Tweet

 

Rare Earth firms in focus as supply strain prompts consolidation

As China continues its grip on the rare earth elements space, a recent deal from a mining major looks like the start of  consolidation in an industry that provides much-needed resources to a host of high-tech devices.

Rare earths elements refer to the lanthanide group of 17 specific elements used for everything from smartphones to guided missiles.

While some rare earths are relatively common, they are dispersed in a way that makes it difficult to find deposits with high enough ore grades to economically exploit.

Due to their unique attributes, new applications are constantly being developed for rare earths. Demand for the metals is expected to continue to grow steadily as China, which produces 97 percent of the world’s rare earths, has cut exports by more than half of 2004 levels to 30,000 tons in 2010.

Molycorp DEAL TRIGGERS CONSOLIDATION

Late last week, rare earth miner Molycorp (NYSE:MCP) agreed to acquire Canada's Neo Material Technologies (TSE:NEM) in a $1.3  billion deal, creating one of the most vertically-integrated rare earth companies in the world.

The deal gives Molycorp access to Neo Material's rare earths processing capabilities and patents as well as adds magnetic powders and  rare metals such as gallium, indium and rhenium as well as zirconium oxide to its portfolio.

One rare earth company that is well on its way to becoming a fully-integrated rare earth producer and processor is Saskatoon-headquartered Great Western Minerals (CVE:GWG), which combines upstream resource exploration and extraction at its Steenkampskraal  mine in South Africa with downstream metals processing facilities in the US and UK.

Great Western is working on completing an NI 43-101 compliant report for the Steenkampskraal mine to confirm historical data and  expand the size of the resource, expected in the first half of this year.

Main Zone historic estimates from the property contained TREO grades of 11.6%. In January, the company inked a joint venture deal with China's Ganzhou Qiandong Rare Earth Group for the construction of a rare earth separation plant nearby the South African property.

Great Western's chairman Gary Billingsley told Proactive Investors that industry consolidation has already started.

"Downstream manufacturers looking for a stable supply outside China will be looking at potential mining production, especially those  manufacturers sourcing "heavy" rare earths outside China," he says.

"And upstream miners looking to vertically integrate, so they actually have a product to sell, will look at downstream  manufacturers - although this is a bit tougher chore than consolidating from the downstream side."

"The players, looking at consolidating from downstream to upstream, will be Japanese, US and European." 

Looking the other way, Billingsley says upstream looking at downstream acquisitions or mergers, "could come from miners all over the  globe developing a rare earth mine".

"We get  expressions of interest on a regular basis. We are open to, and are continually evaluating, all expressions of interest," Billingsley adds.

Indeed, Great Western Minerals was favourably mentioned by Byron Capital Markets analyst Jon Hykawy in a recent article in Canada's Globe &  Mail newspaper.

Molycorp's deal has led to increased focus on the rare earth industry in recent days, favourably impacting the share prices of rare earth explorers such as Quest Rare Minerals (CVE:QRM) (AMEX:QRM), whose shares are up 12 percent in the past week, and Rare Element Resources (TSE:RES)(AMEX:REE), which has gained 16  percent in the last seven days.

CHALLENGING CHINA

China's dominance in the rare earths space comes from its ability to produce these elements cheaply. But its export restrictions are  now prompting the European Union, the United States and Japan to seek remediation from the World Trade Organization (WTO) for China's supply squeeze, which these nations consider an unfair trade practice.

Great Western's Billingsley was not convinced of the usefulness of the WTO complaint.

"While it might sound good to end users outside China, it is likely to be a long process and by the time it is resolved you will  have two very large rare earth projects in production outside China. Production from these two mines will likely alleviate most of  the "crisis" situation. 

"The real answer is not to rely on the WTO to remedy your materials supply issues, but to look at the resource assets in your own  country (or allied neighbours) and put your own supply chain in place."

JUNIOR EXPLORERS IN FOCUS

As investors zero in on rare earths, Proactive Investors recently held a Rare Earth Power Breakfast, to coincide with the PDAC event in Toronto, the world's biggest mining convention.

At the event, investors heard the latest developments from well-advanced rare earths miners such as Frontier Rare Earths (TSE:FRO), Great Western Minerals and Tasman Metals (CVE:TSM).

Frontier Rare Earths is the only Canadian junior miner that has an NI 43-101 compliant study that includes a process all the way through to the separation of rare earths. It is aiming to become the next major producer of rare earths outside China after Lynas (ASX:LYC) and Molycorp, with its Zandkopsdrift rare earth element project in South Africa.

Frontier is on track to complete a pre-feasibility study by the third quarter of this year, and a definitive feasibility report by next year's third quarter.

Frontier also inked a strategic partnership with Kores, the Korean government-owned mining and natural resources company, to help accelerate the project's development.

Tasman Resources, meanwhile, is seen as a prime target in the rare earths industry as it holds the only NI 43-101 compliant resource situated in  mainland Europe - its flagship Norra Karr project in Sweden.

Tasman's chief executive Mark Saxon says the property is significantly enriched with dysprosium and yttrium and has the highest grade dysprosium deposit in the world.

Demand for dysprosium is expected to soar over the next decade from both the traditional automotive and emerging electric car and wind turbine industries. Supply of the metal, which is a key contributor to high temperature magnets, has become tight over the past  year, with prices increasing more than 600 percent since January 2011.

Tasman's current inferred mineral resource for the project shows 60.5 million tonnes grading 0.54 percent total rare earth oxide and  1.72 percent zirconium, with 53.7% of the TREO being the higher valued heavy rare earths, at a cut-off grade of 0.4 percent.

With interest in the rare earth space currently in focus with investors, it is just a matter of time until the next deal in the sector is unveiled.

In the meantime, companies such as Great Western, Frontier Rare Earths and Tasman Resources continue to work on bringing their rare earth assets into the global supply chain.ne