US Mining Company To Dramatically Increase the Supply of Rare Earths

Rare Earth minerals, wildly valuable for everything electronics, is mostly (95%) controlled by China.

So I am glad to post about this 3rd major discovery/increase in production of the past 12 months (see previous posts). Via PCWorld (yes!)

The U.S. mine, owned by Molycorp, has reopened after closing in 2002 following radioactive wastewater spills and price competition. The largest spills, from a pipeline to Nevada, occurred in the late 1990s, in protected lands in the Mojave Desert. The company has since changed its ownership structure.

Molycorp's facility, in Mountain Pass, California, will expand production dramatically. It's being rebuilt to produce up to 40,000 metric tons of rare-earth elements by 2013, which would be a 700 percent increase from its production target for the end of this year.
The carbonatite deposit, which contains a variety of ore types, was discovered by prospectors in 1949, according to a U.S. geologist. About 8 percent of the deposit contains rare-earth minerals, a good ratio in rare-earth mining.

Seventeen elements on the periodic table of elements are considered rare earth, including neodymium and terbium. Molycorp mines 10 of the rare-earth elements by hauling ore-laden rocks from the ground, crushing them, and then chemically extracting the elements.

Also see this video report, available on YouTube:

One of the World's Largest Rare Earth Deposits Found in Australia

Australian web site ABC Rural reports that:

A north Queensland mining company has discovered one of the world's largest deposits of the rare earth, scandium. 

Scandium is used to make solid oxide fuel cells, which are used generating electricity from natural gas and renewable fuels. 

This discovery has been made at a former nickel mine at Greenvale, just out of Townsville. 

With scadnium selling currently selling for $5,000 a kilo, owner Metallica Metals says it will double the size of a planned cobalt and nickel mine at the site. Metallica managing director Andrew Gillies says the deposit's quality and purity are outstanding, and very unusual. 

"Scandium is found probably in most rocks, typically perhaps five to 15 parts per million; we've got sometimes a thousand times that," he said. "We would think that we've got something unique. There's only three resources in the world and we've got two of them."

This is not the first discovery of a massive deposit of Rare Earth metals, so actually, maybe we'll soon change their names (see my previous posts about rare earth minerals). But, it's obviously a great news is you're a consumer of these minerals (and also, end users, such as electronic devices etc.) or for Australia's economy.

On the other end, if you're a speculator with a long position in Rare Earths — an already crowded place, or the Chinese Government Monopoly, you're in trouble over the medium turn.

(No So) Rare Earths - Illustration of the Power of the Market Economy - Part 2

Market forces, set in motion by the monopolistic and dictatorial behaviour of pseudo-communist-really-fascistic China led to the discovery of two gigantic deposits of Rare Earths:

• one containing about 100 times the current global reserves of Rare Earth metals have been found by the Japanese in international waters.
• the other one in Nebraska may be sitting on the world's largest untapped deposit of "rare earth" minerals

Note that it only took a few months to make such incredible discoveries. The lessons?

1. Do not interfere with the markets, let them do their thing, good thing will happen
2. Be careful when you speculate and bank on the rarity of an item or asset: if prices are driven high enough, one way or another new supply will reach the market
3. When you hear that oil will reach $1,000 (or read statements like Jim Rogers "no oil available at any price"), become very sceptical. Demand might be more elastic that you think, and more importantly, supply or newer form of replacements might appear all of the sudden
4. If you are still long the Rare Earth, it's most likely time to sell...

Here are quotes about the two discoveries.

2011-07-04 (Reuters) - Vast deposits of rare earth minerals, crucial in making high-tech electronics products, have been found on the floor of the Pacific Ocean and can be readily extracted, Japanese scientists said on Monday.

"The deposits have a heavy concentration of rare earths. Just one square kilometer (0.4 square mile) of deposits will be able to provide one-fifth of the current global annual consumption," said Yasuhiro Kato, an associate professor of earth science at the University of Tokyo.

The discovery was made by a team led by Kato and including researchers from the Japan Agency for Marine-Earth Science and Technology.

They found the minerals in sea mud extracted from depths of 3,500 to 6,000 meters (11,500-20,000 ft) below the ocean surface at 78 locations. One-third of the sites yielded rich contents of rare earths and the metal yttrium, Kato said in a telephone interview.

The deposits are in international waters in an area stretching east and west of Hawaii, as well as east of Tahiti in French Polynesia, he said.

He estimated rare earths contained in the deposits amounted to 80 to 100 billion metric tons, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States.

Details of the discovery were published on Monday in the online version of British journal Nature Geoscience.

The level of uranium and thorium -- radioactive ingredients that are usually contained in such deposits that can pose environmental hazards -- was found to be one-fifth of those in deposits on land, Kato said.

A chronic shortage of rare earths, vital for making a range of high-technology electronics, magnets and batteries, has encouraged mining projects for them in recent years.

China, which accounts for 97 percent of global rare earth supplies, has been tightening trade in the strategic metals, sparking an explosion in prices.

Japan, which accounts for a third of global demand, has been stung badly, and has been looking to diversify its supply sources, particularly of heavy rare earths such as dysprosium used in magnets.

Kato said the sea mud was especially rich in heavier rare earths such as gadolinium, lutetium, terbium and dysprosium.

"These are used to manufacture flat-screen TVs, LED (light-emitting diode) valves, and hybrid cars," he said.

Extracting the deposits requires pumping up material from the ocean floor. "Sea mud can be brought up to ships and we can extract rare earths right there using simple acid leaching," he said.

"Using diluted acid, the process is fast, and within a few hours we can extract 80-90 percent of rare earths from the mud."

The team found that sites close to Hawaii and Tahiti were especially rich in rare earths, he said.

He gave no estimate of when extraction of the materials from the seabed might start.

Rare Earth are not so rare anymore.

Washington Post 2011-08-03 — Elk Creek, Neb. (population 112), may not be so tiny much longer. Reports suggest that the southeastern Nebraska hamlet may be sitting on the world's largest untapped deposit of "rare earth" minerals, which have proved to be indispensable to a slew of high-tech and military applications such as laser pointers, stadium lighting, electric car batteries and sophisticated missile-guidance systems.

Canada-based Quantum Rare Earths Developments Corp. last week received preliminary results from test drilling in the area, showing "significant" proportions of "rare earth" minerals and niobium.
[...]
Quantum acquired a circular piece of land - a bit more than 4 miles in diameter - near Elk Creek late last year. The land, which the U.S. Geological Survey projects may have one of the world's largest deposits of niobium and rare earths, has since been poked, prodded and drilled to determine whether it held any niobium, which has never been mined in the U.S., or rare earths, which the U.S. has not mined in almost 10 years.
[...]
The Quantum project is the latest example of U.S. attempts to become less dependent on foreign sources for the obscure minerals found in few places on earth, but essential to a variety of modern gadgets.

The U.S. has relied on China for years for the 17 minerals that are defined as rare earths by the International Union of Pure and Applied Chemistry. Despite having such obscure names as praseodymium, promethium and samarium - no copper or zinc here - they are necessary for such routine contemporary technologies as magnets, laser pointers and miniature electronics, such as iPods.

"Without these minerals, our cellphones would be 3 pounds," Quantum CEO Peter Dickie said.

The U.S. used to produce rare earths through the Mountain Pass Mine in California, but it was shut down in 2002, primarily because of environmental concerns, including the spillage of hundreds of thousands of gallons of water carrying radioactive waste into a nearby lake.

China has emerged as the world's predominant supplier, controlling 97 percent of the global market for rare earths. In recent years, lawmakers have expressed concerns about China's "rare earth" dominance, and these concerns were heightened when Beijing temporarily halted exports to Japan last year during a territorial dispute.

Another essential mineral Quantum hopes to mine is niobium, a steel strengthener used by the automotive and aerospace industries.
[...]
On July 5, the U.S. and European Union won a major case against China when the World Trade Organization ruled that China was engaging in restraint of trade by keeping world supplies low on several other minerals on which it is the major supplier. Trade analysts said that ruling could set a precedent for a future rare-earth minerals case that also could loosen China's grip on that market.
[...]
"It's important to develop other sources [for rare earths] in the United States and not be so reliant on China," Mr. Coffman said.  

[...] Other companies racing to exploit the rare-earth rush include Molycorp, which is attempting to reopen the former Mountain Pass Mine in California and recently secured the environmental permits to proceed there.

Rare Earths - Illustration of the Power of the Market Economy - Part 1

What are Rare Earth Minerals? Rare earths are a group of 17 chemically similar metallic elements, such as lanthanum, cerium, neodymium and europium. The elements are used in radar, high-powered magnets, mini-hard drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines.


I never had the time to post about them, but now is the right time it seems, given the news flow.
In case you never heard about these minerals or didn't follow the story since last October, here are a few quotes from 2010.

Oct. 21 2010 (Bloomberg) -- Rare-earth prices have jumped as Chinese export quotas crimped worldwide supplies for the elements used in the manufacture of disk drives, wind turbines and smart bombs.

Prices have climbed sevenfold in the last six months for cerium oxide, which is used for polishing semiconductors, and other elements have more than doubled, according to Metal-Pages Ltd. in London, which tracks rare-earth prices.

Actions by China, which produces more than 90 percent of the world’s rare earths, have drawn criticism from U.S. lawmakers and officials in Japan and Germany. China reduced its second-half export quota for the minerals by 72 percent in July. It is now further restricting exports, according to industry participants.
[...]
China said the quota reduction was needed in order to shut polluting mines and still be able to meet domestic demand. It will “continue to supply rare earth to the world” while maintaining restrictions “to protect exhaustible resources and ensure sustainable development,” the Commerce Ministry said in a statement yesterday.

Contributing to the rise in prices is an expectation of further restrictions. China will probably tighten export controls on rare earths next year, Shigeo Nakamura, president of Advanced Material Japan Corp., said at a conference in China yesterday.

Rare earths are a group of 17 chemically similar metallic elements, such as lanthanum, cerium, neodymium and europium. The elements are used in radar, high-powered magnets, mini-hard drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines.

Rare-Earth Furor Overlooks China’s 2006 Industrial Policy Signal

Oct. 22 2010 (Bloomberg) -- China’s curbs on rare-earth exports may owe more to a 2006 policy to create fewer, larger companies than a knee-jerk response to trade and territorial disputes.

A directive that year tagged mining among the pillar industries the government wanted state enterprises to dominate to enhance returns and global competitiveness. This year it started closing down private mining companies to consolidate the industry around a handful of producers led by Inner Mongolia Baotou Steel Rare Earth High-Tech Co.

Global repercussions from the overhaul drew attention in July when the government said it would cut export quotas 72 percent in the second half of the year. China accounts for more than 90 percent of worldwide production of the metals, used in components for Toyota Motor Corp. hybrid cars, Lockheed Martin Corp. radars and General Dynamics Corp. tanks.
[...]
The export cutbacks and China’s near-monopoly has prompted the U.S. government to seek to revive domestic mining and led German Chancellor Angela Merkel to call for expanded production in eastern Europe and Central Asia as an alternative supply.
[...]
Japan said China halted shipments of rare earths last month after a collision in disputed waters between a Chinese trawler and the Japanese Coast Guard led to the fishing-boat captain’s detention. Chief Cabinet Secretary Yoshito Sengoku said Oct. 20 that the import situation “hadn’t changed” weeks after the captain’s release.

Nobel Prize-winning economist Paul Krugman wrote in the New York Times on Oct. 18 that “the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.”

China started to rein in mining of rare earths in May 2009, setting production quotas to help bolster prices. The caps and subsequent export restrictions did just that. Cerium oxide, used for polishing semiconductors, soared sevenfold in the past six months and other elements have more than doubled, according to Metal-Pages Ltd. in London, which tracks prices. The term rare earth applies to a group of 17 chemically similar metal elements that also include lanthanum and neodymium.

Race to Replace China’s Rare Earths May Take Decade — Remember this highlighted sentence; it's very important for the part2 of this story.

Oct. 26 (Bloomberg) -- China’s decision to curb exports of rare earths is set to spark a global race for alternative sources that may still take a decade to secure sufficient supplies, the head of the German commodities agency said.
[...]
“We’re faced with a gap in rare-earth supplies that cannot be plugged overnight,” Steinbach said by phone ahead of a conference in Berlin today on securing commodity resources. “Realistically, bringing rare earths in volume to markets from new sites like Mongolia, Africa and Greenland may take five to 10 years.”

Germany joins Japan and the U.S. in calling on China to restore rare-earth exports after the Chinese government in July announced cuts in production of the elements used in everything from hybrid vehicles and flat-screen TVs to weapons systems. With demand for rare earths already forecast to outstrip supply, a scramble to secure substitute supplies is underway.

German Economy Minister Rainer Bruederle, whose ministry is hosting today’s conference, plans seven “strategic partnerships” to secure commodities, including rare earths and copper, according to two officials with knowledge of the matter.

The partner nations are Mongolia, Namibia, Nigeria, Kazakhstan, South Africa, Chile and Peru, said the two officials, who spoke on condition of anonymity because the plans are not yet public.

Safeguarding rare-earth supplies is “crucial” and Germany will forge partnerships with mining states to help do so, Bruederle said in a speech to the conference, without naming the countries.

The “ghost of protectionism” haunts global trade and China must realize that its policy is not a “one-way street,” he said.

China’s policy on rare-earth shipments is a sovereign right that doesn’t conflict with World Trade Organization rules, Foreign Ministry Spokesman Ma Zhaoxu said in Beijing today.

That stance won some support from the trade arbitrator’s director general, Pascal Lamy, who said the WTO has historically focused on combating import restrictions rather than exports, which “are nearer to sovereignty matters.”

China’s Rare-Earth Exports Plunge 77% After Quota Cut — Remember this highlighted sentence; it's very important for the part2 of this story.

Nov. 23 2010(Bloomberg) -- Rare-earth exports from China, the world’s biggest supplier, declined 77 percent in October from a month earlier after the government reduced shipment quotas for the second half.

Exports were 830 metric tons last month compared with 3,660 tons in September, the General Administration of Customs said in an e-mail. Total exports were 32,990 tons in the first 10 months, according to the e-mail, which was sent yesterday.
[...]
Japan, the largest rare-earth importer, has stepped up efforts to diversify supply sources, develop substitutes and recycle minerals from used products after shipments from China were disrupted in September.

Japan and Vietnam signed a deal to cooperate on rare earths, according to an October statement from Japan’s trade ministry, which didn’t give details. Mongolian President Tsakhia Elbegdorj earlier this month called for Japanese companies to invest in rare earths in his country.
[...]
Prices for rare earths will probably keep rising as new supplies won’t appear any time soon, Commerzbank said in its report. While China may “mitigate its position in the face of strong international pressure, supplies of rare earths are likely to decline further, with delays in the startup of envisaged projects,” the bank said.

Rare Earth Prices Double on China, Industrial Minerals Says

June 17 2011 (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.
[...]
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.

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.

The price of europium oxide, used for its phosphorescent properties found in plasma TVs and light bulbs, has risen to as much as $3,400 a kilogram from between $1,260 and $1,300, Industrial Minerals said.
[...]
Delays in rare earths projects coming on stream from the U.S. and Australia will ensure that China continues to be biggest producer until at least 2013, Sang Yongliang, a metals and mining analyst with Guotai Junan Securities Co., wrote in a June 3 report.

Van Eck Rolls Out Rare Metals ETF

Van Eck is very well positioned in all the investment areas that I'm following, and so it's not surprising to see that they just launched a rare earth ETF.

I was planning on writing a post about the Rare Earths and what is happening in China, so stay tuned.

Unfortunately and predictably, this ETF doesn't invest in the real physical products, but merely tracks a proxy for their price, that is, share prices of companies engaged in the production of these elements.

Here are quotes from an IndexUniverse report:

Van Eck Global [...] rolled out its Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX) that invests in companies engaged in the production, refining and recycling of rare earth and strategic metals and minerals.

The new fund is the latest foray by a U.S. ETF sponsor into minor metals, amid surging global demand for materials like gallium, which is used to make a host of specialized high-tech equipment, including cell phone chips and solar voltaic cells.
[.
These metals, often byproducts of other mining operations, are not only difficult to extract but are also likely to be in increasingly short supply in the next few years. That’s because demand is growing and China, the world’s largest producer of many of them, is implementing tighter controls on production, Malan said.

REMX, which tracks the a rules-based, modified capitalization-weighted, float-adjusted index consisting of 24 securities, will invest directly into companies engaged in the production, refining and recycling of up to 49 rare earth and strategic metals and minerals to obtain what the company calls a “pure-play” exposure of the sector.

The benchmark, published by 4-asset management GmbH and calculated by Structured Solutions AG, comprises primarily small- and mid-capitalization names that derive at least 50 percent of their revenues from directly handling the metals.

In July, New York-based ETF firm Global X launched the market’s first lithium-focused ETF. Lithium is key to the renewable energy industry. The first minor metals ETF, the REE Fund, received approval in May to trade exclusively in Switzerland.

REMX has a net expense ratio of 0.57 percent.