Lynas shutdown highlights need to diversify rare earths supply chain
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Lynas Corporation’s (ASX:LYC) decision to temporarily cease production at its Malaysian processing plant after the government introduced tighter movement controls to limit the spread of COVID-19 has highlighted the fragility of the rare earths supply chain.
The world’s largest rare earths producer outside of China noted that its Mt Weld mine would continue to operate and that the plant retained in-progress inventory for a quick restart.
Rare earths are a basket of minerals that are crucial to the manufacture of high-tech products. They include neodymium and praseodymium, which are in strong demand for the manufacture of permanent magnets that are essential for electric motors and wind power generators.
RareX (ASX:REE) executive director Jeremy Robinson told Stockhead that while the shut-down would not have an impact on the quoted price of rare earths in the short term, the same would not be true in the case of a prolonged closure.
More importantly, he noted that the shut-down and the impact of the COVID-19 outbreak did “shine a light on the need for an industry outside of China”.
Hexagon Energy Materials (ASX:HXG) managing director Mike Rosenstreich agreed that this was the key point about the shutdown of Lynas’ plant.
“The fact that one player that represents 14 or 15 per cent of global output of rare earth oxides is now imperilled and you put that together with the situation in China when their supply was restricted due to COVID-19, I think that just exemplifies the very fragile nature of the supply chain,” he explained.
While Rosenstreich said there was no doubt that demand for rare earths from electric vehicles and wind turbines would be hampered or delayed by what was happening around the world, he was more positive about the longer-term prospects.
“That demand — it’s a timing issue and hopefully a short-term one,” he said. “That will come back and we should learn the lesson of extreme supply concentration.”
Tim Harrison, Oro Verde’s (ASX:OVL) project manager for its unique Makutuu project, also noted that recent events further highlighted the requirement to diversify supply and supply risk away from China.
Given the rough consensus about the need to diversify rare earths supply, Northern Minerals’ (ASX:NTU) position as one of the few non-Chinese producers of rare earths must be at least somewhat comforting.
Earlier this month, the company exported 114 tonnes of heavy rare earth carbonate to its offtake partner thyssenkrupp Materials Trading.
It noted that rare earth separation facilities in China’s southern provinces had restarted production and there had been no discernible change in the demand for its product.
Meanwhile, RareX is continuing to progress development of its Cummins Range project, which currently hosts Australia’s fourth largest rare earth resource of 13 million tonnes grading 1.13 per cent total rare earths oxide (TREO).
A significant percentage of this resource is believed to consist of neodymium and praseodymium.
Early this month, Noble Group subsidiary Talaxis agreed to provide the company with market intelligence, global roadshows, capital introduction services, and assisting in contract procurement and negotiation.
“The overall financing market is quite tough at the moment, but RareX is quite well funded at the moment to see its way through this crisis,” Robinson said.
“We have very low overheads so we should be fine to ride out the storm.”
Meanwhile, Hexagon is focused on developing its RapidSX Commercial Demonstration Plant (CDP) for the downstream separation of REEs.
Rosenstreich told Stockhead that the company’s technology enabled non-Chinese rare earths producers to capture extra value by doing the separation in-house.
Oro Verde is progressing development of its Makuutu project in Uganda, which is one of the very few ionic adsorption clay-hosted projects outside of China.
The project offers several advantages over hard rock rare earth deposits, the chief being the ease of extracting the rare earths and the large size of the deposit.
“We have a drilling program that we initiated, the potential for that is we will probably look at the drilling program and look at what metres we think we should expedite,” Harrison told Stockhead.
“It is all about trying to improve our understanding of the orebody and the magnitude and distribution of the orebody.
“We will be re-assessing our development plans in the immediate term to make sure we focus on the best course of action for the business.”
Harrison added that the company wanted to do the right work at the right time and to position itself to be ready to develop Makuutu when market conditions supported it.
In late February, Hastings Technology Metals (ASX:HAS) recorded a 52 per cent increase in the higher confidence indicated resource for its Simon’s Find deposit to 1,522 tonnes of contained TREO.
Nearly half of this resource is the high-value neodymium and praseodymium oxide.
Simon’s Find is part of the Yangibana rare earths project in WA’s Upper Gascoyne Region.
Over in the Northern Territory, Arafura (ASX:ARU) recently estimated that its Nolans neodymium praseodymium project could generate a net present value (NPV) of $968m and internal rate of return (IRR) of 17.97 per cent after it increased the project mine life.
This is up from its definitive feasibility study NPV and IRR estimates of $729m and 17.43 per cent respectively, which increases the expected profitability of the proposed mining operation.
Red Mountain Mining (ASX:RMX) has kicked off an assessment of all available geophysical data at its Mt Mansbridge heavy rare earths project in the Kimberley region of Western Australia.
The project is one of the few Australian projects prospective for xenotime, a rare earth mineral that hosts the heavy rare earths dysprosium and terbium.
Red Mountain will combine the numerous geophysical datasets undertaken by previous explorers and reprocess them into a single image to define targets for drilling at Mt Mansbridge.