【2009.10.12 加拿大商务】Rare-earth metals: The new China syndrome

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Rare-earth metals: The new China syndrome

Is the Middle Kingdom's hoarding of rare-earth metals a threat or an opportunity?

http://www.canadianbusiness.com/markets/commodities/article.jsp?content=20091012_10008_10008


By Matthew McClearn

Few Canadians will admit to hankering for yttrium, terbium or dysprosium; fewer still could tell the differences between them. But among manufacturers that rely on these and other rare-earth metals to build everything from mobile phones to flat-screen televisions, they are vital. And so, when a draft report recently made public by China’s Ministry of Industry and Information Technology (MIIT) indicated that the Chinese government was considering a ban on their export, a furor ensued. For good reason: when it comes to these exotic metals, China is essentially the world’s lone supplier.

By the time an MIIT official denied any such ban was coming, the report’s release had already heightened fears that China could use its near monopoly to hold the rest of the world hostage, either by keeping supplies to itself or by charging exorbitant prices to buyers elsewhere. Chances are, the only interested parties not upset were rare-earth prospectors in the rest of the world, including several in Canada, who see in China’s monopoly an opportunity to step in and fill the breach.

For those who have not dusted off their college chemistry textbooks recently, rare-earth metals are a group of 17 elements clustered together at the bottom of the periodic table. Despite their name, most are actually found in relatively high concentrations within the earth’s crust. Yet economically minable deposits are few, and jurisdictions that permit their extraction even fewer.

Each rare earth metal has unique properties, applications and markets. Neodymium and samarium find use in alloys for magnets and lasers, europium in television screens, praseodymium in electric motors, and so on. One common thread is that many are critical ingredients in a broad array of high-tech and green-tech devices, from superconductors to hybrid car batteries to missile guidance systems to wind turbines. Hence, their profound strategic significance.

In 1992, Deng Xiaoping, at the time China’s paramount ruler, said, “There is oil in the Middle East; there is rare earth in China”—foreshadowing his nation’s dominance of the periodic table’s lanthanide series. It began in the 1980s with the opening of an iron mine called Bayan Obo in Inner Mongolia. It produces rare earths as a byproduct, thus at low cost. Bayan Obo’s success came at the expense of Australian and American produers, who saw their market shares collapse. “A lot of the producers outside of China depended on the economics of cerium and lanthanum,” says Gary Billingsley, CEO of a Canadian junior rare-earth company. “By making those readily available and driving the prices down to pennies per kilogram, basically, they put the other operators out of business….I would say it was fairly deliberate.” (Mining ceased at America’s largest rare-earth mine, at Mountain Pass, Calif., in 1998.) According to the U.S. Geological Survey, China accounted for nearly 97% of the 124,000 tonnes produced last year.

The Chinese government is not content, however, simply to feed the world’s addiction. Rather, it began tightening export quotas in 2006, thus retaining more of its reserves for domestic consumption. It now uses this steady supply to woo foreign manufacturing plants, thus securing employment for some of its citizens. Meanwhile, as it’s doing with other commodities, China is also looking abroad to lock up still more of the supply by investing in foreign rare-earth plays, notably in Australia.

China’s predilection for getting high on its own supply has sent other consumers scrambling for alternate suppliers. Japan’s Ministry of Economy, Trade and Industry unveiled its strategy last year. It included securing overseas resources, recycling, stockpiling, and developing alternative materials. Japan’s interest is not surprising: Toyota, for example, needs large quantities of rare-earth metals for its popular hybrid vehicles.

Despite this reality, there are at least a few observers beyond the MIIT who say the latest hysteria is unfounded. “This thing got way out of control early in the game,” says Clint Cox, a rare-earth specialist with the Anchor House. Cox, who obtained a copy of the draft from a confidential source, disputes many of the reported details. One particularly inflammatory release, for example, from Arafura Resources, an Australian uranium and rare-earth exploration firm, said MIIT named yttrium, terbium and dysprosium as candidates for the export ban. Yet according to Cox, yttrium was not even listed in the report.

It’s certainly easy to see how rare-earth miners would be eager to stoke the controversy. As soon as word of a possible ban spread, just about every one of them with a pulse was issuing press releases in hopes of landing a big investor or, at the very least, a pop in their stock. Those in the spotlight included several Canadian plays. Avalon Rare Metals, for example, owns a rare-metals property at Thor Lake in the Northwest Territories. Ucore Uranium, based in Halifax, has a project in southeastern Alaska. VMS Venturesoptioned a uranium and rare-earth property in Manitoba. Billingsley’s company, Great West Mineral Group of Saskatoon, owns the Hoidas Lake project on the northern fringe of Saskatchewan. Each, however, is at a relatively early stage of development. “I wouldn’t say that any of them are close to delivering a salable rare-earth concentrate to the market,” says Cox.

The great unanswered question that may determine their fate is how much of a premium rare-earth junkies are prepared to pay to secure non-Chinese supply—a question that is relevant, accordingly to Billingsley, whether or not China actually bans rare-earth exports. “The fact is that China is consuming more and more of these materials internally, especially as they promote value-added manufacturing within China,” he says. “If the trend continues, there will come a point where it is very likely China will consume everything it produces. That has the same effect as an embargo.”

Billingsley doubts China can preserve its monopoly on rare-earth metals indefinitely. Though he remains concerned that its producers might drive down prices again to eliminate foreign upstarts, he believes China has too much to lose by courting more political controversy. And to assume China’s continued dominance, he says, would be to underestimate the prospecting abilities of Canadians, Australians and others. “I think you could equate it even to back when nobody thought there were any diamonds anywhere else but Africa,” he says. “Once they unleashed the prospectors of the world looking for them, all of a sudden they were everywhere. The same thing could happen with these strategic metals.” For manufacturers outside China, that can’t happen soon enough.

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