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Rare Earth Elements: the seventeen metals crunch
The Rare Earth Elements (REE), a group of seventeen metals crucial to much 21st century technology, have been hot news recently. The number of applications for the metals is spiralling and demand is rising. But China, which produces 97% of world supply, has cut its export quota by 72% for the second half of 2010 and announced that it has only limited resources of the critical 'heavy' rare earth metals. Meanwhile recognition of the strategic importance of rare earths is growing. An act was recently tabled in the US to take all necessary initiatives to reintroduce a domestic rare earth supply chain so as to ensure a secure source of these vital metals. Countries such as Korea and Japan, both heavily dependent on the metals for hi-tech manufacturing, are scrambling to secure future supplies. Prices of the rare earths are soaring, up on average by 300% between January and August 2010, with the rises for each individual metal ranging from 22% to as much as 720%.
A number of companies have already latched on to the opportunity presented by a looming supply shortage in some, (though not all) of the metals. There are many exploration, development and mine restart projects on the go outside China. However the mining and processing of rare earths is not an easy task. The metals are often found with radioactive elements such as uranium and thorium which makes them subject to stringent environmental restrictions. Moreover since the metals are always found together, albeit in varying combinations, they are difficult and expensive to process; the oxide of each metal must be separated and purified sequentially which is not an easy job as the metals are chemically similar. Since each orebody is unique each has different processing requirements, but there has been considerable loss of expertise in the West during the era of Chinese dominance of the market.
In short it is a long, challenging and costly process to develop a rare earths mine. A company needs a favorable orebody, a careful approach to environmental considerations, a high level of skills, and access to significant amounts of capital. But the rewards for those who succeed could be high.
This article summarises some of the basics about the supply and demand for rare earths then reviews eleven of the companies undertaking rare earths projects.
Background : The Supply and Demand for the Rare Earth Elements
The term "rare earth metals" is commonly used to refer to 17 metals including the 15 lathanides, yttrium and scandium. They are all listed in Group 3 of the periodic table and have similar atomic structures and characteristics. Most were discovered during the nineteenth century, though for many years they were barely more than a laboratory curiosity. Demand in 1953 totalled just 1,000 tonnes of rare earth oxide worth $25M compared, for example, with 2.7 million tonnes of copper production that year with a value of $1.7B.
More recently however material scientists have discovered that the metals have a plethora of important magnetic, electrical, chemical, optical, fluorescent, metallurgical and catalytic properties. These characteristics have made the metals vital components in many new and environmentally friendly technologies. For example they are used in supermagnets as they have high magnetic strength per unit of weight. These magnets can be used in electric motors which can then be smaller, lighter, quieter, produce less vibration and be more energy efficient, Wind turbines using REEs are more efficient, lighter (and therefore taller), and require lower maintenance. REEs are also used in MRI scanners, LEDs, energy efficient light bulbs, glass, ceramics, superalloys, aerospace and a whole host of consumer electronics such as Ipods, monitors, hard disk drives, laptops and cellphones. Hybrid cars are voracious consumers typically using 30kg of rare earths per car in order to lower emissions and better fuel economy. REEs are also vital components in a number of defence applications including mine detection, missile guidance systems, lasers, radar, missile-guidance systems and so on. Demand has risen rapidly averaging 8%pa from 2003 to 2008 when a total of 124,000 tonnes of rare earth oxide was consumed, with a value of $1.25bn.
The metals always occur together in the earth's crust; the fact that they have not separated into individual metals even after eons of repeated melting and resolidifying is testament to the similarity in the properties of these elements. However each deposit has varying combinations of the metals, though the "Light Rare Earths", those with atomic numbers 57-62, typically account for about 97-99% of the rare earth oxides in a deposit leaving just 1-3% for the "heavies" (HREE). Despite their name the metals are not particularly rare - indeed even the rarest is more than 100 times more abundant on earth than gold. But they are only rarely found in economically viable concentrations.
Prior to 1948 the metals were sourced principally from placer sands in India and Brazil. Thereafter rare earths deposits were identified in a number of minerals including monazite, bastnasite, xenotime and ion-adsorption clays; production became more widespread. By 1990 fourteen countries were mining the metals with the USA the largest producer thanks to the Mountain Pass deposit in California.
China meanwhile began recovering rare earths as a by-product of iron and steel in Mongolia in the 1950s. It actively supported research and development into the metals, and by the 1980s it had joined the world stage of producers. The industry grew rapidly but in an unregulated fashion spawning businesses of all sizes from huge state-owned enterprises, through small businesses running rare earth processing plants to artisanal miners. By 1992 it had become the world's largest producer, and Chinese leader Deng Xiaoping, recognising the strategic importance of these resources declared, "There is oil in the Middle East; there is rare earth in China".
Worldwide prices of rare earths plummeted In the 1990s driven down by the triple whammy combination of a rapid rise in Chinese supply, low demand (rare earths were then only used in niche applications), and low costs in China due to low wages, intensive competition within China and its lax mining standards/environmental controls. This undercut mines in the West eventually driving them out of business or causing them to cutback production. By 2000 China accounted for 88% of world production. Today that figure is 97%.
Outlook for Rare Earths
Demand for rare earths took a significant hit during the financial crisis falling by a third in 2009. However demand is rebounding this year and the number of applications is continuing to rocket. New technologies to use rare earths, including tidal power generation turbines, hydro power generation, magnetic refrigeration and eBikes could lead to incremental growth in demand. In particular wind turbines could become massive consumers; for example the Chinese plan to extend installation of wind electrical generating capacity from 13GW last year to 300GW by 2020 could on its own require three and half times current world production of neodymium.
Chinese supply meanwhile is fragile. The industry has been fragmented and extraction techniques have been inefficient and often environmentally hazardous. China is now therefore taking a raft of measures to protect and optimise its diminishing resources (it recently declared that it has only 15 years resources left of the heavy rare earths), to ensure that it has enough for domestic usage and to maximise the value added in China. It has therefore been imposing production quotas, restricting export quotas, stockpiling, increasing environmental regulation, closing down small and/or illegal operations and consolidating larger ones in an effort to gain more control.
But the USGS estimate that Chinese resources account for 'just' 58% of the world total. Supply/demand fundamentals and rising prices are one again creating opportunities outside China. Lynas should be the first off the block with a mine to market pipeline in place by the third quarter of 2011 (see below for more detail). Molycorp, which owns the Mountain Pass mine in California recently completed a $390M IPO to restart mine production generating 20,000 tpa by 2012. Other new projects are being developed in Canada, South Africa, Vietnam and Greenland amongst others, though none are likely to be in place much before 2014. Although development for these will be long, expensive and challenging there may be governmental assistance if legislation such as the proposed RESTART (Rare Earths Supply-Chain Technology and Resources Transformation) Act in the US is passed. This aims to ensure the reintroduction of a competitive domestic rare earth supply chain by all necessary measures including the provision of government-backed loan guarantees, support for innovation, training and workforce development, research into recycling and so on. Finance may also be forthcoming from the Chinese who are seeking to secure supplies from abroad.
It is clear from recent price trends that some of the metals are already in shortage. Looking ahead supply to 2014 is likely to be restricted to constrained Chinese supply plus the new production from Lynas and Molycorp. Meanwhile demand for rare earths in existing technologies is anticipated to grow organically to at least 200,000 tpa of rare earth oxides worth $2-3BN by 2014 according to Dudley Kingsnorth of IMCOA. Then there will be incremental demand from the new technologies particularly if the Chinese wind turbine progresses as planned. There is a school of thought too that the market for rare earth metals is currently inefficient and mispriced – see the section on Dacha Strategic Metals below for more detail. All in all it seems likely that there is considerable upside potential for prices on at least some of the metals.
Review of Eleven Rare Earth Companies
The companies reviewed below cover a variety of business models in the rare earths space. Factors to consider when reviewing the explorer/developers include the skills base within the company, the likely access to capital (rare earth projects are expensive), the political risk and the required infrastructure (many are in remote places). The development stage of the project is also an important consideration as (a) rare earth projects are complex and take longer than those of other commodities particularly as they require a pilot plant to test the complex metallurgical process and (b) in a relatively small market first mover advantage is important. Particularly crucial too is the quality and metallurgy of the orebody: Is the mineral amenable to REE recovery? Are there contaminants and if so how will they be treated? What is the grade of the REE? What proportion of the resource are valuable heavy rare earth elements and what proportion is light? 
Avalon Rare Metals Inc [TSX:AVL]
Toronto-based Avalon Rare Metals is currently developing a number of rare metals projects in Canada. Its flagship project, the 100%-owned Thor Lake project in Canada's Northwest Territories hosts the Nechalacho deposit, which is the second-largest rare earth element deposit in the world by reported total rare earth elements, and the third largest niobium deposit. Besides being large the deposit is also high grade with an exceptionally high enrichment of valuable heavy rare earth elements (more than 20% in the Basal Zone) which should generate high operating margins. The project is located 100km south west of Yellowknife; access is currently by air but there will be summer access by barge across the Great Slave Lake to a railhead and ice road access in winter.
Avalon has invested in a five-year $25M exploration program to date culminating in the publication of the pre-feasibility study in June 2010. The study confirmed the very positive economics for the project despite its remote location anticipating a base case after tax IRR of 12% and an NPV of $560M at 5% or $236M at 8%. Under more positive assumptions the IRR could rise to 33% and the NPV at 8% to $1.4BN.
The recommended plan was to construct an underground room and pillar mine with an expected life of 18 years processing 2000 tonnes per day of ore (lower at start up) to produce 10,000 tpa of mixed REO oxides which could be processed elsewhere. Operating costs are anticipated to average $267/tonne. The total capital cost is expected to be $900M (allowing for a 22% contingency) and production is expected to start in 2015.
The company thus offers a number of competitive advantages including:
• Development stage and first mover advantage; The project is already 5 years down a 10 year development scale and could be one of the early new projects to reach production after Lynas and Molycorp.
• The metallurgy has been determined: and shown to have no deleterious contaminants and to exhibit good recoveries of around 75%. Moreover there should be significant by-product revenues from zirconium, niobium and tantalum.
• The pre-feasibility study is "in the bag": enabling Avalon to begin offtake discussions with potential customers and for customers to know that the there is no risk of running out of resources.
• It is located in a politically stable jurisdiction
• The management team has considerable expertise in the sector and Avalon has strong relations with the local First Nations communities; 40% of employment at the site is aboriginal. It adheres to a strong corporate ethics and CSR policy.
• There is considerable potential to increase the resource
• The company has no debt and $8m in the treasury.
Avalon's other projects include the Separation Rapids lithium project, the Lilypads tantalum project and the Warren Township calcium feldspar project all in Ontario though Warren Township is currently inactive pending resolution of a permitting issue. It also owns the East Kemptville tin-indium-gallium-germanium in Nova Scotia where large inferred resources have been identified though further drilling will be required to bring the project to the pre-feasibility stage.
Great Western Minerals Group Ltd [TSX-V: GWG]
Saskatchewan-based Great Western Minerals has a fully integrated rare earths mine to market (M2M) strategy. The company's aim is to become the first vertically integrated rare earth elements producer in North America, a leader in the industry outside of China, and to create certainty of supply for its customers. To that end the company is investing in three stages in the rare earths supply chain: exploration, mining and processing.
Working backwards down the chain, the company already processes rare earths through two of its subsidiaries; Less Common Metals (LCM) based in Birkenhead, England and Great Western Technologies Inc in Troy, Michigan, USA. LCM has been highly profitable for 18 years supplying customers globally with a wide range of rare earth based alloys and metals. Its specialities include neodymium iron boron and samarium cobalt alloys for supermagnets, supplying 20% of the world demand of samarium cobalt. Great Western Technologies is a leading production facility in North America for rare earth materials, powders, and custom vacuum-grade specialty alloys. Both companies aim to be leading-edge, innovative and high quality offering flexible customised approaches to their customers.
Great Western will source its feedstock from the former-producing Steenkampskraal Mine in South Africa, located some 350km north west of Cape Town. The mine was operated by Anglo American from 1952-63 producing both rare earths and thorium (indeed it was then the world's largest producer of thorium). It was eventually acquired by Rare Earth Extraction Co ("Rareco"), and in January 2009 GWT entered into an option agreement with Rareco to refurbish and recommission the mine and to have exclusive access to 100% of the rare earth elements mined there for a ten-year period. The New Order Mining Right was granted in June 2010, and in September 2010 GWT acquired a 20.8% equity interest in Rareco.
SRK Consulting has been engaged to conduct a feasibility study on the project with the aim of resuming production as quickly as possible; the target is the second half of 2013. Infrastructure is excellent, with access to the site by paved and gravel roads and close proximity to rail and sea-port; the governments are pro-development, and there is technical expertise at hand as well as a trainable work force.
GWMG is also looking to the long term by investing in 7 exploration projects. Four of these are 100% owned (with 2 in Saskatchewan, and one each in Utah and New Brunswick) while three are joint ventures, in Yukon, Labrador and New Brunswick. All are focussed to the heavy rare earths.
Lynas Corporation Ltd [ASX: LYC]
ASX-listed Lynas Corporation owns the richest deposit of rare earths in the world, it should be the next rare earths producer off the block, and it is the largest of the companies in this review. Its stated aim is "to create a reliable integrated source of Rare Earths from mine to market and to become the benchmark for the security of supply and environmental standards in the global Rare Earths industry".
The company has two projects underway. It is developing a mine and concentration plant at Mount Weld in Western Australia. The mine is complete and the concentration plant due to come online in December 2010. It is also building a state of the art Rare Earths processing plant, the Lynas Advanced Materials Plant (LAMP) near Kuantan in Pahang, Malaysia where production is scheduled to commence in the third quarter of 2011.
Mount Weld is situated some 700km+ from Perth near to the town of Laverton. It hosts the Mount Weld carbonatite, a 3.5km diameter near-vertical plug which in turn hosts two rare earth deposits. The Central Lathanide deposit is the richest in the world with an REO grade of 10.7%. The estimated resource for the nearby Duncan deposit (formerly called the Southern Zone) has just been increased threefold. The combined rare earths estimate for the two deposits now stands at 17.5M tonnes at 8.1% REO, for a total contained REO of 1.416 million tonnes.
The open pit has already been constructed and there are stockpiles sitting at the surface. These will be concentrated in a plant 1.5km from the mine then shipped in sea containers and transported by road and ship to the processing plant where the concentrate will be processed into separate Rare Earths products. Lynas selected Malaysia for the LAMP due to the readily available industrial infrastructure, including land, energy, water, re-agents from local suppliers and a port that can manage container, chemical and bulk shipments. The area where the plant is being built also offers much knowledge infrastructure, such as technical and trade skills and chemical industry experience. The government infrastructure is in place and provides accountable regulators, clear legal frameworks and FDI incentives. Lynas already has a number of supply contracts in place.
Molycorp Inc [NYSE:MCP]
Molycorp was formed in 2008 to reopen the Mountain Pass Mine and processing facility in California which was mined from 1952-2002 and was the world's largest source of rare earths from the mid-60s to the early 90s. The company immediately began to manufacture rare earth products from surface stockpiles, primarily to develop its processing capabilities but in doing so it also generated a little cash flow ($2M in 2008 and $7M in 2009) and became the only current producer of rare earths in the Western Hemisphere. In July 2010 it raised $393M in an IPO on the New York Stock Exchange which it will use to fund its "mine to magnets" strategy whereby the company plans to recommence all operations by 2012 and become a fully integrated producer of rare earths products, including oxides, metal alloys and magnets.
Rare earths were discovered by chance at Mountain Pass when uranium prospectors sent samples to the USGS for analysis in 1948. The Molybdenum Corporation of America, (later renamed Molycorp), acquired the mining rights, production began in 1952, an expanded concentrator was built in the 1960s and a new separation plant in the 1980s. At its peak the mine was producing around 70% of world supply. However processing at the mine stopped in 1998 following some wastewater leaks, while mining stopped in 2002 as a result of the lack of a permit to build a new tailings dam. Ownership of the project has changed hands several times with the original Molycorp acquired by Unocal which in turn was acquired by Chevron Mining. In June 2008 the privately-held Molycorp Minerals, (which had some personal links with, but was not a direct successor to the original Molycorp), was set up to acquire all the Mountain Pass assets from Chevron.
Molycorp's current plans and "mine to magnets" strategy are summarised in its IPO prospectus from July 2010. In essence these include plans to:
• Reopen the mine: The mine is located in the Mojave desert in California an hour down the road from Las Vegas. It has huge, high-grade reserves, (although these are skewed towards the less valuable light rare earths), and a 30 year mine plan permit and environmental impact report, both issued in 2004.
Mountain Pass Reserves
Ore (Million tons) REO Grade (%) Mlbs REO
Proven 0.48 9.38 88
Probable 13.11 8.20 2120
Total 13.59 2208
Source: Molycorp Prospectus, July 2010
• Refurbish, modernise and expand the processing facility in order to achieve planned production rates by the end of 2012: Molycorp has invested considerable sums into optimising REO recoveries. Its stated goal is to produce the "largest, most advanced and efficient fully integrated REO processing facility in the world".
• Manage costs in order to be cost competitive: Plans include programs to reduce energy requirements, water consumption and waste water generation, and the construction of a natural gas power plant.
• Integrate downstream to capture value added: Molycorp has already signed a number of non-binding letters of intent variously to acquire a third−party producer of rare earth metals and alloys in the US, to form a joint venture to produce NdFeB magnets in the US, and to undertake a technology transfer agreement with Canadian-based Neo Material Technologies with respect to the production of rare earth metals, alloys and magnets. if successfully implemented Molycorp would become the first fully integrated supplier of NdFeB magnets in the world, and the only producer of NdFeB magnets in the United States.
• Develop new higher margin products particularly for rare earths which have historically had lower demand: For example Molycorp has already developed XSORBX a cerium-based product which removes arsenic and other heavy metals from industrial processing.
• Continue exploration at Mountain Pass: in order to upgrade existing resources and investigate unexplored areas.
Molycorp may be assisted in achieving its plans by the experience of its employees, many of whom worked at the Mountain Pass facility for more than 20 years each. The CEO has 24 years' association with the facility. Molycorp's initial target is to produce 19,050 tonnes of rare earth oxide per annum, though it should have the capacity to expand though technology improvements to 40,000 tpa if market conditions prove favourable.
Arafura Resources [ASX: ARU]
Arafura Resources is developing the Nolans rare earths/phosphate/uranium project in Australia. The project, which has the potential to be low cost and high recovery, is currently at the Bankable Feasibility Study stage and on target to begin production in 2013. It will comprise an open pit mine at Nolans Bore in the Northern Territory and a processing plant at Whyalla on the South Australian coast which will produce rare earth oxides, phosphoric acid, gypsum and small quantities of uranium oxide.
Nolans Bore is a world class deposit. Exposed at surface it has a JORC resource estimate of 30.3 million tonnes, at a grade of 2.8% rare earth oxide, 12.9% phosphorus pentoxide (P2O5) and 0.44 lbs/tonne of uranium oxide (U3O8), equivalent to an in situ resource of 848,000 tonnes of rare earths, 3.9 million tonnes of phosphorus pentoxide and 13.3 million pounds of uranium oxide. The mix of rare earths includes a relatively high proportion of neodymium; the average price of the Nolans Rare Earth mix is currently $51/kg.
The deposit, which covers an area roughly two by two kilometres, is located 5km from a gas pipeline, 10km west of the Stuart Highway, (the principal north-south route through Central Australia), and 135km from Alice Springs. Ore from the open pit will be transferred to an on-site beneficiation plant for upgrading to a concentrate. It will then be trucked 65km by private road to a rail siding on the Darwin-Adelaide railway and thence taken 1400km by rail to the Rare Earths processing and separation complex to be built at Whyalla. The process flow sheets for the complex have already been extensively tested and refined at the ANSTO (Australian Nuclear Science and Technology Organisation) facility in Sydney; recovery rates are now expected to be high.
Whyalla was recently announced as the chosen site following a two and a half year site selection survey. It was picked as it is a brownfield site, has good access to a skilled labour force, is well serviced by road, rail and port facilities, the seawater can be used for a desalination plant, and as the community and State Government are supportive; the South Australian government has recently announced that it will declare the Complex a 'major project', thus according it the same status as BHP Billiton's Olympic Dam project.
The economics of the project look favourable. Although the initial capital cost may be in the order of A$750M operating costs will be relatively low, recovery rates should be high and there will be significant by-product credits. At current commodity prices Arafura could generate more than A$1B in revenue each year with a mine life of at least 20 years, more if the current drilling programme is successful in expanding the resource.
Arafura's priorities in the short to medium term are to complete the bankable feasibility study, to finalise the processing technology, to continue the drilling programme to increase the resource base/reduce risk, to gain the necessary approvals and to seek appropriate financing and marketing arrangements. Construction is scheduled to begin in 2012 with production beginning in the second half of 2013.
Arafura owns five other exploration projects for various commodities in the Northern Territory ranging from early to advanced exploration stage. It is seeking to joint venture all the non-REE projects.
Greenland Minerals and Energy [ASX:GGG]
Perth-based Greenland Minerals and Energy is exploring and developing the giant multi-element rare earths/uranium/sodium fluoride Kvanefjeld Project. This is located on deep fjords which run directly to the North Atlantic Ocean some 8km from the port of Narsaq on the southern tip of Greenland. The company has conducted an aggressive exploration programme since acquiring 61% of the project in 2007 (with an option to acquire the remaining 39%). In February 2010 it published an interim report on the pre-feasibility study which indicated that the project has the potential to become a highly profitable world class mine. Certainly the resource is huge, totalling 457M tonnes containing 4.91M tonnes of rare earth oxides, 283M lbs of uranium, 0.99M tonnes of zinc and 3.0M tonnes of sodium fluoride. It is mostly outcropping and lies within 300 metres of the surface.
The mining studies have indicated the potential for a large open pit operation with a low stripping ratio. The highest grades are to be found nearest to the surface and there is significant potential for new multi-element deposits. The capital cost for the mine and processing plant capable of treating 10.8Mtpa is $2.3B. Construction could begin in 2013 and first production in 2015. The projected mine life is over 23 years with the pre-tax NPV estimated at US$2.18N and the ungeared IRR 24%.
Greenland is an emerging mineral province. It is highly prospective, underexplored, politically stable and open to investment. However a key issue for GMEL could be the Greenlandic government stance on uranium exploration which is currently a zero tolerance approach. The company recently received a letter from the government which made clear its support for ongoing work programs and stated that the outcomes of the Company’s feasibility studies will form the basis of a decision on whether to grant an exploitation permit. The company is working closely with local communities on its environmental and social impact assessments.
Commerce Resources [TSX-V: CCE]
Commerce Resources owns three projects in Canada. The Blue River tantalum/niobium project in British Columbia is the most advanced; an updated resource estimate for the Upper Fir deposit at the project estimates the deposit to contain an indicated and inferred resource of 23.9Mt containing 11.2M lbs of tantalum pentoxide and 64M lbs of niobium pentoxide. A Preliminary Economic Assessment is underway scheduled for publication in the fourth quarter of 2010. Commerce is also involved in a JV in British Columbia on the early stage Carbo rare earths and niobium project whereby Canadian International Minerals has the option to acquire up to 75% subject to certain payments, expenditures and a 2% NSR royalty. A drilling programme has just begun on site.
In northern Quebec the company has 100% ownership of the Eldor Property which hosts the Eldor Carbonatite. Carbonatites are relatively rare rock types which contain a variety of exotic minerals, and can produce economic concentrations of rare earth elements, niobium, copper, iron, apatite, vermiculite and fluorite; with significant by-products which may include barite, zircon, tantalum, gold, silver, uranium, nickel and platinum group elements.
Commerce discovered the Ashram Rare Earth Zone in 2009 in the centre of the carbonatite complex by tracing the source of a glacially dispersed boulder train that assayed significant rare earth elements (REE). Initial sampling from outcrops and trench sampling returned high values (up to 2.74%) of rare earth element. Drilling began in summer 2010 and results from the first two holes showing broad thickness (the second hole included 1.95% TREO over 243.8 metres) and relative continuity of grade have confirmed
the potential large tonnage rare earth discovery. The four most abundant REEs in the deposit are cerium, lanthanum, neodymium, and praseodymium. At the end of April 2010 the company had $19M in cash and investments.
Dacha Strategic Metals Inc [TSX-V: DSM]
Dacha has a unique business model in the rare earths space. It is an investment holding company which aims to achieve capital appreciation through investment in physical metals. In some respects it resembles an exchange traded fund (ETF) though with some key differences. Simplistically - though check the website for a more detailed explanation - Dacha's operations work as follows:
• The company raises capital in the market which it then uses to buy physical rare earth metals. Details on the selection criteria for the metals are explained below.
• The metals are purchased in China by Alistair Neill who has 15 years experience of rare metals and has lived in China for 4 years. (Neill previously worked as the VP sales, Rare Earth Division and VP Business Development for AMR (Neo-Material Technologies) working with downstream end-users in Korea, Japan, Europe and North America and with suppliers in China).
• The metals are then exported to an LME warehouse in either Korea or Singapore where they are held in a container as a physical stockpile.
• From time to time the metals will be sold if they are perceived to be temporarily overvalued, but the overall objective is capital appreciation. Dacha publishes monthly NAV statements.
Dacha has chosen to operate in rare earths both because of the positive supply/demand fundamentals and as it believes the markets are currently inefficient and mispriced. There is considerable upside price potential as the metals are typically a small value component but critical and un-substitutable in their end uses and there is a limited supply side response to shortages.
However Dacha also believes that not all rare metals are equal and it has a list of selection criteria on its website – parameters such as substitution risk. supply response, market size of the market, price history, volatility and elasticity and so on – which it uses to select metals for investment.
Dacha thus offers investors the chance to invest in key rare earth metals without incurring the mining or country risk. It can be done at low cost as there is just a small dedicated team while storage and transport costs are relatively low. Moreover there is diversification within the rare earth metals at no extra cost, and no obligation to buy them as run of mine. The risks meanwhile are similar to those of all similar investment vehicles.
Dacha's current holdings include dysprosium, gadolinium, lutetium, terbium, yttrium and europium.
Rare Element Resources (TSX.V:RES)
Rare Element Resources was listed as one of the Top 50 companies on the Toronto Venture Exchange in 2010. Its flagship property is Bear Lodge which lies 12 miles from Sundance in Wyoming, USA. The 2100 acre property hosts one of the largest rare earth deposits in North America plus extensive gold mineralisation, both lower grade at surface and higher grade at depth. The local infrastructure is good with paved road and power within 2 miles and a railhead 35 miles away.
The company published an updated NI43-101 inferred resource on the rare earth deposit in May 2010 of 17.5M tons at 3.46% REO (including 4.4 mm tons at 6.65% REO). The total contained rare earth oxide is thus 1.2B lbs. Cerium, lanthanum and neodymium were the most prevalent of the rare earth elements. The estimates were based on 48 holes drilled at two deposits on the property. There is significant upside potential for expansion at both deposits.
In August the company announced further progress towards a commercial metallurgical process. It is now possible to produce a pre-concentrate at 90% recovery containing up to 20% rare earth oxide from the oxide deposits on the property. Further drilling to define reserves and expand the deposits and a scoping study are now underway. If the study sufficiently positive the company plans to initiate mine permitting and a prefeasibility study.
Meanwhile gold exploration is continuing apace. The mineralisation is similar to that of Cripple Creek in Colarado and the company's target is ultimately to define 50 to 100 million tons at 0.015 to 0.030 opt (implying a potential resource of 750,000 to 3M ounces). The first gold resource announcement is scheduled for 2011.
RES also has interests in two other projects; a JV with Medallion on the Eden Lake rare earths project in Manitoba and the early stage Nuiklavik property in Labrador. The company held C$12M cash in June and had no debt.
Quest Rare Minerals [TSX-V: QRM]
Quest Rare Minerals has enjoyed a number of exploration successes since listing on the Toronto Venture Exchange in January 2008. It was the best performing share on the exchange in 2009 rising more than 5000% from 5 cents to $3.38. It is now advancing two rare earth projects in Quebec and a uranium project in New Brunswick. It also owns several projects in Ontario.
Quest discovered the B zone deposit at its flagship project, Strange Lake, in 2009 publishing an NI43-101 compliant inferred resource in April this year and a Preliminary Economic Assessment on the project in early September. Key points are:
• The project is located in NE Quebec some 125 km west from the coast and the huge nickel mine at Voisey's Bay. The deposit is a very large surface deposit, one of only two known heavy rare earth deposits in the world, (the other being Avalon's Nechalacho). It has considerable upside potential remaining open in all directions and at depth. The inferred resource is 40.4 million tonnes grading 1.161% TREO (of which 47% are heavy rare earths), 2.07% zirconium oxide, 0.25% niobium oxide (Nb2O5) and 0.053% hafnium oxide (HfO2).
• The mine can be developed as an open pit operation. Crushed ore would then be transported via slurry pipeline to processing facilities at the coast near the port for Voisey's Bay.
• Previous metallurgical tests on ores from the Strange lake have reported above average REE recoveries. New optimization work is advancing and has shown success in developing a more cost-effective and efficient metallurgical processing method than was previously announced by Quest for the B-Zone mineralization
• The PEA indicated a strong IRR of 36.4% and an NPV at 8% of $2.4B pre-tax and pre-finance. The mine model calls for an open-pit production rate of 4,000 tonnes per day, requiring a capital expenditure (CAPEX) of $563.4 million (including a 25% contingency), a payback in the fourth year of production and a minimum mine life of 25 years
Quebec was again voted the world's number one mining jurisdiction in the Fraser Institute survey for 2010.
Medallion Resources Ltd (TSX.V: MDL)
Medallion Resources' aim is to position itself through acquisitions and the application of advanced exploration techniques at the forefront of the REE exploration industry in North America. Its strategy is to acquire projects which are skewed towards the heavy rare earths and are amenable to large-tonnage open-pit production. Medallion is currently involved in two projects.
Firstly it has an option with Rare Earth Resources to earn up to 65% on the Eden REE project in Manitoba through payments of $1.45M cash and 1.8M shares, and expenditures of $2.25M over 5 years. Medallion was attracted to the project as it believes that it could be one of the most promising REE projects in North America with a large mineralized area (7–8 square km), high REE values, the potential for a large surface deposit and four different styles of REE mineralisation. Medallion was also attracted by the location; it is one of only a few REE properties in Canada within practical distance of roads, power & mining-service centres. The town of Leaf Rapids is just 20km away. Moreover the property is not expected to present significant permitting, environmental or social challenges. The first phase of the 2010 program aimed to identify the promising areas of mineralisation through mapping, sampling and field checking historic data. The company are now conducting a channel sampling exercise on the rock deemed to have the best potential for cost effective mining.
Medallion's second project is the Red Wine HREE Project located in southern Labrador, Canada where Medallion has an option to earn 100% through a series of payments in cash, shares and exploration commitments. Medallion believes that it has the opportunity to make a significant discovery at Red Wine, as there has been no detailed REE exploration in the area though the unusual nature of the intrusions and their REE concentrations were discovered during the search for uranium about 50 years ago. Since then, the area has been prospected for niobium, tantalum, beryllium and zircon. The REE's were always noted but drew little interest. Medallion's holdings at Red Wine were believed to host eudialyte, an important HREE-bearing mineral. Initial exploration work by Medallion has confirmed the previous mapping of the eudialtye.
Alkane Resources (ASX: ALK)
Alkane Resources has started larger scale production of an yttrium heavy rare earth concentrate from the new rare earth circuit at its Demonstration Pilot Plant (DPP) at ANSTO, as part of the Dubbo Zirconia Project (DZP) in New south Wales.
The company considers the development as an important commercial step for the DZP. The yttrium concentrate will be distributed to potential customers worldwide for review and assessment.
The yttrium and heavy rare earth distribution in the ore body is unusual with 25% in the heavy category (standard distribution 95% light and 5% heavy) with this generating a higher than average return for the rare earth product.
These developments emphasise the strategic significance of the DZP as a supplier of yttrium and rare earths, as well as increasing sales revenues for these products to over 40% of total DZP revenues.
The Demonstration Pilot Plant (DPP) at ANSTO has been operating since 2008 and has proven the flow sheet for the DZP. Substantial zirconium and niobium products have been distributed to potential customers around the world.
A development commitment for the DZP is anticipated in early 2011. The DZP is one of three key projects being undertaken by Alkane in the central west of New South Wales.
