March 6, 2017
Vital for so many modern technologies, rare earths remain among the most sought-after minerals on the planet. It was recently suggested at the American Association for the Advancement of Science that the sea beds should be mined for them.
Currently, global demand is met largely by China. However, the fact that Rainbow Rare Earths, which owns a project in Burundi, successfully listed on the London Stock Exchange at the end of January has prompted speculation that China’s dominance may finally be challenged. Such talk may be premature but it does suggest that now is a good time to assess the current state of play in the market.
China clearly continues to dominate global production. The latest available statistics (for 2015, from the US Geological Survey) give its annual production as slightly more than 100,000 tons. Australia, second in the list, trails with 10,000 tons. Only three other countries produce more that 1,000 tons a year (the US, Russia and Thailand with 4,100 tons, 2,500 tons and 1,100 tons, respectively). Africa currently figures nowhere.
Despite China’s dominance of production, the same is not true of deposits. It is estimated that China has no more than 30 per cent of global deposits. The problem lies in the cost of bringing new deposits into production and the ability of one country with such a dominant position to flood the market and bring down prices, hitting the viability of new projects.
As well as price challenges, new projects face environmental hurdles. Projects in China have resulted in contaminated groundwater, radioactive tailings and other environmental issues.
In the 1990s, the US supplied its domestic demand for rare earths from its own production. But that ceased when low-cost minerals from China entered the market. It is speculated that China continues to stockpile rare earths, maintaining to some extent its ability to control global prices.
Mounting a challenge to Chinese dominance has been talked of for years. Several current macro trends are now likely to accelerate such a challenge. Demand for rare earths is set to increase significantly.
Historically, their major use has been in components for the telecoms, computer and other electronics industries (they are particularly important in making high-performance magnets). A growing need for enhanced battery technologies will boost demand. A rise in protectionism suggests new strategic imperatives for countries such as the US and Russia to recommence or increase domestic production.
It is widely acknowledged that, outside North America and Australia, southern and eastern Africa offer the greatest potential for rare earth production, especially in South Africa, Tanzania, Malawi and Mozambique. Kenya, Burundi, Zambia and Namibia are also mentioned.
Rainbow Rare Earths’ IPO is premised on its Gakara project in Burundi. The project is not yet producing and further exploration will be needed. The risks described in the IPO prospectus are a reminder of the difficulties of developing such projects, including pricing and environmental challenges and the need to produce ore at the required levels of concentration.
Rainbow raised ₤8m at its IPO, at the top end of its target range. It has clearly generated interest in the rare earth industry. However, by itself the project is unlikely to make a large dent in the overall global supply position. That will require bringing many more projects into production in the near to medium term. With the Lynas project in Australia being the only significant producer outside China there is a long way to go before Chinese domination is diluted. Clearly, though, African projects can make a significant contribution to correcting the imbalance.
Ian Coles is a partner and head of the Global Mining Group at Mayer Brown LLP.
@beyondbrics
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