Lynas Corp. Chief Executive Officer Nick Curtis. Photographer: Michael Armstrong/Lynas Corp. via Bloomberg
Mt. Weld in Western Australia, the richestknown deposit of rare earths in the world according to Lynas Corp.Source: Lynas Corp. via Bloomberg
Nick Curtis made a A$5 million($5 million) contrarian bet in 2002 to develop an Australianrare earth mine, aiming to challenge China’s control ofglobal supply of the metals. His company, Lynas Corp., nowhas a market value of $3.5 billion.
Curtis, 53, saw his gamble start to pay off last yearwhen China slashed rare earth exports, causing prices tosurge as much as 13-fold and setting off a scramble to lockin alternative sources of the metals used in missile guidancesystems, iPods and hybrid cars.
With China controlling more than 95 percent of theworld’s rare earths, Lynas’s stock jumped almost fourfoldsince June 30 as investors sought more secure future supply.
“The dominance of China in rare earths wasunsustainable,” Curtis, chief executive officer of Lynas,said in an interview. “I’d pictured the need for order inthe industry, that these were important metals that wouldultimately need a stable, secure non-China supply chain,”Curtis said.
His decision to invest in rare earths was informed byexperience with China’s aluminum industry, where mushroomingconstruction of smelters led to power shortages followed by agovernment clampdown and industry regulation.
“The reform process in China in the metals sector goesthrough a period of unfettered competition leading to chaosfollowed by which the state tries to get control of thingsagain,” Curtis said.
New Supply
Sydney-based Lynas, the second-best performer on Australia’s benchmark stock index last year, is set to becomethe first new source of supply outside China in at least twodecades with the start up this year of the A$535 million Mt.Weld project, the world’s richest deposit of rare earthsaccording to Lynas.
Ore production will begin this month at the mine about1,000 kilometers (620 miles) northeast of Perth, WesternAustralia. Lynas shares traded at A$2.13, up 1.4 percent, at10:50 a.m. Sydney time.
Rare earths are 17 chemically similar elements used bycompanies such as Toyota Motor Corp. (7203), Apple Inc. (AAPL) and RaytheonCo. (RTN) They include neodymium, cerium and lanthanum used insonar systems, flat-screen TVs and computers.
The price of lanthanum oxide, used in hybrid batteries,has surged more than 13-fold since the second quarter to $92a kilogram, according to Lynas’ website. Vehicles such as theToyota Prius hybrid contain about 10 kilograms of rare earths,used to make lightweight batteries and motors.
Working in China
Curtis developed an interest in rare earths working withMadame Bai Jie, a former head of raw materials at China’sstate planning commission. He worked for six years from 1994at a unit of China National Nonferrous Metals Industry Corp.,which controlled all of China’s non-steel-related metalsuntil 2000.
Curtis bought Mt. Weld from Anaconda Nickel Ltd., part-owned by Glencore International AG. Anaconda’s CEO wasAndrew Forrest, today Australia’s richest man, with a fortune ofA$6.9 billion, according to Forbes Asia. Forrest went on tostart Fortescue Metals Group Ltd. (FMG), the fourth-biggestsupplier of iron ore to China.
Forrest “epitomizes going long where China is short,which was the right move,” Curtis, who graduated with abachelor’s degree in fine arts from the University of Sydney,said. “I went long where China is ultra-long, which was thewrong move for the particular time” about 2002.
Mining Priority
China made rare earths production a priority in theearly 1990s under Deng Xiaoping, dominating the market,pushing down prices and rendering mines elsewhereuneconomical. The government introduced its export quotasystem in 1999.
Rare earth shortages followed the government’s directivein 2006 to create larger domestic companies while curbingoutput and exports.
About 50 percent of global rare earth demand comes fromcustomers outside China and they are looking elsewhere forsupplies, Deutsche Bank AG said in a report last year. Globaldemand for rare earths is forecast to rise to $11.2 billionby 2014 from $7.8 billion last year, Lynas said in apresentation last month.
“Nick’s always been an entrepreneur,” said Warwick Grigor, an equity analyst at BGF Equity Pty Ltd. in Sydney,who’s tracked the “exceptional” Mt. Weld deposit since themid-1980s. “He saw an opportunity there. It’s probably anunderstanding of the market he’s picked up from dealing withthe Chinese.”
Future Prices?
To be sure, prices of some rare earths, includinglanthanum, may start to drop by 2013 as additional productioncreates a “vast oversupply,” Western Minerals Group Ltd., aCanadian exploration company, forecast last month.
Curtis, a former executive director of Macquarie GroupLtd. and head of its commodity trading desk in Sydney,founded Sino Gold Mining Ltd., the owner of China’s second-largest gold mine whose shares began trading on theAustralian stock exchange in 2002. The company was bought byEldorado Gold Corp. in 2009 for about C$2 billion ($2billion).
“We were insiders when no one else could penetrateChina,” said Jake Klein, the former CEO of Sino Gold and nowthe chairman of Conquest Mining Ltd. and board director ofLynas.
The financial crisis forced Curtis to suspend work on Mt.Weld in February 2009 after failing to lock up funding. Heraised capital in the equity market in September that yearafter the Australian government blocked China Non-FerrousMetal Mining Group Co. from buying a majority stake.
“This being a strategic resource with existing suppliescontrolled by China, sophisticated investors got the story ina nanosecond and the deal built its own momentum,” said Alan Young, head of natural resources & infrastructure in Sydneyfor JPMorgan Chase & Co., which managed and underwrote theA$450 million share sale.
China Non-ferrous Metal offered to pay A$252 million fora 51.6 percent stake in Lynas. The company has a market valuetoday of A$3.5 billion.
“I’d be really disappointed today if I had gotten offthe bus somewhere along the way looking at the speed it’smoving today,” Curtis said.
To contact the reporter on this story:Elisabeth Behrmann in Sydney atebehrmann1@bloomberg.net
To contact the editor responsible for this story:Andrew Hobbs at ahobbs4@bloomberg.net