There is no single rare earth element market. Instead, the rare earth universe is made up of four or five distinct "critical rare earth" markets that should be the focus for investors today. Even with new mine supply and refining capacity coming on-line over the next four years, these elements will remain in short supply, with hefty price tags attached. In this interview with The Critical Metals Report, Institute for the Analysis of Global Security Senior Fellow Jack Lifton explains how investors can play a crucial role in building a supply chain outside of China.
The Critical Metals Report: Can you give us an overview of the rare earth element (REE) market today? What are the most important trends you're following?
Jack Lifton: The REE market today is going through a shakeout. We had a bubble last year – an anomalous speculative blip – that ran REE prices to the sky. It happened just as the junior miners were coming into full bloom. At that time, I would say most of the junior REE exploration companies were overvaluing their projects something fierce. Then the market herd jumped in and ran the prices way up.
Now that the speculative bubble has burst – and I think a lot of it had to do with China repositioning itself – we're back to earth. I would guess that of the 250-260 listed REE public companies, there's just one that is in production: Molycorp Inc. (MCP:NYSE). All of the valuations are coming down to earth.
Between 90%-95% of the remaining junior miners will be wiped out. Investors should understand there is no single REE market. There is a market for some of the individual REEs – the critical REEs. But for at least half of the REEs, production and usage are tiny and there is no "market" to speak of.
For many REEs, production exceeds demand and will for the foreseeable future. Cerium is a good example of the fact that not all rare earth demand is equivalent. When you produce dysprosium, you are always producing much more cerium than dysprosium. That doesn't mean that there is a market for cerium. In fact, it is more correct to say that some cerium/lanthanum/neodymium deposits contain recoverable dysprosium. Saying it this way really defines the problem.
I follow four or five critical REEs that each have individual markets. One of them is neodymium, because it's the most important REE used in permanent magnets. The others are heavy rare earth elements (HREEs), including europium, terbium, dysprosium and yttrium. The latter isn't really an REE, but it's associated with them. As the market corrects to reasonable prices, people are coming to understand this.
The critical REEs will maintain strong demand and associated pricing. I disagree with people who think all REE prices will collapse, because I see no significant production of REEs outside of China. Maybe Molycorp is ramping up light rare earth element (LREE) production. Today, there's hardly any difference in the ratios of production inside and outside China compared to four years ago. I'm waiting for a producer to come on-line and make a significant difference. If both Molycorp and Lynas Corp. (LYC:ASX) were in full production by 2015, as their own projections suggest, that would bring approximately 60 thousand tons (Kt) of new production to market. Of that, only about 8 Kt would be neodymium, and none of that would be HREEs.
Annual growth projections in the REE permanent magnet market has been about 8%-9%. Worldwide production of neodymium is approximately 21-25 Kt/a. Ninety percent is from China, the balance from Molycorp. If demand increases at 8% per year for three years, that's about a 30% increase, approximately 7.5 Kt of production. Demand growth will be about the same as new mine supply and that will maintain the price of neodymium.
TCMR: What other critical rare earths are you watching?
JL: The big issue in magnets is the HREE dysprosium. There is not now, nor has there ever been, any production of dysprosium from outside of China. There are several possible significant dysprosium sources coming on-line in the next two to four years from hard-rock sources outside of China.
None of the mines are at any stage where we can predict when they will be commercially producing. Two to four years out would be the earliest any new dysprosium production could occur outside of China. Dysprosium is already in short supply. The total world production of dysprosium in the last 12 months is unlikely to have exceeded 1.4 Kt. The market will be in deficit if dysprosium usage increases due to production of REE permanent magnets. The dysprosium market is in balance at 1.4 Kt. With 8% growth in demand each year, we're going to need about 100 tons (t) a year of additional dysprosium.
I don't see that happening easily. Only four or five new HREE producers could be in production in the next three or four years.
Dysprosium is going be in short supply for some time and will, therefore, maintain its price. Everybody talks about how the price dropped from $2,500-1,200/kilogram (kg) of 99.9% metal. That is comical, because the peak people are using is the speculative bubble last year. The current price of dysprosium is significantly higher than the real long-term baseline. I believe it's going to maintain its price of approximately $1,200/kg for 99.9% metal in China.
Dysprosium is the problem metal for everyone, because no hard-rock source has ever been put into production. I'm intrigued by Molycorp's statements that it will be meeting America's demand for dysprosium by the end of next year. Company officials estimate America's dysprosium demand at 7 t/a, exactly what Molycorp projects to produce with 100% recovery from its deposit. That 7 t would only be for the military, which has decided it is going to need about 160 t/year of REE permanent magnet material, of which 7 t would be dysprosium. In the world market, that is insignificant. It's an accounting error. The people at Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX) tell me the company's South African mine will be in production in less than 24 months, and it will produce 34 t of dysprosium per year. This is from one of the richest REE deposits on earth. The ore ranges from 18–21% total REEs, but it doesn't have very much of it, and it doesn't have very much dysprosium. The 34 tons per year (t/a) is enough for internal consumption. It's not being sold into the market. It is being transferred internally to the company's Less Common Metals division in Great Britain, where it will be made into dysprosium-enhanced neodymium iron boron magnets.
Two large hard-rock sources of dysprosium I think will be coming on-line, when the metallurgy, separation capability and permits get worked out. These are Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) at Bokan Mountain in Alaska and Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.A; TASXF:OTCPK; T61:FSE) in Sweden. These deposits are being developed to produce 3,900 t/a and a little less than 6,000 t/a, respectively. Bokan would produce 120 t and Tasman 350 t of dysprosium per year at those levels. These are the first two major hard-rock REE deposits that look like they're going into production.
There are other deposits that are less well known and could be sleepers. One is Lynas' Duncan deposit in Australia. When put into production, it could be a major dysprosium source. The other is the Rare Element Resources Ltd.'s (RES:TSX; REE:NYSE.A) deposit at Bear Lodge, Wyoming, which could be a significant hard-rock source of dysprosium ultimately with a longer mine life than and at least as large a production as Ucore.
There's also significant dysprosium at Hastings Rare Metals Ltd. (HAS:ASX) and Northern Minerals (NTU:ASX) in Australia, but these are quite early. No matter what we do right now, we're going to be short of dysprosium for at least the rest of this decade, if not permanently. If dysprosium supply limitations are not addressed, growth in the use of REE permanent magnet devices for rapid heating and cooling environments will be affected.