Be careful what you wish for. That could be the take-home message from comments made to RareMetalBlog by Australian REE expert Dudley Kingsnorth. He says the continuation of present high prices, and especially any significant further rises, will just give greater emphasis to the need by end users to find substitutes for REE. After all, we have already seen the Japanese government put up funds to promote the identification and use of substitutes for REE and also to lift recycling of the elements – the whole idea being to free Japanese manufacturers from being hostages to the rare earth miners.
Kingsnorth, who runs Perth-based Industrial Minerals Co. of Australia, said that a few months ago he had forecast that, in 2015 and taken across the whole industry, REE producers would receive an average of between US$30/kg and US$40/kg rare earth oxides (REO). It is noteworthy that the figure for the first quarter of 2010 was between US$12/kg and US$15/kg REO and today it is between US$120/kg and US$150/kg REO. He adds that, when one considers that Lynas is forecasting their costs of production at US$10/kg, one can understand why many analysts are recommending Lynas as a ‘buy’ – it is a mark-up that even the iron ore miners can only dream about! Kingsnorth’s latest estimates for 2015 prices is that they will probably be in the range of US$40/kg to US$60/kg REO. The recent rise of dysprosium from US$750/kg to US$1,500/kg is, in his view, unsustainable. Already the high prices are having an effect: producers are selling much lower REE quantities than they were a year ago.
He sees some of the heavy rare earth oxides being in continuing short supply, but many of the others are likely to come off by substantial amounts.
This is not to say that mining REE will be unprofitable, says Kingsnorth. Those companies that get the financing to develop REE mines will, he says, be very profitable businesses. As noted above, Lynas Corp., at its operations in Western Australia and Malaysia, has target production costs of around US$10/kg, and Molycorp at Mountain Pass, California, lower again.
However, he doesn’t think these mines will reach their full capacity for several years. Lynas is being delayed by the environmental and health enquiry in Malaysia concerning the processing plant at Gebeng, but Kingsnorth believes the Malaysians will eventually give it the green light. Molycorp now looks like commencing start up mid-2012. Until these projects reach their design capacity they will enjoy very good prices, but at reduced volumes.
He sees the current market being distorted by the Chinese system of export quotas; as a result of their scarcity there is a ‘value/price’ of approximately US$80 per kg REO quota. This is the reason why the lower priced light rare earths have increased in price by the greatest margins (more than 1,000 per cent in some cases). In the medium term, once Lynas and Molycorp are up to capacity Kingsnorth believes that this premium will disappear; the basis for his forecast of a fall in prices in 2014-15.
George Bauk, managing director of heavy rare earths hopeful Northern Minerals, is very wary about the recent explosive increase in prices; he believes it has the potential to stunt the growth of the industry and could lead to its demise if the current trend continues unabated.
He signalled that Northern Minerals is pressing ahead as quickly as possible, the current drilling program having been affected by heavy rains and causing the company frustration. Bauk also illustrated what he sees as the urgency by outlining how the company plans to accelerate the race to production.
“We are very conscious of the need for the rest of the world to develop its own sources of heavy rare earths as soon as possible if it is to become independent of China,” he added. “That is why we will develop any heavy rare earth resources we may identify/prove as soon practicable, if necessary without going to the ultimate value-add step of producing separated rare earths.”