Rare earth elements are a crucial component of our everyday lives, but many of the companies unearthing them are still learning to navigate the supply chain. Those that can master the dance of metallurgy and end-user relationships will find success, says Luisa Moreno, a senior research analyst with Euro Pacific in Toronto. In this interview with The Metals Report, Moreno updates us on which miners are making the most progress.
The Metals Report: Luisa, where does the rare earth elements (REE) space stand now?
Luisa Moreno: This space has been a learning experience for all of us, and by "us" I don't just mean analysts, but investors, companies, management and end-users.
In the beginning, we realized that some elements are less common than others and we all became very excited with the idea of finding deposits that were rich in heavy rare earth elements (HREEs). But it's harder to develop these projects; hopefully some of them will be developed fast enough to show end-users that the sustainable supply of these elements is possible. The challenges have been around the metallurgy and that's where we stand right now. We have a few frontrunners that have made progress with their metallurgy and we continue to learn more about the economics.
TMR: So, every HREE project out there has warts; it's just a matter of finding the one with the least warts?
LM: You could say that. Each company in this space has a challenge. The key is to find a company with a team that has the potential to overcome its challenges to reach success. It's very hard to know which few companies will make it first, but there are good teams working toward that.
TMR: Some countries and end-users have built up REE stockpiles. How does that impact the space?
LM: It's basically keeping end-users away from the market, as long as they have stockpiles. Some stockpile to avoid high prices. As prices fall to levels that make economic sense to them, they return to the market. In the meantime, there is weak demand and falling prices that send a negative signal to the space. Potential investors may be discouraged when they see such weak demand. However, it was a necessary event. Prices were not economic for some end-users and needed to fall to a more sustainable level.
TMR: When do you believe demand will return?
LM: We're probably 6–12 months away from seeing demand come back.
TMR: You expect production of total rare earth oxides to return to about 140,000 tons in 2015. What's significant about that number?
LM: Just before prices began to sink, the total rare earth production, including yttrium in 2010 for instance, was about 140,000 tons, according to the U.S. Geological Survey. If production reaches those levels again, spurred by demand, it could mean that the market is normalizing.
TMR: You're predicting a dramatic increase in rare earth element production in 2014. What accounts for that jump?
LM: It's based on production from Molycorp Inc. (MCP:NYSE) and Lynas Corp. (LYC:ASX). They're working to ramp up production and plan to reach their targets before the end of this year. My forecast is that they will both be at full production next year.