Investors looking at the REE industry can expect a great future! Let’s look at the prospects of this key subsegment of the secular growth trend “Energy transition”.
The world’s two largest rare earth mining companies outside China are the US operator MP Materials (MP) and the Australian counterpart Lynas Corporation (LYC). Together with other Western corporations, they are seeking to modernize the REE extraction and refining business.
As previously stated, the 17 greyish rare earth minerals are not uncommon; about everywhere on the globe, one can find the same average values, ranging from 3 to 4 grams per metric ton of rock. However, deposits with economically exploitable values (> 15 grams per MT) are more difficult to find. Oftentimes, these deposits are part of a cooper belt, potash deposit, or are simply embedded into the rock, which makes their extraction slightly more complex. The average recovery level is oftentimes not exceeding 60%. In the case of Lanthanum (LA) and Cerium (CE), the possible recovery levels are higher, i.e. around 70% and beyond. The real challenge though comes with the complex refining process, i.e. how to separate REEs needed to produce permanent magnets used as part of the energy transition.
It is well known that the REE refining business is centered around China, which controls about 65 % to 70% of the global refining capacity and produces close to 90% of all magnet output. According to a Goldman Sach report, there are only five non-Chinese REE refineries, and efforts to add new non-Chinese capacity have almost come to a standstill, be it because of environmental, be it because of technical and calibration issues.
Let’s look at the process of how REE ends up in our EV, and becomes part of our smartphone, or windmill.
Mining
As of today, there are two methods used to extract REE from the ground. From a technological point of view, in-situ leaching is more advanced. In comparison, similar methods are used by the shale oil and gas industry. A targeted location is fragmented, pressured up, and then chemicals are injected that separate REE elements from the rock. The enriched content is then pumped to the surface.
In contrast, the traditional open pit method, used by almost 90% of all mining facilities, consists in crushing the rock, milling, and a first level of physical separation. This is achieved through different flotation methods and electrostatic processing, the non-REE-containing material is removed. At this point, similar to the in-situs, the operator of the mine has a concentrate that contains up to 70% of REE and is ready for the next downstream process.
When the gravity concentration is being applied, the sought-after REE elements are made hydrophobic, hence it will float up to the surface of the concentrate, where it can be recuperated. In the case of magnetic separation, magnetic particles are attracted to a permanent magnet or electromagnet. This process is made inside a conveyor. Less commonly used process types are a) electrostatic separation which takes advantage of differences in electrical conductivity between particles, and b) froth flotation consists in concentrating the ores of most metal sulfide minerals and many non-metallic minerals.
Chemical separation
In the 2nd process step, also known as oxidation process, solvents such as ammonia, hydrochloric acids, and sulfates, amongst others, are used to extract individual rare earth elements to form metals. Pending on the composition of the deposit, the traditional cherry-picking process allows to extract of two to three rare elements while other REE elements, because of the modification of the microscopic structure, are most often lost. New technics, but not efficient yet, tease out in a specific order, the available rare earth elements. The challenge of this purification process is to find the chemical combination that allows multiple process sequences that do not alter the atomic composition of the REE elements. The process depends on the base geology of the deposit. The fact that nearly all REE have almost the same size and atomic weight, makes this tease process unique to each deposit. At the end of this process, the operator has a highly enriched Rare Earths Oxide (REO) amalgamate.
Often, REE deposits come with elements of Uranium or Thorium that need to be neutralized. This is achieved by means of specific acids. Yet, the use of these acids is an environmental concern. Therefore, the neutralization occurs during the late stage of the separation process to keep potential contamination risks low.
Alloys
At this point of the process, the separated rare earth carbonates are refined into REE metal bullets or powder. To produce a permanent magnet, REEs like neodymium and praseodymium are mixed with iron and boron. These elements are put in a vacuum induction heater to form an alloy. In the event the magnet needs to be heat resistant, REE elements such as dysprosium and terbium are added.
Magnets
In the final step, the alloy ingots are fragmented and milled to powder in an atmosphere that is enriched with nitrogen and argon and then pressed to magnets. This high-temperature and pressurized process is called “sintering”.
The geopolitical chicken run with REE
The push to achieve CO2 neutrality by 2050 is requiring unlimited and unrestricted access to REE deposits and REE refining capacities. Today, this is not the case since China has, to defend its national interests given the US-China trade war, imposed export controls on refined REE metals such as gallium and germanium. While Western companies are still far away from achieving more efficient and less perilous refining methods, China could block, in a next step of potential sanctions, exports of rare earth products such as magnets and potential transfers of processing technologies.
In contrast to natural magnets, REE-based magnets are lighter and can handle higher temperatures. These are much-needed key attributes for EVs which need to comply with a number of prerequisites to become mass-market compatible. Batteries need to have fast-charging capacities and they need to be low volume and low weight. Heat resistance is highly important for the fast-charging process while the low weight characteristic will increase the travel distance per load (all other things being equal).
The world still depends on China’s refining capacities as MP and LYC struggle to come along with an efficient method that would allow them to grab a substantial market share from China. Both, MP and LYC, have experienced recent setbacks with their developments. MP has evidenced a number of delays (Covid and calibration process) at their CA plant while LYR’s TX-based facility, the most promising joint venture in the field, has collapsed. MP was expected to deliver its production to GM starting in 2025. Given this setback, the US car manufacturer will continue to depend on China-based productions. According to some sources, the implementation of an efficient calibration process may take two to three years.
The catch-22 for DM countries is that its companies have taken on Chinese production capacities for granted and freed up from any geopolitical tensions. This was somehow imprudent as about 40% of DM GDP is generated by consumer discretionary sectors directly or indirectly related to the manufacturing industry, including the automobile industry. More importantly, 70% of the technology used by a fuel-sourced engine is either European or US made, whereas 70% of the technology used by an EV is EM-based, mainly China.
While China accounts for about 35 % of the world’s REE known reserves, it manages and controls the full supply chain from extracting, leaching, melting, and producing batteries for multiple uses. In fact, as an emerging nation, China has disregarded any environmental concerns thereby allowing it to test extensively multiple processing methods. This is raising concerns about how the country has been able to dominate and corner out the rest of the world. More importantly, its subsidized low-price policy, deliberately kept at any cost, makes its production facilities ultra-competitive. This has a 2-fold advantage for Chinese companies: DM production facilities can’t become competitive in terms of prices, and b) it favors its own EV manufacturing capacities.
The Chinese strategy goes even one step further. Beijing has favored collaborations with resources rich countries and has offered them attractive long-term partnerships. The partnership incentivizes the development of new mines, but it does not allow its partners to build any value-add services such as refining facilities.
Under this reengineered neo-colonial slavery concept, the US company MP shipped in 2022 over 40’000 metric tons of concentrate to China for refining. Operators in other countries with important REE deposits, such as Vietnam, Myanmar, and Kazakhstan, do the same. The Australian miner Linas depends on a non-Chinese refinery in Malaysia. However, the government in Kuala Lumpur started voicing its concerns about some environmental issues and intends to block the import of Australian-produced concentrates. LYR says that it is not aware of any leaks at the facility and pretends that the government is simply aiming at higher rewards by means of some geopolitical and economic pressures.
There are different initiatives aiming at the development of refining capacities in DM. But before some plants can go online, a lot of efforts need to be done and in the best-case scenario, Chinese-based EV battery production capacities can be reduced from 89% (today) to 75 % by 2028!
It might be true that DM dependency on China has gone too far in many areas. Yet,
consumers and industry leaders in DM are probably equally responsible as they have enjoyed the immediate benefits of cheap manufacturing abroad while ignoring future developments through heavy R&D thereby safeguarding future prosperity.
Investment opportunities
In collaboration with the U.S. government scientist from the Lawrence Livermore Laboratory, American Rare Earths (ARR.AX) has started working on a project to develop bacteria that could process rare earths. Privately held Locus Mining and Aether Bio are also studying ways to use biosurfactants and nanotechnology, respectively. UCore Rare Metals (UCU.V) and potash producer Mosaic (MOS.N) are also perusing various cleaner and faster processing technologies. Yet, these projects are still years away from going online. Early-stage investors who can stomach some full losses across a diversified portfolio are expected to be rewarded handsomely with returns well above average.