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Mining companies race to get ahead in rare earths sector
The race is on in the rare earth element and minerals industry, and that theme dominated in discussions at Byron Capital Markets' 3rd Annual Electric Metals conference last Thursday in Toronto.
This year’s conference brought together companies within the rare earths supply chain to address some key issues, including uncertainty of supply, future uses, how to keep up with supply and demand, and what junior companies need to withstand the race and compete in the volatile industry.
The 17 rare-earth elements have been mined for half a century – with most of them coming from the Bayan Obo mining district in China.
The minerals had been largely ignored until recent years, when they found their way into technological innovations.
In the rare earths sector, 97 percent of the world's REE supply comes from mines in China, and there is worry that China may stop exporting these strategic elements to the rest of the world in the near future to address its own demand.
Heavy rare earths, which get their name from their relatively heavier atomic weight, are most rare and consequently more expensive than the “lights.”
Heavy rare-earth minerals are used to manufacture components for a variety of uses; the automobile industry uses tens of thousands of tons of rare earth elements (REE) each year, and advanced military technology depends on these elements, too.
To further understand how the precious metals are created and ultimately impact the economy, Dr. Alexander King, director of the Ames Laboratory, addressed industry representatives on Thursday, in Toronto.
The Ames Laboratory is a government-owned, contractor-operated research facility of the U.S. Department of Energy that is run by Iowa State University.
The focus of scientists and researchers there is to seek solutions to energy-related problems through the exploration of chemical, engineering, materials, mathematical and physical sciences.
According to King, Washington has just started to pay attention to rare earths and the crisis that is developing with respect to supply and demand.
He expects the rare earth crisis will follow a historic trend, with market prices peaking and then experiencing volatility, though he notes that it is difficult to predict what will happen in the next three to five years.
King says the U.S. government has designated $20 million per year for five years to research, intending to build an Energy Innovation Hub, where it hopes scientists will combine their expertise to find alternative sources for rare earths, developing a diversified, global supply chain.
Heavy REE, King says, is where the value is in terms of dollars per kilogram, but in order to get the full dollar value, the mined material must be separated into revenue-generating Rare Earth Metals.
But with rare earths, the separation process is expensive and challenging as rare earths are chemically similar.
“There is a great deal of scope for separation technology to be developed further,” says King.
There is also huge opportunity for improvement in the separation process.
China, incidentally, also dominates the separation facility field, as the conversion to metal process is currently done exclusively in the country. Alloying and powder production is also done exclusively in China.
REE expert Jack Lifton spoke to industry professionals on Thursday, saying that there is an urgent need to secure the supply of rare earths from sources outside China.
Lifton, founding principal of Technology Metals Research, says that of the roughly 260 mining companies that are in the heavy and light rare REE industry, he expects only a handful will survive in the next few years.
Lifton says that he believes the exploration period in the REE sector has “just about concluded” and that the next phase will be producing rare earths competitively.
Highlighting the geographical issue again, Lifton stresses that outside of China, the most prolific source for rare earths is Canada, Quebec in particular.
"[Canada] is going to be the home of some of the survivors," he says.
Lifton says he believes that it is unlikely that current North American companies can produce enough rare earths to meet demand in the region, let alone demand across the globe.
“In my opinion, we are going to need at least three large, rare earth producers [in North America],” says Lifton.
“The surviving producers will be the low cost companies."
Some mines are under construction right now in other countries that could help fill the demand for rare earths, but making them operational is "five to ten years away," says Lifton.
Finishing up the presentations was Jim Engdahl, president and CEO of Great Western Minerals Group (GWMG), who believes that GWMG is on track to become one of the leading, fully integrated rare earth producers.
Saskatoon-based GWMG focuses on three core components within its integrated supply chain strategy - alloy processing, mining and exploration. Indeed, the company combines upstream resource exploration and extraction at its Steenkampskraal mine in South Africa with downstream metals processing facilities in the US and UK. Its specialty alloys are used in the battery, magnet and aerospace industries.
Engdahl says that the Steenkampskraal mine is a unique project with significant potential, as it holds nuclear authorization for the handling of radioactive material, including the storage of thorium.
GWMG’s Steenkampskraal mine is located approximately 70 kilometres north of the town of Vanrhynsdorp in the Western Cape Province of South Africa, and approximately 350 kilometres north of Cape Town.
In the course of putting the Steenkampskraal mine into production, GMWG has been engaged in remediation of the mine site, cleaning up contamination left from the period when Steenkampskraal was operated as a monazite mining operation, producing monazite concentrate which was then shipped elsewhere - mainly for thorium recovery.
The company's mining plan at Steenkampskraal includes working with a joint venture partner that will provide technology and expertise in the design, construction and operation of separation facilities.
It plans to complete the separation of the 15 rare earth elements present into oxides at Steenkampskraal, and then ship selected oxides to its own processing subsidiaries Great Western Technologies (GWT) and Less Common Metals (LCM).
Engdahl says that GWMG expects a preliminary economic assessment (PEA) by September, "with grades as high as 40 percent."
"We hope to complete and release the N143-101 in the next two weeks," he says.
"We have also completed the joint venture [agreement] for the extraction plant," says Engdahl, adding that final plant design is expected in May.
The rare earth company, which eventually plans to be its own supplier as well as creating a "supply certainty" for global customers, has several operational targets, including the construction of a mixed chloride plant and separation plant near Steenkampskraal in the first half of 2013.
UK-based LCM, acquired in 2008, serves some of the world's largest magnet manufacturers, many of whom in turn, supply the world's largest automobile manufacturers.
As GWMG is intent on the development of metal-making capacity and facilities, Engdahl says the company plans to expand LCM’s alloy production capacity by 100 percent in 2012 and then, based on industry demand, continue expansion.
"Once the facility in England is up and running we expect an annual production of 33 to 35 tonnes of alloy per year," he says.
"It’s a small project that’s going to generate significant cash."
GWMG’s alloy processing facility in Michigan, which was purchased in 2006, is a strategic asset for revitalization and is "not a money maker yet", adds Engdahl.
The Rare Earth Metals sector has never been more in the spotlight, as China continues to dominate the industry. Engdahl says he believes that GWMG can capitalize on that.
"China is going to be 75 percent of our market and we feel that by 2015 they will be a net importer.
"If you are going to be in the rare earth business outside of China, than you have to look at them as one of your importers," he says.
The next three to five years are sure to be crucial as North American companies attempt to race to the finish line in becoming successful REE producers.
Some noteworthy companies in the rare earths sector include Frontier Rare Earths (TSE:FRO), Rare Element Resources (TSE:RES), Montero Mining and Exploration (CVE:MON), Tasman Metals (CVE:TSM), Quantum Rare Element Resources (TSE:RES) (AMEX:REE) and Quest Rare Minerals (TSE:QRM) (AMEX:QRM).
Frontier Rare Earths (TSE:FRO) 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 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.
Rare Element Resources (TSE:RES) (AMEX:REE) has a 100% interest in the Bear Lodge Property in Wyoming – where it is focused on exploring high-grade rare-earth zones within this system, which are naturally enriched in some of the most widely used and more valuable REEs.
Rare Element said that "resources are substantial" at Bear Lodge and recent filings have not included additional inferred oxide resources of 15 million tonnes at 2.76% REO.
Late last week, the company unveiled a revised preliminary feasibility study (PFS) for Bear Lodge, giving a net present value of $1.27 billion, at a 10 percent discount rate after state taxes but before federal income taxes, and an internal rate of return of 47.8 percent with two-year payback of initial capital.
Looking forward, the company said that the current drilling program has the goal of delineating targets at Carbon and East Taylor within the Bear Lodge project.
Rare Element is currently in the planning stages of a full definitive feasibility study and said that the biggest hurdle going forward was the environmental permitting process and impact statement.
The company will start the environmental permitting process before the end of April.
Rare Element’s president and CEO Randy Scott says that the long term viability of projects is key in the rare earths race.
“At the Bear Lodge deposit, we learn new things each time we drill.”
Montero Mining and Exploration
Montero Mining and Exploration (CVE:MON) is a mineral exploration and development company with a rare earth project in Tanzania, uranium assets in Tanzania and Quebec, Canada and phosphate assets in South Africa.
The company is focused on the development of its flagship Wigu Hill REE project in Tanzania.
Its Wigu Hill project is a high-grade, undeveloped light rare earth element deposit, with the company currently focused on updating the initial NI 43-101 resource estimate and advancing the hydro-metallurgical test work with Mintek.
Montero said in March that it produced the first samples of concentrated rare earth chemical grade products from its Wigu Hill project in Tanzania, with a tested process route now in place.
These samples were instrumental in a non-binding offtake agreement signed with Star Earth Minerals last month, for the supply of light rare earths from its Wigu Hill project.
Montero president and CEO Tony Harwood says that the company is “more interested in supply consistency and diversity of supply” than huge output numbers.
The company's Norra Karr project in Sweden is one of the most significant heavy REE resources in the world, and the only NI43-101 compliant REE resource in mainland Europe.
With a total rare earth oxide cut off of 0.4%, the inferred mineral resource comprises 60.5 million tonnes grading 0.54% TREO and 1.72% zirconium oxide, with 53.7% of the TREO being the higher value heavy rare earth oxide. The resource is also unusually low in radioactive metals relative to peer projects.
Quantum Rare Earth Developments Corp. (CVE:QRE)(OTCQX:QREDF) is a junior exploration company with a focus on seeking out potentially economic deposits of rare earth elements in North America and elsewhere in the world.
CEO Peter Dickie said in a recent TV interview that the company's Elk Creek niobium project in Nebraska could cut U.S. dependence on imports of the strategic metal.
In April, the company’s updated NI 43-101 compliant report, prepared by Tetra Tech Wardrop, added a higher grade indicated resource of 19.3 million tonnes grading 0.67% niobium (Nb2O5), at a 0.4% niobium cut-off grade, for 129,182 contained niobium oxide tonnes.
Meanwhile, inferred resources increased from 80.1 million tonnes grading 0.62% niobium in the last estimate in April 2011 to 83.3 million tonnes grading 0.63% niobium for 523,844 tonnes of contained niobium oxide.
Quest Rare Minerals (TSE:QRM) (AMEX:QRM) is a Canadian exploration company focused on the identification and discovery of new rare earth deposits.
The company is currently advancing the Strange Lake and Misery Lake areas of northeastern Quebec. Quest's 2009 exploration led to the discovery of the significant rare earth metal deposit, the B-Zone, on its Strange Lake property.
In April 2010, an NI 43-101 preliminary resource estimate of the B Zone completed by Wardrop Engineering indicated that at a 0.95% total rare earth oxides (TREO) base-case cut-off grade, the B Zone contains an indicated resource of 36.4 million tonnes grading 1.16% TREO, 2.17% zirconium oxide, 0.24% niobium pentoxide, 0.05% hafnium oxide and 0.12% beryllium oxide.