Challenges Faced in Mining Rare Earths Trickier Than Imagined

As mining firms and other companies outside China race to seize the opportunities and potential profits found in rare earth metals, only some will actually succeed.

The challenges are based not on how much rare earth metals can be extracted, but on the quality of rare earth metals a mining firm comes up with.

"You can extract the rare earth metals together; the chokepoint for all the companies is the question of what they can do with the concentrated rare earth metals ore once it's above ground. (It has to be separated and) the world's rare earth metals separation capacity is 99 per cent Chinese and they have unused capacity," Jack Lifton, founder of the industry consultancy Technology Metals Research, told Reuters.

Suffice to say, whether investors and analysts like it or not, China is and remains, the world's major stronghold of rare earth metals.

"Without separation capacity, all you have is a loss-making ore concentrate company. The Chinese overwhelmingly control this and that is the key to the rare earth metals industry," Lifton said.

Moreover, the key to profitability in the rare earth metals industry lies in extracting them at the very least cost.

Many of the rare earth metals are used in high tech industries and clean technology. Prospecting these metals is very expensive and requires a major undertaking.

"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.

Dysprosium and terbium, classified as heavy rare earth metals, are crucial for the high-power magnets required by the auto, defense and clean energy industries, They are rarer than cerium and other light rare earths, making them much more valuable.

Technology Metals Research earlier predicted dysprosium will sell $2,000 a kilo by 2020, but the commodity has already reached that point and is actually selling for over $2,000 a kilo within China alone.

"All bets are off," Lifton said, as China currently controls 100 per cent of the market for dysprosium as well as two other heavy rare earth metals, terbium and yttrium.

There are about 244 companies hoping to produce and supply the rare earth metals to the global market. Only less than 4 per cent will prove to be profitable, according to data from Technology Metals Research.

"In terms of investment, the best bets are the companies that will be producing the heavy rare earth metals 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 said.

Prices of light rare earth metals have fallen almost 30 per cent since 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.

Cerium, a light rare earth metals used for glass polishing, reached $4 a kilogram in 2009 to $157 a kilogram in July 2011. However, prices have since plummeted to $55 a kilogram.

Non-Chinese firms were quick on the frontlines to launch new mines and begin operations the moment China started slashing export quotas two years ago when it closed some of its rare earth metals processors due to environmental concerns.

China controls 95 per cent of the rare earth metals market.

Recently, Australian rare earth metals miner Lynas Corp. and American U.S. miner Molycorp have stepped into the industry to locate and extract rare earth metals in a bid to diversify supply from China.

According to Technology Metals Research, the non-Chinese mines with the highest deposits of the heavy rare earths, including dysprosium, belong to Lynas Corp., Great Western Minerals Group, Quest Rare Minerals, Ucore and Tasman metals.

Researchers from the U.S. Geological Survey expect demand for rare earth metals will exceed the available world supply until at least 2015.