Rare Earth Elements: Fact, Fiction, Hype

Chinese Interest Rate Hikes to Eventually Pop Bubble

Fact:

Zerohedge: "Ever heard of the oxides of Lanthanum, Cerium, Neodymium, Praseodymium and/or Samarium?"

We added that "With price surges between 250% and 600% in one quarter, you may wish you have." As we further predicted, courtesy of Chinese attempts to corner the rare earth space, these oxides were due to explode much further, because as their name implies, these compounds are "rare", and happen to be mostly contained in one country: that's right China.

Dysprosium, Europium, Neodymium, Lanthanum, and all the other ones, have not doubled, not tripled, but in same cases, seen their prices increase tenfold!

Below is a chart of the oxides of Dysporsium, Europium, Neodymium and Lanthanum.

China has 97% supply, But Needs Water and Food

The reason for this dramatic doubling of prices in just the month of June if due to China, which has realized it has a complete monopoly on the supply, and as we predicted in October, would be only a matter of time, before it decided to see just how far it can push prices. Per Bloomberg:

Prices of the rare earths used in lasers and plasma televisions more than doubled in the past two weeks as China tightens control of mining, production and exports, according to market researcher Industrial Minerals.

The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.

China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.

"China has long said it will consolidate the industry but it's moving more rapidly than many observers anticipated," said Dudley Kingsnorth, a former rare earths project manager and now chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. "There might be an element of speculation but I think the price rises have been driven by people who are desperate for the product."

The world's most populous nation will raise standards for exporters and won't approve new project expansions in an effort to curb overcapacity, illegal mining and sales, the government said last month. The Ministry of Land and Resources said yesterday it wants to set aside some rare earth deposits.

Where is Goldman opening its next office:

China's Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China such as Ganzhou, includes the elements dysprosium, gadolinium and terbium.

So which end products are about to see their prices surge to pass through these ridiculous input cost increases:

Rare earths are used in wind turbines, hybrid cars and defense applications such as guided missiles. The market for the minerals may double to as much as $6 billion by the middle of the decade, according to an April 21 report by Ernst & Young LLP analyst Michel Nestour.

Additionally, as we also observed back in October, while Molycorp has already gone through several bubble iterrations, it may be Australia's Lynas that is poised for the biggest jump.

Sydney-based Lynas is building a $220 million refinery in Malaysia's Pahang state that will process ores including neodymium and yttrium from Mount Weld, which it now owns.

"Until such time as Lynas and Molycorp are on-stream in the next two or three years, I don't see much relief" from high prices, Kingsnorth said. "Chinese export quotas are less than world demand."

A table on the website of Lynas shows the composite price of eight rare earths found at Mount Weld project has surged to $203.60 a kilogram on June 13, from $92.84 on March 31 and $11.59 in 2007.

"Demand for rare-earth elements is increasing in applications that are less esoteric than say, 20 years ago," Watts said. "China, which is the world's main commercially developed rare-earth elements source of supply, is reducing exports and increasing its consumption."

Will China keep export conditions constricted? Maybe, maybe not. If anything this is merely another example of what can happen to global prices when China decides it doesn't want to play ball. It also shows just how great of an impact China can have on supply chains if it so chooses. Our advice to Schumer and the other politicians who are toying with the idea of enacting currency manipulation segilation: leave a sleeping Tiger lie. Because if the rare earth metal space is any indication, it won't take much for China to make sure reexported inflatin in the US surges by a factor of 10 in precisely zero time, sending the US economy spiralin out of control faster than one can spell hyperinflation.

The Hype:

The rare earth bubble. And it's due to pop in 2012, potentially devastating the industries of western nations that depend on these rare elements.

What industries are those? The automobile industry uses tens of thousands of tons of rare earth elements each year, and advanced military technology depends on these elements, too. Lots of "green" technologies depend on them, including wind turbines, low-energy light bulbs and hybrid car batteries. In fact, much of western civilization depends on rare earth elements such as terbium, lanthanum and neodymium.

So what's the problem with these rare elements? 97 percent of the world's supply comes from mines in China, and China is prepared to simply stop exporting these strategic elements to the rest of the world by 2012.

If that happens, the western world will be crippled by the collapse of available rare earth elements. Manufacturing of everything from computers and electronics to farm machinery will grind to a halt. Electronics will disappear from the shelves and prices for manufactured goods that depend on these rare elements will skyrocket.

These 17 rare earth elements (REE) -- all of which are metals -- are strategic resources upon which entire nations are built. In many ways, they are similar to rubber -- a resource so valuable and important to the world that many experts call it the "fourth most important natural resource in the world," right after water, steel and oil. Without rubber, you couldn't drive your car to work or water your lawn. Many medical technologies would cease to work and virtually all commercial construction would grind to a halt.

Many of the strategic battles fought in World War II were fought, in fact, over control of rubber, most of which now comes through Singapore and its surrounding regions (Malaysia and Indonesia).
Global shortage of Rare Earth Elements coming...
Now, by threatening to cut off the world's supply of rare earth elements, China appears to be attempting to monopolize this extremely important strategic resource. According to information received by The Independent, by 2012 China may cease all exports of rare earth elements, reserving them for its own economic expansion.

An article in that paper quotes REE expert Jack Lifton as saying, "A real crunch is coming. In America, Britain and elsewhere we have not yet woken up to the fact that there is an urgent need to secure the supply of rare earths from sources outside China."

And yet virtually no one has heard of this problem! People are familiar with peak oil, global warming, ocean acidification, the national debt and the depletion of fossil water, but very few are aware of the looming crisis in rare metals... upon which much of western civilization rests.

For those who still aren't convinced this is a big deal, consider this: Without rare earth elements, we would have no iPhones. Yeah, I know. That's a disaster, huh?

We would have no fiber optic cables, either. No X-ray machines, no car stereos and no high-tech missile guidance systems for the military. And here's the real kicker: No electric motors.

Demand outstrips supply

The problem with the supply of rare earth elements is that demand has skyrocketed over the last decade from 40,000 tons to 120,000 tons. Meanwhile, China has been cutting its exports. Now, it only exports about 30,000 tons a year -- only one-fourth of the demand the world needs.

In order to build more "green" technologies, the world will need 200,000 tons of rare earth elements by 2014, predicts The Independent. Yet China now threatens to drop exports to exactly zero tons by 2012.

It isn't hard to do the math on this: Without China's exports, the western world will quickly run out of rare earth elements.

Kiss your "green" wind turbines good-bye. And your Toyota Prius production lines, too. No more iPhones and iPods either. Without these rare earth elements, entire industries grind to a halt.

Can we mine it elsewhere?

China isn't the only geographic region where these rare earth elements are found, but constructing mines to pull these elements out of the ground takes many years. Some mines are under construction right now in other countries that could help fill the demand for REEs, but making them operational is "five to ten years away," says Lifton.

That means these other mines won't really be operational until 2015 - 2020. Meanwhile, China could cut off its supply in 2012. That leaves a 3-7 year gap in which these rare earth elements will be in disastrously short supply.

This brings up a couple of very important realizations related to investments:

It is almost certain that the prices for rare earth elements will skyrocket over the next 2 - 5 years. This creates a huge investment opportunity for people willing to take a risk and bet their money on rising prices of these metals.

There's another big investment opportunity here, too: Recycling rare earth elements. As prices leap higher, it will become more economically feasible to harvest rare earth elements out of garbage dumps and landfills where people are discarding electronics such as motors, computers, sound systems and other such items.

Some smart entrepreneur will no doubt make a fortune by setting up and operating a rare earth element reclamation operation of some kind. These elements, after all, aren't destroyed when they're thrown away. They sit around in the trash for eons, just waiting to be reclaimed and re-used.

Lead, for example, is a metal that is successfully recycled today. Something like 85% of all the lead used in America today is reclaimed out of lead-acid batteries and other similar devices. If similar programs could be initiated for the rare metals, we could go a long way towards meeting society's demand for these elements without having to keep mining them out of the ground.

Because let's face it: Mining these rare earth elements is a very DIRTY business. That's part of the contradiction in "green" technologies, by the way: To manufacture them, you need rare metals mined out of ecologically disastrous operations in China. It's the (literal) "dirty little secret" of the green industry. All these wind turbines, solar panels, hybrid car batteries and fiber optics may seem green to the consumer, but behind them there's a very dirty mining business that rapes the planet and pollutes the rivers in order to recover these "green" rare metals.

In any case, unless scientists find less-rare alternatives to many of these rare earth metals, we are looking at a serious global supply crunch for the years 2012 - 2020. Add the "rare earth elements bubble" to your list of other bubbles to watch out for in the years ahead.

Some of the 17 rare earth elements

• Dysprosium - Makes electric motor magnets 90% lighter
• Terbium - Makes electric lights 80% more efficient
• Neodymium - Used in motor magnets
• Lanthanum - Used for hydrogen storage
• Praseodymium - Used in lasers and ceramic materials
• Gadolinium - Used to manufacture computer memory
• Erbium - Used in the manufacture of vanadium steel
• Ytterbium - Used to make infrared lasers

Fiction:

The rare earth metals are, in fact, not that rare.

The most commonly occurring rare earth metals - cerium, lanthanum, neodymium and yttrium - are actually more common in the Earth's crust than lead. And even silver.

While cerium, the most abundant rare earth metal, is more prevalent (60 parts per million (ppm)) than copper, even lutetium (0.5 ppm) and thulium (0.5 ppm), the least abundant, are to be found in the Earth's crust in greater quantities than antimony, bismuth, cadmium and thallium. (The outlier is promethium, which, it appears, is not to be found in the Earth's crust, and which is only used in compound form, of which, to date, some 30 have been prepared.)

Abundance of Elements In The Earth's Crust

Note: Abundance (atom fraction) of the chemical elements in Earth's upper continental crust as a function of atomic number.

Many of the elements are classified into (partially overlapping) categories: (1) rock-forming elements (major elements in green field and minor elements in light green field); (2) rare earth elements (lanthanides, La-Lu, and Y; labeled in blue); (3) major industrial metals (global production > ~3x107 kg/year; labeled in bold); (4) precious metals (italic); and (5) the nine rarest "metals" - the six platinum group elements plus Au, Re, and Te (a metalloid).

Source: USGS

So, why are they called the "rare earth" metals? Probably from the uncommon oxide-type minerals, or earths, from which they were originally extracted. The corollary to their abundance is, however, the fact that, to date, their "discovered minable concentrations are less common than for most other ores."

What Are The Rare Earth Metals?

The rare earth metals (aka, REM, rare earth elements [REE] or, sometimes, just rare earths) are a group of 15 chemically similar elements (grouped separately in the periodic table) known as lanthanides. Commercially, the rare earth grouping usually also includes scandium and yttrium, both of which are actually elements above lanthanum in the periodic table.

In more physical terms, these metals range in color from shiny silver to iron gray. As the USGS describes them, they "are typically soft, malleable, ductile and usually reactive, especially at elevated temperatures or when finely divided." At the lower end, cerium has a melting point of 798° C and, at the upper, lutetium has a melting point of 1,663° C.

It will come as no surprise that the unique properties (catalytic, chemical, electrical, metallurgical, nuclear, magnetic and optical) of the REM, and, in particular, both their specificity and versatility, have led to their being used for a wide variety of purposes.

From relative obscurity, they are now important economically, environmentally and technologically.

What Are They Used for?

The range of applications in which they are used is extraordinarily wide, from the everyday (automotive catalysts and petroleum cracking catalysts, flints for lighters, pigments for glass and ceramics and compounds for polishing glass) to the highly specialized (miniature nuclear batteries, lasers repeaters, superconductors and miniature magnets).

The Rare Earths And Some Of Their End Uses

Groups: yttrium and lanthanide (Scandium falls into neither category)

‡ Heavy REM

* Misch Metal is an alloy of rare earth metals used not only for lighter flints, but also, probably more importantly, in purifying steel by removing oxygen and sulfur.

Separately, or as compounds, various rare earth metals are used also in the production of superalloys.

REM are now especially important, and used extensively, in the defense industry. Some of their specific defense applications include: anti-missile defense, aircraft parts, communications systems, electronic countermeasures, jet engines, rockets, underwater mine detection, missile guidance systems and space-based satellite power.

USGS figures for 2006 indicate that the three main uses of REM in the U.S. were: automotive catalytic converters (25%), petroleum refining catalysts (22%) and metallurgical additives and alloys (20%).

Source: USGS

In many of these applications, the REM are used in the form of low-cost compounds. As oxides, they are used extensively in the ceramics and glass industries and, in addition, for various metallurgical uses. Indeed, it has been estimated that only 25% of mined REM-bearing materials are actually processed to extract individual metals.

The REM most commonly used as separated metals are: cerium, europium, gadolinium, neodymium, samarium and terbium.

Rare Earth Metals Supply

From having been a major producer (and consumer) of REM (from the Mountain Pass mine in the Mojave Desert, Calif.) until the mid-80s, the U.S. now no longer mines any REM. The world's major producer is China (particularly from its Bayan Obo mining operation in Inner Mongolia), with considerably lesser amounts coming from Brazil, India and Russia. Since 2000, domestic REM consumption in China (which now accounts for over half of the country's overall REM products) has exceeded that of the U.S.

Global Rare Earth Metal Oxide Production - 1950-2006 ('000s Tonnes)

Source: Russian Journal of Non-Ferrous Metals (from USGS)

While REM deposits in China and the U.S. are primarily to be found in the mineral bastnäsite (80-90% of all raw materials produced), elsewhere - and in particular in Australia, Brazil, India, Malaysia, South Africa, Sri Lanka and Thailand - they are usually to be found in the mineral monazite. (There are also monazite resources both in China and the U.S.) Mining monazite can, however, be a little tricky, as the ore tends to contain the radioactive elements thorium (see Cobalt: More Than Just Blue) and radium.

In addition, there are also REM-containing ion-absorption ores in the south of China. Importantly, these last contain around 80% of the world's known resources of the less-widespread heavy, yttrium group, metals.

World Mine Production (Tonnes)

Source: USGS

Although it mines no REM of its own, in 2007, the U.S. remained a major importer, exporter and consumer. From 2003-2006, China accounted for some 94% of its REM-related imports.

While not yet actually recommencing mining operations (for environmental, regulatory and market reasons), toward the end of 2007, Molycorp Inc. (wholly-owned by Chevron) resumed operating its rare earth separation plant at Mountain Pass. The company continues to sell bastnäsite concentrates and REM intermediaries, together with refined products, from its existing mine stocks. Permits to recommence mining are still pending.

Rare Earth Metals Demand

Domestic demand in the U.S., as well as the demand for REM globally, remained strong in 2007, and have continued so in 2008. This has been true both for mixed rare earth compounds and the metals and their alloys. According to the USGS: "The trend is for a continued increase in the use of rare earths in many applications, especially automotive catalytic converters, permanent magnets, and rechargeable batteries."

Forecast Growth Of Rare Earth Metals Usage

REO = rare earth oxide

Source: Roskill HK Rare Earth Conference, November 2007

The prices of most REM rose in 2007, and with the exception of neodymium and praseodymium (both metal and oxides) and terbium (oxide), the prices of most REM (metals and oxides) have either remained the same, or continued to rise in 2008.

Source: Tianjiao International

With such strong domestic demand for REM in China, there are now controls on production and exports (tariffs and quotas). And in some places, because of environmental concerns, among other things, there are both mining restrictions and mining quotas.

According to Roskill's 2007 report on the economics of rare earths and yttrium, this has "brought fundamental change to the global industry, taking it from oversupply to demand shortages."

Indeed, in its report, Roskill envisaged that, with demand growth for rare earths forecast at 8-11% per annum, and should China's strict control persist, there will be a significant need for "new non-Chinese capacity in the next 3 to 4 years."

2007 - Supply/Demand Forecast

Source: Roskill

Opportunities In Rare Earths

As with the minor metals, there are no exchanges on which REM are traded. Both the physical metals and their different oxides can, however, be bought from various specialist rare earth companies.

It seems reasonable to assume that there will always be demand for rare earths metals. While there are substitutes, these are usually not as effective. Since no REM are currently mined in the U.S., and Molycorp is a wholly-owned subsidiary of Chevron, no direct investment in any significant U.S. mining operations for these metals is possible. Looking overseas, there are, however, some opportunities for exposure.

India, unfortunately, is out, as all three rare earth production companies are government-owned.

A recent news snippet about the Japanese chemical group Showa Denko (Bloomberg Ticker - SHWDF:US) was of particular interest on two counts. Not only did it state that the company had set up a joint venture to extract dysprosium in Vietnam, but also that it was doing so because it wanted to secure a "stable supply" of rare earth magnetic materials as, currently, it relies on China - where, indeed, it currently has two subsidiaries (Baotou and Ganzhou).

China

If, however, the world's largest REM producer is of interest, then, among the Chinese companies mining REM in Bayan Obo, is the quoted Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co Ltd (Baogang) (Bloomberg Ticker - 600111:CH).

Quoted companies mining REM elsewhere in China include: China Rare Earth Holdings Ltd (Bloomberg Ticker - CREQF:US), Aluminum Corporation of China (aka Chinalco) (Bloomberg Ticker - ACH:US), Neo Material Technologies (Bloomberg Ticker - NEM:CN).

Recently, however, the mines in Sichuan were shut down, and there are strict quotas in places in Fujian, Guangdong, Hunan and Jiangxi, where there has been severe environmental damage.

Australia

In Australia, there are currently a number of rare earth mining projects at various stages of development.

According to an ASX announcement at the beginning of July this year, the "Demonstration Pilot Plant" at Alkane Resources' (Bloomberg Ticker - ALK:AU) Dubbo Zirconia project was set to go 24/7 in late July, and it stated that "(l)aboratory scale testing for recovery of the rare earth elements is scheduled to commence in July."

Arafura Resources (Bloomberg Ticker - AFAFF:US) expects the rare earths processing plant at its Nolans Project in the country's Northern Territory to be in production in 2011.

Based on November 2005 figures, the company compared its Nolans resource with some others around the world.

Source: Arafura Resources Limited

At its Mount Weld project in Western Australia, Lynas Corporation (Bloomberg Ticker - LYSCF:US) completed its first mining "campaign" in May. Based on figures updated in March this year, the company believes its resources at the project now amount to some 12.24 million tonnes at 9.7% rare earth oxide, which will produce some 1,124,000 tonnes of REO.

Canada

In addition to Neo Material Technologies out of Toronto, with its operation in China, there are three other Canadian companies involved, to a greater or lesser extent, in REM in Canada itself.

Avalon Ventures Ltd (Bloomberg Ticker - AVL:CN) has its Thor Lake Project near Yellowknife in Canada's Northwest Territories with, according to the company, "[e]xceptional enrichment in Neodymium & Heavy REE."

VMS Ventures (Bloomberg Ticker - VMS:CN), out of Vancouver, has its Eden Lake Carbonatite Complex in Manitoba, where REM were discovered in 2003.

Great Western Minerals Group (Bloomberg Ticker - GWG:CN), out of Saskatoon in Saskatchewan, has its Hoidas Lake Rare Earth Project which, in the words of the company, "...is North America's most advanced Rare Earth Element (REE) property in development..." and "...has the potential to supply at least 10% of North America's consumption of REE for many years."

Finally, Canada's Rare Element Resources (Bloomberg Ticker - RES:CN), has not only gold on its Bear Lodge, Wyo., property, but also, in its words, "significant high-grade rare-earth elements."

For those interested in looking "downstream," there are a number of REM producers internationally, especially in Japan. In the U.S., however, apart from Chevron's Molycorp, both France's chemical company Rhodia (Bloomberg Ticker - RHA:FP), and WR Grace's (Bloomberg Ticker - GRA:US) Grace Davison division are actively involved in processing rare earths.

Afterwords

First, it has been estimated that current global consumption of REM now accounts for around 70-75% of their total production. This leads one to believe that considerable quantities of mined REO remain, as yet to be processed.

Second, the mineral ore resources currently mined to produce REM contain different groups of metals, not just particular, individual, metals in isolation. So, instead of some of these metals being by-products of other metals, as, say, rhenium is of moly, and moly is of copper, they are essentially "co-products" - mine for one and the others come free.

The corollary to this, however, is that the economics of mining on such a "volume" basis could lead to it just not being viable to mine such ore resources for one or two REM alone, especially if the other metals contained in the REO do not "pay their way." In future, therefore, the composition of a mine's REO resources - as opposed just to the volume of ore it can produce - may well become critical to that mine's economic viability.

Third, even though rare earth metals are classified as critical minerals in the U.S. National Academies' "criticality matrix," the U.S. National Defense Stockpile at present contains none.

Resources

The National Academies

Roskill

Russian Journal of Non-Ferrous Metals

Tienjiao International

U.S. Geological Survey (USGS)

Sources for this story include
The Independent:
http://www.independent.co.uk/news/w...

New York Times:
http://www.nytimes.com/2009/12/26/b...

The Independent:
http://www.independent.co.uk/opinio...

Wikipedia:
http://en.wikipedia.org/wiki/Rare_e...
Learn more: http://www.naturalnews.com/028028_rare_earth_elements_mining.html#ixzz1PbpGsfgC

HAI Podcast