RARE EARTH MINERALS INDUSTRY
Kevin Ng
WHAT ARE RARE EARTHS?
•
Rare Earth Elements (REEs) are 17 elements within the periodic table
which, contrary to their name, are more abundant than many other
minerals (gold, copper, silver, etc.)
•
Reason they are “rare” is because it is difficult to find concentrations that
are economically exploitable
•
The process at which rare earth typically reaches the market includes:
• Mining
• Separation
• Refining
• Alloying
• Manufacturing
Current world demand for rare earth elements is estimated at 136,000 tons per year
RARE EARTH MINERALS INDUSTRY DEFINITION
•
Firms in this industry engage in the acquisition, exploration, development, and extraction
of rare earth elements (REEs) outside of China.
•
These companies are expected to produce rare earth alloys within the next decade or have
already begun production.
•
These products are critical materials to clean-energy technologies, high-technology
applications, critical defense applications, and everyday electronic household items
ranging from cameras to cell phones.
Molycorp Inc.
(NYSE: MCP)
Quest Rare Minerals Ltd.
(NYSEAMEX: QRM)
Tasman Metals Ltd.
(NYSEAMEX: TAS)
Rare Element Resources Ltd.
(NYSEAMEX: REE)
Avalon Rare Metals
(NYSEAMEX: AVL)
Lynas Corporation Ltd.
(ASX: LYC)
INDUSTRY BREAKDOWN
2011 Production Capacity (Tons)
Basic Materials
$200,663.2B
(100%)
Industrial Metals & Minerals
$38,566.6B
(19.219%)
10%
42%
22%
5%
Global Rare Earth
84.6B
(.0421%)
Rare Earth Without China
$2.8B
(.001%)
12%
9%
Molycorp
Minerals
Avalon Rare
Metals
Quest Rare
Minerals
Tasman Metals
Lynas
Corporation
Rare Element
Resources
Molycorp Minerals: 42402 Tons (42%)
Avalon Rare Metals: 9296 Tons (9%)
Quest Rare Minerals: 12120 Tons (12%)
Tasman Metals: 5000 Tons (5%)
Lynas Corporation: 22000 Tons (22%)
Rare Element Resources 100000 Tons (10%)
Total Production
Capacity: 100818
Tons
OVERALL DRIVERS
•
Share price appreciation will occur if the metallurgical and financial complexities
from bringing a REE operation into production succeeds. Many of the rare earth
companies outside China are still missing the knowledge to effectively convert
rare earth deposits into alloys and oxides.
•
A report profiled 20 REE companies and showed the YTD returns and cash
balances. Average return was about -30% but many of the companies have ample
cash balances and indicates financial sustainability. Careful cash management is
crucial as they aim for specific goals in a tough market.
•
Key component to the industry is cost management, however, since there are no
filings for the majority of these companies, it is not possible to analyze the
effectiveness of operations.
TRENDS
CHINA’S CHANGING ROLE
*Note: Measured in Tons
CHINA’S INDUSTRY MONOPOLY
•
Controls 23% of global rare earth deposits but accounts for 96% of production
•
Recently launched a physical trading platform for rare earth metals as a part of its
efforts to regulate sector and strengthen pricing power made up by Inner
Mongolia Baotau Steel Rare-Earth Group
•
Quotas and taxes are pushing up rare earth prices abroad, giving Chinese
manufacturers in China an unfair advantage.
•
Rare Earth Element
Price in China ($/ton)
Price in Global Markets ($/ton)
Lanathanum
$5000
Up to $50000
Neodymium
$40000
$80000
In 2010, China used its monopoly in a diplomatic stand-off with Japan when it
cut off Japans industry from several of the most essential elements used in high tech products
CHANGING ROLE OF CHINA
•
China has been reducing export quotas every year since 2006, reaching up to
72% in order to save reserves to feed growing domestic market
•
China is expected to become an importer of some of the materials as early as
2014
•
Consumption of rare earths will grow at least 10% a year according to a vice
president of China’s biggest rare earth mining company
•
China has 23 mines and 99 smelting companies. 1/3 of mines and ½ of
smelting companies will fail to meet new standards that China’s government
is imposing on production capacity. (20k tons for mines, 5k tons for
smelters). This means that due to new government regulations, production
will be cut by at least 1/3.
HOW DOES THIS AFFECT PRICE?
Based off shortages and 2011 prices, that is approximately $1 billion of unearned revenue.
ECONOMIC RECOVERY AND GROWTH
ECONOMIC RECOVERY AND GROWTH
•
Potentially permanently high metals prices as billions of global citizens urbanize
and improve lifestyles
•
BRIC (Brazil, Russia, India, and China) is still growing at an average of 5.8%
since 2011 while MIST (Mexico, Indonesia, South Korea, and Turkey) has an
average annual GDP growth of 5.6%
•
Emerging economies typically need more materials due to infrastructural projects
which account for more than 52% of the uses of REEs
ADVENT OF GREEN TECHNOLOGY
ADVENT OF GREEN TECHNOLOGY
•
Demand for rare earths will increase 500,000 tons (to 636,000 tons or a CAGR of
21.3%) by 2020 as big projects in green technology and hybrid cars are expected
to rise
•
A single wind turbine requires 1-2 tons of neodymium. Wind energy has grown
exponential in the last decade with an average increase of 29.7% a year.
According to research done by MIT released earlier this year, demand for
neodymium could increase as much as 700% in the next quarter century.
•
Dysprosium is a critical component of electric car engines and the demand could
increase by 2,600 times in the coming 25 years according to the same study by
MIT. At 2016, the demand for dysprosium alone is estimated to be 1600 tonnes or
approximately $3.25B market annually.
•
The global electric vehicle market should grow to 2.7M cars by 2015
COMPARABLE COMPANIES ANALYSIS
Company Name
Ticker Stage in Development
Molycorp
MCP
Quest Rare Minerals
Production by Q4
Market Cap (M)
% of 52-Wk High EPS
Resources (tons)
Production Capacity
(tons)
1220
18.86% -0.01
1,840,000
42,402
QRM Preliminary Economic Analysis
82.22
24.02% -0.05
1,147,082
12,120
Rare Element Resources
REE
Preliminary Economic Analysis
177.5
41.76% -0.78
398,860
10,000
Avalon Rare Metals
AVL
Preliminary Feasibility Study
184.7
37.68% -0.11
3,057,000
9,296
Tasman Metals
TAS
Research & Development
68.36
45.11% -0.16
326,700
5,000
Lynas Corp
LYC
Construction
1100
34.78% -0.05
1,183,400
22,000
Median
181.1
0.362321053 -0.08
1165241
11060
Average
472.13
0.337035441 -0.19
1325507
16803
Maximum
1220
0.451149425 -0.01
3057000
42402
Minimum
68.36
0.188627852 -0.78
326700
5000
RISKS
•
European debt crisis could delay economic recovery and stifle investments in
technology
•
Toshiba recently developed a new magnet that doesn’t need dysprosium, Toshiba
used heat-treatment technology to improve magnetic force of a samarium-cobalt
magnet, capable of being applied to automobiles, intends to mass produce by the
end of the year.
•
Environmental effects are severe: “Every ton of rare earth produced generates
approximately 8.5 kilograms (18.7 lbs) of fluorine and 13 kilograms (28.7 lbs) of
dust; and using concentrated sulfuric acid high temperature calcination techniques
to produce approximately one ton of calcined rare earth ore generates 9,600 to
12,000 cubic meters (339,021 to 423,776 cubic feet) of waste gas containing dust
concentrate, hydrofluoric acid, sulfur dioxide, and sulfuric acid, approximately 75
cubic meters (2,649 cubic feet) of acidic wastewater plus about one ton of
radioactive waste residue (containing water).” – Chinese Society of Rare Earths
CONCLUSION: FAVORABLE BUT NOT FITTING
•
General trends prove extremely favorable to rare earth companies in the future
including increased demand due to China’s changing role, economic recovery and
growth, and increase in green technologies
•
Lack of financial information makes investing in rare earth companies purely a
speculative move and therefore not in the interests of the club
•
Forecasting supply and demand in REEs are difficult when considering the
enormous sums put into R&D and intellectual property development
•
Recommendation: Potential buy on Molycorp but only after production in Q4 is
released and exceeds expectations. There is a definite need in the market to be
filled, but it cannot yet be determined how that need will be filled (whether it be
through a new supplier in place of China or just developing newer technology
which does not need REEs) or who will be the one filling it.
SOURCES
•
http://www.getbuckyballs.com/rare-earth-metals-magnet-balls/
•
http://www.businessinsider.com/will-your-rees-suffer-molycorp-contagion-chris-berry-advisespatience-2012-8
•
http://phys.org/news/2012-08-toshiba-dysprosium-free-samarium-cobalt-magnet-heatresistant.htm
•
http://phys.org/news/2012-08-toshiba-dysprosium-free-samarium-cobalt-magnet-heatresistant.htm
•
http://www.proactiveinvestors.com/companies/news/33250/rare-element-reports-communityrelations-activities-33250.html
•
http://geology.com/usgs/ree-geology/
•
http://english.alarabiya.net/articles/2012/03/19/201667.html
•
http://www.smartplanet.com/blog/smart-takes/the-morning-briefing-rare-earths/28452
•
http://www.slideshare.net/Tehama/technology-minerals-the-rare-earths-race-is-on-april-2011