Special Report: Chinese demand for rare earths continues to rise at the same time the Asian powerhouse is no longer allowed to source the commodity from Myanmar.

With the ban looming, China raced to secure as much supply from its neighbour as possible.

Data from China’s General Administration of Customs showed that from the start of 2019 through to May 15, China imported 9,217 tonnes of mixed rare earth concentrate from Myanmar.

Chinese buyers knew the ban was on the cards and this led to a 29 per cent year over year spike in imports in May to 3,284 tonnes just before the ban came into effect.

Last year China imported about 25,000 tonnes of mixed rare earth concentrate from Myanmar, according to Adamas Intelligence.

Adamas estimates that Myanmar supplies about 32 per cent of total global dysprosium and terbium production, and about 13 per cent of neodymium and praseodymium (NdPr) production.

“So the absence of this feedstock in China since May is adding support for higher prices of some rare earths,” Adamas said.

So it’s no surprise major Asian trading houses are taking an increased interest in Aussie rare earths players like Arafura Resources (ASX:ARU).

Arafura’s Nolans Project in the Northern Territory is forecast to produce the bulk of its revenue (85 per cent, to be precise) from sales of NdPr oxide, a rare earth compound used to make ultra-strong permanent magnets for micro-motors and the drivetrains of electric vehicles.

“Any trade restrictions that are going on that are impacting supply will likely have the flow through of increased prices,” managing director Gavin Lockyer said.

“Supply has to be sourced from somewhere and our understanding is that Myanmar was a reasonable amount of supply of primarily heavy rare earths, but also some NdPr into China.

“So that supply is going to have to come from somewhere else.

“China will almost certainly be a net importer of NdPr early next decade.”

Buyers want ‘meaningful production’

Singapore-based Talaxis has become a substantial shareholder with a 5.23 per cent stake in the company.

Talaxis is a wholly owned subsidiary of Noble Group, a major Hong Kong-based commodities trader.

The company invests in and develops projects that are related to technology metals, with a special focus on rare earths.

Talaxis was one of the sub-underwriters of Arafura’s recent entitlement offer that topped up the company’s coffers by $23.2m.

Arafura is Talaxis’ second investment in the rare earths space.

“A deficit in the supply of neodymium is looming and only a few projects are truly in a position to bring on meaningful production in time,” Talaxis executive director Daniel Mamadou said at the time the equity raising was announced in June.

Meanwhile, for Arafura, Talaxis’ connections will be invaluable, particularly in securing construction funding.

“We are particularly excited about the potential to team up with Talaxis, a company that possesses certain skills and expertise that will be invaluable in moving Arafura’s 100 per cent-owned Nolans project into development,” Lockyer said.

Based on a definitive feasibility study completed in February, Nolans will produce 4,357 tonnes of NdPr oxide per annum at an average cost of $US25.94/kg for an initial 23 years.

At around two-thirds of Lynas’ (ASX:LYC) current annual output, this would rank Arafura as the second largest NdPr producer outside of China.

Paterson Securities head of research Cathy Moises said previously that the meaningful production forecast to come from Nolans and the project’s advanced nature meant the company was “in the box seat” for “when the NdPr dam bursts and users are scrambling for supply”.

 

 

This story was developed in collaboration with Arafura Resources, a Stockhead advertiser at the time of publishing.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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