The Mining Report: This year we've seen a modest rally for specific rare earth elements (REEs), namely terbium, dysprosium, praseodymium and neodymium. Has this bolstered the near-term outlook for rare earth exploration and development projects outside of China?
Ryan Castilloux: It has. The recently announced supply agreement between Molycorp Inc. and Siemens AG is a reflection of how the outlook is improving. The rally we saw earlier this year is an indication that markets for certain rare earth elements are becoming increasingly tight. Without a boost in global production to meet growing global demand, we will see continued strength behind magnetic rare earth prices and several others.
Until a few weeks ago the Chinese FOB price of terbium oxide was up nearly 50% year-to-date and dysprosium oxide and neodymium oxide were up about 30%. Prices for these oxides have since given up some of their gains as a result of slow buying ahead of China's upcoming export tariff changes, but I expect the prices of these rare earths will resume their upward momentum once buying resumes midyear. Exasperating the future supply/demand imbalance of certain rare earths is China's continued effort to suppress unregulated rare earth production, particularly in China's heavy rare earth-rich southern provinces, which will result in declining global production of terbium, dysprosium, yttrium and other heavy rare earths if new sources of supply don't come onstream.
TMR: Do you think this will spur much investor interest?
RC: The rally in the early part of 2015 pushed a lot of marginal projects into the economically attractive category, but with the volatility that we've seen in recent years we need to see prices not only rise, but maintain a level that will restore investor confidence. We're not likely to see investors flood back into the market in the near term. We need to see sustained support at these prices, perhaps even a rise moving forward.
TMR: With sparse amounts of investment capital entering the REE space, how are these tiny companies creating value?
RC: In many cases there's been a shift from creating external value through things like exploration drilling, defining larger resources and identifying high-grade zones, which are generally capital intensive activities, to creating greater project value internally through improved flow sheets, innovative processing methods and other means that boost margins at relatively low costs.
TMR: What are three or four projects that continue to advance despite a stagnant market?
RC: As many as 20 projects continue to make tangible headway despite the tough economic conditions of recent years. Among those that have recently issued major announcements are Tasman Metals Ltd., Northern Minerals Ltd. and Namibia Rare Earths Inc.
TMR: Let's start with Tasman.
RC: In January Tasman announced results of a prefeasibility study for its Norra Kärr project in Sweden. That study proposed a 20-year initial mine life, producing around 5,000 tonnes of rare earth oxides yearly, including more than 200 tonnes of dysprosium oxide. These rare earths will be contained in a mixed REE concentrate product that Tasman will look to have toll separated by a third party. The initial capital required for Norra Kärr development is under $400 million ($400M), which is a plus considering Norra Kärr's relative richness in heavy rare earth elements (HREEs) versus lights. What's also a plus is the project's proximity to existing infrastructure, Solvay's processing facility in La Rochelle, France, and European end users, particularly in Germany.
TMR: How has Tasman factored in the cost of that third-party processor and are there any negotiations underway with a particular party?
RC: Tasman is undoubtedly talking with several potential processors and it is likely looking close to home, which would be Solvay's La Rochelle facility. As for toll separation costs, typically companies take the anticipated revenue from REE production and deduct from that revenue the anticipated toll-processing costs. Essentially, they're skimming toll-processing costs off of future revenue. That allows a company to keep on-paper operating costs looking better.
Tasman, however, has taken the responsible approach and incorporated its toll-processing costs into its cash cost structure in its prefeasibility study. Tasman is recognizing that toll processing is a cost it is incurring on its value chain from ore to final product, but other companies generally ignore that. On paper, Tasman's cash costs versus similar projects are seemingly higher, but when you look at those fine details you see that it all comes out in the wash.