Samso Insights Episode 102
The Story So Far
In recent months, Rare Earth Elements (REE) has taken a turn from a forgotten story into one where it is taking some shine away from Lithium. When I first looked into the world of REE, there was only a handful of companies on the Australian Stock Exchange (ASX) with REE.
The Rare Earth story has always been dominated by China. Investors in this sector know that all things REE flow from China and they control the market. In the post-COVID era, the changing face of geopolitics appears to be altering the narrative.
There is now a concerted effort by Western governments to support and encourage the REE sector. The comments that I received prior to COVID was that the price differentiation from Chinese sources were creating a large void in the competition.
I am not sure if the movement is creating a true or false path to an economically viable REE market. Time will tell if all the talk will create a true sustainable marketplace for REE outside of China.
What are Rare Earth Elements?
Investors who look at the REE story must have a good understanding of the type of elements that are "abundant" in grade and volume. Once you have a good understanding of that, you then need to understand if there are metallurgical issues. Personally, I am still trying to do my own research.
The rare earth elements (REE) are defined by the International Union of Pure and Applied Chemistry (IUPAC) as the group of 17 elements that include scandium, yttrium and the 15 lanthanoid elements (also called lanthanides) lanthanum through to lutetium (Table 1).
The name “rare earth” was given by early chemists in reference to the difficulty in separation of the elements from each other (Chakhmouradian and Wall, 2012). For convenience, geologists usually group REE into the light REE (La-Sm, LREE) and heavy REE (Eu-Lu, Y, HREE). Sometimes, as is often done by chemists, it is useful to add a mid REE category, for Sm-Dy.
Didymium, originally a mixture of Nd and Pr, neighbouring elements that are particularly difficult to separate from each other, is a term used in commercial applications to refer to the LREE, La, Nd, Pr after separation of Ce.
(source: Rare Earth Elements : Frances Wall, in Encyclopedia of Geology (Second Edition), 2021)
There is a firm understanding that Neodymium (Nd) and Praseodymium (Pr) are the two sexiest elements of the list. These are the ones that are most widely sought after when we look at an REE project. They are part of the permanent magnet story.
Table 1 show the suite of REE and their uses. One can see that there are multiple uses and I challenge the average punter to tell me what grade or volume is good.
Table 1: Rare earth element (REE) properties and uses.
Cation radius values from Krishnamurthy and Gupta (2015). Crustal abundance from Taylor and McLennan (1985), Sc from webelements.com. Uses from www.rsc.org/periodic-table.
In Table 1, you will also see the complexity that lies in just reading the numbers that companies put out in their announcement.
I am no expert in this sector and the complicated nature of REE makes it hard to have an educated opinion on this topic. I am still struggling to get a firm understanding of what is viable as an economic story, especially now with the flow of ionic REE clays.
The Old Guards in the REE sector
When I first started to look into this sector, I was looking at Arafura Resources Limited (ASX: ARU) and Northern Minerals Limited (ASX: NTU). I think Lynas Corporation (ASX: LYC) was around, however, I am not that sure if I had known about it. Hastings Technology Metals Limited (ASX: HAS) was just a minnow of what it is today but I am also thinking that this was not a household name at that stage.
Let's look at some of the older guards of this sector. These companies have been around for a long time and they enjoyed the rise of the market around 2010-2011. The bear market for the REE has seen some hardships and one company, Lynas, has risen above all players with some innovative strategies and some very hard work.
As you can see in Figure 1, Northern Minerals has had a long history but the share price journey has not been kind. This may be due to the 5B shares issued and a market that has not ben kind to the shareholders.
Figure 1: The share price chart for Northern Minerals Limited since 2006. (source: www.commsec.com.au)
In the case of Arafura, they have been seeing a fair bit of attention lately which is pretty much in line with the market sentiment. ARU has a market capitalisation of 525.9M (28 September 2022) with about 1.8B shares issued.
Figure 2: The share price chart for Arafura Resources Limited since 2006. (source: www.commsec.com.au)
Lynas, which in my opinion is the only real REE player outside China, is the stand out performer. They are the only producer, so you would expect them to be the best performing company in this sector.
Lynas has a market capitalisation of AUD$6.634B with just over 905M shares issued. As you can see, there is a big gap between these three REE players.
Figure 3: The historical share price chart for Lynas Corporation Limited. (source: www.commsec.com.au)
The up and coming player is Hastings Technology Metals Limited (ASX: HAS). Hastings has had a long, hard road to get to where they are now. They have a market cap of AUD432M with 116M shares issued. If I am not mistaken, there was a consolidation of shares which may have happened at the right time.
Hastings is one of the beneficiaries of the recent rush into the REE sector.
Figure 4: The historical share price chart for Hastings Technology Metals Limited. (source: www.commsec.com.au)
Ionic Clays
Recently, the REE market is being introduced to REE in clays. I have learnt about these clays and as the definition described below mentions, they are abundant in China and Myanmar.
The grades are always lower than the hard rock versions (Northern Minerals and Arafura) but they are cheaper and easier to extract. In China and Myanmar, traditionally, the methods used to extract the REE are not the most environmentally friendly. The miners would not be winning any ESG (Environmental, Social, and Governance ) awards.
According to a definition from Science Direct,
Ion adsorption-type REE deposits (also called ion adsorption clays or weathered crust elution deposits) consist of REE adsorbed to the surface of the clay minerals, kaolinite or halloysite (Sanematsu and Watanabe, 2016).
They are the world's main source of HREE and mined almost exclusively in southern China (and in Myanmar).
The key ingredients are most often an underlying granite, although deposits also form on alkaline rocks (Estrade et al., 2019), and the existence, prior to weathering, of soluble REE-bearing minerals in the granite, such as REE fluorcarbonates, eudialyte and allanite.
Formation of clays, by alteration of feldspar in the weathering profile, releases REE from the mineral into the weathering profile such that they can be adsorbed onto the surface of the clays (Fig. 5). Weathering should not be too intense so that breakdown of the clay or dissolution of the REE do not occur.
Figure 5: A simplified profile through an ion adsorption-type REE deposit. (source: Science Direct)
Modified after Sanematsu K and Watanabe Y (2016) Characteristics and genesis of ion adsorption-type rare earth element deposits. Reviews in Economic Geology 18: 55–79.
Which Companies are into Ionic Clays?
As I mentioned earlier, there is an increasing trend of companies coming out with REE occurrences and they are getting a lot of attention. This trend seems to have taken some of the limelight that Lithium had been basking in for the last few months.
Companies are re-assaying their drill core and drill spoils to check for REE. It's kind of like the early stage of the lithium boom when gold companies were re-analysing their core for lithium as they learnt that those boring pegmatites were carrying a mineral call spodumene which is a lithium bearing mineral.
Previous companies that have been on the Samso platform are doing just that with Indiana Resources Limited (ASX: IDA) and Venture Minerals Limited (ASX: VMS). Their respective announcements in relation to the REE story are listed below. What is most interesting about the recent rush of REE Ionic Clay stories is that I am starting to see who may have the source and who may be just getting some "hits".
Indiana Resources Limited:
Venture Minerals Limited:
As I learn about this topic, I am now looking at Venture Minerals closely as the recent discovery could mean positive credits to their tin-tungsten project. I cannot speak for other projects as I don't have intimate knowledge.
What I can say is that if Venture Minerals can create more intersections of REE in the project, then this will make a very interesting mix for their aspiration to mine Mt Lindsay.
In Figure 6, which I have taken from the Venture Minerals announcement, you can see that the REE are being found within the ore body. Whether this is a good thing or not, I will need to have a chat with Andrew Radonjic, Managing Director of Venture Minerals Limited to find out.
Figure 6: Reward geology map with La + Ce soil anomalies, drill hole location and gravel sample locations. (Source: Venture Minerals Limited)
Lessons Learnt So Far
In my need to get some more of these stories onto the Samso platform, I have only been successful in getting Mount Ridley Mines Limited (ASX: MRD) to talk about their Mount Ridley Project in Episode 150 entitled "Mount Ridley Mines Limited (ASX:MRD) - A Rare Earth Story."
What came out of the Coffee with Samso episode was that everyone is still learning about what they have, how much, what it means as an asset and what they need to do to monetise this asset.
What is very obvious to me now is that we need to think of the ionic clay story like an alluvial gold story. The parts that make any alluvial story tick will most likely be the same for an ionic clay project.
In the conversation with Guy Le Page in the Mount Ridley story, he mentions this very point. There are still lessons that are required to be learnt in how to treat the REE within the clays. What will make everything work is the presence of good infrastructure. This is very important. Fortunately for MRD and VMS, that they do have.
In VMS, the REE could be the missing link to the Mount Lindsay project. The sweet sauce that is required to make the whole Tin-Tungsten project work could well be the presence of REE.
The Problem with REE Ionic Clays According to Samso
The issue with REE is that they are not RARE. The only people who are experts and know what they are dealing with are the Chinese. These are the facts of the REE industry. The extraction of REE from the clays in principal is very simple.
The science to extract the REE from the clays is where the problem begins. What I have learnt and appear to understand is that the measurement of a good Ionic Clay REE deposit is not in the grade nor the volume. It is the proficiency of extracting the REE out of the clay.
I cannot go into details of the process because I don't know enough. I try to glean what I can from conversations with people in the industry and it all made sense when we were talking. I am sure in time, there will be enough understanding for the average investors who are putting their money into companies.
Check out this article: A Short Review on REE Recovery from Ion-Adsorption Clays.
Conclusions
This Samso Insight is a brief commentary on my thoughts about the current energised REE sector within the ASX. I don't have enough information to fully understand what is a good project nor what is a bad project.
There is no doubt that there are REE stories coming out constantly, and investors who are looking at these announcements must surely be as confused as I am. What I have learnt is that the extraction is possible and that has been proven by the Chinese models. There is no secret in this part of the conversation. As we know in any mining operation, there are many parts to consider and these parts can move so the variables to consider are important.
As I mentioned earlier, in the conversation with Guy Le Page, there are still lessons to learn in terms of the treatment of the ore. There are ESG factors that will be a barrier which companies must consider.
I had a revelation as I was researching this Insight. REE mining could be a credit to a complementary mining process. Like the potential of Red Dirt Metals Limited (ASX: RDT) having a known gold resource alongside their lithium project. The credit from the gold mining will significantly reduce the cost of mining. The credit created will ultimately allow the extraction of the lithium ore at a lower cost.
When I saw the announcement that came from Venture Minerals, my immediate thought was that if they can monetise the REE, this could definitely create a positive credit flow into their flow charts. What may have been a marginal mining project may well suddenly become very profitable.
For Venture Minerals who are already in the Critical Mineral space, this may enhance their stature in the future of mining with a greener environment and be at the forefront of the business of Green Energy.
Disclaimer
The information or opinions provided herein do not constitute investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not take into consideration, nor have any regard to your specific investment objectives, financial situation, risk profile, tax position and particular, or unique needs and constraints. Read full Disclaimer.
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