LONDON The vast majority of non-Chinese rare earth metal (REM) ventures will fail due to a lack of expertise and high ore processing costs, says Jack Lifton, founder of the industry consultancy Technology Metals Research.
Firms were quick to launch new mines and restart mothballed operations as soon as China, which controls about 95 percent of the REM market, started slashing its export quota in 2009.
Of the 244 companies hoping to produce the rare earth metals essential to a wide range of high-tech industries, less than 4 percent will prove profitable, the strategic metals consultant
told Reuters in an interview on Friday.
"The choke point for all the companies is the question of what they can do with the concentrated REM ore once it's above ground. You can extract the rare earths together, but then you have to separate them...the world's REM separation capacity is 99 percent Chinese and they have unused capacity," Lifton said.
"The Chinese overwhelmingly control this and that is the key to the rare earth industry. Without separation capacity, all you have is a loss-making ore concentrate company."
Prized for their magnetism, luminescence and strength, rare earths are used by manufacturers of everything from smartphones to hybrid cars and wind turbines, but the elements occur together in the earth in different proportions and the separation process is complex and expensive.
"That's why you don't want the biggest deposits, you don't want to have to process hundreds of tonnes at horrendous cost. You're looking for the highest grade heavy rare earths and the least cost to recover them. It's a question of economics," Lifton said.
Heavy rare earths such as dysprosium and terbium, crucial for the high-power magnets needed by the auto, defense and clean energy industries, are scarcer than cerium and other light rare earths, making them much more valuable.
China currently controls 100 percent of the market for three heavy REM: dysprosium, terbium and yttrium.
"I'm worried about dysprosium supply...A while ago we predicted that dysprosium would be $2000 a kilo by 2020, it's now selling for over $2000 a kilo within China. All bets are off," Lifton said.
HARD TO GET
Named after the ancient Greek word for 'hard to get', dysprosium will be in deficit until 2017, the longest of all REM, according to a report on critical REM published by Technology Metals Research in August 2011.
U.S. firm Molycorp, the world's largest REM producer outside of China, is slated to start initial production in early 2012, but its deposits are skewed toward light rare earths.
Prices of light REM in particular have fallen almost 30 percent since reaching record highs earlier this year after China repeatedly slashed export quotas, cutting shipments abroad to 30,184 tonnes in 2011 from about 60,000 tonnes in 2007.
The rare earth market is in a correction cycle after China's export cuts, mining reforms and stockpiling pushed prices of most REM to an unsustainably high level, Lifton said, adding prices at this lower level would make it even harder for non-Chinese ventures to make a profit.
Cerium, a light REM used primarily in glass polishing, surged from about $4 a kilogram in 2009 to about $157 in July 2011. The price has since fallen to around $55/kg.
"In terms of investment, the best bet are the companies that will be producing the heavy rare earths that will be in deficit in the future. As it shakes out, there are around 250 companies, only 25 of them have a chance and less than 10 will survive," Lifton added.
According to Technology Metals Research, the non-Chinese mines with the highest deposits of the heavy rare earths, which they consider critical in terms of future shortage, including dysprosium, belong to Lynas Corp, Great Western Minerals Group, Quest Rare Minerals,Ucore and Tasman metals.
(Editing by James Jukwey)