Rare Earth Review - Libertas Partners LLP


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Libertas Partners LLP provides a summary of the market for rare earth elements including mentions of several exploration andn development companies.

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Rare Earth Review - Libertas Partners LLP

  1. 1. 4th August 2010 Libertas Rare Earths Review Companies mentioned Is the hype justified? Molycorp (MCP-NYSE) Lynas Corporation (LYC-ASX) A fundamental growth story exists for a number of products made using Alkane Resources (ALK-ASX) rare earths. The increasing use of rare earth magnets is potentially very Arafura Resources (ARU-ASX) significant. Avalon Rare Metals (AVL-TSX) There are strategic reasons for investment. China has cornered the market Cache Exploration (CAY-TSX-V) and OECD Governments may encourage the development of non-Chinese deposits. Dacha Capital (DAC-TSX-V) Etruscan Resources (EET-TSX) However the industry is capital intensive, and the mineralogy and metallurgy of deposits is complex, now may be a good time to raise capital Globe Metals & Mining (GBE-ASX) owing to high levels of investor interest. Great Western Minerals (GWG- TSX-V) Uranium and thorium are added complications for a number of deposits. Greenland Minerals and Energy Greenland currently bans uranium mining, while monazite is a pariah for the (GGG-ASX) heavy minerals industry due to its thorium content. Hudson Resources (HUD-TSX-V) Ultimate returns may however disappoint as the industry is equity capital Kirrin Resources (KYM-TSX) intensive, and sales volumes and prices for the individual products may turn out lower than forecast. Matamec Exploration (MAT-TSX-V) Metallica Minerals (MLM-ASX) Rare metals include Rare Earth Elements (REEs) and a select group of Neo Material Technologies (NEM- similar specialty metals used in technology applications. The increasing use TSX) of rare earth magnets to miniaturise electric motors could transform the Peak Resources (PEK-ASX) wind power industry, as well as continue to find increasing applications in Pele Mountain Resources (GEM- the automobile industry. The outlook for Nickel Metal Hydride (NiMH) TSX-V) batteries, which are significant consumers of rare earths, is however more Quantum Rare Earth uncertain, while there are a number of other uses which might not Developments (QRE-TSX-V) necessarily be growth markets, but are of strategic and military interest. Quest Rare Minerals (QRM-TSX-V) The US Government is embarrassed that the Abrams tank has a navigation Rare Earth Metals (RA-TSX-V) system that is heavily dependent on Chinese samarium metal production. Rare Element Resources (RES- TSX-V) Lynas (LYC-ASX) and Molycorp (MCP-NYSE) are the two sector leaders and Stans Energy (RUU-TSX-V) may offer practical means of gaining exposure. Lynas is funded through to Tasman Metals (TSM-TSX-V) first production, but may struggle in the short term owing to a lack of Ucore Rare Metals (UCU-TSX-V) newsflow. The Molycorp IPO disappointed and the company faces a number of issues before and if 2012 production can be achieved. Neo Material Technologies (NEM-TSX) appears to be an interesting producer of end products, particularly rare earth magnets and alloys. It trades at a modest 9.2 times consensus 2010 earnings. The Canadian market appears to undervalue Great Western Minerals Research (GWG-TSX-V) integrated operations. The ability to climb the value added Roger Bade chain outside of China may become significant; they own 50% of the ten +44 (0)20 7569 9675 rdb@libertaspartnersllp.com most advanced rare earth mining, development, and exploration projects in the world. Please refer to important disclosures at the end of this report. For a US$1bn current world market for Rare Earth Elements, that is forecast to grow to $1.9bn by 2014, one can argue that the $3.6bn current market capitalisation of the listed stocks which offer exposure is excessive.
  2. 2. Sector Research – Rare Earths Review Contents Rare Earths 4 Introduction 4 Rare Metals, Rare Earth Elements (REEs), Rare Earth Oxides (REOs) 4 Supply, Demand and Price Development 6 Rare Earth Element Uses 6 Nickel Metal Hydride (NiMH) Batteries 6 Magnets 7 Wind Turbines 9 Phosphors 9 Polishing Powders 9 Fluid Catalytic Cracking (FCC) 10 Autocatalysts 10 Supply/Demand Balance 11 Rare Earth Elements in Greater Detail 11 Global Rare Earth Production 17 China’s Impact 19 Rare Earth Oxides Uses and Prices 20 China: Export Quota History 21 US Government Accountability Office (GAO) 23 Global Rare Earth Resource Base 25 Rare Earth Applications by Weight and Value 27 Global Rare Earth Consumption 2008 28 2014 Forecasts by Weight and Value 29 Mineralogy 32 Carbonatites 32 Bastnäsite [(REE) CO3 (F,OH)] 32 Monazite [(REE, Nd) PO4] 33 Nepheline Syenite 33 Apatite 33 Ancylite (Sr (REE) (CO3)2(OH) (H2O) 33 Baddeleyite (ZrO2) 34 Loparite (Ce,Na,Ca(Ti,Nb)O3) 34 Xenotime 34 Metallurgy 34 Demonstration plant 34 Process Flowsheet – Explained 35 Ion-Exchange Extraction 35 Solvent Extraction 36 Prices 36 Project Finance 38 Rare Earth Producers 39 Bayan Obo Rare Earth Mine China 39 Longnan Rare Earth Mine China 40 Potential Rare Earth Mines 41 2
  3. 3. 4th August 2010 Sector Research – Rare Earths Review Potential New Suppliers 43 The Ten Steps To Rare Earths Commercial Production 44 Listed Rare Earth Equities 45 Molycorp (MCP-NYSE) 46 Lynas Corporation (LYC-ASX) 49 Alkane Resources (ALK-ASX) 51 Arafura Resources (ARU-ASX) 53 Avalon Rare Metals (AVL-TSX) 55 Cache Exploration (CAY-TSX-V) 57 Dacha Capital (DAC-TSX-V) 57 Etruscan Resources (EET-TSX) 57 Globe Metals & Mining (GBE-ASX) 58 Great Western Minerals (GWG-TSX-V) 58 Greenland Minerals and Energy (GGG-ASX) 61 Hudson Resources (HUD-TSX-V) 64 Kirrin Resources (KYM-TSX) 65 Matamec Explorations (MAT-TSX-V) 65 Metallica Minerals (MLM-ASX) 66 Neo Material Technologies (NEM-TSX) 67 Peak Resources (PEK-ASX) 69 Pele Mountain Resources (GEM-TSX-V) 70 Quantum Rare Earth Developments (QRE-TSX-V) 71 Quest Rare Minerals (QRM-TSX-V) 71 Rare Earth Metals (RA-TSX-V) 72 Rare Element Resources (RES-TSX-V) 72 Stans Energy (RUU-TSX-V) 72 Stans Energy’s properties in Kyrgyzstan 73 Tasman Metals (TSM-TSX-V) 74 Ucore Rare Metals (UCU-TSX-V) 75 Unlisted Companies 77 Dong Pao 77 Frontier Minerals Limited 77 Montero Mining 77 Spectrum Mining 78 3
  4. 4. Sector Research – Rare Earths Review 4th August 2010 Rare Earths Introduction In this review we briefly introduce the Rare Earth Elements and we look at those rare earth markets that are important in driving demand. These include the nickel metal hydride battery, the magnet and the wind turbine motor markets. We introduce the individual elements, their properties and uses. We discuss China’s impact as a dominant producer and the recent US Government Accountability Office review that attempts to address this control. Before we introduce the Chinese producers, the listed non-Chinese hopeful producers, explorers and manufacturers, and the unlisted companies that may look to list on a public market, we look at the mineralogy of rare earth elements, the metallurgy of their extraction, we discover current prices and discuss the project finance opportunities and difficulties that exist. We shall discover that the mineralogy and metallurgical extraction of rare earth elements is complicated, while many projects may have environmental issues with the presence of uranium and more significantly thorium. It is clear that rare earth element grades need to be high in order to cover the considerable capital and operating costs of the extraction process. In addition producing concentrates for someone else to make the final extraction of rare earth elements is likely to be a fairly unrewarding exercise, as although demand is potentially high, there are only one or two players, all currently located in China. A lucrative market may develop for Lynas, Molycorp and possibly Great Western Minerals to buy concentrates from non-Chinese producers for onward processing, once their hydrometallurgical plants are up and running. As there are neither terminal markets, nor futures markets for Rare Earth Elements, and those markets which do exist are very shallow, project debt finance may be very difficult to secure. High capital cost projects funded solely by equity may not offer outstanding returns. Rare Metals, Rare Earth Elements (REEs), Rare Earth Oxides (REOs) Rare Metals include the unique elemental suite know as the Rare Earth Elements and a select group of speciality metals produced primarily for technology applications. Rare Earth Elements are most simply defined as those chemical elements ranging in atomic numbers between 57 and 71. These elements include lanthanum, from which rare earth metals get their collective name of lanthanides, through to lutetium. For reasons of chemical similarity, an additional metal, yttrium, is commonly found in rare earth deposits. Other collateral metals often found amongst REE deposits include uranium, thorium, beryllium, niobium, tantalum and zirconium. 4
  5. 5. 4th August 2010 Sector Research – Rare Earths Review The Rare Earth Elements possess varying ionic radii, which produce different properties, and have therefore been broadly classified into two groups: Heavy Rare Earth Elements (HREE) and Light Rare Earth Elements (LREE). Light REEs, or the ceric sub-group, makeup the first seven elements of the lanthanide series. They are; Lanthanum (La, atomic number 57), Cerium (Ce, 58), Praseodymium (Pr, 59), Neodymium (Nd, 60), Promethium (Pm, 61) and Samarium (Sm, 62). Heavy REE's, which typically have high monetary value relative to other REE's, are the following higher atomic numbered elements from the lanthanide series; Europium (Eu, atomic number 63), Gadolinium (Gd, 64), Terbium (Tb, 65), Dysprosium (Dy, 66), Holmium (Ho, 67), Erbium (Er, 68), Thulium (Tm, 69), Ytterbium (Yb, 70) and Lutetium (Lu, 71). Historically the term 'rare earths' has been applied to the lanthanide group of elements, which range from lanthanum (atomic number 57), to lutetium (atomic number 71), plus yttrium (atomic number 39), which has similar properties. The National Instrument (NI) 43-101 and Joint Ore Reserves Committee (JORC) definition of Light Rare Earth Elements (LREE) and Heavy Rare Earth Elements (HREE) is based on the electron configuration of the rare earths and is as follows: ” The LREE are defined as lanthanum (Z=57) through gadolinium (Z=64). This is based on the fact that starting with lanthanum, which has no 4f electrons, clockwise spinning electron are added for each lanthanide until gadolinium. Gadolinium has seven clockwise spinning 4f electrons, which creates a very stable, half-filled electron shell. The LREE also have in common increasing unpaired electrons, from 0 to 7. The HREE are defined as terbium (Z=65) through lutetium (Z=71) and also yttrium (Z=39). This is based on the fact that starting with terbium, counter-clockwise spinning electrons are added for each lanthanide until lutetium. All of the HREE therefore differ from the first eight lanthanides in that they have paired electrons. All of the lanthanides have from 0 to 7 unpaired electrons. The defining split at the LREE gadolinium, which has both a stable half-filled 4f shell and 7 unpaired electrons, the following HREE, beginning with terbium, have decreasing unpaired electrons. Terbium has 6 unpaired electrons with the addition of one counter-clockwise electron which creates one electron pair. The number of unpaired electrons then decreases through lutetium, which has no unpaired electrons and a full stable 4f shell with 14 electrons and 7 "paired up" electrons. Yttrium is included in the HREE group based on its similar ionic radius and similar chemical properties. In its trivalent state, which is similar to the other REE, yttrium has an ionic radium of 90 picometers, while holmium has a trivalent ionic radius of 90.1 picometers. Scandium is also trivalent, however, its other properties are not similar enough to classify it as either a LREE or HREE. “To avoid confusion this definition should be used in all descriptions of the REE and should be applied as the standard for 43-101 and JORC compliant deposit evaluations." 5
  6. 6. Sector Research – Rare Earths Review 4th August 2010 Supply, Demand and Price Development Source: Lynas Corporation. Rare Earth Element Uses Nickel Metal Hydride (NiMH) Batteries The Rare Earth Elements required for NiMH batteries are lanthanum and, to a lesser extent, cerium, selected owing to their hydrogen storage properties. To limit purification costs to economic levels, residual traces of less common Rare Earths are often tolerated. In fact many NiMH applications use battery-grade mischmetal, (containing typically 27% lanthanum, 52% cerium, 16% neodymium, and 5% praseodymium), rather than the pure lanthanum and cerium metals. Research indicates that removing the neodymium content does not influence the storage capacity; hence it is removed wherever possible. A Hybrid Electric Vehicle (HEV) combines a conventional internal combustion engine (ICE) propulsion system with an electric propulsion system. The presence of the electric power train is intended to achieve either better fuel economy than a conventional vehicle, or better performance. A Plug-in Hybrid Electric Vehicle (PHEV), also known as a plug-in hybrid, is a hybrid electric vehicle with rechargeable batteries that can be restored to full charge by connecting a plug to an external electrical power source. A PHEV shares the characteristics of both a conventional hybrid electric vehicle, having an electric motor and an internal combustion engine; and of an all-electric vehicle, also having a plug to connect to the electrical grid. PHEVs have a much larger all-electric ranges as compared to conventional gasoline-electric hybrids, 6
  7. 7. 4th August 2010 Sector Research – Rare Earths Review Hybrid electric vehicles represent more than half the usage of NIMH batteries (57%). There is currently a great deal of debate surrounding the relative merits of NiMH batteries compared to lithium-ion (Li-ion) batteries: Toyota’s Prius uses NiMH batteries but other manufacturers, such as Renault, plan to use Li-ion batteries for their forthcoming electric cars. According to Oakdene Hollins, Toyota remains committed to the NiMH battery for its conventional hybrids, citing NiMH’s ease of management, low cost and durability to last the lifetime of the vehicle, although Li-ion will be the battery used for its PHEV Prius due for commercial sale in 2011. Toyota expects almost universal adoption of Li-ion for all EVs and PHEVs. The consultants Roskill’s view is that NiMH batteries will remain the No.1 choice for HEV applications until 2012-13 by which time Li-ion battery technology may have matured. This view is also shared by Deutsche Bank who forecast the market share of Li-ion batteries rising to 70% of the hybrid market between 2015 and 2020, although Deutsche Bank still expects NiMH to account for 70% of the market in 2015. Toyota Motor’s (7303 JP) decision to invest US$50m in private US electric motor developer Tesla Motors might hasten the demise of NiMH batteries. The Tesla Roadster, the company's first vehicle, is the first production automobile to use lithium-ion cells and the first production electric vehicle with a range greater than 200 miles (320 km) per charge. The outlook for NiMH battery demand is important for many rare earth projects. Returns may be negatively affected, particularly for those projects that could produce significant quantities of lanthanum and cerium, if the mischmetal market falls out of bed. This may be of significance in relation to the forthcoming IPO of Molycorp Minerals who own the Mountain Pass rare earth project in California, USA. Magnets The use of rare earths as magnets in electrical motors is likely to become the major driver for growth for the whole rare earths industry. Electric motors use electrical energy to produce mechanical energy, typically through the interaction of magnetic fields and current-carrying conductors. The reverse process, producing electrical energy from mechanical energy, is accomplished by a generator or dynamo. At the heart of all electric motors is a magnet. In alternating current motors, the alternating current produces the magnetic field, whilst in direct current a permanent magnet is used. Permanent magnets can also be used in alternating current motors Rare-earth magnets are strong permanent magnets made from alloys of rare earth elements. Developed in the 1970s and 80s, rare-earth magnets are the strongest type of permanent magnets made, substantially stronger than ferrite or alnico magnets. The magnetic field typically produced by rare-earth magnets can be in excess of 1.4 tesla, whereas ferrite or ceramic magnets typically exhibit fields of 0.5 to 1.0 tesla. The tesla (T) is the SI derived unit of the magnetic field B, which is also known as the magnetic flux density or magnetic induction. One 7
  8. 8. Sector Research – Rare Earths Review 4th August 2010 tesla is equal to one Weber per square metre, while a particle passing through a magnetic field of 1 tesla at 12 metres per second carrying a charge of 1 coulomb experiences a force of 1 Newton. One tesla is also equivalent to 10,000 gauss. There are two types of rare earth magnets, neodymium and samarium-cobalt magnets. Rare earth magnets are extremely brittle and vulnerable to corrosion, so they are usually plated or coated to protect them from breaking and chipping. Samarium-cobalt magnets (chemical formula: SmCo5), the first family of rare earth magnets invented, are used less than neodymium magnets because of their higher cost and weaker magnetic field strength. However, samarium-cobalt has a higher so-called Curie temperature, creating a niche for these magnets in applications where high field strength is needed at high operating temperatures. They are highly resistant to oxidation, but sintered samarium-cobalt magnets are brittle and prone to chipping and cracking and may fracture when subjected to thermal shock. The size of the samarium cobalt magnet industry worldwide is approximately 1,000 tonnes of alloy. Neodymium magnets, invented in the 1980s, are the strongest and most affordable type of rare earth magnet. Neodymium alloy (Nd2Fe14B), also called NIB, NdFeB or Neo is made of neodymium, iron and boron. Neodymium magnets are typically used in most computer hard drives and a variety of audio speakers. They have the highest magnetic field strength, but are inferior to samarium-cobalt in resistance to oxidation and Curie temperature. Use of protective surface treatments such as gold, nickel, zinc and tin plating and epoxy resin coating can provide corrosion protection where required. Originally, the high cost of these magnets limited their use to applications requiring compactness together with high field strength. Both raw materials and patent licences were expensive. Beginning in the 1990s, NIB magnets have become steadily less expensive, and the low cost has inspired new uses such as children’s magnetic building toys. Their greater strength allows smaller and lighter magnets to be used for a given application. This is particularly useful in the automotive and wind power industries. Electric motors made with NIB magnets are half the weight of traditional ferrite motors, having found many applications in electric seats, windows and mirrors, in the starter motor and alternator, whilst replacing hydraulic systems for steering, significantly reduces weight and power consumption. In hybrid motors, neodymium, praseodymium, dysprosium and terbium form an important component of the electric motor and generator. A typical hybrid car has 2.0 kg of rare earths in the electric motor and generator, in addition to a further 12.0 kg in the NiMH battery. High power NIB magnets are used in computer disk drives, and in mobile phones, and IPods™, etc. 8
  9. 9. 4th August 2010 Sector Research – Rare Earths Review Wind Turbines According to Lynas, wind turbine generator technology is moving to permanent magnets for larger turbines, particularly those sited offshore. Demand of 400 units represented 2% of the market in 2008, but this is forecast by Lynas to grow to 4,300 units per annum in 2020, which will represent 16% of the market. As each 3.0 MW permanent magnet turbine uses 1.0 tonne of neodymium this could represent a significant demand growth story. It has been suggested that the Chinese have a target of producing 120 Giga Watts (GW) of power from wind turbines by 2020. This could require a doubling of their requirement for magnetic rare earth materials. Source: Avalon Rare Metals. The above photograph details one of the advantages of Neo (rare earth) magnets, namely both size and weight savings. Imagine this in the head of a wind turbine (the “nacelle”) which contains about 3 tonnes of rare earth magnets, compared to the 6 tonne iron predecessor. The new General Electric (GE-NYSE) wind turbine uses a 90 tonne generator with a 20 foot ring of permanent neodymium magnets to eliminate the need for a gearbox, reducing breakage and energy loss. At the same time the nacelle is lighter, allowing a higher tower and less substantial foundations. Phosphors A traditional use of rare earths is to provide colour phosphors in television screens. As new cathode ray tube, plasma screen and liquid crystal displays (LCDs) have developed, their use in phosphors has been maintained. The ability of europium, terbium and yttrium to emit red, green and white light respectively is used in modern compact fluorescent bulbs, while the alternative Light Emitting Diode (LED) technology also uses rare earth phosphors. Polishing Powders A further traditional use is as a polishing powder used in the manufacture of television and computer screens, in addition to the production of precision optical and electronic components. 9
  10. 10. Sector Research – Rare Earths Review 4th August 2010 Fluid Catalytic Cracking (FCC) Rare earths particularly lanthanum, is used in oil refining Fluid Catalytic Cracking catalysts. Autocatalysts Rare earths, mainly cerium are used in gasoline autocatalysts; they improve performance, increase thermal stability, extend durability and reduce precious metals consumption. Nitrogen oxide traps under development also use rare earths, while rare earth compounds added to diesel fuel allows diesel soot to be trapped in a filter. Rare earths allow this soot to be burnt at lower temperatures, thereby regenerating the filter. Source: Lynas Corporation. 10
  11. 11. 4th August 2010 Sector Research – Rare Earths Review Supply/Demand Balance Source: Lynas Corporation. Rare Earth Elements in Greater Detail The rare earth elements do not fit well into the periodic table. Therefore they are usually separated from the main groupings. Source: Lynas Corporation. The term rare earth is disingenuous as they are neither rare nor earths. The rare earths are apparently more plentiful than silver and some elements (lanthanum, cerium, neodymium and yttrium) are more common than lead. Together rare earth elements represent approximately a sixth of all known elements in the 11
  12. 12. Sector Research – Rare Earths Review 4th August 2010 earth's crust (promethium is the exception as it does not occur naturally). As these elements are of uncommon mineable concentrations and the individual elements are difficult to separate, their selling prices are relatively high. Monazite and bastnäsite are the two principal commercial sources of Rare Earth Elements. Most Rare Earth Oxides have sharp absorption bands within the visible, ultraviolet and near infrared. This property, associated with the electronic structure gives beautiful pastel colours to many of the rare earth minerals. Lanthanum (Symbol La, Atomic number 57) is one of the most reactive of the rare-earth metals being the prototype for the lanthanide series. It is silvery white, malleable, ductile and so soft it can be cut with a knife. Lanthanum oxidises rapidly when exposed to the atmosphere. Cold water attacks lanthanum slowly, and hot water is much more vigorous in its attack. The metal reacts directly with elemental carbon, nitrogen, boron, selenium, silicon, phosphorus, sulphur and with halogens. Lanthanum is found in rare earth minerals such as cerite, monazite, allanite and bastnäsite. Monazite and bastnäsite are the principal ores in which lanthanum occurs in percentages of up to 25% and 38% respectively. Some uses of rare earth compounds containing lanthanum are as follows; lighting applications especially in motion picture studio lighting and projection. (Approx. 25% of the rare earth compounds are consumed in this application); Energy Conservation, hydrogen sponge alloys containing lanthanum take up to 400 times their own volume of hydrogen gas. (This process is reversible). When the alloys takes up gas, heat energy is released; Lanthanum oxide (La203) improves the alkali resistance of glass; Lanthanum is also used in making special optical glasses and in fluid cracking catalysts; while in addition it is also a component of mischmetal used for making lighter flints. Cerium (Ce,58) is the most abundant of the rare earth metals. It is found in the following minerals: allanite (also known as orthite), monazite, bastnäsite, cerite and samarskite. Monazite and bastnäsite are the more important known sources of cerium. Cerium is the second most reactive metal in the lanthanide series, Europium being the most reactive. Cerium decomposes slowly in cold water and rapidly in hot water. Alkali solutions and both dilute and concentrated acids attack the metal rapidly. In pure form the metal is likely to ignite if struck. Once struck, tiny pieces of cerium are knocked off and once airborne they burst into flame reacting quickly with oxygen. Some uses of cerium are as follows; it is a key part of the three-way automotive catalytic converter which reduces nitrogen oxides, carbon monoxide and oxidises un-burned hydrocarbons; the oxide is an important constituent of incandescent gas mantels; cerium compounds are used to stain glass yellow; it is used in organic synthesis, permanent magnets and carbon-arc lighting especially for the motion picture industry (in combination with other REEs); ceric sulphate is used extensively as a volumetric oxidising agent in quantitative analysis; other compounds are used as a catalyst in petroleum refining; it has a number of metallurgical and nuclear applications; it is also used for phosphors and polishing powders. 12
  13. 13. 4th August 2010 Sector Research – Rare Earths Review Praseodymium (Pr, 59) is soft, silvery, malleable and ductile. It develops a green oxide coating that falls off when exposed to air, and like other REM, it should be kept under a light mineral oil or sealed in plastic. It can be prepared by several different methods, such as by calcium reduction of the anhydrous chloride of fluoride. Praseodymium uses are as follows: it assists in the effort to get to within one, one thousandths of a degree of absolute zero which is -273 degrees C (it forms a component of the cooling coils which are used to get the temperature down); it is used in welders' goggles where it helps filter out harmful types of light harmful to the human eye); and it is also used in mischmetal (used in making lighters). Neodymium (Nd, 60) metal has a bright silvery metallic lustre. It is one of the more reactive rare earth metals and quickly tarnishes in air forming an oxide that spalls off and exposes the metal to further oxidation. To prevent this from occurring, neodymium should be kept under light mineral oil or sealed in a plastic material. Some of neodymium's uses are as follows: in hybrid/electric vehicles neodymium is used to manufacture magnets which have high magnetic strength, but lower weight. These can be used in electric motors to produce higher power and torque with much lower weight. Neodymium magnets are used in the miniaturisation of hard disk drives used in many electronic devices; and in lasers to provide blue light. Promethium (Pm, 61) is highly radioactive, it is not found in nature, and is produced from the decay of other radioactive elements. It is a soft beta emitter (although no gamma rays are emitted), while x-rays can be generated when beta particles are impinged on elements of high atomic number. Promethium salts luminesce in the dark with a pale blue or greenish glow due to their radioactivity. Uses for promethium are as follows; a beta ray emitting source for thickness gauges; it is absorbed by a phosphor to produce light for signs or signals that require dependable operation; it can be used to convert light into an electric current; a portable x-ray source; a heat source to provide auxiliary power for space probes and satellites; in the manufacture of miniature nuclear batteries and in measuring devices. Samarium (Sm, 62) is found along with other members of the rare earth elements in many minerals including the common sources, monazite and bastnäsite. It occurs in monazite to the extent of 2.8%. While mischmetal containing 1% of samarium metal has long been used, samarium has not been isolated in relatively pure form until recently. Ion-exchange and solvent extraction techniques have recently simplified separation of the rare earths from one another. More recently, electrochemical deposition, which uses an electrolytic solution of lithium citrate and a mercury electrode, is said to be a simple and highly specific way to separate the rare earths. Samarium metal can be produced by reducing the oxide with lanthanum. Samarium has a bright silver lustre and is reasonably stable in air. Three crystal modifications of the metal exist with transformations at 734 and 922 degrees Celsius. The metal ignites in air at approximately 150 degrees Celsius. The sulphide has excellent high temperature stability and good thermoelectric 13
  14. 14. Sector Research – Rare Earths Review 4th August 2010 efficiencies, while samarium changes oxidation stages very easily. Some uses for samarium are as follows; it is a neutron absorber with many uses in nuclear power stations; it is used in carbon arc lighting in the motion picture industry (along with other rare earths); as a permanent magnet material it has the highest resistance to demagnetisation of any known material (SmCo5 is used); as an optical glass, it absorbs the infrared; in optical lasers, it is used to dope calcium fluoride crystals; it is used for the dehydration and dehydrogenation of ethyl alcohol. Compounds of the metal act as sensitisers for phosphors excited in the infrared; while the oxide exhibits catalytic properties. Europium (Eu, 63) metal was not isolated until recent years and is now prepared by mixing europium oxide with a 10% excess of lanthanum metal and heating the mixture in a tantalum crucible under high vacuum. The element is collected as a silvery white metallic deposit on the walls of the crucible. As with other rare earth metals (with the exception of lanthanum), europium ignites in air at about 150 to 180 degrees Celsius. Europium is about as hard as lead and is quite ductile and is the most reactive of the rare earth metals; it quickly oxidises in air. It resembles calcium in its reaction to water. Bastnäsite and monazite are the principal ores containing europium. Europium has been identified by spectroscopy in the sun and certain stars. Some known uses for europium are as follows; europium oxide is now widely used as a phosphor activator as europium activated yttrium vanadate in television screens; europium doped plastic is used in lasers; it is used in the ceramics industry and it has nuclear applications. With the development of ion-exchange and solvent extraction techniques, the availability and the prices of Gadolinium (Gd, 64) and the other rare earth metals have greatly improved. Gadolinium can be prepared by the reduction of the anhydrous fluoride with metallic calcium. Gadolinium is silvery white, has a metallic lustre and is malleable and ductile (like other related rare earth metals). At room temperature, gadolinium crystallises in the hexagonal phase, close packed alpha form. Upon heating to 1,235 degrees Celsius, alpha gadolinium transforms into the beta form (which has a body centred cubic structure). The metal is relatively stable in dry air, but tarnishes in moist air. It forms a loosely adhering oxide film which falls off and exposes more surfaces to oxidation. The metal reacts slowly with water and is soluble in dilute acid. Gadolinium has the highest thermal neutron capture cross-section of any known element (49,000 barns). Some known uses for gadolinium using this and other properties are as follows: in Magnetic Resolution Imaging (MRI) gadolinium changes the way water molecules react in the human body when scanned allowing the contrast between healthy and non healthy tissue to be seen; gadolinium yttrium garnets are used in microwave applications; gadolinium compounds are used as phosphors in colour televisions; gadolinium’s unusual superconductive properties improve the workability and resistance of iron and chromium and related alloys to high temperatures and oxidation (as little as 1% gadolinium is needed); gadolinium metal is ferromagnetic, it is unique in that it has a high magnetic movement and for its special Curie temperature (above which ferromagnetism vanishes), lying at room temperature. Therefore it can be used as a magnetic component that can sense hot and cold. 14
  15. 15. 4th August 2010 Sector Research – Rare Earths Review Terbium (Tb, 65) has only been isolated only in recent years with the development of ion exchange techniques for separating the rare earth elements. As with other rare earth metals, terbium can be produced by reducing the anhydrous chloride or fluoride, with calcium metal in a tantalum crucible. Calcium and tantalum impurities can be removed by vacuum re-melting. Other methods of isolation are also possible. Terbium is reasonably stable in air, and is a silver grey metal which is malleable, ductile and soft enough to be cut with a knife. Two crystal modifications exist with a transformation temperature of 1,289 degrees Celsius. The oxide is a chocolate or dark maroon colour. Some known uses of terbium are as follows; solid state devices use sodium terbium borate; the oxide has potential application as an activator for green phosphors used in colour television tubes; and in combination with zirconium dioxide it is used as a crystal stabiliser of fuel cells which operate at elevated temperatures. Dysprosium (Dy, 66) occurs along with other rare earths in a variety of minerals such as: xenotime, fergusonite, gadolinite, euxenite, polycrase and blomstrandine. Monazite and bastnäsite are the most important sources. Dysprosium can be prepared by reduction of the trifluoride with calcium. The metal has a metallic bright silver lustre. Dysprosium is relatively stable in air temperature but is readily attacked and dissolved by dilute and concentrated acids to produce hydrogen. The metal is soft enough to be cut with a knife and can be machined without sparking if overheating is avoided. Small amounts of impurities can greatly affect its physical properties. Dysprosium is very reactive and therefore is stored in oil. Its thermal neutron absorption cross section and high melting point suggest metallurgical uses in nuclear control applications for alloying with special stainless steels. Some known uses for dysprosium are as follows; dysprosium along with neodymium is used in the production of the world's strongest permanent magnets. The magnets have high magnetic strength, coupled with low weight. Such magnets are used in the electronic motors used in Hybrid Electric Vehicles (HEV) to produce higher power and torque with much lower size and weight; miniaturisation of hard disk drives and many electronic devises also use these magnets; owing to its ability to capture neutrons it is used in nuclear fuel rods where it modulates the temperature progression of a nuclear reaction is getting; dysprosium oxide-nickel cement can be used in cooling nuclear reactor rods. The cement absorbs neutrons readily without swelling or contracting under prolonged neutron bombardment; in combination with other rare earths and vanadium, dysprosium has been used for laser materials. Holmium (Ho, 67) occurs in gadolinite, monazite and in other rare earth minerals. It has been isolated by the reduction of its anhydrous chloride or fluoride with calcium metal. Pure holmium has a metallic to bright silver lustre. It is relatively soft and malleable, it is able to stay dry in room temperature, but it rapidly oxidises in moist air and at elevated temperatures. Holmium metal has unusual magnetic properties, and has the highest magnetic moment of any known element in the periodic table. It has the greatest number of impaired electrons and these are what give rise to magnetism. Therefore, holmium has many uses in magnetic materials. Very few other uses have been found for the element. It also finds uses in ceramics and lasers. 15
  16. 16. Sector Research – Rare Earths Review 4th August 2010 Erbium (Er, 68) metal is soft and malleable and has a bright, silvery, metallic lustre. As with other rare earth metals, it's properties depend, to a certain extent, on the impurities present. The metal is fairly stable in air and does not oxidise as rapidly as some of the other metals. Erbium finds uses as a photographic filter, it is apparently very good at blocking certain nuclear fissile products; erbium tri-chloride is used in jewellery and sunglasses; erbium salts are used in welding goggles in conjunction with other rare earths. Thulium (Tm, 69) is the least abundant of the rare earth elements, and is very difficult to separate from the other elements because of its similar size. It can be isolated by reduction of the oxide with lanthanum metal or by calcium reduction in a closed container. The element is silver grey, soft, malleable and ductile. It can be cut with a knife. Due to the difficulty of separation it is very expensive and rarely used. Chemists are however beginning to find uses for it and these should increase in time. The few known uses for thulium are as follows; the isotope 169 Tm bombarded in a nuclear reactor can be used as a radiation source in portable X-ray equipment; while the isotope 171 Tm is potentially useful as an energy source; natural thulium also has possible use in ferries (ceramic magnetic materials) used in microwave equipment and it can be used for doping fibre lasers. Ytterbium (Yb, 70) occurs along with other rare earths in a number of rare minerals. It is commercially recovered principally from monazite sand, which contains about 0.03%. Ion-exchange and solvent extraction techniques developed in recent years have greatly simplified the separation of the rare earths from one another. Ytterbium is a silvery and lustrous metal that is very soft and reacts very rapidly with oxygen. Even though the element is fairly stable, it should be kept in closed containers to protect it from air and moisture. Ytterbium is readily attacked and dissolved by dilute and concentrated mineral acids and reacts slowly with water. Ytterbium is the least abundant amongst the rare earths. Its chemistry is the least understood therefore it is not used often, but it does have some possible uses; ytterbium metal may be used in improving the grain refinement, strength and other mechanical properties of stainless steel; it also has a use in the measurement of pressure within nuclear explosions; it also has specialist metallurgical uses. Lutetium (Lu, 71) occurs in very small amounts in nearly all minerals containing yttrium and is present in monazite to the extent of about 0.003%, which is the commercial source. The pure metal has been isolated only in recent years and is one of the most difficult to prepare. It can be prepared by the reduction of the anhydrous LuCl3 or LuF3 by an alkaline earth metal. The metal is silvery white and relatively stable in air. The isotope 176 Lu occurs naturally (2.6%) with the isotope 175 Lu (97.4%), although it is radioactive. Some known uses for lutetium are as follows; stable lutetium nuclides, which emit pure beta radiation after thermal neutron activation, can be used as catalysts in crackling, alkylation, hydrogenation and polymerisation; it can also be used as a single crystal scintillator. As mentioned yttrium (Y, 39) is often considered to be a rare earth and is often present in rare earth deposits. It is actually a transition metal, but is chemically similar to the lanthanides. The most important use of yttrium is in making 16
  17. 17. 4th August 2010 Sector Research – Rare Earths Review phosphors such as the red ones used in television cathode ray tube displays and in Light Emitting Diodes (LEDs). Other uses include the production of electrodes, electrolytes, electronic filters, lasers, superconductors, various medical applications and as traces in various materials to enhance their properties. Yttrium has replaced thorium in the manufacture of gas mantles. Yttrium is an important component of xenotime type rare earth deposits, and can comprise 60% of the rare earth component. This compares to the up to 3% of rare earth’s that make up bastnäsite and monazite rare earth deposits. Scandium (Sc, 21) is another transition metal, which is in the same periodic group as yttrium. It is sometimes classed as a rare earth, and can occur in rare earth deposits. A main source is the Bayan Obo rare earth mine in China. Scandium’s chemical properties are closer to magnesium (Mg, 12) rather than Yttrium. The main use for scandium is as an alloy of aluminium in the aerospace industry, but it is also used to make high-intensity discharge lamps. Global Rare Earth Production Source: Kaiser Bottom Fish. 17
  18. 18. Sector Research – Rare Earths Review 4th August 2010 Source: Lynas Corporation. Source: Kaiser Bottom Fish. The annual REO production chart above shows how during the past 25 years Chinese REO production has gradually displaced production from the rest of the world, with the United States the biggest loser as a result of shutting down the Mountain Pass mine in 2002. 18
  19. 19. 4th August 2010 Sector Research – Rare Earths Review China’s Impact Nearly 100% of the global supply of Rare Earth Elements, high power Neodymium Iron Boron (NdFeB) magnets and all intermediate magnet materials are controlled by, produced in, or manufactured from materials sourced exclusively out of China. Consequently, all Rare Earth dependant technologies are completely reliant on Chinese sourced Rare Earth materials for their production. No technically viable alternatives to these Rare Earth materials are currently known for these applications. Without continued export of Chinese Rare Earth materials, there would be no means to manufacture these technologies outside of China. Both production of Rare Earth materials in China and export of those materials outside of China are strictly controlled by government imposed quotas. Molycorp’s (Figure 1 below) simplified representation of the flow of Rare Earth materials (from the mine to magnet production and beyond), is that as applied to Neodymium-Iron-Boron (NIB or NdFeB) magnets for Hybrid Electric Vehicles (HEVs). Source: Molycorp. 19
  20. 20. Sector Research – Rare Earths Review 4th August 2010 In addition to controlling production of greater than 97% all Rare Earth Elements on a world-wide basis (including those relied upon by all NdFeB magnet producers outside China), China is also the world’s leading consumer of Rare Earth materials on a global basis, currently consuming approximately 60% of production and rising rapidly. Some leading experts project that by 2012, China’s internal consumption of critical Rare Earth materials will rise to meet or exceed their production. At the same time, global requirements for Rare Earth materials outside of China are expected to grow dramatically, fuelled primarily by continued development and deployment of emerging Green Energy technologies such as Hybrid Vehicles, PHEVs, Energy Efficient Lighting and Wind Power. Thus global shortages of these materials may be seen as early as 2010, with shortages becoming severe by 2012. The implications of this trend are both obvious and disconcerting. Rare Earth Oxides Uses and Prices Source: Ucore Rare Metals. The Chinese government clearly recognises the strategic nature of its Rare Earth deposits and is actively taking steps to ensure the longevity and security of its Rare Earth resources for its own domestic consumption. This is illustrated by the fact that while Chinese production of Rare Earth materials is increasing annually, government issued export quotas are also decreasing annually, thus protecting the flow of materials for rising internal consumption while at the same time 20
  21. 21. 4th August 2010 Sector Research – Rare Earths Review reducing the amount of material exported to supply the needs of the rest of the world. Chinese export quotas have decreased each year for the last eight years. More recently, China has announced that export quotas for the first half of 2009 are being reduced by approximately 34% over the same period last year. In addition to reductions in export quotas, official Chinese exports are subject to 15-25% export taxes, while Value Added Tax (VAT) rebates on exports have been withdrawn. In terms of Chinese production, no new rare earth mining licences are being issued and environmental legislation is being enforced. This may curtail production at a number of the highly polluting southern clay operations in China. China: Export Quota History Source: IMCOA and www.terramagnetica.com The Ministry of Commerce of the People’s Republic of China has released 7,976 tonnes (t) of approved Rare Earths export quota for the second half of 2010. This includes export quota for both foreign-invested firms (1,768 tonnes) and local firms (6,208 tonnes). The total export quota for 2010 (30,259 tonnes) is 40% less than the total export quota for 2009 (50,145 tonnes). In addition, the export quota for the second half of 2010 (7,976 tonnes) is 72% less than the export quota for the second half of 2009 (28,417 tonnes). Below is a table setting out the Chinese Rare Earths export quota for foreign-invested firms and local firms for the last two years. 21
  22. 22. Sector Research – Rare Earths Review 4th August 2010 Source: Lynas Corporation. Used in electric car motors and wind turbines, neodymium and other Rare Earth Metals are at the epicentre of the race between wealthy and emerging nations to create green technologies, while poorer countries appear to be relegated to spectator status. Molycorp reports that José Luis Giordano, associate professor of engineering at the University of Talca in Chile, stated in an interview that there is a battle between the United States, China and Japan over neodymium, samarium and praseodymium with regards to ceramic superconductors, and for alternatives to these materials, still in the experimental stages. In the early 1990s, Chinese rare earth materials produced at low cost, like neodymium, became abundant on the mining market, and prices fell from US$12,000 per tonne (/t) in 1992 to $7,430/t in 1996. As a result of China’s influence, the market volume jumped from 40,000 t to 125,000 t annually in a few short years. In 2006 nearly the entire world production of these minerals— 130,000 t came from China. But in recent years, China has reduced its exports in order to feed its own industries. That trend pushed up international neodymium prices to $60 per kilogramme in 2007. Independent consultant Jack Lifton, who specialises in supplies of nonferrous strategic metals, said a US-China trade dispute over neodymium production could be looming just over the horizon. In a January 2010 presentation to US lawmakers, Mark Smith, director of Molycorp, acknowledged that limited manufacturing capacity had created a gap and that although the United States has the knowledge; it has lost the necessary infrastructure. The history of business development around neodymium shows how China has imposed its conditions. In 1982, the US-based General Motors (GM), Sumitomo Special Metals and the Chinese Academy of Sciences invented a magnet made from neodymium, boron and iron. In 1986 they put it on the market through a new division of GM known as Magnequench. The Chinese companies China National Nonferrous Metals, San Huan and Sextant MQI Equity Holdings bought Magnequench in September 1995. Neo Material Technologies (NEM-TSX) then arose from the 1997 merger of Canada’s AMR with Magnequench. The new company is based in Canada, with production centres in China and Thailand. Chinese shareholding in Neo Material Technologies has subsequently been sold 22
  23. 23. 4th August 2010 Sector Research – Rare Earths Review down. Commodity investor Pala Investments are now the largest shareholder with 19.7%. It should also be pointed out that state owned East China Mineral Exploration holds a 22.3 % stake in Australian rare earth explorer Arafura Resources (ARU- ASX). In addition, in May 2009, state owned China Non-Ferrous Metal Mining agreed to subscribe for 700 million new shares at A$0.36 per share of rare earth developer Lynas Corp (LYS-ASX), raising A$252m and offered Chinese bank finance to restart their project. Total capex of over A$500m was envisioned for this project at that time, US$286m to compete and commission the first phase to produce 10,500 tpa of REOs and US$80m for phase two which would bring production to 21,000 tpa of REOs. However in September 2010, this tie up was dropped as Australian Foreign Investment Review Board (FIRB) approval could not be achieved, with strategic considerations being cited. Lynas subsequently raised A$450m in a share placing with Australian based institutions. Lifton believes that China will not allow western nations to purchase neodymium for future delivery outside of their territories and not even for sales inside China if intended for export. This means the Asian nation could harden its strategy to acquire companies abroad and that the industrial powers and developing countries would have to seek other suppliers of green technologies. US Government Accountability Office (GAO) In April 2010, US lawmakers called for a hearing after a government report exposed potential “vulnerabilities” for the American military because of its extensive use of Chinese metals in smart bombs, night-vision goggles and radar. China controls 97% of production of materials known as rare earth oxides, giving it “market power” over the United States, the GAO said. According to Bloomberg, the Pentagon is studying how to increase domestic availability of Rare Earth Elements “through developing new sources, re- energizing previous domestic sources” and adding the material to the national stockpile program. The department’s report on the issue will be completed by September 2010 and will examine “how to better prepare for future vulnerabilities.” “China is a rapidly rising military and economic power and the fact is that they cornered the market on these rare earth metals that are essential for a lot of our advanced weapons systems as well as a lot of manufacturing in the United States,” Representative Mike Coffman, a Colorado Republican, who asked for the GAO report, said in an interview on Bloomberg Television. “We need to move aggressively on this issue now before it’s too late.” Shortages of some elements “already caused some kind of weapon system production delay,” the GAO said, citing a 2009 National Defence Stockpile report. Molycorp’s Mountain Pass mine in California was once the world’s dominant producer. It closed a separation plant in 1998 after regulatory scrutiny of its wastewater line and suspended mining in 2002, the GAO said. As mining lapsed, 23
  24. 24. Sector Research – Rare Earths Review 4th August 2010 so did companies that turned the ore into metals found throughout US weapons systems, the GAO said. Magnequench International Inc., (now owned by Neo Magnetic Technologies (NEM-TSX)) a maker of neodymium magnets, closed an Indiana plant in 2003 and moved equipment to China. By the end of 2005, magnet makers in Kentucky and Michigan also closed. “Government and industry officials told us that where rare earth materials are used in defence systems, the materials are responsible for the functionality of the component and would be difficult to replace without losing performance,” the GAO report said. It cited several specific weapons systems, including the M1A2 Abrams tank, which has a navigation system that uses samarium cobalt magnets with samarium metal from China; neodymium magnets from China in the Hybrid Electric Drive propulsion on the DDG-51 Navy destroyers built by Northrop Grumman Corp. and General Dynamics; and Lockheed Martin’s Aegis SPY-1 radar, also on DDG-51 destroyers, containing samarium cobalt magnets that will need to be replaced during its 35-year lifetime. Even if Molycorp does reopen Mountain Pass, the U.S. would still lack companies to process the metals, the GAO said. It may take two to five years to develop a pilot plant to refine oxides to metal, and foreign companies own patents over neodymium magnets that don’t expire until 2014, the report said. Rebuilding a U.S. rare earth supply chain may take up to 15 years, the GAO said, citing industry estimates. That is dependent on infrastructure investment, developing new technologies and acquiring patents, it said. Developing new U.S. sources of the metals may take “enormous investment and time,” Dan Slane, chairman of the Washington-based U.S.-China Economic and Security Review Commission, said “Time is of the essence because the situation is going to get worse” as China’s domestic consumption of the material rises, he said. Smith predicted that if the United States does not renew its capacities, in the best case it would become a source of raw materials for China’s production, and not a manufacturer itself of advanced clean technologies. So far there are no viable alternatives to the rare metals. Substitution of neodymium is possible in wind turbines. The rare metal reduces the weight of the magnet mechanism, which will be heavier using other metals. Heavier turbines need stronger foundations, which mean fortified concrete and higher resultant costs. Neodymium magnets have a magnetic force nine times stronger than conventional magnets. The most similar alternatives, but even more costly, are made from samarium and cobalt or from samarium, praseodymium, cobalt and iron. 24
  25. 25. 4th August 2010 Sector Research – Rare Earths Review Global Rare Earth Resource Base Source: Kaiser Bottom Fish. Source: Kaiser Bottom Fish. 25
  26. 26. Sector Research – Rare Earths Review 4th August 2010 Source: Kaiser Bottom Fish. The above charts have been constructed by Kaiser Bottom Fish by multiplying the Chinese production figures for individual rare earth oxides during 2007 by the average price of those oxides during 2007. The total amount is however less than the 120,000 tonnes Roskill estimated for 2007 production. If we define the heavy rare earth elements as yttrium and samarium through lutetium, the production content chart shows that the light rare earth oxides represent 93% of production by weight, with most of this supply coming from the Bayan Obo mine operated by Chinese state owned Baotou Iron and Steel, while only 7% is represented by the heavy rare earths which are produced mainly from the ion adsorption clay deposits in southern China. This often gives rise to the dismissive comment that future demand growth lies with the Light Rare Earth Elements (LREEs) and all this fuss about the Heavy Rare Earth Elements (HREEs) is much ado about nothing. The second chart, however, which distributes the production by value, reveals that the heavies represent a surprisingly high 40% of the estimated $1.0 billion production value in 2007. The next two charts break down the rare earth oxide production in 2008 by their applications both by weight and by value. This is apparently very complex information assembled by Dudley Kingsnorth's Industrial Minerals Company of Australia (IMCOA). What stands out is the high 31% of value represented by phosphors, which are only 7% of the weight. Phosphors are used to create colour in display and lighting systems and are made from heavy rare earths. 26
  27. 27. 4th August 2010 Sector Research – Rare Earths Review Rare Earth Applications by Weight and Value Source: Kaiser Bottom Fish, IMCOA. Source: Kaiser Bottom Fish, IMCOA. 27
  28. 28. Sector Research – Rare Earths Review 4th August 2010 Global Rare Earth Consumption 2008 Source: IMCOA, www.terramagnetica.com Source: Lynas Corporation. 28
  29. 29. 4th August 2010 Sector Research – Rare Earths Review 2014 Forecasts by Weight and Value Source: Kaiser Bottom Fish, IMCOA. Source: Kaiser Bottom Fish, IMCOA 29
  30. 30. Sector Research – Rare Earths Review 4th August 2010 Source: Lynas Corporation. Source: Lynas Corporation. 30
  31. 31. 4th August 2010 Sector Research – Rare Earths Review Source: Lynas Corporation. Kaiser Bottom Fish reports that IMCOA believes that REO demand will grow to 180,000 tonnes by 2014, and the above charts show which applications are expected to drive demand. The second chart applies the 2008 prices to the 2014 weight. When IMCOA published this forecast they apparently cautioned that it does not incorporate a "positive" outcome for the Copenhagen Climate Change forum that took place in December 2009. As we now know the talks accomplished little in terms of firm commitments with regard to carbon dioxide emission reduction goals. Kaiser Bottom Fish claims that this forecast is based on conservative assumptions about the extent that technologies driven by climate change concerns will be commercialised. In other words, if prices do not change, the annual market for rare earth oxides will grow to a value of US$2.0bn, if the world carries on without developing a major commitment to transforming its energy foundation. 31
  32. 32. Sector Research – Rare Earths Review 4th August 2010 Mineralogy The mineralogy of rare earths is complex; they occur in a number of exotic minerals often with esoteric names, so named either from type location or named after those who first discovered them. Carbonatites Carbonatites are rare alkaline intrusive or extrusive igneous rocks and are characterised with a composition of greater than 50% carbonate minerals. Some carbonatites are enriched in magnetite, apatite and rare earth elements. A specific type of hydrothermal alteration termed fenitisation is typically associated with carbonatite intrusions. This alteration assemblage produces a unique rock mineralogy termed a fenite after its type locality, the Fen complex in Norway. The Palabora complex in South Africa is the furthest advanced carbonatite mine and has been in operation since 1960. It is mainly mined by Palabora Mining (PAM-JSE-Rio Tinto (RIO) 57%, and Anglo American (AAL) 17%), and is a major copper, magnetite, phosphate rock (apatite) and vermiculite (a clay mineral used for insulation) producer. Palabora is not noted for its rare earth content, but has historical production of zirconia from baddeleyite. Lynas’ Mount Weld rare earth project in Western Australia is also a carbonatite, as are most of the projects being evaluated in Canada, Namibia and Malawi. By now we speculate that most carbonates worldwide would have been staked by Canadian juniors, just in case. Bastnäsite [(REE) CO3 (F,OH)] Bastnäsite is a mixed lanthanide fluoro-carbonate mineral that currently provides the bulk of the world's supply of the Light Rare Earth Elements (LREE). Although it is one of the more widespread rare earth containing minerals few deposits are of sufficient size to be of commercial significance. Currently, only two deposits in the world meet this criterion: Molycorp’s Mountain Pass deposit in California and the Baiyun Ebo deposit in Inner Mongolia, China. Bastnäsite is widely consumed as it is a major source of feed for downstream recovery of the individual Rare Earth Elements. It is also the key ingredient in a number of specialist polish products. High performing polish compounds made from bastnäsite can be used on optical glass, mirrors, telescopes, silicon microprocessors, hard disk drives and cameras. Bastnäsite can also be used in television faceplates and glass melts in light bulbs for ultraviolet shielding and de-colouring as well as for sulphur-getting in alloying agents. Another use of bastnäsite is in the production of a certain type of mischmetal (mixed metal) which results when the oxides in bastnäsite are converted to metal form. Mischmetal is used to make lighter flints and alloys for use in steel (cerium improves the physical properties of high-strength, low-alloy steels due to its affinity for oxygen and sulphur), batteries and magnets. 32
  33. 33. 4th August 2010 Sector Research – Rare Earths Review Monazite [(REE, Nd) PO4] Monazite is a reddish-brown phosphate mineral containing Rare Earth Elements and is an important source of thorium (Th), lanthanum (La) and cerium (Ce). Radioactive uranium and thorium often accompany monazite and monazite sand was for many years the main source of thorium used to manufacture gas mantles. Monazite was the only significant source of rare earth elements, until Mountain Pass bastnäsite began to be processed in 1965. Due to its high density, monazite is found concentrated in alluvial sands, and is associated with the other heavy mineral sands such as ilmenite and zircon. However monazite sands typically contain between 6-12% thorium oxide with variable amounts of uranium. Heavy mineral sands producers suffer severe restrictions if this radioactivity “contaminates” ilmenite or zircon. Hence for heavy mineral sands producers monazite has grown to become an unwelcome waste material, which in some cases has to be stored securely. Monazite sands are mainly composed of cerium, containing 45-48% cerium, about 24% lanthanum, about 17% neodymium and 5% praseodymium, with minor quantities of samarium, gadolinium and yttrium. Rock monazite from Steenkampskraal in South Africa was processed in the 1950s and early 1960s and became at that time the largest producer of rare earth elements. Great Western Minerals (GWG-TSX-V) is looking to reopen Steenkampskraal. Thorium and rare earth oxides can be separated from monazite by either heating with sulphuric acid or sodium hydroxide. In the acid process, the rare earths go into solution, while thorium is precipitated as a mud, while in the alkaline process the solid residue containing both rare earths and thorium has to be treated with hydrochloric acid. Here the rare earths report into solution with thorium dropping out as a solid residue. Nepheline Syenite Nepheline is a so-called feldspathoid, a silica undersaturated aluminosilicate. Syenite is a quartz poor (less than 5% silica) alkaline igneous rock. Nepheline syenite is a holocrystalline plutonic rock that is a syenite that contains nepheline, but more importantly also contains many other alkali minerals including rare earths. Apatite Apatite is a group of phosphate minerals. Hydroxyapatite (HA) is the major component of tooth enamel and bone. The major use of apatite is the manufacture of fertiliser. Occasionally it can contain significant rare earth elements such as that found at Hoidas Lake (Great Western Minerals (GWG- TSX-V)) in Canada. Levels of radioactivity in apatites tend to be very low, and this may be some advantage in rare earth mining. Ancylite (Sr (REE) (CO3)2(OH) (H2O) Ancylite is a rare hydrous strontium carbonate that contains cerium, lanthanum 33
  34. 34. Sector Research – Rare Earths Review 4th August 2010 and other rare earth elements. Baddeleyite (ZrO2) Baddeleyite is the main ore of zirconium oxide (Zirconia). It has a high specific gravity and can be associated with economic levels of rare earth oxides. Loparite (Ce,Na,Ca(Ti,Nb)O3) Loparite is a rare earth oxide that occurs in nepheline syenite. Xenotime Xenotime is a rare earth phosphate, mainly yttrium orthophosphate (YPO4). Dysprosium, erbium, terbium and ytterbium as well as thorium and uranium can be important secondary components, all replacing yttrium. Small tonnages of xenotime sand are recovered in Malaysia, and Neo Material Technologies (NEM-TSX) is hoping to produce rare earths from the tailings of Minsur’s (MINSURI1 PE) Pitinga tin mine in Brazil. Metallurgy As already noted the mineralogy of rare earth deposits can be complex, the metallurgy of extraction of the rare earth elements or their compounds from these various minerals can be even more complicated! Demonstration plant IMCOA claim that the demonstration plant is often the most important step to commercialisation. The aim is to demonstrate that the chosen metallurgical processes are technically and commercially viable through continuously operated plants that produce samples to future customer specification. A total rare earth oxide (TREO) grade by itself is meaningless, because the relative grade of the individual rare earths differs in each deposit, and even within different zones. The price of individual rare earth oxides is reported as US dollars per kilogramme ($/kg) and ranges from $3/kg to as high as $1,000/kg. To assess the monetary value of a TREO grade you need the individual rare earth oxide grades and their prices. All disclosures should include a table listing the individual grades as rare earth oxides. The contained value of rare earths in a tonne of rock is calculated by converting each rare earth oxide grade into kg per tonne, multiplying the kg/t by the price per kg, and adding up the contained value to get the total contained or gross rare earth value per tonne or “rock value” in industry jargon terms. The conceptual flowsheet for Greenland Minerals and Energy’s Kvanefjeld project is typical of the various extraction techniques required. 34
  35. 35. 4th August 2010 Sector Research – Rare Earths Review Process Flowsheet – Explained Source: Greenland Minerals and Energy. It is extremely important to understand that the “mineral” value of a rare earth deposit is simply a maximum value. The important number is the recoverable value, which can be substantially less than the in-situ value. The recoverable value will not be known until metallurgical studies have established the optimal recovery process. "Optimal" will be a balance between the percentage of each rare earth that will be recovered by a process, and the cost of that process. The economic value of a rare earth deposit will not be even roughly be known until it has completed the metallurgy stage of the exploration and development cycle. Ion-Exchange Extraction Ion–Exchange Extraction is an exchange of ions between two electrolytes or between an electrolyte solution and a complex. In most cases the term is used to denote the processes of purification, separation and decontamination of aqueous and other ion-containing solutions with solid so called ion-exchangers. Typical ion exchangers are ion-exchange resins, and are either cation exchangers that exchange positively charged ions (cations) or anion exchangers that exchange negatively charged ions (anions). Rare Earth Element separation by the so called ion-exchange lution process is achieved in two stages. Firstly the resin is saturated with singly charge cations 35
  36. 36. Sector Research – Rare Earths Review 4th August 2010 such as ammonium ion or the hydrogen ion. A solution of mixed rare earth ions accompanied by strong acid anions is added to the ion-exchange column. When the Rare Earth ion encounters the cation containing resin, it replaces three singly charged cations and these along with the strong acid anion will flow through the column in solution and out the bottom. Rare Earth Element ion-exchange has generally been superseded by solvent extraction, but neodymium can be extracted by the organic compound di- (2- ethyl-hexyl) phosphoric acid into hexane by an ion exchange mechanism. Solvent Extraction Solvent Extraction or liquid-liquid extraction is a method to separate compounds based on their relative solubilities in two different immiscible (non-mixing) liquids. In solvent extraction, a distribution ratio is often quoted as a measure of the extractability of the solutions. The distribution ratio (D) is equal to the concentration of a solute in the organic phase divided by its concentration in the aqueous phase. Depending on the system, the distribution ratio can be a function of temperature, the concentration of chemical species in the system, and a large number of other parameters. The separation factor is one distribution ratio divided by another; it is a measure of the ability of the system to separate two solutes. Solvent extraction has evolved as the most used separation process for rare earths, but many extraction stages are needed. In the multistage processes, the aqueous raffinate from one extraction unit is fed to the next unit as the aqueous feed, while the organic phase is moved in the opposite direction. Hence, in this way, even if the separation between two metals in each stage is small, the overall system can have a higher decontamination factor. Prices Rare Earth Product Prices in US$ Rare Earth Product 2010A 2014F 2020F 2030F Lanthanum oxide 7.5 6.0 7.0 10.0 Cerium oxide 4.0 2.5 2.5 3.0 Praseodymium oxide 22.5 30.0 40.0 60.0 Neodymium oxide 22.5 30.0 40.0 60.0 Samarium oxide 4.5 4.5 5.0 8.0 Europium oxide 475.0 600.0 750.0 1,000.0 Gadolinium oxide 7.0 8.0 10.0 15.0 Terbium oxide 500.0 650.0 850.0 1,200.0 Dysprosium oxide 120.0 155.0 200.0 250.0 Yttrium oxide 20.0 27.5 35.0 50.0 Source: Molycorp prospectus, IMCOA and Roskill. 36
  37. 37. 4th August 2010 Sector Research – Rare Earths Review 37
  38. 38. Sector Research – Rare Earths Review 4th August 2010 Source: www.metal-pages.com Project Finance While the above prices and price projections are of value, on should appreciate one that rare earth prices and trades are by appointment only There is no terminal only. market price, nor spot price, nor futures market. This has implications for or project funding, as well as equity for exploration and evaluation; there remains the distinct possibility that more equity will be required for any project development. development Although the facility was withdrawn as a result of the credi crunch, Lynas credit Corporation (LYC-ASX) did demonstrate the possibility of obtaining project oration finance with its $125m deal with HVB Group, now part of Unicredit Bank (UCG- , IM). This debt was apparently arranged on the back of signed customer contracts, which offered a floor price for rare earth elements, with zero caps on offered prices. The bank used a 30% discount on the Mount Weld basket case to gain comfort. It should of course be noted that Lynas has not attempted to reactivate this funding, should it be available, phase 1 of their production plan is now being funded solely with equity contributions. It has been suggested that Molycorp is looking to raise US$100m in debt finance, but this is not immediately apparent in their April 2010 IPO prospectus. With significant capital costs for rare earth projects, particularly those that enter significant into downstream processing, capital availability may become a limiting factor. 38
  39. 39. 4th August 2010 Sector Research – Rare Earths Review Rare Earth Producers Bayan Obo Rare Earth Mine China Source: Kaiser Bottom Fish. Source: Kaiser Bottom Fish. 39
  40. 40. Sector Research – Rare Earths Review 4th August 2010 The Kaiser Bottom Fish analysis of the relative proportions of rare earth production from Bayan Obo indicates that although it is primarily a cerium producer (50% of TREO’s by weight), lanthanum (23%), neodymium (19%) and praseodymium (6%), are also significant in terms of volume. In terms of revenues, neodymium is believed to be most important (44% of revenue per tonne), but cerium (15%), praseodymium (15%), lanthanum (10%) and europium (8%) are also important. Of course this analysis doesn’t take into account mineral processing costs, and hence the contribution to profitability could be significantly different. Longnan Rare Earth Mine China Source: Kaiser Bottom Fish. 40