Juniors Plan Today for Tomorrow's Rare Earth Elements Demand
Commodities / Metals & Mining Jul 20, 2011 - 06:31 AM GMT
The West isn't ready for an avalanche of rare earth elements—yet. But when the time comes, the junior miners that have mastered the art of location, mineralogy and metallurgy will be there to fill the demand gap. In this exclusive interview with The Critical Metals Report, Ahead of the Herd Editor Rick Mills points to some promising players in the light and heavy rare earth space.
Rick Mills: There is no shortage of rare earths in the West. I say that because 90% of the demand comes from Asia. Contrary to what a lot of people say, China never cut off deliveries to the West; it just raised prices to more accurately reflect the true worth of the product in the market. The West will face a supply gap when it actually has the technical knowledge and operational expertise to make the higher-value products that use these materials.
We can make concentrates out of light or heavy rare earth elements (LREEs and HREEs, respectively) from many deposits in Canada and the U.S., as well as Europe; but very few companies in the West can actually make a 98% pure oxide, let alone anything further up the value added chain. That processing capability is mostly in China. What happened was that China produced REEs so cheaply it basically kicked the rest of the world out of the sector. That left the West 20 years behind China in developing a rare earth industry.
The supply gap will emerge when we decide to build a rare earth industry in the West that truly goes from mine to magnet. Then we'll need product, and we'll have to get more end users and companies that make the metals, the powders and the alloys to come into the West to use their proprietary knowledge and start to put together an REE industry. Until then, we don't have a shortage because we can't do anything with the stuff we produce now except ship it overseas.
TCMR: But aren't companies now in a race to produce product in North America?
RM: Several companies in the West produce magnets and powders, but they get their product from China. Molycorp Minerals (NYSE:MCP) produces a concentrate, which it turns into oxides. In the first quarter of 2011, Molycorp received an average of $38/kg. for its products, much of which goes to the catalyst cracking industry.
TCMR: Won't Molycorp also have a rare earth production facility in production in 2012 at Mountain Pass, California?
RM: The company says it is going to produce 10 different rare earth oxides (REOs) in late 2012; but when I talked to management, the team was still basically pouring footers for the plant. I'm not saying Molycorp can't get into production with Phase 1 of its Phoenix project next year; but even if it does, it won't have anywhere near enough production to fill what the West will need to replace Chinese supply.
TCMR: You've also expressed skepticism about the handling of thorium and other associated radioactive waste that will be byproducts of the Mountain Pass facility.
RM: Molycorp has all the necessary mining permits for handling radioactive waste, but that doesn't mean it won't face opposition from the extremely strong green movement in California.
TCMR: What about Lynas Corporation (ASX:LYC)?
RM: I'm not sure that Lynas is going to be a producer in the time that people have predicted. Right now, it's producing a concentrate and it seems likely the company is mining with no revenue stream—the concentrate was to be sent to its plant in Malaysia, but its construction is on hold for at least a year due to environmental concerns. Malaysians are even protesting at the Lynas office in Australia.
TCMR: Let's assume that, at some point, the West will have its own rare earth production capability. Several companies have seen huge increases in share price, but that doesn't necessarily mean they'll ever be able to get into production. Which ones have the right mineralogy, easy metallurgy, location, management and financial ability to actually do something significant in the space?
RM: A lot of deposits were considered 20 years ago. The Japanese using Sumitomo scoured the earth looking at REE deposits. Others, including Hecla Mining Co. (NYSE:HL), did the same. But the metallurgy didn't work then and still doesn't today. It wasn't a matter of price; it was simply too complicated, too time-consuming and way too expensive to remove the rare earths.
When you add that to a lack of infrastructure at many of these deposits, I just don't see how these companies are going to be competitive in the marketplace. I look for mineralogy, metallurgy and location, location, location. To compete, you need all three.
A lot of deposits will be culled as people realize how much work it will take for a junior to move forward and fill that coming supply gap.
TCMR: What are some of these deposits?
RM: We probably have more rare earth deposits in Canada, or controlled by Canadian-listed juniors, than anywhere in the world. But the one I want to cover first is Spectrum, a private company that controls the Wicheeda Lake claims north of Prince George, BC. This is a very attractive light rare earth deposit, as it has excellent mineralogy. Most of the rare earths are held in one specific ore, bastnäsite. There's very little monzonite and no high thorium levels, so no radioactivity problems with this one. The extraction will be very easy. Bench-scale tests have been done, and the company is looking at possibly up to 60% concentrate. That's really important.
TCMR: How so?
RM: High concentrate levels make it easier for a junior to get above a 98% REO. A 98% oxide might pull $38/kg., but a 98.9% or a 99% concentrate is worth $80–$100/kg. It is very difficult to make a 98% oxide out of a 40%–45% concentrate source and even more time consuming and costly to make a +98% oxide. The higher you start, the easier it is to finish higher than the normal 98% oxide.
TCMR: Spectrum could possibly make three oxides— neodymium, praseodymium and samarium oxides, a lanthanum and cerium oxide and a cerium oxide. Is that right?
RM: Yes. You have to work with what a deposit is giving you and what's easy to get out of it. Geological Consultant Tony Mariano did the metallurgy on this. It's very simple mineralogy and very easy extraction. This deposit is less than a two-hour drive down major roads from Prince George, BC, a major logistics center. Roads run right to the deposit. It has power, water and a rail yard. It also has access to workers who are experienced miners and others experienced in chemical handling, which is very important. Prince George has three pulp mills, an oil refinery and a Methanex Corporation (NASDAQ:MEOH; TSX:MX) plant.
A caustic soda train comes in once a week; Spectrum could use that for extraction. If it has to use hydrochloric acid, that's not a problem either. Local workers are used to handling it. This is pretty much a perfect deposit. It has exceptional mineralogy, easy metallurgy and location, location, location. It has all the infrastructure necessary for a very low capex (capital expenditure). The company can take the concentrate to Prince George, set up a processing center and make an oxide.
TCMR: But it's pretty much inaccessible to investors.
RM: Canadian International Minerals (TSX.V:CIN) is in a 75% joint venture (JV) with Commerce Resources Corp. (TSX.V:CCE; Fkft:D7H; OTCQX:CMRZF), which owns 25% of the Carbo Project claims in the area. Those claims surround Spectrum's Wicheeda Lake claims. These companies drilled nine holes in the Carbo last year, highlights were 2 meters at just over 4% total REO, 37m of 1.43% total rare earth oxides (TREO) and 3% TREO over 3m in a northern part of a 5 km.-long carbonatite syenite
complex. The company has identified more targets and is going back in to drill this year.
TCMR: So, these deposits essentially have the same features you see with Spectrum Mining?
RM: We really hope so. There may also be some synergy with the two companies coming together.
TCMR: What else is there to the Commerce Resources story?
RM: If its Eldor Property in Northern Quebec had a road into it, I firmly believe that it would be the only deposit a person would need to consider. It must be on every investor's radar screen because of its size. The property is 17 km. east to west and 24 km. north to south.
TCMR: That's huge.
RM: It covers a whole carbonatite complex, which is host to a newly discovered zone, the Ashram Rare Earth Zone. The property also has tantalum, niobium and phosphate in other areas, as well, so it does have quite a mix.
TCMR: What's the Ashram?
RM: In my opinion, smaller is usually better in the rare earth space—but this is the exception to the rule. The Ashram really has me intrigued. This thing is a monster. It's in the center of the carbonatite complex, coincident with a magnetic low approximately 1x.8 km. Commerce Resources has an NI-43-101-compliant resource estimate of 117 million tons (Mt.) averaging 1.74% TREO. That's an inferred resource. The company has drill-tested it to 600m deep, and it's still open in all directions and has a fair mix of HREE.
TCMR: So, assuming the mineralogy looks right and the management looks right, what about that infrastructure issue? Do you see Quebec helping the company develop that?
RM: Absolutely. A road that heads up into Northern Quebec stops just short of the massive iron ore belt there and plans are to extend that road. This Eldor is so large that, in my opinion, it can support the Quebec government installing roads, power and rail to run further north. Water won't be a problem. Commerce Resources just needs to make a deal with one of the end users or maybe a refinery for this deposit. Somebody might buy it just to do that and Quebec could become the West's premier rare earth producer. It's that nice. This looks like an exceptional find by Commerce. There won't be a problem with the mineralogy. Judging from some preliminary tests, it looks good. We'll have more news later this year.
TCMR: What other companies would you like to talk about?
RM: Another one I really like is Matamec Explorations Inc. (TSX.V:MAT), which is developing the Kipawa deposit on its Zeus property in Quebec. It's a eudialyte (HREE) deposit and the company has cracked it. There is also high-grade yttrium and zirconium, niobium and tantalum. What I like about this one is that the heavy rare earths average 36% of the total rare earth content, and it has a lot of dysprosium.
Matamec has an ongoing preliminary economic assessment (PEA). The U.S. recently issued its critical metals strategy, and four of the five most critical elements required in the next 15 years are heavies.
TCMR: And what are those five?
RM: Dysprosium, terbium, yttrium and europium are the heavies. The light rare earth is neodymium. Matamec's deposit seems to be enriched in these. When you look at dysprosium, Matamec has 2.3 million kg. (Mkg.) in the indicated resource category. It has 14.3 Mkg. indicated in yttrium, which is used for making phosphors that give the red color to TV screens and is also an important ingredient in energy-efficient, solid-state lighting. The deposit has 8.5 Mkg. indicated of neodymium.
TCMR: We haven't heard much about Matamec before.
RM: We're talking about companies that are under most people's radar screens. These deposits actually have a chance of filling the upcoming supply gap.
TCMR: Are they also compelling values for investors?
RM: This could be a good time to look at them. If you check the charts, I believe they've all been much higher. They're down and ready to start an uptrend when people come back to the market and realize a new crop of REE deposits are necessary.
TCMR: What are some of the other names you like?
RM: Hudson Resources Inc. (TSX.V:HUD) is one. It's working on its Sarfartoq REE project, an 11x9 km. carbonatite complex in Greenland with 10,000 meters of drilling planned for this year. This project is located within 20 km. of tidewater and is also 15 km. from a proposed hydroelectric plant site. Hudson just awarded its environmental impact and socioeconomic impact assessments to Environmental Resources Management (ERM). ERM did the same studies for Alcoa Inc. (NYSE:AA) to build a hydroelectric project and aluminum smelter—and these two project areas actually overlap.
TCMR: Greenland isn't your typical mining address.
RM: No, it isn't. But this deposit has been compared to China's Bayan Obo deposit; it's right next door to power and a 10-minute flight from the capital. This is very interesting, too, in that, right now Greenland has a moratorium on uranium exploration but Hudson won't have that problem. Its deposit has very low thorium.
This deposit's mix in the TREOs is also interesting. Rare earths are always found together, but in varying proportions. This one has 19% neodymium oxide, which is an important component in the high-powered magnets for small motors. It has an unbelievably rich neodymium content—40 Mkg. of neodymium oxide. Hudson's deposit has one of the industry's highest ratios of neodymium and praseodymium TREO at 25% average. So, this is a very exciting project. It's well run and has an NI-43-101-compliant resource of 14 Mt. using a cutoff of .8%.
TCMR: Any others companies to watch?
RM: Wealth Minerals Ltd. (TSX.V:WML; OTCQX: WMLLF) is exploring for rare earths at Rodeo de los Molles in Argentina. This deposit has a historical resource of 5.6 Mt. at 2.1% TREO based on 6,000m of drilling. This is another very attractive light rare earth deposit and is high in neodymium and praseodymium. It appears that those two account for about 24% of the total rare earth concentrate. This concentration of key materials is required in the magnet industry. So, if this company can produce an oxide, it's going to be a very saleable product.
And talk about a high-powered management team—Henk Van Alphen, Scott Heffernan, Paul Matysek, Maurice Strong—all names with impressive pedigrees. Those people aren't there for a $0.50 stock. They must have something that they think is very special. Plus, the top three rare earth people in the world today serve on Wealth Minerals' advisory board—Tony Mariano, Alastair Neill and Raul Lira.
TCMR: It'll also be interesting to see what happens with Wealth Minerals as the company moves forward because Argentina is another new rare earth address.
RM: It's quite a ways off people's radar screens.
TCMR: Any parting thoughts you'd like to leave with our readers?
RM: Yes. At the present time, North America desperately needs a rare earth industry; we absolutely have to have it. We cannot depend on just China for our supply. We're going to see upstream investments by end users, as well as the high-purity oxide refiners and makers of alloys, the powders, the metals and the magnets. It won't look like an investment into traditional mining companies; a lot will be based on security of supply and mining profits will not figure into the equation.
TCMR: Are you saying that the North American entities relying on these rare earths to produce their products will invest in these projects?
RM: I believe the few that exist will—and not only North American ones. No one wants to be held hostage to a Chinese supplier. They will buy the deposits outright, which is why I generally think that smaller is better in the REE space. These entities will look at a deposit that can produce the specific concentrates they need, find a company to mine the REEs and ship it to their own labs and processing plants.
TCMR: But in the meantime, investors have options in the space.
RM: Yes. Investors should look for simple mineralogy that makes for easy extraction and in-place infrastructure. They should also do their homework by reading people like Byron King, Jack Lifton and, of course, become a member of Ahead of the Herd.
TCMR: Thank you, Rick, for your time.
Richard (Rick) Mills is host of www.aheadoftheherd.com and invests in the junior resource sector. His articles have been published on more than 300 websites, including: The Wall Street Journal, SafeHaven, Market Oracle, USA Today, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, UraniumSeek and Financial Sense.
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