Does China Intend To Own ALL The World’s Rare Earths?

Rare earth periodic tableCore Consultants has just released its December rare earth report- the last report for 2016! It has certainly been a controversial year for the rare earth industry not least with policy changes within China, false starts as regards stockpiling and the finalisation of China’s six mega rare earth entities. Molycorp has gone bankrupt and Lynas is making steady progress,  but compared to where we thought the company would be back in 2010, it really is just hobbling along. Consequently, it seems like China’s position as global mega rare earth supplier is well and truly entrenched.

The report follows on from our November issue, whereby China released its 13th Five Year Plan for 2016-2020. Part of this plan was to reduce barriers to intellectual property rights overseas by encouraging Chinese rare earth producers to collaborate with non-Chinese resources companies. This strategy would not only strengthen China’s international co-operation efforts, but also expand China’s rare earth reach beyond its own borders.

Whilst China has always actively encouraged investment in other mining assets and we recall around five years ago when  China’s investments in coking coal and iron ore assets around the world peaked, China has not until now taken this line with rare earths. In fact, investors who have followed developments in the Chinese rare earth market over the last six years will remember that China’s policy  was to only collaborate on smelting/separating rare earths for those foreign companies that chose to move their high-tech companies to China.

While China did not actively seek out foreign rare earth deposits, they were always concerned over preserving their rare earth resources. I recall participating in a Chinese rare earth conference in 2011 as the only Western representative and the main topics in the agenda was how China would optimise its “scarce” rare earth  resources and  that there needs to be a constraint on production volumes. However, at the time,  China’s worries over sharing their separation technology overrode this need to embark on foreign rare earth ownership. Now the 13th Five Year Plan actively encourages China to buy buy buy as it caps its own production capacity to 140,000 tonnes per year.

Accordingly, China’s Sinosteel Equipment and Engineering (Sinosteel MEEC) has agreed, via a memorandum of understanding, to develop a A$60m pilot plant with a capacity of 60,000 tpa for the Browns Range mine located in Western Australia. In addition, Sinosteel MEEC will also defer 20% of payments (~A$12m) for 24 months with the right to convert into Northern Minerals ordinary shares. As such, Northern Minerals Ltd may become the first mine outside of China to produce heavy rare earth elements.

Northern Minerals is not the only rare earth company to attract Chinese funding. In September, Greenland Minerals and Energy revealed that the Foreign Investment Review Board (FIRB), which was due to have made a decision by 30 November 2016, approved the deal two weeks early and the company would sell 12.5% to Shenghe Resources Holding Ltd (Shenghe). Shenghe, like many Chinese rare earth producers, have been actively seeking rare earth opportunities outside of China in order to secure suitable rare earth supplies.

On completion of the transaction, the parties will jointly commence technical programs aimed at improving the cost structure of the Kvanefjeld project so as to ensure that the project is optimised with respect to downstream rare earth processing.

China’s new strategy appears not to limit rare earth exports, but rather to extend its reach beyond its own borders such that even the non-Chinese production, is actually Chinese production.

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