RIU Explorers Conference: Rare earths are all the rage, but not everyone can be a winner
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Take an unloved nickel, gold or copper explorer in the past year and, lo and behold, they’ve found rare earths.
Outside of Australia’s Lynas Rare Earths (ASX:LYC), owner of the massive Mt Weld deposit in WA’s Goldfields, the supply chain for the critical metals used in permanent magnets in EVs and wind turbines is almost entirely situated in China.
That has created an environment where governments want to pump cash, loans and other incentives into developing refineries and mines in the Western world — take Canberra’s $1.25 billion loan for Iluka’s Eneabba refinery near Geraldton last year, or Lynas’ deals to develop heavy and light rare earths plants in the US with the Department of Defence.
Investors have cottoned on as well, from retail punters all the way to the richest family offices in Australia.
Gina Rinehart, Andrew Forrest and Chris Ellison have all put millions into investments in both advanced and exploration stage rare earths companies, with Forrest plotting to make rare earths $70 billion Fortescue Metals Group’s (ASX:FMG) biggest mining-related diversification play outside iron ore.
It has inspired a massive rush in exploration spending on rare earths in recent months, even if lagging data hasn’t shown expenditure lift relative to strong neodymium and praseodymium (magnet rare earths) prices.
At a time when other commodities are facing challenges to find investment as macroeconomic concerns make investors tighten their belt, experts believe rare earths exploration is going to rise in 2023.
“We’re not necessarily seeing a correlation in the spend, so I reckon if I’m here in 12 months time the expenditure on rare earths in 2023 will be a lot higher, and perhaps going up towards the line … for the NdPr pricing,” Canaccord Genuity analyst Paul Howard said in a keynote speech at yesterday’s RIU Explorers Conference in Fremantle.
Lithium stocks have been the hot plays on the ASX in recent times, gathering steam from the massive rise in electric vehicle demand and production seen over the past couple years.
But expectations are that demand from the EV market for magnet rare earths will rise significantly this decade as well.
“I think lithium (going in) to batteries has had a fantastic run, and I think the same motives are going to be pushing rare earths in the same direction,” Dreadnought Resources (ASX:DRE) MD Dean Tuck said.
“It is that EV, it is the green future, we’re going to need to convert mechanical energy to electrical energy and electrical energy back into mechanical energy.
“And that’s all required with the rare earth magnets. So the lithium is there to store it and allow it to be possible and mobile. And then the magnets are actually the ones that are actually converting it mechanically back to energy.”
Dreadnought has made a monazite rare earth discovery at its Mangaroon project in the Gascoyne region, establishing itself as a second mover behind the region’s big rare earths player Hastings Technology Metals (ASX:HAS).
Hastings last year secured a $150 million investment from iron ore magnate Andrew Forrest’s privately owned Wyloo Metals, helping to bankroll an investment in a 22% stake in TSX-listed magnet maker Neo Performance Materials.
Tuck cautioned rare earths was not just about being in the space, but also being able to demonstrate you can produce a usable product down the line.
“I think we’re one of the few companies that actually has a second mover advantage, thanks to all the fantastic work that Hastings has done over the years,” he said.
“People are familiar with their projects, they’re familiar with their concentrate and the product they produce.
“And everything looks like we’ll be able to produce the exact same products using the exact same flow sheets designed by Hastings, so it allows us to actually not just be a big, questionable, rare earth project, it’s not just about grades and tonnes.
“It’s about can you produce a concentrate, can you produce a concentrate that can then be processed further downstream.”
Tuck said the push to develop a coherent Western supply chain for rare earths materials was positive for Australian miners.
“The situation has really lined up for rare earths, because you have that critical supply chain push, you have the US Government looking to actually fund and provide funding to process Australian (rare earths) or for Western supply chains,” he said.
“So they’ve already funded a heavy rare earth facility and a light rare earth facility in Texas to process Lynas ore and other ore, and they’ve pretty much come out and said, there’s a lot of funding to secure the supply chain to keep things aligned with American and Australian, and their partners’ interests.
“And so there’s a lot of push right now to sort of break free and secure that in a Western sense.”
That investment has opened development pathways for juniors that didn’t exist previously.
“We could actually have a lower capex, produce a concentrate, partner at the midstream-downstream, those options are existing now which probably didn’t exist in the past and there’s international funding to help bring those collaborative projects together to secure that supply chain all the way from mine to magnet,” Tuck said, noting Iluka, Lynas and Hastings could all be potential processing pathways for its Mangaroon product if its resource, testwork and economics stack up.
But not everyone moving into the rare earths space now will be a winner.
Veteran geologist Allan Kelly, whose explorer Miramar Resources (ASX:M2R) has prospects across the gold, nickel, copper, PGE and rare earths spaces, said investors rushing into the space could get burned if they fall for the hype.
He believes the next couple of years could see the wheat separated from the chaff when it comes to rare earths stocks.
“That’s like a normal exploration thing too, you have lots of prospects, and only a few of them turn into things,” Kelly said.
“But if you add on top of that the complicated nature of the rare earths, the different styles and the different types of rare earths and different deposit types and whether you can process them I think that’ll be exacerbated a bit.
“We look at rare earths, but you’ve got to quickly work out whether you’ve really got something or not.”
Miramar is conducting drilling at its Lang Well target, where historic intersections struck shallow lanthanum and cerium and has multiple intrusions identified over a 35km corridor in aeromagnetic surveys at Dooley Downs, near Hastings’ Yangibana deposit and Dreadnought’s discovery in WA’s Capricorn Orogen.
Kelly said it was one of the explorer’s focuses, but warned the industry was still emerging in Australia.
“We’ve had lots of bubbles before, we’ve had graphite and uranium bubbles and all these things. And you could say that lithium is a bubble or rare earths is a bubble, I think that probably oversimplifies it a bit,” he said.
“There’s a bit of a push and pull thing. The pull is the demand for EVs and all that, so there’s definitely demand for lithium, rare earths, nickel and copper then the push is the investors saying I like EVs, I like rare earths, right?
“I don’t think they actually understand rare earths and just talking a couple of geos here, a lot of us geos don’t even understand rare earths, because there’s so many of them and there’s different styles and it’s not just enough to say, I’ve got a rare earth project.
“I think what you’re going to see probably in the next 12-18 months is whether some of these projects that are exploration projects can actually advance to the next step of looking at metallurgy and processing and development.
“I think there’s still going to be demand, but I think you might see a few people maybe get burnt on investing in things that were not what they seem.”
There are a range of deposits, with as many as 17 metals coming under the classification of rare earths.
The most sought after metals are those rare earths used in magnets, like neodymium and praseodymium, while other lightly traded but high value rare earth commodities or metals found with rare earths have also drawn the interest of investors like niobium, the tightly supplied metal behind one of 2022’s top performing explorers, WA1 Resources (ASX:WA1).
There are also a number of different styles of deposit. The Mt Weld mine owned by Lynas Rare Earths is a carbonatite hosted hard rock mine.
Many emerging explorers are focusing on ionic absorption rare earth deposits hosted in shallow clays. The technique has been used to produce rare earths at scale in south China.
But the discovery of clay hosted rare earths in Australia has seen a rush on exploration for the commodity in recent months.
Indiana Resources (ASX:IDA) CEO Richard Maish said the sponsoring of rare earths as critical minerals by western governments had prompted companies to take another look in their own backyards.
“If you went back two years ago, there were no clay-hosted Australian based companies that were promoting rare earths. And what we all know, when you go through to bedrock, you will always find clays,” he told Stockhead.
“It’s just a matter of you’ve got companies being smart, going back and looking at their past logging to see, do they particularly have saprolites and are they in regions where they know that there’s potential for clay hosted rare earths?”
While investors are happy to put their money into companies drilling for clay-hosted rare earths, Maish says the industry needs to be careful how hard it goes selling the story.
Metallurgy is a critical, and as yet unknown factor for a number of companies.
“Part of it is going to be who has actually got ionic clays and when I say that, the simplest test is, can you liberate your magnet rare earth oxides using an acid solution with a pH of 4?”
“Everybody in this space needs to ensure the white noise to the investment community is … responsibly conservative … otherwise, we will lose investors.
“I think we have to get the confidence of investors and to do that, at Indiana we are going to ensure that one, we show that we’ve got good rare earth numbers and that a good portion of those are saleable rare earths, being your magnet rare earths, and it’s followed up by decent, solid testwork.”
Indiana identified clay-hosted rare earths in historical drilling at its Central Gawler project in a technical review in June last year, later confirming a significant rare earths discovery before kicking off a 2800m stage 1 aircore program drilling 1km to the south and up to 2km north of the existing Minos REE trend in December. A 2500m stage 2 program is slated to follow after assays are received.
“We’ve got basically three areas, the largest one sits in the Lake Labyrinth Shear Zone, that’s 437 square kilometres, and I’m dealing with only four square kilometres at the moment,” Maish said.
“We’ve got Talia, which is 287 square kilometres, and I’ve got Nelson Bore, which is 250 square kilometres, I need to test those as well.
“But I’ll have my hands full just dealing with resource definition drilling, if two things happen. 1) we’ve got ionic clays. And 2) our grades are shown to be as high as we’ve seen in our sampling of our pulps last year.”
It is not just rare earths where companies are riding high off the regulatory focus on ‘critical minerals’.
Southern Cross Gold (ASX:SXG) is closing in on a new gold discovery in Victoria’s Goldfields, similar in style to Agnico Eagle’s Fosterville and Mandalay Resources’ Costerfield.
Up over 200% since its May 2022 listing, one of the fillips for SXG has been the discovery of antimony in its drilling results.
Particularly significant is the fact the nearby Costerfield mine is the fifth largest antimony operation globally and the only Australian producer.
Used heavily in defence industries, more than 80% of the commodity’s output is located in China and Russia, a fact that places the supply of the metal at high risk of disruption.
While gold will likely be the main revenue driver for SXG should it progress its promising Sunday Creek discovery, the antimony potential makes it highly attractive to governments and investors.
“Western countries now want to have their own source of supply. And so therefore they’re putting a lot of money into helping companies that have deposits of any critical mineral to be able to understand better the nature of the mineralogy, the metallurgy, the infrastructure to be able to extract those particular minerals out of the ground and keep them within the Western system,” SXG manager of corporate development Nicholas Mead said.
“And so we see examples of the Americans giving grants, not even investing, but just giving grants to companies to do studies in their respective commodities.
“Our sister company Mawson Gold has a gold-cobalt deposit in Finland, and the Finnish government are giving Mawson grants to do metallurgical work on the cobalt, for battery supply chains.
“So we think that our antimony has the potential to be able to get government attention and government support in whatever form it might be and we’re working towards that.”