Heavy Rare Earths in America, Crystal Balls & Brass Balls

Rare Element Resources (RER) (AMEX.REE) issued a press release that makes very good reading for the American civilian and military industrial manufacturing sector. The company now joins Ucore Rare Metals (Ucore) (TSX.V:UCU)as having a high potential for producing the critical rare earths, dysprosium (Dy), terbium (Tb), europium (Eu), and neodymium (Nd) in commercial quantities. Additionally Rare Element Resources could produce samarium (Sm), gadolinium (Gd), and yttrium (Y) in notable and certainly commercial quantities, thus joining Ucore in that capacity too.

So now there are two potential domestic American heavy rare-earth element (HREE) producers, which I think are viable and have high probabilities of commercial success.

The sole free-market criterion for measuring the value of a company is profitability. "Junior" mining companies are mineral-exploration ventures organized to explore for, and verify, valuable deposits of minerals that can be either developed by the junior or sold by it to a mining company for development as a profitable venture. Profitability in the junior-mining space almost always means the difference between the sale price for the deposit and the cost of getting to the next saleable point.

Thus junior miners are speculative ventures which, in a fair and balanced world, would be rated as much by their management experience and marketing skills as by the economic value of their deposits.

Unfortunately this is not the case. The measure of success (metric) used in the junior mining world is the previous experience of the particular promoters involved in successful past promotions, especially in gold, the forever fad, and, most recently, uranium.

Human nature is to create fads and measure the worth of individuals by their adherence to the particular "narrative" of the latest fad. For the last three years, the promotional aspect of the stock markets based in Vancouver, Toronto, Sydney, Perth, Frankfurt, London and New York have been successfully promoting a rare-earth boomlet. Various pundits and money managers have spun stories of the importance of the rare-earth elements (REEs) beyond any recognizable common-sense logic, in order to lower the bar for entry to the rare-earth junior-mining corral.

Some REEs are indeed very important for the maintenance of the mass production of the miniaturized electronic devices, which the younger members of society (and many others) seems to believe have always existed, and have always been available cheaply and abundantly.

The conversion of our technological society's electric motors and generators to smaller and more powerful versions using rare-earth permanent magnets (REPMs) continues unabated. REPMs, particularly of the neodymium-iron-boron (Nd-Fe-B) type, dominate the market in terms of value, for permanent magnets for all uses.

Interestingly enough, of the small percentage of rare-earth-based magnets, powders and alloys imported into the USA, most is used by high-tech civilian industry, such as that for medical imaging devices. Only a smaller amount of the total is used for significant military devices. For example, just a tiny amount of the REE Sm is imported into the USA, for direct conversion here into samarium cobalt (Sm-Co) alloys for REPMs used extensively for the US military.

I doubt that more than 500 tonnes in total of magnet alloy as raw materials are imported into the USA each year for magnet fabrication, and of that amount, I seriously doubt that more than 100 tonnes is used exclusively for military production.

Over 90% of the world's REPMs are made in Asia (60% in China and 30% in Japan). The alloys from which they are made are produced almost entirely in China, from REEs produced domestically there.

Anyone in the USA who is planning to manufacture REPMs from domestically (USA) produced REEs is facing the situation that:

  • No rare-earth ores have been mined in North America in the 21st century;
  • No American company, using American-developed technology, has produced pure REEs in the USA in the 21st century (do note that I'm referring to metals here, not oxides);
  • No American company has made Nd-Fe-B magnets from the individual REEs in the USA since at least 2004. Electron Energy in Lancaster, Pennsylvania has however been making Sm-Co-based REPMs and alloys for decades. The company has, I believe, recently entered into an off-take with Great Western Minerals Group (GWMG) (TSX.V:GWG) for rare-earth metals to be produced by the latter company's Less Common Metals subsidiary, which will eventually use feedstock for GWMG's future mining and refining operations in South Africa;
  • Only a small overall tonnage of REPMs are currently produced in the USA, from a rare-earth-metal base, and, critically;
  • All of the commercially available Dy used to modify the heat cycle sensitivity of REPMs, which is critical in their largest end-use, "under the hood" applications in the OEM automotive industry, as well as in their military use, is and always has been produced in China.

Just two of the US junior-mining ventures currently in development, Ucore in Alaska and RER in Wyoming, are likely to produce Dy in significant quantities in time for the American military and industrial complexes to free themselves of Chinese monopolizing of the rare-earth space in general, and of the HREEs in particular, before the possible discontinuing of the export of Dy by China by 2015.

America needs between 5,000 and 10,000 tpa of lanthanum (La) (90%) and cerium (Ce) (10%) in order for the fluid cracking catalyst (FCC) manufacturing industry to remain based mainly in the USA. America also needs 4,000 tpa of Nd at most, to manufacture all of the REPMs used in every application in the USA today, rather than import most of them from China and Japan - this estimate may even be too high - and America needs between 400-1,200 tpa of Dy to modify those magnets so that they can be repeatedly exposed to heating and cooling cycles (such as "under the hood") and retain their original properties. Also, if America has 100 tpa of domestically produced Tb, it could dominate the world of non-incandescent lighting if it so desired.

Some of the above high-tonnage production is simply not possible in the USA. For critical applications, investors should look first to those who can in fact produce Dy and Tb and, of course, La and Nd.

All of the emphasis so far has been on La, Ce and Nd, but only one of those, Nd, is really a critical metal that I believe is even now in short supply.

The important critical heavy rare-earth metals for America are now Dy and Tb because they are not produced in the USA, but are necessary for the high tech devices of which America is the largest per-capita consumer.

The smart play, is clearly to support those who can produce the most critical of the rare earths, by also buying all of the La, Ce and Nd that they can produce. Rare Element Resources and Ucore Rare Metals should be the choice for end users of magnet materials and of lighting materials and of fluid cracking catalyst materials, because by buying out the production of these two companies in total, American companies can be assured of independence from Chinese decisions on allocation.

I also urge American civilian and military industry to support vertical integration in the REPM and the phosphor industries. America has all of the technology to transform rare-earth-ore conentrates, the first item in the rare-earth end-use product supply chain, into finished magnets and CFLs. Yet we have simply abandoned these industrial steps, all of them, actually, for momentary cheaper prices.

Since neither Ucore nor RER could provide individually or even together enough La and Nd for the American FCC industry, or a revived domestic magnet manufacturing industry, the smart play for end-user procurement is to form a buying group, and to enter into off-take agreements for the entire outputs of these two companies and to divide up the critical materials among themselves

Additional LA, Ce and Nd needed by American industry can be purchased from Molycorp (NYSE:MCP),which can then dedicate the balance of its enormous production of light rare earths to rich overseas markets such as Japan, Korea, India and China itself.

I urge the management of RER and Ucore to determine their actual cost of production of all of the rare-earth metals individually, and then to offer them to a procurement operation at a known level of profit and a predictable cost for the buyer.

The two mining companies should be very profitable, and the end users will continue to be able to utilize rare earths in their products. They will thus compete with Chinese industries that will continue to have easy access to raw materials the prices of which are now climbing within, China along with labor, regulatory, health, and safety costs.

It is obvious that if Molycorp's projections are accurate, then it will be producing at lower costs than the Chinese. At that point Molycorp can sell its output to the world's largest growing consumer of its products, China, as well as to Japan, which today sources from China exclusively.

If American self-sufficiency is important to insure that our civilian and military manufacturing industries retain their market share and can grow, then those sectors of our economy must strike bargains with and buy from Rare Element Resources and Ucore Rare Metals to ensure their own prosperity, as well as that of you and me.

I urge industry, both civilian and military, to grow a pair, work together, and get the ball(s) rolling before America becomes an industrial backwater.

Disclosure: At the time of writing, Jack Lifton is long on Great Western Minerals Group (TSX.V:GWG). He is also a consultant to Rare Element Resources (AMEX:REE) and to Ucore Rare Metals (TSX.V:UCU).

Jack Lifton is a leading authority on the sourcing and end use trends of rare and strategic metals. He is a founding principal of Technology Metals Research LLC and president of Jack Lifton LLC, consulting for institutional investors doing due diligence on metal- and material-related opportunities.

About the Author
Jack Lifton

Jack Lifton is a leading authority on the sourcing and end use trends of rare and strategic metals. He is a founding principal of Technology Metals Research LLC and president of Jack Lifton LLC, consulting for institutional investors doing due diligence on metal- and material-related opportunities.

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