth oxides, containing rare-earth oxides in the same proportions as found in-situ within the deposit (e.g. if the proportion of neodymium oxide in the total rare-earth-oxide material grade was 10%, then the unit basket price would include the market price for 100 grams of neodymium oxide);
2. The value per unit mass of mineral deposit (in US$/t) : also known as the rock value, this is the theoretical value of each tonne of material in the deposit, on the basis of the market value of the rare-earth content present (assuming 100% efficiency of extraction and separation).

There are obvious limitations to these two metrics. Most notably, they do not account for the costs associated with extracting and processing the minerals into separated oxides, and they do not account for the level of difficulty associated with the specific mineralogy of a deposit. They also do not account for the actual efficiency of extraction at each stage, and the associated losses of material that are inevitable at each step.
However, these metrics do provide some basic value to anyone doing their due diligence on a deposit; even more so with a deposit that has a defined mineral resource (such as the 13 deposits listed on the TMR Rare-Earth Projects Index), since there is a reasonably significant degree of confidence in the data that one needs to use, to do the calculations.
The following chart is a comparison of these two metrics for each of the 13 projects named above, based on the average market price for separated rare-earth oxides (excluding oxides of Ho-Er-Tm-Yb-Lu) in October 2010, FOB China published at metal-pages.com:
  
This second chart consists of the same comparison of metrics, but based on the average prices in 2009. Note the significant differences in scales for these two charts:
 
There is additional nuance to these metrics that comes out when you start to look at a breakdown of the individual rare earths present in each deposit; but we can quickly see that for the most advanced projects in the rare-earths sector, there is a very general inverse relationship between the unit basket price for each mineral resource or reserve, and their associated rock values. What the charts tell us is that rare-earth mineral resources with high rock values, generally have such values on the basis of a high material grade (i.e. a significant quantity of total rare-earth oxides present, as a fraction of the overall resource); it also tell us that generally, mineral resources with high unit basket prices, have such high values on the basis of a distribution of individual rare earths that skews towards the more-valuable rare-earth elements present, rather than a high overall material grade.
In the future, as current projects in development publish technical reports defining mineral resources that meet the appropriate guidelines, we’ll update the TMR Advanced Rare-Earth Projects Index accordingly. We’ll also look to update the above charts on a reasonably regular basis too.