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Explorers look to Africa as rare earths prices soar

http://www.miningweekly.com/article/explorers-look-to-africa-as-rare-earths-prices-soar-bubblelike-2011-03-18

By: Irma Venter
18th March 2011
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JOHANNESBURG (miningweekly.com) – Samarium is used in the navigation system of the US M1A2 Abrams tank.

It is one of 15 rare-earth elements used in high-tech and renewable-energy devices, and its price increased by 1 256% over the 12 months to February 16.

Samarium is only one of a handful of rare earths that have showed tremendous gains over the past 12 to 24 months.

Australia’s Resource Capital Research resource analyst Trent Allen says that the average 12-month price gain (to February 16) for ten rare-earth oxides (REOs) reported on the Metal Pages website is an astounding 679%.

“This has been dominated by cerium (up 1 611%), lanthanum (up 1 227%) and samarium (up 1 256%).”

Allen says that these three are all light rare-earth elements, as opposed to the often more sought-after heavy rare earths.

They were also the three lowest-priced elements a year ago, and still among the cheapest.

The major escalation seen in prices is the result of a supply situation where one country, China, produces almost all the world’s rare earths, at around 97% in 2010, using the bulk locally, while also squeezing export quotas.

Last year, China cut export quotas by 40%, in a move that alarmed buyers and traders, and then proceeded to trim export quotas for the first half of 2011 by another 35% from the first half of last year.

Allen says it is this short-term supply squeeze – or, at least, the fear of one – that has driven up prices.

“There is some hype involved, especially around the price of lanthanum and cerium, which are really quite common. China has used this quasi-hype, especially in the second half of 2010, to gain some political leverage with Japan and the US. Looking ahead, the effect of higher prices and limited supply from China should bring on a series of global rare-earth-element projects, both historic and new.”

The surge in REO prices has indeed led to a situation where several junior exploration and mining companies are scouring the globe –Africa included – for deposits that can be brought to market, and brought to market quickly.

The jump in REO prices has, of course, also led to rapidly rising share prices among these companies –and talks of a price bubble.

Rare and minor metals companies’ share prices (304 global companies) have climbed 118% in the past 12 months.

SOUNDS FAMILIAR?

Is this not what happened a few years ago with the uranium market?

The rush to get in on the meteoric yellow-cake (or uranium oxide) market led to a spot price of $136/lb in 2007, well above the $7,10/lb recorded in 2000, with several companies jumping to find more of the mineral that was poised to fuel a boom in nuclear energy.

However, the market has since been hit by volatility and the global recession, with the spot price at around $70, recovering from the $40 level seen in the middle of last year.

FRONTIERMAN

Frontier Rare Earths CE James Kenny tells Mining Weekly that talk of a price bubble is “slightly overdone”, and that the parallels drawn with uranium are “not a very accurate comparison”.

Canadian listed company Frontier is developing the Zandkopsdrift rare-earth deposit in Namaqualand, in the Northern Cape.

Zandkopsdrift is set to be South Africa’s second rare earths mine, following Great Western Minerals Group’s Steenkamps-kraal mine, due to start production in 2013.

Kenny explains that uranium has a market where it trades both on a spot price and a futures basis, with “a lot of speculation coming from investors”.

However, he notes that the current rare earths market is supplied from only two mines in the world, with no spot price, and no futures market – which means there “isn’t a lot of investor money chasing it, creating that artificiality we see in the uranium market”.

Kenny links the current surge in prices more to concern over security of supply.

He says it became clear 12 months ago that there is a “great need for rare earths, especially from non-Chinese suppliers”. (However, demand issues are also set to come into play as China will, most likely, become an importer of rare earths by around 2015.)

Kenny also explains that some rare earths prices – and especially prices of light rare earths such as lanthanum – may have reached levels that are linked to China’s export system.

Should the Chinese export quota system, currently largely based on weight, be changed to one based on element, there may, however, be a correction, he notes.

“We may see some prices come back, some maintaining their levels, and some increasing.”

Frontier hopes to complete a prefeasibility study on the Zandkopsdrift project by the first quarter of 2012 and a bankable feasibility study by the end of 2012, with a 2015 production start possible.

“We have all 15 rare earths but what is more important is that we have an attractive distribution of the more valuable, scarcer rare earths, including praseodymium, neodymium, europium, terbium and dysprosium.

“It is also one of the highest-grade deposits in the world.”

Kenny expects the mine to be a low-tonnage openpit, producing around 20 000 t of separated rare earths a year.

He hopes Frontier will find more lucrative deposits in Namaqualand.

The current project complex covers only 120 ha of a 60 000 ha permit area, with an application for another permit of com- parable size pending.

“We are not looking anywhere else at the moment – only in South Africa.”

LOOKING EAST

In Africa, looking east refers to countries such as Tanzania and Kenya.

Canadian-listed Montero Mining & Exploration is focused on finding and developing rare earths, uranium and phosphate deposits in Tanzania, South Africa and Canada.

President and CEO Tony Harwood says that the four-year-old company is currently conducting a 2 500 m diamond drilling programme at Wigu Hill, in Tanzania, a project in which it has a 60% stake, with the aim of defining a resource on one of ten targets the company has developed through the mapping and sampling of the large carbonatite complex.

Harwood says Wigu Hill has had “tremendous interest from the investment community, given the high grade, large tonnage potential, and apparent simple mineralogy and metallurgy”.

“The deposit has been known since the 1950s, and has been studied by various geological surveys and companies since that time, says Harwood.

He adds that there are other rare-earth deposits in Tanzania, but that he believes Wigu Hill has some of the highest grades available.

“We have mainly the light rare earths, such as cerium, lanthanum, neodymium and praseodymium, but, because of our grade – up to 26,2% total rare earths – we have some of the heavy rare-earth elements present in economic quantities.”

Harwood is positive that Wigu Hill may start production “very quickly”, owing to the “high grade, simple mineralogy, potential openpit and close proximity to a major railway siding – 12 km – and the port at Dar es Salaam”.

He estimates the cost to develop the project at $200-million.

He adds that Montero has a strong management team –Harwood himself is a former VP at Placer Dome (now Barrick Gold) and has worked for many years in Africa.

Harwood notes that Montero is looking for high-grade rare-earth deposits in Southern Africa.

“We will go where the giant deposits are to be found.”

Yet another East African rare earths project, also still in its infancy, is Kangankunde, in Malawi.

The company behind it hopes to provide the first new source of rare earths outside China when the Australian Mount Weld mine comes into production in the third quarter of 2011.

By adding Kangankunde to its armoury, Australian miner Lynas will be able to expand its rare-earth resources portfolio.

Kangankunde has an inferred resource of 107 000 t REO at a average grade of 4,24% REO.

The pilot plant for a gravity concentration process has already been completed.

The next steps for this deposit, said Lynas executive chairperson Nicholas Curtis in a March presentation, are to initiate an environmental management plant and to undertake a drilling programme to provide drill core and test resource extension.

SINGING THE PRAISES OF LOFDAL

North of South Africa’s border, Namibia Rare Earths Incorporated (NRE) hopes to develop the Lofdal rare earths project, in the north-west of Namibia, as its principal asset.

NRE was incorporated as a private company in 2010 to advance the development of the Namibian assets formerly held by Etruscan Resources, NRE president Don Burton tells Mining Weekly.

The company is seeking a listing on a Canadian exchange and is targeting an initial public offering “very soon”.

“Lofdal is a brand-new, district-scale rare earths project in the early stages of exploration, with particular focus on the potential for the discovery of heavy rare-earth-enriched deposits,” says Burton.

The interesting thing is that it was never intended for Lofdal to be a rare-earth element (REE) project.

“Our interest in Namibia, and in Lofdal, in particular, arose from a conceptual search for iron-oxide/copper/gold ore (IOCG) deposits in central and northern Namibia in 2005,” explains Burton.

These deposit types are often associated with anomalous amounts of REEs, which can be considered as pathfinder elements in the search for IOCG deposits.

Lofdal was a known REE occurrence on government maps.

“We explored over 20 000 km2 in search of the IOCG deposits with no luck and, late in 2008, we turned our attention specifically to the REEs at Lofdal,” says Burton.

“The rare earths market was just starting to hot up at that time and it was a complicated commodity sector for investors and gold geologists to navigate. However, the more we researched the geology at Lofdal and the market sector, the more compelling it looked.

“On top of this, we quietly prospected and sampled over 80 km2, where over 3 400 rock samples taken at surface told us that the REE-bearing rocks at Lofdal occurred over a huge area. In short, we believed we had uncovered a new rare-earth mineral district.”

Burton notes that Lofdal is the most advanced and focused REE project in Namibia, and that it stands “a very good chance” of becoming Namibia’s first REE mine.

He says that the academic world has known about Lofdal for many years, because of its unique enrichment in heavy rare-earth elements (HREE), and the presence of the heavy rare earth mineral xenotime in the carbonatite rocks. (Xenotime is a brown-to-yellow mineral that is a phosphate of yttrium in crystalline form.)

HREE-rich projects are generally understood to have more than 10% HREEs in the total mix of REEs, while 20% to 40% HREE enrichment is considered exceptional.

“At Lofdal, we see many areas with indications of more than 50% HREEs, and some samples with over 90% HREEs,” says Burton.

“We have the complete mix of all 15 REEs (including yttrium), but of particular interest will be the more valuable heavies such as europium, terbium and dysprosium.”

Burton says that the plan is for NRE “to aggressively move forward” with its exploration plans to make the HREE-rich discovery official.

He is also full of praise for the promining attitude of the Namibian government.

Burton is hopeful that Lofdal can play a significant role in any future REE market.

“All commodities suffer price bubbles and, most recently, uranium would stick in everyone’s mind. Uranium is also particularly relevant to Namibia, as it is the world’s fourth-largest producer.

“Bubbles can burst as investors get ahead of themselves, and one of the problems in any rising commodity market is the hoards of companies all trying to jump on the train before it leaves the station. The challenge is to understand which companies have projects of real merit that will be there in the long term.”

Burton says that a select few projects will work towards filling the near-term supply gap, but the predictions are that certain REEs, especially the heavy REEs, will remain in supply deficits.

“You would need a crystal ball to predict exactly where REE prices will be by the time Lofdal enters commercial production but, if you believe that the global economies, and most importantly China and India, will be embracing electric cars, wind power, solar power and i-Pads, then you should have a certain level of confidence in the REE market in the long term.”

Other companies searching Africa for rare earths include Sunergy, active in Sierra Leone, and Forte Energy, in Guinea.

MARKET OUTLOOK

Kenny sees growth of 10% to 15% a year in REO demand, with current production at around 120 000 t, and the market roughly in equilibrium. However, demand is set to climb to roughly 200 000 t a year.

Equilibrium will only be possible if non-Chinese suppliers come on stream, notes Kenny.

“If they don’t, we have a real problem.”

The main uses of rare earths in 2010 were magnets (21%) and catalysts (20%), says Allen.

Neodymium and samarium are the main rare earths used for permanent magnets (found in televisions and wind turbines, for example), with terbium and dysprosium added for high-temperature stability.

These are among the elements most in demand, notes Allen.

The main rare earth used for catalysis and rechargeable batteries is lanthanum, but it is quite abundant and so relatively inexpensive, even now.

The most valuable rare earth is europium (around $650/kg, compared with $71/kg for cerium), owing to its scarcity.

Europium is unique in the fact that it can absorb more neutrons per atom than any other element. This means that europium and its isotopes are valuable in the control rods of nuclear reactors. Europium is also used to produce certain alloys, including striker and lighter flints. It has also been used in the creation of infrared absorbing automotive glass.

“Naturally, with prices increasing and, more importantly, China squeezing supply, substitutes are being sought for many applications. An example would be the growing competition between lithium- and rare-earths-based batteries for use in hybrid/electric vehicles,”explains Allen.

“This could have an impact on demand going forward, but one that’s hard to quantify – who knows what the next ‘miracle metal’ might be?”

Lynas’s Curtis says that rare earths supply at 115 000 t was somewhat outstripped by demand at 128 000 t in 2010.

Chinese production capacity was around 103 300 t, with non-Chinese supply sources at 11 500 t.

However, forecast supply is that the rest-of-the-world contribution will jump to reach 47 400 t in 2013, with 87 000 t coming from China.

Most of the names in the current rest-of-world production pipeline are not well known.

The nearest-term producers are also the more prominent, namely US miner Molycorp, with its Mountain Pass historic mine, as well as Lynas’s Mount Weld.

“These are both significant suppliers,” says Allen.

“After them come a slew of other hopefuls, mostly with recent projects in the advanced stages of feasibility, but still trying to iron out their process route, funding, permitting and so on.

“There are also historic projects that need capital and repermitting to restart, for example, projects in the former Soviet republics, such as Stans Energy’s Kutessay II, in Kyrgyzstan.”

Allen says that most rare earths projects take a long time to develop because “their chemistry is hard to crack, owing to difficult mineralogy and a comparative lack of relevant expertise outside China”.

While Africa’s most advanced project is Steenkampskraal, there is, however, at least a handful of others also that could add to the inventory of minerals the continent provides the world with – hopefully, before the price bubble, if it does indeed exist, bursts.