This article, an updated version of one from October 2010, reviews fourteen rare metal companies ranging from grassroots explorers through those on the brink of mine production to those already operating downstream, manufacturing rare earth and beryllium products. These companies are operating in four continents in climatic zones ranging from the polar conditions of Greenland and the Far North of Canada to the arid climes of Australia and Southern Africa.
As before factors to consider when reviewing the companies include the skills base within the company, the likely access to capital (rare earth projects are expensive), the political risk and the required infrastructure (many are in remote places).
The development stage of the project is also an important consideration as (a) rare earth projects are complex and take longer than those of other commodities particularly as they require a pilot plant to test the complex metallurgical process and (b) in a relatively small market first mover advantage is important.
Particularly crucial too is the quality and metallurgy of the orebody: Is the mineral amenable to REE recovery? Are there contaminants and if so how will they be treated? Will environmental permitting be possible? What is the grade of the REE and the distribution of the metals within the total? What proportion are heavy rare earths and the metals expected to be in particular shortage in the future (see part 1 of this article)?
Downstream manufacturing, sales and marketing considerations are significant too, particularly for the more advanced projects and for companies with an integrated pipeline. Finally, of course, there is the price of the equity. As analyst John Hykawy from Byron Capital has pointed out, "in spite of (our) belief that several rare earths will be in short supply, at the wrong prices a good company can make a bad investment, but at the right price even a small deposit can make a good investment".
A word of caution. If making size/grade comparisons between deposits look at the units (short (US) tons/lbs or metric tonnes/kg?) and whether the figures refer to reserves or resources, (and if the latter is the confidence level measured, indicated or inferred?). Please note too the date on some of the comparative charts shown in the sections on individual companies; this is a fast moving sector with companies racing to exploit the anticipated supply gap so resource estimates are quickly becoming out of date.
The review covers companies in alphabetical order (this is part two).
Hudson Resources (TSX.V:HUD OTCQX:HUDRF)
Hudson Resources recently announced its maiden REE resource estimate for the ST1 zone of its Sarfartoq REE project in South West Greeland, which is located within 15 km of tidewater and 60 km from Greenland’s international airport. The estimates show that the 14.1M tonne resource, with a grade of 1.51% TREO has a particularly high distribution of neodymium and praseodymium, which account for 25% of the total rare earth oxides of the deposit. Altogether there are 40 million kg of contained neodymium oxide in situ; the current price is around $114/kg.
Hudson has a 100% interest in the 1300 square kilometre project which lies on the Arctic Circle and is centered on the 130 sq. km. Sarfartoq Carbonatite Complex (SCC). The region has been explored for more than 50 years, by Rio, Hecla Mining and subsidiaries of De Beers among others for a number of targets including diamonds, niobium, tantalum and latterly for rare earths. Hudson first become involved in the region in 2003 when it entered into a JV with New Millennium to explore for diamonds in the Garnet Lake area of the property. In 2006 Hudson acquired 100% rights over the metals and diamonds on the project and in 2009, it switched its focus to rare earth exploration in the SCC because of the increasing interest in the sector.
To date Hudson has collected a total of 436 geochemical samples from the property, it has drilled 9,100 meters (which resulted in a further 4571 geochemical samples), and conducted 273 kilometers of geophysical surveys. Most of the recent work has targeted areas exhibiting higher radiometric signatures looking in particular at five zones within the carbonatite complex; ST1, ST19, ST24, ST31 and ST40. In 2010 in addition to the resource estimate on ST1 a new prospective zone of ferrocarbonatite was identified at the ST19 site on the southern side of the SCC. Two diamond drill holes intersected 60 metre zones averaging 2.2% and 2.6% TREO.
Metallurgical testwork on ST1 material has just begun. Since much of the rare earth mineralisation is found within the iron rich portions of the carbonatite Hudson is undertaking tests to determine if magnetic separation and optical sorting could be an effective method to generate a preliminary concentrate. Hudson will also be undertaking the Preliminary Economic Assessment this year as well as conducting environmental baseline studies with a view to making a mining application in 2012. The company recently listed on the OTCQX market.
IBC Advanced Alloys (TSX.V:IB)
Beryllium is the name of the game for Vancouver-based IBC Advanced Alloys. The company's aim is to cover every step of the beryllium and beryllium alloy supply chain from mine to market as well as conducting research to stimulate demand for the metal.
The fourth element in the periodic table, (and the second lightest metal), beryllium has a number of important physical, chemical and nuclear properties which render it useful, in both its pure and alloyed forms, for a myriad of applications in the nuclear, aerospace, medical, automotive, telecom and defence industries. Specifically the metal is light yet stiffer than steel, corrosion resistant, transparent to x-rays, non-sparking, it has a fast sound conduction speed, a high melting point and high electrical conductivity. When alloyed with copper the alloy it is ductile, weldable and machinable and can be used for springs and parts which must retain their shape even when subjected to repeated stress and strain.
The list of applications is extensive, wide-ranging and sometimes esoteric; for example it is used in the window and door frames in the space shuttle, the Mars Rover, underwater fibre optic cables, jet-fighter components, aircraft brakes, drill bits for the oil and gas sector, pacemakers, X-ray machines, CAT scanners and airbags, the ignition switch and power steering in cars to mention just a few. It is however a relatively expensive metal, partly because its toxicity in fumes, mist and water mean that stringent and specialist processing conditions are required.
Although beryllium is the 23rd most abundant element in the earth's crust and found in low concentrations in a large number of minerals it is nonetheless considered a rare metal as it is only found in viable concentrations in relatively few deposits around the world, mostly those with bertrandite and beryl ore. At present the three major sources of beryllium worldwide are the mine owned by Brush Wellman in Utah, the Ulba Metallurgical Plant, (a subsidiary of Kazatomprom) in Kazakhstan which is alleged to hold extensive stocks of beryllium concentrate, and the US Government stockpile, though there are known resources and limited production in a handful of other countries including China and Mozambique.
IBC believes that the superior properties of beryllium, the supply/demand fundamentals and the current market structure present an attractive opportunity both for dramatic growth in the world market for the metal and for IBC to gain market share. The company, which was established in 2007, (under the name International Beryllium Corporation), is therefore seeking to position itself as a vertically integrated global market leader in the advanced alloys sector.
It currently has several areas of focus. It is exploring and developing three 100% owned beryllium properties in Spor Mountain, Utah, (where its property is immediately adjacent to Brush Wellman's mine, the largest beryllium resource and mine in the world), Boomer, Colorado (which was the second largest beryllium mine in the US from 1948-63) and a project in Minas Gerais state in Brazil (which formerly produced beryl). IBC also own three profitable manufacturing divisions in the USA, (Beralcast Corp., Freedom Alloys Inc. and Nonferrous Products Inc) which manufacture beryllium and other non-ferrous alloys primarily using beryllium sourced from a 3 year contract with Ulba. It is also conducting research and development into new uses for beryllium, working in particular with two American universities to combine beryllium and uranium oxides to research a potentially safer and more efficient fuel for nuclear power reactors.
IBC's strategy and plans are summarised in the chart above. The company's turnover in the fiscal year ending June 2010 was $15M, up 29% on the previous year while in the quarter ending Sept 2010 sales totalled $5.6M (+119%). The company's market capitalisation is currently C$30M.
Lynas Corporation [ASX:LYC]
ASX-listed Lynas Corporation owns the richest deposit of rare earths in the world, should be the next rare earths producer off the block and is in the process of acquiring an advanced exploration project in Malawi. Its stated aim is "to create a reliable integrated source of Rare Earths from mine to market and to become the benchmark for the security of supply and environmental standards in the global Rare Earths industry".
Source: Lynas Presentation Feb 2011, www.lynascorp.com
The company has two projects currently under construction. It is developing a mine and concentration plant at Mount Weld in Western Australia. The mine is complete and construction of the concentration plant should be complete by the end of February 2011. It is also building a state of the art Rare Earths processing plant, the Lynas Advanced Materials Plant (LAMP) near Kuantan in Pahang, Malaysia where production is scheduled to commence in the third quarter of 2011.
Lynas is also in the process of acquiring an advanced rare earths project in Malawi and establishing a brand – Rare Earths Direct – for all its rare earth products. The brand, in essence, is intended to underpin Lynas' values of guaranteed quality, environmental standards and continuity of supply.
Mount Weld is situated some 700km+ from Perth near to the town of Laverton. It hosts the Mount Weld carbonatite, a 3.5km diameter near-vertical plug which in turn hosts two rare earth deposits. The Central Lanthanide deposit is the richest in the world; 1.1M tonnes of contained REO at a grade of 10.7%. The estimated resource for the nearby Duncan deposit (formerly called the Southern Zone) has recently been increased threefold. The combined rare earths estimate for the two deposits now stands at 17.5M tonnes at 8.1% REO, for a total contained REO of 1.416 million tonnes. The thorium content of the resource is low.
The open pit has already been constructed and there are stockpiles sitting at the surface. These will be concentrated in a plant 1.5km from the mine then shipped in sea containers and transported by road and ship to the processing plant where the concentrate will be processed into separate Rare Earths products. Lynas selected Malaysia for the LAMP due to the readily available industrial infrastructure, including land, energy, water, re-agents from local suppliers and a port that can manage container, chemical and bulk shipments. The area where the plant is being built also offers much knowledge infrastructure, such as technical and trade skills and chemical industry experience. The government infrastructure is in place and provides accountable regulators, clear legal frameworks and FDI incentives. Lynas aim to be producing at a capacity of 11,000tpa by the end of 2011 doubling to 22,000tpa by end-2012.
Lynas already has a number of supply contracts in place, and in November 2010 it signed a Strategic Alliance Agreement with the Japanese trading company, Sojitz, which operates in many fields, (including machinery, energy, metals, materials and chemicals) and is already the largest supplier of rare earths into Japan. Under the agreement Sojitz will help secure funding of $250M for the accelerated expansion of the project to 22,000tpa in return for Lynas allocating a minimum of 8,500 tonnes of rare earth products (± 500 tpa) to the Japanese market over the next ten years. Lynas has now allocated more than 70% of the total 22,000 REO tonne capacity from Phase 1 and Phase 2 and is anticipating further announcements in the near future with potential customers in Europe, Japan and the USA.
Lynas has also been looking to expand into other projects, and in December 2010 it received approval from the government of Malawi to complete its acquisition of the fully-permitted Kangankunde Rare Earths project. It expects to complete this acquisition in the near future for $4M. The deposit, which is open at depth, has low natural radiation levels and possible mineral byproducts, has an Inferred Resource of 107,000 tonnes of Rare Earths Oxide (REO) at an average grade of 4.24% REO (increasing to 180,000t at a 3% REO cut-off grade). Test work has shown that the deposit is amenable to a low cost gravity separation concentration process producing a 60% REO concentrate.
This acquisition, if successful could eventually put Lynas in a unique position as the only Rare Earths mining/processing company to have two significant ore resources in different geographic regions. The ability to source from two deposits would increase security of supply for its customer, increase the range of the products that could be produced and would increase Lynas' ability to balance market requirements by element more closely.
Following a more than tripling of the share price during 2010 the company was admitted to the S&P ASX 100 index. Lynas has no debt and cash of A$271M at the end of December 2010.
Medallion Resources (TSX.V: MDL)
Medallion Resources' strategy is essentially to acquire projects which are skewed towards the heavy rare earths, have straightforward metallurgy, are in secure jurisdictions and are amenable to large-tonnage, low-cost open-pit production. The company aims to be at the forefront of REE exploration in North America incorporating new discovery methods and short cuts to production. At present the company is involved in two projects.
Firstly it has an option with Rare Earth Resources to earn up to 65% on the Eden REE project in Manitoba through payments of $1.45M cash and 1.8M shares, and expenditures of $2.25M over 5 years. Medallion was attracted to the project as it believes that it could be one of the most promising REE projects in North America with a large mineralized area (7–8 square km), high REE values, the potential for a large surface deposit and four different styles of REE mineralisation. Medallion was also attracted by the location; it is one of only a few REE properties in Canada within practical distance of roads, power & mining-service centres. The town of Leaf Rapids is just 20km away. Moreover the property is not expected to present significant permitting, environmental or social challenges.
The first phase of the 2010 program aimed to identify the promising areas of mineralisation through mapping, sampling and field checking historic data. Following a channel sampling exercise it was decided to shift focus away from the initial target in order to concentrate on the carbonatite potential which occurs throughout the property. Six additional claims were staked at the project in October 2010 to increase the property size to 32 square kilometres.
Medallion's second project is the Red Wine HREE Project located in southern Labrador, Canada where Medallion has an option to earn 100% through a series of payments in cash, shares and exploration commitments. Medallion believes that it has the opportunity to make a significant discovery at Red Wine, as there has been no detailed REE exploration in the area though the unusual nature of the intrusions and their REE concentrations were discovered during the search for uranium about 50 years ago. Since then, the area has been prospected for niobium, tantalum, beryllium and zircon. The REE's were always noted but drew little interest. Medallion's holdings at Red Wine were believed to host eudialyte, an important HREE-bearing mineral. Initial exploration work by Medallion has confirmed the previous mapping of the eudialtye.
Medallion's plans for the next year are to beign a drill program at the Eden project, to channel sample Red Wine in order to plan drilling and to investigate further rare earth deposits. The company is also seeking to build its investor and public relations campaigns.
Molycorp [NYSE:MCP]
Molycorp was formed in 2008 to reopen the Mountain Pass Mine and processing facility in California which was mined from 1952-2002 and was the world's largest source of rare earths from the mid-60s to the early 90s. The company immediately began to manufacture rare earth products from surface stockpiles, primarily to develop its processing capabilities but in doing so it also generated a little cash flow ($2M in 2008, $7M in 2009 and $13M in the first nine months of 2010) and became the only current producer of rare earths in the Western Hemisphere, currently producing at a rate of 3,000tpa. In July 2010 it raised $393M in an IPO on the New York Stock Exchange which it is using to fund its "mine to magnets" strategy whereby the company plans to recommence all operations by the end of 2012 and become a fully integrated producer of rare earths products, including oxides, metal alloys and magnets.
Rare earths were discovered by chance at Mountain Pass when uranium prospectors sent samples to the USGS for analysis in 1948. The Molybdenum Corporation of America, (later renamed Molycorp), acquired the mining rights, production began in 1952, an expanded concentrator was built in the 1960s and a new separation plant in the 1980s. At its peak the mine was producing around 70% of world supply. However processing at the mine stopped in 1998 following some wastewater leaks, while mining stopped in 2002 as a result of the lack of a permit to build a new tailings dam. Ownership of the project has changed hands several times with the original Molycorp acquired by Unocal which in turn was acquired by Chevron Mining. In June 2008 the privately-held Molycorp Minerals, (which had some personal links with, but was not a direct successor to the original Molycorp), was set up to acquire all the Mountain Pass assets from Chevron.
Molycorp's current plans and "mine to magnets" strategy are summarised in its IPO prospectus from July 2010. In essence these include plans to:
· Reopen the mine: The mine is located in the Mojave desert in California an hour down the road from Las Vegas. It has huge, high-grade reserves, (although these are skewed towards the less valuable light rare earths), and a 30 year mine plan permit and environmental impact report, both issued in 2004.
· Refurbish, modernise and expand the processing facility in order to achieve planned production rates by the end of 2012: Molycorp has invested considerable sums into optimising REO recoveries. Its stated goal is to produce the "largest, most advanced and efficient fully integrated REO processing facility in the world".
· Manage costs in order to be cost competitive: Plans include programs to reduce energy requirements, water consumption and waste water generation, and the construction of a natural gas power plant.
· Integrate downstream to capture value added: Molycorp has already signed a number of non-binding letters of intent variously to acquire a third−party producer of rare earth metals and alloys in the US, to form a joint venture to produce NdFeB magnets in the US, and to undertake a technology transfer agreement with Canadian-based Neo Material Technologies with respect to the production of rare earth metals, alloys and magnets. The latest of these agreements was with Japanese materials manufacturer, Hitachi Metals, the world's leading manufacturer of rare earth magnets. If successfully implemented Molycorp will become the first fully integrated supplier of NdFeB magnets in the world, and the only producer of NdFeB magnets in the United States.
· Develop new higher margin products particularly for rare earths which have historically had lower demand: For example Molycorp has already developed XSORBX a cerium-based product which removes arsenic and other heavy metals from industrial processing.
· Continue exploration at Mountain Pass: in order to upgrade existing resources and investigate unexplored areas.
In December the company finally secured the last of several environmental permits necessary to begin construction of its state-of-the-art rare earth manufacturing facility. Construction is now underway and will take 700 people about 18 months to complete enabling the company to run at full (20,000 tpa) capacity by the end of 2012. Pre-stripping operations have also begun at the mine, paving the way for active mining of fresh ore to commence later this year.
Molycorp also signed a Memorandum of Understanding in December with Japanese trading giant, Sumitomo, Molycorp will supply Sumitomo with 2,500 metric tons per year of cerium- and lanthanum-based products and 250 metric tons of didymium oxide (a combination of neodymium and praseodymium) per year in return for Sumitomo providing $130M in debt and equity finance.
In January 2011 the directors of Molycorp approved a plan to double production capacity in 2013 to a rate of 40,000 tpa by end-2013 at a cost of $250M (though note that the directors think that the company will realise substantial savings by committing to Phase 2 now while Phase 1 construction is still underway).
Molycorp may be assisted in achieving its plans by the experience of its employees, many of whom worked at the Mountain Pass facility for more than 20 years each. The CEO has 24 years' association with the facility.