03/08/2015 - 17:26

Rare earths: a sector in need of a winner

03/08/2015 - 17:26

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Western Australia has an opportunity to break the Chinese stranglehold on the rare earths industry, but the state needs a success story to build investor confidence.

Rare earths: a sector in need of a winner
Mt Weld in WA, currently mined by Lynas Corporation.

Western Australia has an opportunity to break the Chinese stranglehold on the rare earths industry, but the state needs a success story to build investor confidence.

Used in everything from magnets in wind turbines to smartphone screens, rare earth metals such as terbium and neodymium are in increasingly high demand due to technological developments.

Currently, about 90 per cent of global rare earths production is from China, giving that country a unique stranglehold over a market with immense strategic importance.

Outside of China, one of the world’s richest deposits is at Mt Weld in WA, currently mined by Lynas Corporation.

Another major operation is in the US, through Molycorp, while Perth-based Alkane Resources has a deposit at Dubbo in New South Wales it is looking to develop.

Extraction, however, is only part of the supply chain, with very expensive processing needed to make raw materials usable in end products.

That processing can be environmentally risky, with Chinese facilities in the city of Baotou particularly notable for its side effects.

Sills Strategic Materials director and industry expert Robert Sills said there were several players in the industry seeking to establish themselves, however subdued prices were proving to be a barrier.

Prices in the industry are highly volatile, with Chinese suppliers sporadically cutting or increasing production to control prices, leading to an epic spike in 2011.

Mr Sills said for development in Australia, the industry would need a success story to increase confidence among potential financial backers.

When that happens, rare earth exports could potentially be worth millions to the state’s economy, with Japanese and US interests keen to invest into developments to diversify suppliers.

Lynas, which has built its own such manufacturing plant in Malaysia, has experienced substantial pressures due to low volumes, high costs, and recently low prices.

Its share price has dropped around 99 per cent (see graph) since the spike of just a few years ago, including warning earlier this year it could be unable to repay its debts.

Better news came in the company’s June quarter report, however with Lynas generating positive cash flow for just the second quarter in its history, at $6.4 million.

Neodymium/praseodymium alloy (mostly used in magnets) volumes for the quarter were almost double that in March, while total production volumes were up around 30 per cent.

Alkane Resources managing director Ian Chalmers agreed that the industry needed a good story in the next two to three years.

He said projects like Dubbo, for which the company has designed a pilot production plant, would be crucial, with China consuming increasing amounts of rare earths going forward.

That deposit will not only potentially produce about 5 per cent of global demand for heavy rare earths, but will mostly produce zirconium, giving Alkane some cash flow diversity.

The project was given development approval last May, with feed pre-construction work also completed.

Others are in varying stages of development, including West Perth-based Peak Resources, which recently signed off a $30 million funding deal with Appian Natural Resources Fund and International Finance Corporation for its Ngualla rare earths project in Tanzania.

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