The Rare Earth Observer - January 4 - 2022

Rare Earth Deposits & Mining

The Rare Earth Observer Coverage (January 4, 2022)

China Rare Earth Group Details;

China's Multi-Agency for RE Resource Leverage;

Lynas PDF Approved;

2 New Kids On The Block;

No NdFeB for Toyota in Future;

IREL under Investigation.

 
As they (the REO) reported, China Rare Earth Group Co., Ltd. was established on December 23, 2021 and, based on the rare earth production quota set by MIIT for 2021 would hold 23% of legal rare earth compounds output of China.

The media immediately spread FUD by naming this a “rare earth giant”, a “rare earth aircraft carrier”.

Structure:

The shareholding structure is as follows:

State-owned Assets Supervision Commission (SASAC Beijing): 31.21%
China Aluminum Corporation: 20.33%
China Minmetals Corporation: 20.33%
Ganzhou Rare Earth Group Co., Ltd.: 20.33%
China Iron and Steel Research Technology Group Co., Ltd.: 3.90% (SASAC Beijing)
Grinm Technology Group Co., Ltd.: 3.90% (formerly Beijing General Research Institute of Nonferrous Metals, also under SASAC Beijing)

In other words Beijing, through SASAC, holds a comfortable blocking minority as per Chinese law.

A rare earth giant?

Registered capital of the company is RMB 100 mio (~US$ 15.75 mio). That is not a rare earth giant, and it is certainly also not a rare earth aircraft carrier, as some media chose to describe it.

China Southern Rare Earth Group was established in 2015 and consisted of the Ganzhou Rare Earth Group with 16 township RE companies attached to it and Jiangxi Copper’s rare earth assets in Sichuan.

We should like to point out again, that Jiangxi Copper are not part of the new group. Perhaps Jiangxi Copper in their incarnation as China Southern Rare Earth Group are to take the lead in another round of consolidation.

Actually, out of the 2021 quota of 28,262 t TREO for China Southern Rare Earth Group, 20,670 t were Jiangxi Copper. So Ganzhou Rare Earth Group’s share was 7,592 t, which now migrates to China Rare Earth Group.

Directors and management

According to this announcement:

Ao Hong - Source: baidu.com
Ao Hong (敖宏): Secretary of the Party Committee and Chairman. Mr Ao, born June 1961 in Baoshan, Yunnan (the district of Tengchong Customs, where all Myanmar rare earth imports are cleared), concurrently is the Deputy Secretary of the Party Committee and Director at China Aluminum. Prior to joining the board of China Aluminum, he spent 23 years with Beijing General Research Institute of Nonferrous Metals (Grinm, the 3.9% shareholder).

Liu Lei Yun - Source: baidu.com
Liu Leiyun (刘雷云): Deputy Secretary and Director of the Party Committee of China and general manager. Mr. Liu, born July 1965, concurrently is the Chairman of Minmetals Rare Earth;

Yang Guoan (杨国安): Deputy Secretary of the Party Committee of China Rare Earth Group Co., Ltd. and director;

Hu Guhua (胡谷华), Wang Tao (王涛) and Xie Zhihong (谢志宏): Members of Standing Committee of the Party Committee and deputy general managers;

Qin Jingwen (覃荆文): Standing Committee Member and Secretary of the Disciplinary Committee;

Guo Liangjin (郭良金) Standing Committee Member of the Party Committee and chief accountant;

Zhang Guohou (张国厚) and Jin Yaohua (金耀华): outside directors.

The office building of China Rare Earth Group is the tower on the left (in the article). The tower on the right houses the Ganzhou Zhanggong District People’s Government and its institutions, the district Chinese Communist Party Commission and the district’s Communist Party Discipline Inspection Commission (signage of CCP offices is always in red characters). Credit: baidu.com

Rationale

Of course such an arranged marriage is designed to reduce competition. Given, that we are entirely talking about state-owned, party controlled enterprises, it is a miracle that there should have been competition in the first place. In our view, competition among China’s SOE is a competition for power, everyone primarily strives to be the largest one. This is what creates overcapacities and inflated volumes come at the detriment of prices, the environment and increasingly scarce resources.

So channeling the quest for power of multiple players into a single player, a leaner and more rational, market-based competition may ensue. The combined entity can afford, what separate entities may not have been able to afford, such as closing substandard facilities or upgrading them, while under previous conditions competitors may have eaten up market share.

Market share of China Rare Earth Group Co., Ltd.

Based on the production quota for 2021, China Rare Earth Group’s share of the quota of smelted and separated rare earth would be 23%: Some pundits are pointing out, that China Rare Earth Group would be heavy rare earth, while China Northern would be light rare earth, suggesting that these are two entirely different product groups. Here is a table of the proportional rare earth contents of a light rare earth bastnaesite (left) and a heavy rare earth ionic clay (right).

While ionic clay contains large percentages of so-called heavy rare earth, with 20-22% each NdPr is still the dominating product in terms of importance for either resource. The composition of ionic clay is undoubtedly highly advantageous, but it has other shortcomings, beginning with its low rare earth content.

Problems

Apart from the well-known problems with mergers anywhere, there is an outsize problem with mergers and centralisation in China: Taxation.

Distribution key of value-added tax (VAT) income in China:

75% central government;
5% provincial government;
13.75% municipal government;
6.25% district government.

Distribution key of corporate income tax:

60% the central government;
8% provincial government;
22% municipal government;
10% district government.

There are dozens of entities of China Rare Earth Group strewn across several provinces. If a local entity in Hunan province, the originator, is merged into a holding in Ganzhou, Jiangxi province and the economic activities of the Hunan entity are managed in Ganzhou, the tax income of the local government in Hunan will be reduced, one way or another. Whatever model one applies to such merger across provincial boundaries, local governments of the originating province lose tax income from entities that they originated and nursed over many years.

Commercial entities in China depend on local governments for services, utilities, industrial waste disposal, all kinds of approvals and also subsidies here and there. That is, where the local governments leverage is and why you would not want to mess with them. Even in “normal” times with less pressure on public finances than currently, provinces, cities and districts have a history of opposing mergers all-out. In steel we have seen mergers fail over local government resistance - even in two cities within the same province, barely 120 km apart.

In Shanghai even moving an office from one district to another causes a tax problem. You can expect a multi-year tax audit as an added bonus.

Beijing put a dream team of reliable comrades in charge of this new company. This is the age of compliance in China and Beijing has put its foot down.

Nonetheless, we expect wrestling for power, influence and income.

China’s Rare Earth Reserves

Some of our readers may recall, that we have been suspicious of the China rare earth resources:

1. China kept referring to USGS numbers, rather than putting out its own numbers;
2. The 2009 State Council revelation, that China had already used up â…“ of its reserves;
3. This chart, that shows a doubling of China’s rare earth reserves between 2008 and 2010:

China’s share of world rare earth reserves (here). Blue total world reserves, orange China’s reserves and the grey line China’s share. Source: Wind Data

For a number of years China’s rare earth industry has used USGS numbers, instead of China’s own. The number remains steady, however, considering documented consumption, during the past 10 years that number should have shrunk by >1 mio t TREO. We note, that recently a couple of Chinese experts urged to re-assess China’s rare earth resources.

Related:

China urged to sharpen rare earths edge in race with the US (here).

China has been urged to create a multi-agency mechanism to secure supplies of critical minerals as a geopolitical leverage against the United States and its allies amid a global drive towards green energy. Experts studying the White House’s strategy on rare earths say the proposed body could be similar to the system in the US where the commerce, energy, foreign policy and federal authorities are all involved in devising and implementing critical minerals strategies.

Currently, 6 agencies attend to rare earths as a “task force”:

• National Development & Reform Commission (previously known as State Planning Commission)
• Ministry of Natural Resources
• Ministry of Industry & Information Technology
• Ministry of Ecology and Environment
• Ministry of Finance
• China Customs

This current management of rare earth in China is inward looking, domestic, and fully focused on supervising and directing the quantity produced and sale of rare earths. By China’s own assessment, it will need 120,000 t of NdPr by 2025 in order to achieve a multitude of planned related goals. Not only Lynas, but everyone should double output by 2025, in order to reach that number. However, in terms of sourcing of rare earth raw materials Chinese companies are on their own. And that is, where such mechanism support as suggested should set in.

Eventually, it may give rise to the realization, that in terms of carbon neutral and the materials necessary to achieve carbon neutral, trade talks will be essential. Or China taps into its own reserves, owing to insufficient availability of raw material from abroad. Unsurprisingly, the Ministry of Industry & Information Technology’s last week publication of the “Interpretation of the "Fourteenth Five-Year" Raw Material Industry Development Plan” states among others:

The fifth is to ensure the safety of the industrial system. Improve resource security capabilities, rationally develop domestic mineral resources, expand diversified resource supply channels, develop "urban mines" resources, and promote international cooperation in the field of mineral resources.

Given a conducive international environment, which would need to include China applying the same full VAT refund upon export for rare earths, as is applicable to China’s rare earth magnets and components made thereof, it may be very attractive for junior rare earth miners to follow in the footsteps of MP Materials, accept China shareholding and financing to supply China with raw material, profitably.

Renowned China expert Bill Bishop comments: The Biden Administration does not appear to have ever had a trade strategy for the PRC, or more broadly, and now is distracted with latest COVID surge, Ukraine/Russia, and the upcoming mid-terms. The PRC is probably waiting for the US to make concessions, in the name of fighting inflation and reducing supply chain issues. One side sees itself in a “protracted war” and knows how to wage it, the other side looks paralyzed like a deer in interest groups’ headlights.

Somewhat off-topic, but worth mentioning...

In the very last minute on December 31 China’s government announced the postponement of an income tax measure, originally to be implemented from January 1, 2022, for (or rather against) expatriates in China, that would have disproportionally hit those whose home country bestowed the privilege of double taxation on them: US-Americans. Announcement on the continuation of the implementation of foreign personal allowances and other relevant personal income tax preferential policies (here)

A nod to the tireless lobby work of the U.S. Chamber of Commerce in China, but also an attempt to plug the outflow of foreign personnel from China.

According to the EU Chamber of Commerce in China, the outflow of foreigners from China has meanwhile reached the point, that more expatriates work in tiny Luxembourg than in China. (Source: Google Maps)


Challenge to remove rare earth magnets - DENSO develops for EV (here)

Looking ahead to the global electric vehicle (EV) shift, Toyota Motor Group’s DENSO is developing magnets that do not use rare earths at all.

DENSO will develop an "iron-nickel superlattice magnet" made of common iron and nickel. Until now, it was known that meteorites containing two metals could be cooled in outer space over a long period of billions of years, but the company made it artificially.

If you just combine iron and nickel, it becomes just an alloy, but if you make it a "superlattice" that is regularly arranged at the atomic level, it has the properties of a magnet. It was a difficult task to create this state, but the company, which has been researching since 2011, has established a technology to arrange two metal atoms neatly by using nitrogen. Furthermore, it has been confirmed that it can be used as a magnet even at a higher temperature of 400 degrees Celsius than before, and it is said that it is suitable for in-vehicle motors that operate at high temperatures.

However, there are still issues with the ability to maintain magnetic force and the technology for forming magnets, and we are proceeding with development to overcome them. Hiroaki Kura, chief of the advanced technology research institute of the company, said, "The effect of practical application is very large. We want to reduce the environmental load and improve the value of the motor with safe and secure materials."

There are several initiatives like this one. If Toyota should succeed with something like this, it would dent forecast NdFeB demand quite a bit. Investor appetite for rare earths is anyway close to non-existent, because RE are negligible on this chart and off investors’ radar (see graphic (here)): Related, as we predicted high material prices will kill demand:

Battery costs rise as lithium demand outstrips supply (here)

While mining companies scramble to increase production from existing facilities and develop new sources of supply, benchmark prices of lithium carbonate ended 2021 at records. In China, the biggest battery-producing country, the price was 261,500 yuan (just over $41,060) a ton, more than five times higher than last January.

Other commodities used in cathodes, the most expensive part of a battery, have also been rising: The price of cobalt has doubled since last January to $70,208 a ton, while nickel jumped 15% to $20,045.

The increases are undermining the technological and efficiency gains of recent years, when automakers and battery makers have worked hard together to develop long-life, high-performance batteries while trying to reduce costs. They also threaten to throw a wrench in the car industry's ambitious plans for electrification just as even formerly reluctant companies like Toyota embrace targets for electric vehicle production.

In a nutshell.

Meanwhile, certain particularly benighted governments should begin to realise, that they made plans and set targets that have no foundation. These governments must now make up their minds rather swiftly, if they shouldn’t shoulder their share of environmental burden in order to enable sufficient material supply for their self-designed policies. Or they may have to bite the sour apple to first delay and then abandon carbon neutral.

Related:

China Forges Ahead With Plan to End NEV Subsidies Before 2023 (here)

China has slashed subsidies for electric cars and other new-energy vehicles (NEVs) by 30%, as it works toward the goal of phasing them out completely by the end of 2022, two years later than originally planned. The decision to forge ahead with the cut to state support comes after sales saw bumper growth in 2021. In the first 11 months, sales surged 166.8% year-on-year to about 3 million units, according to the China Association of Automobile Manufacturers (CAAM).

We wonder, if subsidies can be phased out at all.

China’s smallest firms failing at historic pace as 4.37 million close up shop and registrations plummet

About 4.37 million of China’s smallest businesses permanently shut their doors in the first 11 months of the year – more than three times the number of new ones that opened during the same time, according to data obtained by the Post.

The data is particularly relevant given that Beijing considers the nation’s more than 40 million micro and small firms the “backbone” of China’s private sector, underpinning the national economy. Their struggles are a reflection of broader economic headwinds that analysts say could see gross domestic product (GDP) drop below 4 per cent in the fourth quarter of this year.

In their role as the nation’s economic backbone, smaller enterprises account for half of China’s tax revenue, 60 per cent of its GDP and 80 per cent of urban employment.

But they have also suffered the brunt of the economic downturn brought by the pandemic, despite tax and fee cuts from the government.

//Companies

NioCorp Achieves Positive Results in Metallurgical Testing of Possible Rare Earth Production at its Elk Creek, Nebraska Project (here)

In a recent development, L3 has demonstrated that Scandium can be effectively extracted and separated from the rare earth elements in solution using a phosphate-based extractant. With additional work, this phosphate-based recovery process could be shown capable of replacing the phosphoric acid-based extraction process that is part of the current Project design.

L3 has further demonstrated that the rare earth elements (lanthanum through lutetium, including the magnetic rare earths neodymium, praseodymium, dysprosium, and terbium) can be selectively extracted and separated from the leach solution using an amide-based extractant.

Molycorp were exploring Elk Creek 1973-1986. However, we have no data. NioCorp’s NI43-101 says about rare earth at Elk Creek (here) Source: NioCorp Elk Creek NI43-101

Frontier Resources (ASX:FNT) acquires REE and HPA projects in WA (here)

Frontier Resources (FNT) acquires two exploration licenses in the Gascoyne and two exploration licenses 160 kilometres west of Kalgoorlie dubbed the Koolya project. The tenements in the Gascoyne project are reportedly high in rare earth elements (REEs) which are used in the production of magnets

This project covers 230 square kilometres while the Koolya project is made up of 240 square kilometres of land prospective for bright white kaolin and high purity alumina (HPA). The company says the Koolya tenure is highly supportive of a large-scale development with reportedly excellent infrastructure nearby

Neighboring Hastings?

Lynas gets go-ahead for residue disposal (here)

Lynas Rare Earths has received approvals from the Malaysian environmental agency to build a disposal facility for its residue waste at its processing plant in the country. Hosiannah! Now the cash saved from delaying interest payments to Japan will come in handy.

Unrsuprisingly:

Australia Market starts 1st trading day of year with a bang (here)

Among individual stocks, Lynas Rare Earths shares added 8.5% after the company got environmental approvals last week to build a permanent disposal facility for water-leached purification residue in Malaysia.

Ucore, Innovation Metals’ rare earths processing plant expected in Q1 2022 (here)

In addition to modeling work, Pat Ryan said that IMC has been working with researchers at the University of Toronto to develop and evaluate proprietary and cost-effective methods for reducing the amount of yttrium in heavy REE-rich raw materials, prior to separation using RapidSX.

He explained that yttrium is a lower value REE, and reducing the amount of Y in the HREE raw materials before subsequent separation has the potential to reduce operating costs as well as the required plant size, thereby reducing capital costs.
Yttrium oxide prices have been heading skywards for quite a while. Perhaps it deserves a second, third and fourth look, what actually happens to demand of yttrium (see graphic (here)).

If at US$12/kg yttrium oxide should not be profitable for Ucore, then this would cast quite a bit of doubt on the whole project.

Rare earth producer JL Mag expects boost from China’s growing NEV sector (here)

The Tesla supplier, which plans to list on the Hong Kong stock exchange next week, secured big orders from BYD, SAIC Motor, BAIC Motor, NIO, Li Auto and Xpeng last year, Cai said. The company supplied carmakers enough magnetic material to produce 800,000 NEVs in the first nine months of last year, up from 450,000 cars in 2019.

JL Mag Rare-Earth was the world’s top producer of rare earth permanent magnetic materials in 2020 with a market share of around 14.5 per cent, according to Frost & Sullivan. Rare earth magnetic materials are vital to many industries including smart electronic devices, wind turbines, electric cars and military equipment.

The company plans to raise HK$5.06 billion (US$648.8 million) from its Hong Kong offering, with an overallotment option that could bring in as much as US$745 million. It will market the shares in a price range between HK$33.80 and HK$40.30 per share.

JL Mag Rare-Earth, which has been listed in Shenzhen since 2018, expects to finalise the offer price on January 7, with the shares to start trading from January 14. JL Mag shares listed on the mainland fell the maximum permissible limit of 10% on January 4 and lost further 1.6% on January 5.

Another gold explorer changing horses to rare earth:

Monumental Minerals Announces Appointment of Max Sali as Interim CEO (here)

Monumental Minerals Corp. ("Monumental" or the "Company") (TSXV: MNRL) is pleased to announce the appointment of Max Sali as the interim chief executive officer of the Company.

Mr. Todd Macdonald has resigned from the board of directors and as the chief executive officer of the Company, and the board has accepted his resignation. The Company thanks Mr. Macdonald for his contributions and wishes him every success in his future endeavors.
Among the company’s advisors you will find Mark Saxon, CEO of Medallion, and Craig Taylor, CEO of Defense Metals.

Monumental last year acquired the option to explore for RE at a project called JEMI, just across the US border in Mexico, north-east from Laredo.

The quick NI43-101 report for assessing the potential says:

Based on the information obtained during the Author’s visit and on historic exploration work the JEMI Property warrants further exploration for REE and other metals.

and

The greatest potential risks to the completion of a successful exploration program at the Property include the possibility of not being able to obtain formal surface access agreements over the areas of interest, or problems with obtaining an environmental permit for more significant surface disturbance for road construction, drilling and eventual mining.

However, looking at the grab/rock chip samples test and re-test results, the TREO of the handful of eudialyte samples collected is just 0.15% - 0.18% (after re-test).

Talking about changing horses from gold to rare earth….

PVW Resources confirms high-grade rare earth rock chip results from the Killi Killi East and Watts Rise prospects at Tanami (here)

Different from above, grab/rock chip samples of up to 12.45% TREO. Of course when geologists initially walk about they don’t sample every boring old rock, but those who look like something interesting, not necessarily representative for the average of the entire deposit (if there is one). See graphic (here).

Source: Government of Western Australia, Department of Mines and Petroleum, ALTERATION AND AGE OF THE BROWNS RANGE RARE-EARTH ELEMENT DEPOSITS
For PVW this is only the start with a long period of exploration ahead, see video (here).


CCI orders probe against IREL for alleged abuse of dominant position (here)

PTI, New Delhi, JAN 04 2022, 18:05 ISTUPDATED: JAN 04 2022, 18:11 IST Representative image. Credit: iStock photo Competition Commission has ordered a detailed probe against state-owned IREL (India) Ltd, which is into mining and production of minerals, for alleged abuse of dominant position.

It was alleged that IREL abused its dominant position by indulging in prohibitive increase in the sillimanite prices by following discriminatory pricing against the interests of the micro, small and medium enterprises in the domestic market.

The informant also alleged that the company favoured multinationals and/or foreign parties and fixed the supply of sillimanite as per its whims and fancies and forcing its customer to accept arbitrary quantity.

Competition Commission of India (CCI) said that based on facts and circumstances of the present case, it is prima facie noted that OP is the only entity engaged in the mining and supply of beach sand mineral in India, which allows it to operate independently of market forces.

This is what happens, if you create SOE monopolies.

//Prices

These are the year end prices. The full year price development is staggering. Since China is only on its second working day of the year, not much point to compare to Jan 5 to Dec 31 (see graphic (here)).

As ever, these are ex works China prices incl. 13% VAT for the most common qualities of rare earth oxides/metals and their raw materials, converted at the official onshore RMB/USD exchange rate. Actual offer prices will differ.

That is all for today. Thanks for reading and have a happy, healthy, rare earthy new year 2022!
Back-up link: https://treo.substack.com/p/china-rare-earth-group-details-chinas?utm_medium=email&utm_campaign=cta