Let’s start by diving into rare earths and their role within the green energy transition. First, let’s look at the outlook for rare earths, what’s happening within this space?
Thomas Kruemmer: Similar to other technology metals, rare earths demand is going to increase substantially. What is different, is that this growth of demand is happening mostly in China, simply because China currently has 90% of the rare earths market. Most people don’t really understand where rare earths come in to play, but the fact is your entire household would not function without them.
The trouble is that rare earths are used as permanent magnets in electric motors. They have a very long value chain in which the actual rare earths content is quite low. This is why they are not on the radar.
Matthew Horgan: Obviously, a growing focus from investors is on battery minerals, but the battery is only one half of the equation in an electric vehicle (EV). You need something to convert that potential energy into forward movement. That is where a motor comes in, and 90% of all EVs have a rare earths permanent magnet motor within it. So, they have a very strong nexus with global decarbonization.
Thomas Kruemmer: To put it into perspective, of the non-ferrous metals used in an EV, graphite is 32%, copper is 25%, nickel is 20%, and rare earths is 0.7%, but it won’t run without the rare earths.
Sean Sivasami: A few years ago, many people were not talking about rare earths, because they didn’t understand them. Gold is one element, copper is another element. Rare earths are 17 separate elements. The challenge for junior exploration companies is very high, and the demand for rare earths in 10 years’ time is going to increase four to six times with the current market forecast. The increase in demand over the years is not equivalent to the number of new discoveries. The challenge for most junior exploration companies is processing, which will continue to be a big challenge for rare earths exploration and mining companies.
Let’s dive deep into the role of rare earths. What are they used for? Why are they needed, and also what’s their role in the energy transition?
Matthew Horgan: What gets everyone excited is the use of rare earths, specifically neodymium (Nd) and praseodymium (Pr), in permanent magnets, which then go into EVs and wind turbines. But then, the use of permanent magnets is much more widespread than that. One particularly exciting application of rare earths permanent magnets is in the use of high-end robotics and manufacturing, which is largely flying under the radar.
Then, of course, NdPr are only two of the 17 rare earths elements (REEs). So, there are 15 other REEs; some of which have very interesting end uses, applications, and demand areas. Scandium is one which likely flies under the radar, but scandium is used, for example, in aluminum alloys to reduce the total weight of aluminum needed in the green transition. Rio Tinto is investing a lot of money into scandium. They acquired the Platina mine in Australia for US$14M at the end of last year.
Thomas Kruemmer: There are hundreds of applications for rare earths, but to investors, what matters most is that more than 90% of the total rare earths market value is just five elements – the ones which go into permanent magnets. The other issue is simply, even if we mine the rare earths abroad, the value chains in the West have gone completely missing. There’s one country, Japan, that still has a somewhat functioning permanent magnet industry; but in the EU and the US, we simply don’t have it. The growth happens in China, but right now, we are in a highly politicized situation where everybody is trying to become independent from one another. It’s unrealistic if we want to meet carbon neutral targets to move away from the market leader.
There’s been a lot of talk about growing the industry outside of China. Where do you see opportunities arising?
Sean Sivasami: The majority of rare earths magnets are coming out of China but there is opportunity elsewhere – there’s unexplored ground in Western Australia, especially where the ironstone belts are, and similarly in Africa. There is a big global opportunity for new investors. The majority of investment is coming from retail investors. So, with junior exploration companies like us, we need some support from the major mining companies, like BHP and Rio, along with government institutions.
Matthew Horgan: We take a bit of a different position to many other companies. We have a Chinese strategic partner, Shenghe. It’s not on us to be taking geopolitical positions, it’s on us to be maximizing shareholder value, and we certainly think that we do that with Shenghe. They are deeply experienced in the rare earths sector with 20 years in the industry, fully integrated from mine to alloy. If you look at the role that Shenghe played in restarting the Mountain Pass mine in the US, from bankruptcy to now being a US$4B company, we think that’s a pretty good case precedent for us to try and emulate.
I think companies like Shenghe also realize that China can be part of the solution. Companies recognize that if the rare earths sector is to grow, then they themselves need to internationalize their business. They have customers and supply chains overseas, so they too need to be seen promoting the industry outside of China. That is exactly what they have done in the US, supporting the Mountain Pass mine back into production. Based on our discussions, they’re looking to do the exact same thing with our project, which we are very excited about.
Thomas Kruemmer: Well, there are projects that are much touted by certain stock-listed companies, but don’t forget there are also private companies in rare earths, and I can tell you there’s a lot going on under the hood. It is slow, but eventually we will see a parallel market evolving outside China, which can be pretty healthy, actually.
It is a very political thing, but from a commercial perspective as a junior rare earths miner, you cannot do your planning without China
We’ve mentioned that there’s more growth in the market overall. Let’s talk about what it means to be a junior in this space. Opportunities, challenges, what are some of the barriers that you see coming up?
Matthew Horgan: If we think about the commodity gamut, it’s fair to say that rare earths are near the upper bookend when it comes to technical complexity. So, that really puts the emphasis on companies to invest the time, money, and discipline to understand the underlying ore body, metallurgy, and to ensure that they’re putting forward robust technical solutions for their project. To give you an example, at Peak Rare Earths, we spent 10 years developing our flow sheet. We think it is a very robust flow sheet where we currently stand, but even then, we can still identify opportunities to further optimize or refine going forward. Conversely, we have now seen a couple of examples in our sector where companies have perhaps advanced too far beyond the technical limits of their project, and unfortunately that has led to some pretty negative outcomes for shareholders.
I’d really encourage investors to be asking and understanding, when you’re looking at rare earths projects, what has been done from a technical perspective. How robust is the technical solution being put forward, and where are the gaps? The other big challenge in the rare earths space is, if we think about the off-taker universe especially short of a refined oxide, it’s simply not that large. There are not that many off takers in the world today. So, when companies are thinking about a holistic development solution, they need to be ensuring that they are putting forward a coherent offtake and development strategy which complement each other. At Peak, we think that’s what we’ve tried to achieve with our binding offtake agreement with Shenghe, but also with our funding and technical EPC MOU we’ve put together to ensure that there is a coherent development solution for our project to get to production.
Thomas Kruemmer: It is very political, but from a commercial perspective as a junior rare earths miner, you cannot do your planning without China. China is the place that is realistically looking forward and saying, “We are going into shortages, let it be nickel, coal, copper.” They go out and look for investment opportunities. Whereas in the West, they are fully focused on the bottom line and do not realize the bigger picture. They will always be running after the market. Having said that, no junior rare earths miner should exclude China from their concept, it is commercially not viable.
Sean Sivasami: I agree with that. In terms of the technology and processing, China has advanced technology compared to the rest of the world.
Thomas Kruemmer: One thing about that core technology for processing rare earths, is that it’s banned from export. It cannot be licenced abroad. Much of it is now fashioned into iron absorption clays that are a big hit everywhere, not realizing that this is totally unsustainable mining. As a junior miner outside China, it is not realistic to pin hopes on Chinese technology.
Matthew Horgan: The pertinent point made around the Chinese rare earths ecosystem is that there’s something like 5,000 PhDs in China focused on rare earths. There are 39 universities also focused specifically on the subject. Outside of China, there’s one. That just shows the disparity and knowledge gap there is currently between China and the rest of the world. It is a challenge to try and go up against that. Instead, I think China can be part of the solution for some of these junior and development companies.
Before we wrap up, let’s look at investment into the industry. Is there more money currently coming in to fund the junior space? Where is it coming from? What are juniors currently focused on in terms of fundraising?
Matthew Horgan: From an equity perspective, certainly there is strong appetite for investors to gain exposure to rare earths. On the ASX alone, in the last year there’s been over US$0.5B raised towards rare earths companies. Our company, Peak Rare Earths, is on that list. This year we were able to raise US$27.5M dollars through a capital raising, and the most pleasing thing about that was the number of high quality offshore institutional accounts that we were able to attract into that placement, which bodes well for the future. From an equity perspective as well, we are seeing OEMs start to turn to rare earths. I think they’ve had a bit of a headache over the last few years trying to get their head around lithium and how they solve that problem.
From a debt perspective, I think it’s fair to say that commercial banks are still getting themselves up the curve in regard to understanding the sector and forming a house view on price. In the absence of commercial lenders in the short term, there is a gap for strategic development funding, government funding to come in and fill out the capital stack. We’ve seen the likes of Japan’s JOGMEC play a very important role over the last decade in the rare earths sector, backstopping and supporting Lynas through the journey it’s gone through over the last several years. More recently, we’ve seen the Australian government with their very generous funding package for Iluka and the Eneabba refinery, and we’re seeing the US start to play a leading role in the space as well with the DoD and the DoE putting funding forward for Lynas and the Mountain Pass material separations plants. So, we’ll continue to see more of that in the coming years as projects require those alternative forms of capital to move forward.
Thomas Kruemmer: I think a very common error regarding US government investment in rare earths companies is that this would be in any way beneficial to the open market. It is not. It is purely focused on the relatively small demand of the US defense industry. Do not expect a major impact from that into the commercial market. What we can see is that after many years, investment banks try to become knowledgeable and make first attempts on analysis and recommendations. They are still learning, but it is coming. Generally, there are not many analysts active in rare earths. What we really need are knowledgeable analysts who explain investments to investors. The interest is there. There are a lot of people also in the private space who really want to get exposure, but there are too many bad apples among the junior rare earths miners.
Where do you see the attention needing to be focused as the energy transition continues and we need these key metals for new technologies?
Sean Sivasami: Rare earths and battery metals are going to play a major role in the decarbonization of our fleet. It will take a bit of time to hit targets, but each country has its own scales and deadlines.
Matthew Horgan: I think the resounding message today is rare earths are, and will continue to be, a critical part of the transition. That much is clear. The focus and emphasis need to be on how we bring forward new production in the future. I talked earlier about the four holistic development solutions, including offtake funding, but also robust technical solutions. They all need to be thought of collectively from a company’s perspective. However, there also needs to be flexibility in funding and offtake arrangements to allow new supply to come forward, or else we simply won’t be able to meet demand for NdPr oxide and other rare earths to fill the gap in the coming years.
Thomas Kruemmer: The demand is obviously going to increase. The main consumer, China, still has a shortfall of magnet materials. They are still out there, looking for investment opportunities and will offtake from advanced exploration projects. We will also see, slowly but surely, the development of value chains outside of China, which will become ever more important, but this is a very slow process.
Panellists:
Sean Sivasamy, Managing Director & CEO, MetalsGrove Mining
Matthew Horgan, Head of Corporate Development & IR, Peak Rare Earths
Thomas Kruemmer, Director, Ginger International Trade & Investment
