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By Ron Hall

There is no commodity that is more important to the ‘greening’ of the world – you could say, the ‘saving’ of the world – as it continues on the alarming and devastating warming trajectory that it is currently on, and as the world looks to transition to a less fossil fuel dependent future, provided by the electrification of transportation than the rare earth elements.

I don’t know if you felt the ground move, when the “heat dome” bore down on western Canada and hundreds of people died in their homes, or if you felt the ground move during the pounding rains of this fall, when hundreds of thousands of heads of livestock perished in the floods that followed in British Columbia’s Fraser Valley, but the ground moved to an extent never registered before in terms of convincing people that climate change is real and the world needs to do more – much more – to lessen the trend of a warming planet. Rare earth elements are key to this drive as they are the undisputed best source of magnetic material that is found in virtually every electric motor.

The current dominant design for electric vehicles (EV’s) batteries is lithium-ion, but the global R & D in battery design has not actually chosen the winner, with so many competing designs such as the Toshiba titanium/niobium battery.

However, in the manufacture of magnets, this global R & D drive was essentially put to rest five or more years ago after a period of intense scrutiny following the incredible price spikes following the cessation of all shipments of REE’s by China to the world’s second largest market, Japan, which at that time, was the dominant magnet manufacturer. Needless to say, China now dominates the magnet manufacturing world, but there were no commodities found to substitute for the REE’s in magnet manufacture in this multi-year drive.

The current rise of prices for the specific REE’s that are essential for the manufacture of magnets, makes complete sense if they are viewed with the requisite importance that these magnets play now, and which they will play for the future of the world. Rising REE prices should be seen as representing spiking global demand against major fundamental issues on the side of supply, but here following are two projects that both enjoy the fundamental characteristics that very few projects have, and which have allowed them both to achieve robust positive economics.

Background

Within the periodic table there lies a set of 15 metallic elements, (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium) with atomic numbers 57–71. Along with chemically similar scandium (atomic number 21) and yttrium (atomic number 39) these elements collectively make up what are referred to as the rare earth elements or REE’s.  Scandium and yttrium are included because they tend to occur in the same ore deposits as the lanthanides and exhibit similar chemical properties.

REE’s and alloys that contain them are used in many devices that are used daily such as computer memory, DVDs, rechargeable batteries, cell phones, catalytic converters, magnets, fluorescent lighting and medical technology such as surgical lasers, magnetic resonance imaging, and positron emission tomography scintillation detectors. During the past 20 years there has been an explosion in demand for these items – two decades ago very few people owned a mobile phone, but today over 5 billion people own a mobile device. However, the manufacturing of permanent magnets represents the single largest and most important end use for REEs, accounting for 38% of total forecasted demand.

Rare earth compounds are found in batteries that power every electric vehicle and hybrid-electric vehicle. As concerns for energy independence, climate change, and other issues drive the sale of electric and hybrid vehicles, the demand for these batteries will likely climb even faster.

Although other substances can be substituted for rare earth elements in their most important uses these substitutes are usually less effective and more costly.

While REE’s are relatively plentiful in the earth’s crust with cerium being the 25th most abundant element of all, economic REE deposits are very rare. For example, there are hundreds of good lithium projects but only a handful of good REE projects.

The chemical properties of REE’s make them difficult to separate from surrounding materials and from one another which makes them difficult to purify.

According to the United States Geological Survey, China dominates the REE market globally with some 35% of global reserves located in China, the most in the world, and Chinese producers’ accounting for 80% of global supply.

Canadians advancing Rare Earths Projects

While not a producer of REEs, Canada is host to several advanced exploration projects and some of the largest reserves and resources of these metals – see below.

Vancouver-based publicly traded Commerce Resources Corp. and separately Defense Metals Corp., are both companies positioned to address the REE supply dependency issue.

Commerce Resources Corp. [CCE-TSXV; CMRZF-OTCQX; D7HO-FSE] is specifically focused on the development of its 100%-owned Ashram Rare Earth Element/ Fluorspar Deposit in the Nunavik region 130 km south of Kuujjuaq, northern Quebec.

The rare earths used in magnets (Nd, Pr, Dy, Tb) make up the lion’s share of global value and Commerce’s Ashram Deposit, as it is hosted predominantly by the mineral monazite, has a distribution of these magnet feed REEs that is stronger than several of the world’s largest active producers, including Mountain Pass in California and Bayan Obo in China.  In the years ahead, demand for these four rare earth elements is expected to grow faster than all other rare earth elements, challenging the ability of the supply side to keep up.

However, since the U.S. relies on China, the dominant global supplier, for about 80% of its rare earth imports, security of supply has been an issue, underlining the need to develop new sources of rare earths in North America and that’s where Commerce Resources come in.

The Ashram Deposit ranks as one of the largest REE (and Fluorspar) deposits globally, consisting of a single mineralized body outcropping at surface with a footprint approximately 600 metres along strike, over 300 metres across and 600 metres deep, remaining open in several directions.

The Ashram Deposit hosts a measured resource of 1.6 million tonnes (Mt) at 1.77% rare earth oxide (REO) and 7.7% CaF2, an indicated resource of 27.7 Mt at 1.90% REO and 5.9% CaF2, and an inferred resource of 219.8 Mt at 1.88% REO and 4.5% CaF2, at a cut-off grade of 1.25% REO.*

This large tonnage resource at favourable grades has demonstrated the production of high-grade (>45% REO) mineral concentrates at high recovery (>70%) which are in line with current commercial global producers.

Commerce is engaged in numerous grant funded collaborations with various research and academic institutions, including a recently announced metallurgical collaboration with Corem, a Quebec-based centre of expertise and innovation in mineral processing with the largest concentration of resources dedicated to research and development in this field in Canada.

A Pre-feasibility Study of the project is well underway, with Commerce Resources well positioned to provide a secure and long-term solution to the world’s growing demand for REE resources outside of China.

A drill program, recently completed as part of the ongoing Pre-feasibility Study and in support of an updated mineral resource estimate, intersected 2.09% Rare Earth Oxide (REO) over 110.4 metres at Ashram, a move that sent the Commerce stock price up almost 14% or $0.03 to 25 cents on January 17, 2022. The shares currently trade in a 52-week range of 49.5 cents and 19 cents.

*Mineral resources are not net mineral reserves as they do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources will be converted into Mineral Reserves.

Defense Metals Corp. [DEFN-TSXV; DFMTF-OTCQB; 35D-FSE] is positioning itself to be a future supplier of critical material for the global green agenda.

It aims to achieve that goal by meeting the expected growing demand for North American-sourced rare earth elements (REE) by advancing its 100%-owned Wicheeda rare earths property, recently acquired by the takeover of Spectrum Mining Corp. The road-accessible project is located 80 km northwest northeast of Prince George, central British Columbia.

Rare earth elements are a group of 15 elements with names like Neodymium, Terbium and Dysprosium, and which are vital to green technology and high-tech applications. For example, Neodymium-Praseodymium (NdPr)-based magnets are found in 93% of all electric vehicle motors, a scenario that could lead to a supply deficit if the electric vehicle adoption rates continue to rise.

But since China’s dominant position in this market has sparked supply concerns, the industry world is looking for alternative sources of supply.

In November 2021, Defense Metals announced an updated resource estimate for Wicheeda, marking a 36% increase in contained metal compared to previous estimates. The project is now estimated to contain an Indicated Resource of 5.03 million tonnes averaging 2.95% TREO (total rare earth oxide) and Inferred Resources of 29.5 million tonnes averaging 1.83% TREO, reported at a cut-off grade of 0.5% TREO contained within the Lerchs-Grossman (LG) optimized pit shell.

A recent Preliminary Economic Assessment (PEA) pegs the pre-tax net present value (NPV) at $760.585 million ($516.500 million after tax, at an 8% discount rated). The PEA envisages an initial capital expenditure of $440.068 million and average annual REO production of 25,423 tonnes. Mine life would be 16 years, a Post-tax IRR of 18% and a 5-year payback period with an average production rate after ramp-up of 1.73 million tonnes/year. Total operating costs would be $90.64/tonne. Net revenue from concentrate is $862.520 million and net revenue from precipitate is $5,236.095 million.

Conventional metallurgy has yielded high grade saleable REE flotation concentrates (52% REO in pilot plant). The company is hoping to begin small scale production at a demonstration plant in 2023.

Defense Metals recently appointed Dr. Luisa Moreno as president and director. Dr. William Bird has been appointed to the board of directors.

Craig Taylor, CEO, commented: “With the recent completion of a positive and robust PEA, and 100% acquisition of the Wicheeda project, Defense Metals is entering into a new phase of development, and we are delighted to have the extensive rare earth expertise of Dr. Moreno as president and Dr. Bird as a director.”

On February 2, 2022, Defense Metals shares were trading at 27.5 cents in a 52-week range of 75 cents and 21 cents, leaving the company with market cap of $44.16  million, based on 160,591,221 million shares outstanding.

Appia Rare Earths & Uranium Corp. [API-CSE; APAAF-OTCQB] is delineating high-grade critical rare earth elements, gallium and uranium on the Alces Lake property in Saskatchewan. Appia also has a 100% interest in 12,545 hectares with rare earth element and uranium deposits over five mineralized zones in the Elliot Lake camp, Ontario.

United States-based REE projects

But whilst China is dominant now, in the decades before the 1980s it was the U.S. that held a majority stake in REE market. That changed as production growth abroad, mounting environmental pressures at home and cheaper labour shifted production overseas. Some reports have suggested that China strategically flooded the global market with rare earths at cheaper prices to drive out and deter current and future competitors. China demonstrated its willingness to use its REE monopoly as a diplomatic tool in 2010 when it severely limited REE exports to Japan during arguments over disputed territory. The incident heralded to the world that China had begun to see its REE monopoly as a strategic tool in foreign policy.

In the intervening years the United States has made several attempts to re-emerge as a major player in the REE supply chain and under the current Biden administration, the effort is receiving renewed focus, with massive investments planned in climate change technology and a hard line being taken on geopolitical rivalries and the national security threat posed by China.

Domestic efforts in the US to extract rare earths are taking place in a few states including Wyoming, Texas and California.

The US group, Molycorp, reopened the longstanding Mountain Pass mine in the Mojave Desert of Southern California in the early 2000s, only to go bankrupt in 2015 thanks to China flooding the market and driving down REE prices. Another company, MP Materials Corp. [MP-NYSE] bought the mine. The Wall Street Journal reported, “By summer 2018, less than a year after the dormant mine reopened, Mountain Pass’s workforce had grown to roughly 200 from just eight.” For the three months ended September 30, 2021, REO production totaled 11,998 tonnes, making it the largest REE producer in the Western Hemisphere.

Currently, the Las Vegas-headquartered company is planning to restore the domestic rare earths supply chain from mine to magnet. One of the company’s largest customers is Shenghe Resources, a Chinese company responsible for processing, distributing and refining REE’s.

Energy Fuels Inc. [EFR-TSX; UUUU-NYSE American] is the leading U.S. producer of uranium, a major U.S. producer of vanadium and an emerging player in the commercial rare earth sector. The company began delivering an intermediate REE product (RE Carbonate) to a separation facility in Europe in July 2021. Energy Fuels is in discussions with several global suppliers of natural monazite ore to supply feed for this growing REE initiative.

Not the usual mining company, Texas-based Urban Mining Company delivers high performance Nd-Fe-B rare earth magnet products to end-users that remove supply/price risk threatening the development of high-tech, energy-efficient applications. The company uses an abundant, alternative raw material – waste magnetic material – to support manufacturing of rare earth permanent magnets.

The U.S. Department of Defense has provided US$28.8 million in funding to Urban Mining through a Defense Production Act program. Called Title III. This program aims “to ensure the timely availability of essential domestic industrial resources to support national defense and homeland security requirements through the use of highly tailored economic incentives.”

In other matters, Senators Tom Cotton (R-Arkansas) and Mark Kelly (D-Arizona) have introduced the Restoring Essential Energy and Security Holdings Onshore for Rare Earths (REEShore) Act to protect America from the threat of rare-earth element supply disruptions, encourage domestic production of those elements, and reduce our reliance on China.

“The Chinese Communist Party has a chokehold on global rare-earth element supplies, which are used in everything from batteries to fighter jets. Ending America’s dependence on the CCP for extraction and processing of these elements is critical to winning the strategic competition against China and protecting our national security,” said Cotton.

The REEShore Act will require the Departments of Defense and the Interior to create a strategic reserve of rare-earth elements (and rare metals) and products by 2025. The reserve must meet the needs of the U.S. military, defense industrial and technology sectors, and other critical infrastructure for one year in the event of a supply disruption, require Department of Defense contractors to track, disclose the origins of rare-earth magnets used in systems that it delivers to the U.S. military and prohibit Chinese rare-earth metals from being used in sensitive Department of Defense systems by 2026.

Other REE players

Another key player in the REE space is the Lynas Corporation [LYS-ASX], one of the largest processors of rare earths outside China. The Australian mining company, which operates a separation facility in Malaysia, recently received $30.4 million in funding from the Pentagon to build a Texas light rare earths processing facility and earned another contract, in partnership with Blue Line Corp., also based in Texas, to build a heavy rare earths separation facility.

Lynas is experiencing difficulty with their radioactive feedstock.

The Chinese government recently announced that it is consolidating China Minmetals Rare Earth, Chinalco Rare Earth & Metals and China Southern Rare Earth Group under one company called China Rare Earth Group. The government will own 31.2% in the new REE group company, and the shareholders of the three companies will own the remaining interest. How this event will ultimately affect supply and pricing remains to be seen.

The Saskatchewan Research Council plans to construct the first REE processing facility in Canada by 2024, to be financed by the province to the tune of +CAD$30 million.

The future

Following the big spike and collapse of REE prices that ended in mid-2013, REE prices have not been as high as they are right now for over 11 years and analysts expect them to remain high in 2022.

However, there is prevailing tightness between supply and demand for magnet rare earths and there is no buffer of supply to draw upon when disruptions materialize. The magnet rare earths namely, neodymium, praseodymium, dysprosium and terbium have the biggest upside potential entering 2022.

Government policies related to zero-carbon emissions and the adoption of green technologies like EVs will continue to have a dramatic effect on demand for rare earths.

In light of China’s overwhelming dominance in global REE supply chains and its history of using it as political leverage, it is becoming critical that the world escapes dependency on Chinese REE supplies in the future.


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