Supply chain security continues to drive the rare earths story

Supply chain security remains at the centre of the rare earths narrative as highlighted by Lynas Corporation (ASX:LYC) being awarded the phase-one contract for a heavy rare earth separation facility by the US Department of Defense this week.

Funding for phase one will allow Lynas and its partner Blue Line to complete detailed planning and design work for the construction of the facility in the US, which will help avoid the supply chain vulnerability that has been clearly exposed over the past year.

Concerns about the fragility of supply chains, particularly the Chinese dominated rare earths sector, have been around for some time and was undoubtably responsible for Australia and the US reaching a deal late last year to co-operate on developing their critical mineral assets.

Fuelled in large part by the trade war with China, US President Donald Trump has issued executive orders to secure critical minerals, especially rare earth, supplies outside of China while Australia set up its Critical Minerals Facilitation Office at the beginning of this year.

However, it is the COVID-19 pandemic that has really underlined how critical securing supply chains really is.

Not only did the outbreak halt production from China, which is still coming back online, it has also forced non-Chinese producers like Lynas to halt their operations due to movement controls designed to limit the spread of the virus.

Supply chain security

RareX (ASX:REE) managing director Jeremy Robinson believes the Lynas shutdown has demonstrated “pretty clearly” how limited other avenues of supply are for critical minerals like rare earths.

“This is what the US and a lot of the West have been on about before the virus broke out, but it has certainly reinforced the thematic of that,” he told Stockhead.

Robinson believes there will now be more impetus from governments and the private sector to secure their supply chains outside of China.

“Japan and South Korea are (also) looking for additional supply … (they) probably want to see three or four Lynas’ out there in different geological locations so that if something happens in one country, they can go to another country.”

Ionic Rare Earth’s (ASX:IXR) Tim Harrison, the general manager for the company’s Makutuu project, said the event had opened the eyes of the world in regards to security of supply chains.

“My feeling is going forward, in whatever the new normal will become, that organisations and governments will want to have a more strategic view of their supply chain and diversification,” he said.

Concerns have also been raised about the short-term impact of the pandemic on demand.

“A month or so ago, people were focused on whether China produced rare earths materials. They were worried about procuring rare earths permanent magnets,” Hexagon Energy Materials (ASX:HXG) managing director Mike Rosenstreich said.

“Now the concern is actually the other way, it is a demand chain concern. Is there consumer demand and given the slow down, all the talk about recession and depression etc, you can see how the concern has actually flipped.”

Arafura Resources (ASX:ARU) general manager exploration and development Richard Brescianini added that while China’s rare earth production was now ramping up to full capacity, the rest of the world shutdown later, restricting the ability for Chinese magnet manufacturers and rare earths producers to place their products internationally.

“Inside China, there are also issues primarily around logistics where they are having issues in getting product to customers,” he said.

“One of the magnet manufacturers told us that they are now filling orders but don’t have boxes to put their magnets into because the box manufacturers aren’t keeping up at the moment.”

However, Hexagon’s Rosenstreich noted that demand for electric vehicles (EVs) could be stoked by legislation where automobile manufacturers were required to produce a certain quota of EVs from their total production range into specific markets.

“Another issue is strategic supply, countries like Australia, Canada and the US for example have come together into a collaborative working group to be able to ensure that they are able to secure rare earths materials for a variety of purposes,” he told Stockhead.

Brescianini said that while some auto manufacturers in Europe were talking about shutting down for April and May, some of them were now talking about coming back earlier than that.

“It is really hard to tell how long this is going to last for. At Arafura, we are not that concerned about it to be perfectly honest because we think it will rebound reasonably quickly,” he said.

“Perhaps in the medium to long term, you might see a resetting of the way which business is done and trade is perhaps undertaken with China.

“In the rare earths space, I think that will only have a positive effect for those projects that are perhaps looking to come into production outside of China to be part of that supply chain.”

Ionic’s Harrison was also optimistic, saying the reality is people are “still going to want mobile phones, they are going to want technology, their gadgets, they are going to want green power, they want to be environmentally friendly, they want solar panels, they want to protect the environment as best they can.”

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“So looking at green energy, it is something that has enough momentum that it will continue and I would also say that it is probably an interesting one that the direction the world takes, or certainly developed and developing countries, it may accelerate a push to change their infrastructure,” he added.

Demand return

RareX’s Robinson thinks that while demand for EVs – and in turn the demand for rare earths magnets – will be subdued in the short-term, the EV revolution is a mid to long term thematic that remains in place.

“Perhaps it all gets bumped back six to 12 months, perhaps it plays a massive catchup in the next 12 to 24 months,” he told Stockhead.

“In the short term, demand for all commodities has been dented, but populations are still growing, cities need to be cleaned up, we need to source our non-fossil fuel energy supply.

“Perhaps even governments will as part of the rebound, they have to invest in things to stimulate the economy and perhaps some will invest preferentially in the green economy rather than the fossil fuel economy.”

Hexagon’s Rosenstreich backed this up, noting that before COVID-19, EV compound annual growth rates were forecast to be 17 per cent to 18 per cent.

“Maybe that has come down to 5 per cent to 8 per cent, those are still very strong growth numbers.”

Australian rare earth juniors

Arafura is continuing metallurgical test work for its Nolans neodymium-praseodymium (NdPr) project in the Northern Territory.

It is also progressing pre-front end engineering and design activities for the project, which has an ore reserve of 29.5 million tonnes grading 2.9 per cent total rare earth oxides, with NdPr making up 26.4 per cent of the rare earths content.

This is expected to produce about 4,325 tonnes of NdPr oxide over 39 years at an operating cost of less than $US24 ($37) per kilogram of NdPr oxide

Unlike the other companies featured here, Hexagon is focused on its RapidSX rare earths separation tech, a “turbocharged” form of solvent extraction that promises to extract rare earths at a lower cost.

It also offers the next generation of miners the option of capturing more downstream value from their operations.

Ionic Rare Earths recently increased its ownership interest in the rather unique Makuutu rare earths project in Uganda to 31 per cent.

Makuutu is one of very few ionic adsorption clay-hosted projects outside of China.

Initial metallurgical test work has already indicated that up to 75 per cent of the rare earths at Makuutu can be extracted through the simple, low-cost method of salt desorption – literally washing the rare earths from the clay using a salt solution.

Harrison noted that the company was considering a modular approach towards developing the project, allowing Ionic to start small and ramp up production capacity by bringing on additional modules.

RareX owns the Cummins Range project in Western Australia that is believed to contain a significant percentage of NdPr.

The project is drill ready with all government approvals in place and heritage clearance currently being completed.

It recently signed up Talaxis, a specialist rare earths project developer and wholly-owned subsidiary of Noble Group, as a strategic partner to help drive development of the project.