A Brief History of the Origins of the Demands for today’s Critical Minerals and the Consequences of their Geographic Locations

In 1934, the American economist Harry Dexter White, who later was to mold the Bretton Woods Agreement, negotiated in 1944, into the American dollar’s global dominance that, although beginning now, after 80 years, to fade, still exists, wrote:

“The stabilizing influence exerted by the interdependence of nations is not likely in the future, however, to be so great as it has been in the past. Other countries are awake to the disturbing forces coming from abroad. They also are concerned over their domestic stability and are less hesitant about adopting restrictive measures to ward off disturbances. Bumper export crops in the United States are more likely in the future to be met by specially imposed import restrictions designed to check ‘dumping,’ rising discount rates will be met with more effective measures for protecting gold, and so on. Increased government control by numerous important countries over their international trade and finance will be used more and more to wrest competitive advantage away from competing countries, and the struggle for competitive advantage in trading relations will, as a result, become keener and more prolific of sudden important shifts in the movements of international goods and capital. These developments in the direction of more intense economic nationalism obstruct the path of such stabilizing influences as the free exchange of goods, services, and capital might be expected to have.”

Ninety years later, world leaders, markedly unburdened with any knowledge of fact-based science or of common sense economics and too often completely inexperienced in the real world of commerce, are driving nations to economic ruin to “save” them from the most recent fantasy crisis of climate change. They use fact pickers, not fact-checkers, to carefully craft and support policies that churn capital needlessly to allocate it to favored industries that benefit only a few but benefit the “policymakers” themselves. Naturally, these leaders seek advice only from a carefully culled set of reliable “experts” who will be sure to agree with only the “correct” self-enriching policies.

The critical minerals of today are defined by consumer choices, not military ones, in the two nations that make up one-half of the world economy. The leaders and policies of both nations say that economic self-sufficiency is their goal, but the geology of geography has made natural resource self-sufficiency too expensive a goal to achieve (or maintain) in any one nation. This has impeded and probably eliminated economic self-sufficiency as a realistic goal if any modern nation wants to achieve and maintain a good standard of living for all of its citizens.

China and the United States have three things in common: They are both economic superpowers, deeply in debt, and economically interdependent. So that you’ll continue to read, let me first define the terms in my title for you:

1. Chimerica is my shorthand for China + America; it does not mean that China has a secret project intended to control America from within and
2. A chimera is defined as something hoped or wished for that is impossible to achieve.

How do we choose which is a critical mineral for either China or America? First, we need to determine where and when we are speaking. For the respective governments, it depends on which historical time period and which part of the population we are trying to satisfy in that period. The common cohort in both countries is the average citizen. He/She today wants air conditioning in the summer and heat in the winter, as well as personal transportation for local needs and mass transportation for long-distance travel, low-cost and abundant food, adequate and reasonably priced medical care, housing, and safety from normal climate variation, industrial pollution, crime, and war. The wealthy elites of both countries at all times want safety to do whatever they wish, most of all, and the politicians in both countries want to balance their dependence upon and subservience to wealth creation by tilting the playing field in favor of money creators (but destroying any sincerity or possible effectiveness of good intentions by cutting themselves in on the wealth, of course, always).

Both governments state that wealth creation for the benefit of all is their goal. The Chinese name this as a socialist concept, actually going back to Mao, which they call “shared prosperity,” Both governments then ignore this lofty goal in favor of wealth accumulation by their reliable “donors” for their benefit, with, of course, some reserved for the governing officials. I note that Imperial Japan’s former aristocracy used this theme to justify their recent failed attempt at conquest. The Japanese purpose was the creation of “The Greater East Asian Co-Prosperity Sphere.” Apparently, in political control themes, what goes around comes around.

Privately owned manufacturers’ universal goal is much more straightforward: They want to create wealth by supplying the widest market with products that the market demands at the highest price they can sell them for (this is why capitalists hate competition; it keeps prices down). Any interest in and designation of critical minerals derives from the motives of money and power acquisition and maintenance in both nations.

However, at least in the United States, when the government tries to dictate consumer market demand (aka, “induced demand”), all common sense supply chains are interrupted.

In the most basic case, for the regular and reliable energy supply, that’s where we are now in both countries. Based on actual demand and economically determined supply, there would be no demand for any but the lowest-cost energy. In place of that actual demand for lowest cost energy by the majority of the people, we have in both countries the rule of “progressives” who say that they know better than the majority what is good for the majority, and so they just ignore, as much as possible, the actual wishes of the majority. Thus, for their holds on power and their own economic benefits, they promote higher-cost “alternate” or( as the Chinese call it) “new”energy sources, the construction and operations of which require larger quantities than ever before of scarce technology metals critical for such construction and operation. Thus, a demand for alternate energy-enabling metals such as lithium and rare earths is induced, but this is not in response to any real (free) market demand.

The current twenty-first-century selection of critical minerals has arisen to provide alternate (non-fossil-fueled) energy and to mass-produce consumer devices that are said to improve the standard of living of the average person by giving them low-cost access to communications and entertainment.

Electrical energy is the lifeblood of the Global North. History, science, and technology have only recently given us the lowest-cost energy source ever: fossil fuels. And that factor, low-cost energy, gave impetus to the greatest flowering of scientific and technological progress in humanity’s history.

The first mass production of relatively cheap (for the times) electrical energy was in the late nineteenth century when water flow turbine generators were invented. The invention of the steam-powered turbine (its own heat energy derived from burning coal) followed, and then the mass application of the electric motor and the invention of Alternating Current production, distribution, and end-use devices gave us the twentieth century’s (second) industrial revolution, the affordable fruits of which we, in the West, have enjoyed up until now.

From the end of World War II until the first manned landing on the moon (in 1969 for you youngsters), military requirements and U.S. Defense Department money fueled, unintentionally, a third “consumer products” based industrial revolution. The military requirements were for miniaturized electronic communications and mechanical components, radar, and computers. This led to the invention of the integrated circuit “chip,” but that was preceded (necessarily) by the discovery of methods to find, extract, separate, and ultra purify metals and non-metals, which until that time had been laboratory curiosities. These are the “technology metals” the electronic properties of which now make them critical minerals and metals to be utilized in mass-produced miniature devices for communication, data storage, micromechanical movement and entertainment.

Of course, silicon has been known for a long time, but its ultrapurification, first for use in semiconductors and then in solar cells, was a post-World War II achievement that triggered a new discipline among metallurgists, the commercial production of quantities of ultrapure technology metals necessary and sufficient for the mass production of consumer devices.

None of these critical metals and minerals today deemed necessary for this micro miniaturization of electronics revolution were available in commercial quantities or even sufficient quantities for experimentation until or after World War II. All of them were brought into production during that period for the purposes and use by the U.S. Military for manufacturing and controlling weapons and communication. All of that initial production was done without regard to cost; it was for the “defense” of the United States. Even the best educated among my contemporaries overlook the fantastic advances in the chemical engineering of extractive and purification required and achieved to bring the technology metals of our age into “mass production” economically,

Ultrapurification, necessary to establish the baseline electronic properties of materials, would never have been accomplished commercially due to its research and development costs if it had not been for the military’s need for miniaturized electronic devices.

At the beginning of World War II the allied nations sought to secure sufficient supplies of metals to make armor and ammunition. These were the alloying elements for steel, nickel, chrome, and tungsten and the copper and zinc necessary to make cartridge brass.

During the war, uranium, zirconium, silicon, and gallium became necessary for weapons and communications equipment, and the ultrapurification of all of those above and of germanium became a necessity. Interestingly, the separation of the rare earths and their purification was intensely studied during the war because the lanthanides (the rare earths) had chemical properties analogous to those of the actinides (the radioactive elements ) and so they could be used to infer the chemical properties of the actinides without the need for massive and restrictive shielding that is necessary when working directly with the radioactive actinides.

By the end of the war the chemical engineering had been done to assure greater supplies than ever before in history of many previously obscure metals and materials, because their extraction, separation, refining, and fabricating had been developed without regard to cost, and stockpiles had been built of them.

An intense period of invention based on the electronic and magnetic properties of the newly available technology metals occurred between 1945 and the end of the 1970s during which period America’s Federal Government lavishly supported research and development.

For example, separated rare earths became important for enabling true-color electronic displays, but their use in making very small but powerful permanent magnets was a scientific discovery made during the 1970s transition of R&D support, when private industry took over and made its own (market driven) choices for research and development. The engineering of the mass production of these magnets was entirely done by private enterprise and was driven by the needs of consumer products.

By the end of the 1970s, two cultures had emerged to support research and development: the military-industrial complex and the civilian consumer market.

Technology may be defined as the engineering of science.

The United States does not officially have an industrial policy, but its Department of Defense does have one: The application of engineering to the mass production of weapons shall be directed (and defined) by the Department of Defense.

The American consumer products industry follows the rules first defined by Adam Smith: Scientific discoveries to be engineered for mass production shall be chosen by either listening to the market or gambling that a “new” product will find acceptance. And such products must be affordable.

When the U.S. Department of Defense underwrote almost all basic research and development from 1942 until 1973, it was focused on military uses but open to civilian applications of technologies so long as, in its opinion, such uses did not compromise national security. Thus, the consumer market got transistors, integrated circuits (chips), solid-state electronics, and then electronic color television, and, most importantly, the widely available electronic components that allowed “inventors” epitomized by Steve Wozniak to assemble useful consumer devices such as the personal computer.

The invention (another term for the engineering of science) of the seminal miniature electric motor based on the use of rare earth permanent magnets was pioneered by scientists and engineers working for a large Japanese trading house, Sumitomo, and the then-largest OEM automotive company in the world, America’s General Motors.

The final triad of critical metals, platinum, palladium, and rhodium became such during the 1970s, when the engineering of catalyst materials for automotive exhaust emission catalytic converters occurred, and these three metals were chosen as the most effective for the purpose.

The honeymoon period for the dominance of development of new military market uses of devices based on the electronic properties of the technology metals was brief in historical terms.

Today, the markets have flipped. Consumer demand for products dependent upon the electronic properties of technology metals is now the dominant driver for the exploration and development of sources of critical minerals. And the consumer market has now added the last critical mineral for our age. Lithium.

Even so, the U.S. military has distorted the sourcing of such minerals by making financial “grants” to potential mineral vendors and processors it believes can immediately benefit its (limited) needs. The American consumer-oriented manufacturing economy, if left alone without government-induced demand market distortions, does not favor reducing the scope of the fossil-fueled energy economy. The flood of wasted capital, all from “borrowing by the national government, that has gone into the climate change agenda has, in my opinion, wrecked the American manufacturing industry by distorting its focus away from the real market of actual consumer demand.

China’s rulers, in their quest for economic self-sufficiency, have also wasted enormous amounts of capital in constructing a massive overcapacity and overproducing almost all domestic natural resources. However, they have also achieved material self-sufficiency through the adoption of the capitalist system of resource acquisition solely by investment rather than the imperial one of conquest.

The American consumer manufacturing industry has not seen the need for technology raw materials’ self-sufficiency so long as it could piggyback on Chinese achievements.

The American military, though, is in panic mode. It has become obvious to the military-industrial complex that the civilian resource market is no longer interested in or capable of supplying operational or critical mineral needs for national security.

One statistic tells it all: Today, in August 2024, China’s domestic shipbuilding industry is 500 TIMES LARGER THAN AMERICAS!

What has America lost by shifting its consumer manufacturing to China? The answer is the development and maintenance of critical natural resources and, ominously, the continuity of engineering necessary to maintain modern, high-tech mass production.

China has now replaced the United States as the world’s most self-sufficient manufacturing nation and as the world’s leading educator of scientists and engineers.

The only important critical material is human capital. All the financial capital in the world cannot replace it. The United States is now China’s largest trading partner.

The world’s future financial health depends on the interdependence of the two economies.

That is the only thing that is critical.

July 15, 2024 — In a recent interview with InvestorNews, Jack Lifton spoke with Pat Ryan, the CEO and Chairman of Ucore Rare Metals Inc. (TSXV: UCU | OTCQX: UURAF), discussing the company’s significant advancements and strategic vision in the rare earth elements (REE, rare earths) sector. Ucore is at the forefront of rare earths sector, focusing on extraction, beneficiation, and separation technologies. The company aims to disrupt China’s dominance in the North American REE supply chain by establishing a state-of-the-art heavy and light rare earth processing facility in Louisiana and subsequent strategic complexes in Canada and Alaska. This aligns with Ucore’s broader objective to enhance supply chain resilience in the Western world, particularly in light of recent U.S. government actions to bolster the domestic electric vehicle (EV) market through increased tariffs on Chinese imports.

During the interview, Ryan highlighted the progress at Ucore’s Kingston Demonstration Facility (KDF), where they have been perfecting their RapidSX™ technology. “We’ve run several different feedstocks at the facility, including monazite, bastnaesite, and currently an ionic clay for the Department of Defense,” Ryan noted. This technology enables efficient separation of heavy rare earth elements, producing high-purity outputs like 98% dysprosium and 2% terbium, crucial for the EV industry’s permanent magnets. Ryan emphasized the importance of developing complete flow sheets to ensure the commercial viability of their Louisiana Strategic Metals Complex (SMC), which is set to commence production in Q4 2025 with an initial capacity of 2,500 tonnes per annum, scaling up to 7,500 tonnes.

Jack Lifton praised Ucore’s approach, underscoring its unique position in the industry: “You are the very first dedicated heavy rare separation plant outside of China,” he remarked. Ryan explained Ucore’s strategy of operating without a mine, instead focusing on mid-market separation processes and securing feedstock through quasi joint ventures. This model, combined with strong support from high-net-worth investors and government backing, positions Ucore to play a pivotal role in the Western REE market. “The fact that we’re on the Gulf Coast of the U.S. is a good place to be for plant #1,” Ryan said, highlighting the strategic location and technological edge of Ucore’s operations.

Pat Ryan will be a keynote speaker at the upcoming Critical Minerals Summit III in Toronto, Ontario on August 21-22, 2024. For more information, go to www.CriticalMineralSummit.com.

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About Ucore Rare Metals Inc.

Ucore is focused on rare- and critical-metal resources, extraction, beneficiation, and separation technologies with the potential for production, growth, and scalability. Ucore’s vision and plan is to become a leading advanced technology company, providing best-in-class metal separation products and services to the mining and mineral extraction industry.

Through strategic partnerships, this plan includes disrupting the People’s Republic of China’s control of the North American REE supply chain through the near-term establishment of a heavy and light rare-earth processing facility in the U.S. State of Louisiana, subsequent Strategic Metal Complexes in Canada and Alaska and the longer-term development of Ucore’s 100% controlled Bokan-Dotson Ridge Rare Heavy REE Project on Prince of Wales Island in Southeast Alaska, USA.

To learn more about Ucore Rare Metals Inc., click here

Disclaimer: Ucore Rare Metals Inc. is an advertorial member of InvestorNews Inc.

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The critical minerals sector witnessed a significant milestone with the recent announcement of a supply agreement between Solvay and Cyclic Materials. This partnership, unveiled earlier today signals a robust commitment to creating a sustainable — and circular supply chain for rare earths, vital for various high-tech and green energy applications.

A Strategic Partnership for Sustainable Rare Earth Supply

Solvay, a renowned leader in the supply of rare earth materials for catalysis and electronics, has teamed up with Cyclic Materials, an advanced metals recycling company. This agreement will see Cyclic Materials supplying recycled mixed rare earth oxide (rMREO) to Solvay, with initial shipments scheduled to commence in late 2024. This collaboration builds on the memorandum of understanding signed by both companies in February 2023 and the successful validation of Cyclic Materials’ rMREO product with Solvay’s rare earth separation process.

Ahmad Ghahreman, President and CEO of Cyclic Materials, commented on this milestone: “The completion of this commercial agreement is a significant milestone in our company’s journey. The team has demonstrated our ability to scale technology capable of producing a high-quality recycled product from a diverse set of end-of-life magnet products. We see this as a tremendous achievement to be partnered with a leader in the rare earth chemicals market.”

Enhancing Self-Sufficiency in Rare Earths

This agreement is a pivotal step in enhancing European self-sufficiency in rare earths, crucial for the fast-growing electric vehicles, wind power, and electronics markets. Solvay’s efforts to establish a rare earths hub in La Rochelle, France, align with the broader European agenda to secure a stable and sustainable supply chain for critical materials. An Nuyttens, President of Solvay Special Chem, highlighted the significance of this partnership: “This agreement aligns with our sustainable sourcing strategy to provide magnet grades of NdPr and Nd oxides to our customers by early 2025. We support Cyclic Materials’ vision of developing a circular supply chain for rare earths. Through this partnership, we are creating a circular loop to reintegrate recycled MREO back into the magnet supply chain.”

Cyclic Materials’ Vision and Technological Advancements

Founded in 2021, Cyclic Materials has rapidly become a leader in developing technologies that economically, sustainably, and domestically convert end-of-life products into valuable raw materials. The company’s proprietary hydrometallurgical technology, REEPure™, has enabled the production of recycled mixed rare earth oxide, positioning Cyclic Materials as a key player in the critical minerals sector. The opening of their Hub100 plant in Kingston, Ontario, marks a significant achievement in North America’s journey towards a sustainable rare earth supply chain.

Anticipation Builds for CMI Summit III

In light of these developments, the upcoming Critical Minerals Institute (CMI) Summit III in Toronto on August 21-22, 2024, promises to be an essential confluence for industry leaders. Ahmad Ghahreman will be among the distinguished speakers, sharing insights on the advancements and future directions of Cyclic Materials. This summit, under the theme “Connecting Leaders, Advancing Critical Minerals,” will gather experts, investors, and policymakers to discuss strategies for securing and advancing the critical minerals supply chain.

The CMI Summit III will also serve as a platform to unveil the first-ever CMI Critical Minerals List for June 2024. This list highlights 18 minerals essential for sustaining Western economic growth and underscores the strategic importance of diversifying supply sources. With Cyclic Materials and other industry leaders in attendance, the summit aims to address the challenges and opportunities within the critical minerals market.

Conclusion

The partnership between Solvay and Cyclic Materials represents a significant step towards building a sustainable and circular supply chain for rare earth elements. As the global demand for these critical materials continues to rise, such collaborations will be essential in mitigating supply chain risks and supporting the transition to a greener and more technologically advanced future. The insights shared at the upcoming CMI Summit III will undoubtedly shape the discourse on critical minerals and their role in the global economy.

The non-Chinese OEM automotive industry seems to have learned a lesson from the marketplace that has eluded Washington, Ottawa, and Brussels. Unfortunately for the non-Chinese rare earth permanent magnet industry, the so-called “sector covering journalists” have also missed the point.

The rare earth permanent magnet motor is also the motor of choice, based on efficiency and weight, of the non-Chinese OEM automotive industry for hybrid power trains.

The trend in non-Chinese OEM automotive has switched from replacing all internal combustion engines (ICEs) with EVs to a mix of EVs, hybrids, and ICEs. Some large non-Chinese OEMs, such as Toyota, the world’s largest OEM automotive company, made this choice from the first day of the policy-driven push to “electrify” the industry’s products. Now, as the market results have replaced the policy-driven hopes, the OEMs are rushing in to declare their apostasy. We were wrong, they cry, hybrid power trains are the most efficient users of both fossil and alternate energy (electricity from non-carbon sources) fuels. Thus, hybrids will give our fuel supplies a longer life.

Toyota has predicted a future where its production will be one-third EVs, one-third hybrids, and one-third ICEs. If this prescription were followed by the others then ultimately two thirds of the non-Chinese world’s auto production would be best served by rare earth permanent magnet motors. This means that the demand for those magnets will now increase faster than we thought.

The current U.S. tariff policy means that if American companies wish to continue to make EVs or hybrids without Chinese magnets, then they have an existential problem.

Chinese export restrictions on rare earth permanent magnet technologies, now in place, plus the effect that the new U.S. tariffs may have on the importing of Chinese automotive products present a genuinely existential threat to the domestic US automotive industry and its supply base for electric motors.

Only the U.S. Department of Defense seems to have recognized this. It has “invested” not only in rare earth separation, but also in the domestic production of rare earth permanent magnets from domestic materials for its own needs. However this “supply chain deficit awareness” is not universal in the governments of the West.

Only one U.S. mine is producing rare earths. There are only two disclosed operational rare earth separation plants in the US (China has 100s!). There are no commercial rare earth metal or alloy plants in the U.S. And the only credible magnet plant under construction in the USA is dedicated to supplyinhg the US military if and only if it can get domestic or friendly nation supplies of rare earths that can then be processed into rare earth permanent magnet alloys in the U.S.

We need to know exactly who is doing what and at what level they are doing it to create a domestic American rare earth permanent magnet supply chain.

The future of the domestic American OEM automotive industry really depends on this.

Ucore Rare Metals Inc. (TSXV: UCU | OTCQX: UURAF) just announced a mutual commitment between themselves and the State of Louisiana to establish a rare earth separation facility in the state which Ucore refers to as a Strategic Metals Complex (SMC). This is a change in direction from the earlier management drive to build a facility in Alaska. The government of Alaska had committed to supporting this approach through a bond of US$145 million to develop the Bokan Project for infrastructure and construction costs. This is a significant shift — which, I view as positive.

From their news release, they point to some advantages “Critical markers for success, such as streamlined inbound and outbound freight, ample supply and proximity of chemicals and reagents, attractive energy costs, the robustness of labor pools, room for ramp-up and production expansion and community support, including technical education infrastructure were all part of the size-up.” In addition, they are evaluating several brownfield sites which typically come with infrastructure already in place like power and buildings which would reduce the capital investment.

The Louisiana Economic Development (LED) sent a non-binding Letter of Intent (LOI) to Ucore last week. The LED laid out a 10-year US$9.6 million economic incentive package in consideration for Ucore’s projected investment of US$55 million. There may also be additional incentive’s once a site has been chosen which could bring the total package up to US$11 million from the LED.

According to the LOI, the following were identified:

• The financial, economic and tax incentive offers described in the LOI are estimates based on the Company’s commitment to and fulfillment of its capital investment, employment and expected payroll schedules for the Louisiana SMC. This includes: (i) a total capital investment by the Company for the Louisiana SMC of at least US$55 million by December 31, 2026; and (ii) new jobs in Louisiana at the Louisiana SMC in the amount of 45 jobs in 2025 with an annual payroll of US$2.4 million rising to 80 jobs in 2034 with an annual payroll of US$5.2 million.
• Louisiana’s Industrial Tax Exemption Program can offer up to a 10-year tax exemption to the Company. LED estimates that the exemption may result in up to US$6.0 million in tax savings for the Company. The State’s Industrial Tax Exemption Program is administered by and will be subject to a contract to be finalized between the Company and the Louisiana Board of Commerce and Industry and requires approval from Parish and municipal governing bodies as well as the Parish school board.
• Louisiana’s Quality Jobs Program provides a 4% or 6% payroll rebate on the gross annual payroll for qualifying new jobs for up to 10 years. The program also refunds state sales/use tax paid on construction materials purchased during construction or a 1.5% project facility expense rebate on certain capital expenditures. LED estimates that the value of this program could be up to US$3.6 million for the Company. The Quality Jobs Program is administered by and will be subject to a contract to be finalized between the Company and the Louisiana Board of Commerce and Industry.

Initial plans are to build a plant that will produce 2,000 tonnes per year (TPY) of separated rare earths by the second half of 2024. Plans would be to expand to a world scale production level of 5,000 TPY by 2026. The technology to be used is Ucore’s wholly owned Innovation Metals Inc. Rapid SX^TM  technology. This has been piloted for some time now at Kingston Process Metallurgy (KPM) to develop knowledge of the process and design parameters.

This appears to be the first major investment in rare earth separation processes in the USA, although there are others also talking about this including Lynas Rare Earths Ltd. (ASX: LYC) and MP Materials Corp. (NYSE: MP) with grants from the Department of Defense (DoD). MP received US$35 million and Lynas US$120 million. This begs the question of whether or not the DoD will support Ucore with this plan of action. With a current market cap of approximately US$30 million raising the funds through equity financing would be very dilutive to existing shareholders so either the DoD assists or Ucore gains a strategic partner or a combination of these two will allow the financing of the SMC.

I am sure more news will be forthcoming as engineering and construction will likely need to start by mid-2023 to achieve the stated target of production in 2024-H2.

Disclaimer: The editor of this post may or may not be a securities holder of any of the companies mentioned in this column. None of the companies discussed in the above feature have paid for this content. The writer of this article/post/column/opinion is not an investment advisor, and is neither licensed to nor is making any buy or sell recommendations. For more information about this or any other company, please review all public documents to conduct your own due diligence. To access the InvestorIntel.com Disclaimer, click here

Updated June 28, 2022: Lynas’ Managing Director Amanda Lacaze provides answers below

 

I was intrigued last week when the U.S. Department of Defense (DoD) made the announcement that it had awarded US$120 million to Lynas Rare Earths Ltd. (ASX: LYC) to build a 3-5 kta heavy rare earth separation system in the USA. This is in addition to the $30 million the DoD awarded to Lynas (to be matched by Lynas) in February 2021, for the same thing. My guess is that since Lynas built and operates the world’s largest light rare earth separation system in Malaysia where it processes ore from its Mt. Weld Australia monazite mine (the world’s largest worked deposit of monazite), it seemed like an easy decision for the DoD, provided it was prepared to overlook the skills of the domestic American market and the mandate to buy American and reshore. 

But, since the DoD had already agreed to provide US$30 million of an estimated (by Lynas) US$60 million to build such a facility in Texas, why, I asked myself was an additional US$120 million necessary? 

So, I drafted a set of questions for Lynas, the answers to which would be particularly important in a due diligence study for the project, in case the DoD either did not do a due diligence (my guess) or would not publicly answer the same questions citing national security concerns, or some such nonsense. 

Here are the questions I sent to Lynas at the beginning of this week: 

1. What is the project’s location?
2. What is the detailed CAPEX and the estimated OPEX for the system?
3. When will the permitting be finished?
4. Is the plant design finished (It would have to be for the permitting to be finalized)?
5. What is the timeline for construction and first output?
6. What exactly will be the composition of the plant’s output in individual rare earths and tonnages of each, and when will the (nameplate) target capacities be reached?
7. Will the costs per KG of each individual rare earth and blend be competitive with the Chinese costs? 
8. Will the US DoD be the only customer?
9. Will any of the heavy rare earths be consigned to specific metal/alloy/magnet makers? and,
10. From where, exactly, will the feedstocks be sourced? 

Question number 10 is extremely important since there is today no commercial production of heavy rare earths outside of China. Also of note is the fact that Lynas has never commercially produced any separated individual heavy rare earths, nor is its Malaysian plant equipped to do so. 

I am awaiting a reply to these questions from Lynas, but I will let you know when I get them. 

Publisher’s Update:

In response to the above questions InvestorIntel editor Jack Lifton received the following answers by email from Amanda Lacaze, Managing Director of Lynas on June 27, 2022:

1.  What is the project’s location?

Following a detailed site selection process, the facility is expected to be located within an existing industrial area on the Gulf Coast of the State of Texas.

Texas is an excellent location from which to serve our U.S. customers and support the U.S. government’s moves to strengthen its industrial base and make supply chains more resilient through a diversified supply.

2.  When will the permitting be finished? / Is the plant design finished? / What is the timeline for construction and first output?

The design of the Heavy Rare Earths plant was completed as part of the Phase 1 contract. The construction timeline will be confirmed following the completion of detailed engineering and planning. The plant is targeted to be operational in financial year 2025.

3.  What exactly will be the composition of the plant’s output in individual rare earths and tonnages of each?

A typical Heavy Rare Earths separation facility of this type would produce between 2500-3000 tonnes of heavy rare earths per year.  We would expect our Heavy Rare Earths production to be in this range.

We have publicly stated our expectation that the Light Rare Earths plant will produce approximately 5,000 tonnes per year of Rare Earths products, including approximately 1,250 tonnes per year of NdPr.

4.  Will the US Department of Defense be the only customer?

This will be a commercial facility and will be designed to serve both the U.S Defense Industrial Base and commercial manufacturers.

5.  Will any of the heavy rare earths be consigned to specific metal/alloy/magnet makers?

This facility is a positive step towards reinvigorating the domestic Rare Earths market, and we will work to encourage investment in value-added downstream processes including metal and magnet making.

6.  From where, exactly, will the feedstocks be sourced?

Feedstock for the facility will be a mixed Rare Earths carbonate produced from material sourced at the Lynas mine in Mt Weld, Western Australia. Lynas is building a new Rare Earths Processing Facility in Kalgoorlie to process the Rare Earth concentrate from Mt Weld. The material produced in Kalgoorlie will be further processed at the new Rare Earths separation facility in the United States. Lynas will also work with potential 3rd party providers to source other suitable feedstocks as they become available.

Neo Performance Materials Inc. (TSX: NEO) (Neo) is an almost totally integrated Western (Canadian) company that processes mixed rare earth concentrates to produce separated individual and specifically blended rare earths to produce rare earth metals, alloys, and “bonded” rare earth permanent magnets. What makes Neo special is that they are the only company in the world that operates dual supply chains inside and outside of China for REE separation and REE advanced materials and end-use products. Neo owns the only operating commercial rare earth separation facility outside of Asia. It’s in Europe (Estonia facility) and it has sales and production centers spread across 10 countries globally.

All of the above makes Neo unique as a Western producer of rare earth materials as well as end-use products, which are critical in the green energy and EV revolution.

Award winning facilities

As announced on February 22 and March 28, 2022, Neo won awards for two of its key factories, the first in Thailand and the second in Estonia. The awards were Gold Medals awarded by EcoVadis for 2021 sustainability performance.

The second announcement stated: “This places Neo’s Silmet facility in Sillamäe, Estonia in the top five percent of all facilities around the world reporting to EcoVadis for its sustainability programs in 2022… The Silmet facility processes mixed rare earth feedstock into a variety of high-purity rare earth specialty materials, including neodymium-praseodymium (NdPr) oxide, which is used by Neo’s Magnequench business unit to produce neodymium-iron-boron (NdFeB) magnetic materials and magnets for automotive, factory automation, home appliance, circulation pump, and other applications.”

This impressive recognition is also very well timed given the surging demand for NdFeB magnets used in many EV motors. Global electric car sales finished March 2022 with 851,000 sales for the month (the second best month ever), 60% higher YoY, with market share of 15%.

The global OEM automotive industry today uses mainly sintered NdFeB rare earth permanent magnets, but the use of bonded type NdFeB in this application is growing rapidly. Neo has pioneered the use of bonded NdFeB magnets in automotive applications with Japanese customer/partner, Honda, and this use is expanding. Neo has agreed with European magnet customers to expand its capacity there and to add sintered NdFeB magnets to its product lines. The EU has encouraged and is financially supportive of this move by Neo.

Prices for rare earths materials and end-user products used in the green economy have been surging the past year, due to demand exceeding supply, and this is reflected in Neo’s latest financial results. This supply deficit looks to be baked in for at least the next decade due to the growth of the green economy.

Q4 2021 and Full-Year financial results highlights (in USD)

As reported on March 10, 2022, Neo achieved the following outstanding financial results:

• “Q4 2021 revenue of $153.4 million higher by 39.0% YoY; full-year 2021 revenue of $539.3 million was higher by 55.5% YoY.
• Volumes in the fourth quarter of 3,311 tonnes; full-year volumes expanded by 20.2%.
• Operating income of $12.7 million in the quarter; $59.9 million for the year.
• Adjusted Net Income for the quarter of $16.1 million, or $0.39 per share, with full-year Adjusted Net Income of $55.0 million, or $1.42 per share.
• Adjusted EBITDA for the quarter of $19.7 million; 2021 Adjusted EBITDA of $81.9 million was 183.7% higher YoY.
• Cash balance of $89.0 million after raising $38.0 million from equity offering and distributing $12.8 million in dividends to shareholders.”

As shown above, full-year 2021 revenue was 55.5% higher YoY, based on volume growth of 20.2%. Clearly higher-end product prices helped support the stellar results. Neo sums it up well and the general direction the business is heading by stating:

“Neo reported strong year-over-year (YoY) gains in revenue, volumes, operating income, Adjusted EBITDA, and profitability in the year ended December 31, 2021, driven largely by increased demand for products across all three of its operating divisions, higher selling prices for rare earth materials, and continuing progress in several of the Company’s strategic initiatives.”

I did warn investors that this was what we were expecting from Neo with our December 22, 2021 article: “Neo Performance Materials looks to expand capacity as it rides the tailwind of growing rare earth permanent magnet demand.”

Neo Performance Materials is one of a few Western companies able to process rare earths and make magnets

Source: Neo Performance Materials website

Closing remarks

Neo Performance Materials occupies a rare and critical position in the Western supply chain to produce rare earths specialty products. Demand for powerful rare earth type magnets used in many consumer goods as well as in wind turbines and EVs is expected to surge this decade.

Neo Performance Materials trades on a market cap of C$546 million and a current PE of 17.6. 2022 PE is forecast at 7.82.

The next catalyst for Neo will be the Q1, 2022 earning results due out before the market opens on May 13, 2022. Stay tuned.

Investors love companies that under promise and over deliver. Today’s company is a classic example as it continues to grow its highly valuable global advanced materials business that includes rare earth alloy powders and magnets.

Neo Performance Materials Inc. (TSX: NEO) (“Neo”) is a profitable processor and manufacturer of advanced industrial materials including rare earth metals, alloys, and “bonded” rare earth permanent magnets, specialty chemicals, technology metals, and alloys. These are all critical to the performance of many everyday products and emerging technologies such as the high-powered magnets used in electric vehicles and in direct drive wind turbine electric generators. Neo operates globally with sales and production across 10 countries including Japan, China, Thailand, Estonia, Singapore, Germany, the United Kingdom, Canada, the United States, and South Korea.

Neo is the only company in the world that operates dual supply chains inside and outside of China for rare earths, rare earths separation and the commercial production of rare earths advanced materials. Neo owns and operates the only operating commercial rare earth separation facility in Europe.

Furthermore, Neo’s Magnequench unit is the global leader in bonded neodymium-iron-boron (NdFeB) alloy powder based magnets and their applications. Its powders and magnets are used in high-performance components for the OEM automotive, factory automation, high-efficiency motors, residential appliances, and in many other applications.

Neo Performance Materials global operations that manufacture advanced materials that incorporate rare earths and other rare element metals

Source: Company presentation

Establishing a new Western rare earths supply chain incorporating USA and Europe

As a reminder, in July 2021 Neo announced the commencement of commercial shipments of mixed rare earth carbonates produced from monazite from which the uranium and thorium had been removed by Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) in the USA, to Neo’s rare earth separations facility in Estonia, Europe. This first shipment was a landmark for establishing a new non-Chinese Western rare earths supply chain. Energy Fuels has been sourcing ore from third parties such as from Chemours’ (NYSE: CC) heavy minerals sands operations in Georgia, USA; then processing the monazite residue at their White Mesa Mill in Utah, USA, to extract the rare earths, remove the radioactive elements, and then process the rare earths  into a solid mixed carbonate form ready for delivery, in this case, to Neo’s operation in Estonia according to its specification. The news stated:

“This new supply chain will initially produce rare earth products from monazite that is processed into mixed RE Carbonate at Energy Fuels’ Mill in Utah. This RE Carbonate is then further processed by Neo at its Silmet rare earth processing facility in Sillamäe, Estonia (“Silmet“) into separated rare earth oxides and other value-added rare earth compounds. Neo is the only commercial producer of separated rare earth oxides in Europe.”

Neo’s CEO, Constantine Karayannopoulos, stated: “This innovative U.S.-to-Europe supply chain will supplement Neo’s existing rare earth supply from our long-time Russian supplier. It will enable Neo to expand value-added rare earth production in Estonia to meet growing demand in Europe for these materials.”

Neo’s financials keep getting stronger

As announced on August 12, 2021, Neo produced another stellar financial result in Q2, 2021. Highlights included production volumes increasing 59.6% YoY, revenue reaching US$135.1 million and up 99.5% YoY, adjusted EBITDA of US$22.2 million massively up YoY (an increase of $21.0 million), and adjusted net income of US$14.1 million, or US$0.37 per share. The chart below highlights the financial improvement in Neo’s financials over the past year.

Neo’s consolidated revenue and adjusted EBITDA keep rising due to a very strong operational performance

Neo’s revenue by segment and geography is led by Magnequench and China

Source: Company presentation

Neo’s CEO, Constantine Karayannopoulos, stated: “We had an outstanding second quarter that exceeded our expectations, with record revenue and robust profitability, while our plants operated at near-record output…….With the organic growth we are seeing across all business units, the significant macro tailwinds boosting the entire rare earths sector, and a number of strategic growth opportunities on the radar screen, we remain confident in the sustainability of our long term vision and growth strategy.”

Looking ahead to the rest of the calendar year 2021 analyst’s forecasts remain strong with CY2021 revenue forecast at US$503 million, net income US$39 million, and 7.82% net profit margin. These estimates may soon need to be increased given Neo has already achieved US$266 million in H1 2021. In terms of multiples, they are also appealing with Neo trading on a 2021 PE of 16.7x and an EV/Revenue multiple of 0.92x.

Closing remarks

Neo is currently riding a wave of demand for its advanced materials as we move to a greener economy, especially for the high-value rare earth alloy powders and magnets made with neodymium. These magnets are key to achieving greater power and efficiency from electric motors, the demand for which in the large drive motors for electric vehicles is surging.

Neo Performance Materials trades on a market cap of C$670 million and a very reasonable 16.7x PE. One to definitely consider.

Many in the market may have not realized that the U.S and Europe now have a new rare earths and rare element materials supply chain. Up until now the only rare earths producer of significance in the US was MP Materials Corp. (NYSE: MP). Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) has begun to produce a rare earths carbonate in the US and has teamed up with Neo Performance Materials Inc (TSX: NEO) (“Neo”), who makes the final rare earth materials in Estonia Europe.

According to rare earths expert Jack Lifton: “Energy Fuels is today, June 30, shipping the first 20 tonne container load of MRECs (mixed rare earth carbonate), extracted from Chemours’ monazite and processed to remove uranium and thorium and other interfering (with solvent extraction) ions, to Neo Performance’ dedicated SX facility in Estonia. Both Mark Chalmers and Constantine Karayannopoulos will be present at the processing plant in White Mesa, Utah.”

Jack Lifton also states that this is “the first production of a clean MREC derived from monazite in the USA since 1998” and “the restoration of a domestic rare earth supply chain beyond the mine has begun and Energy Fuels is leading the way.”

As reported by Energy Fuels in May 2021, the Company update stated:

“…the Company, along with Neo Performance Materials, announced the joint launch of a U.S.-European REE production initiative under which the parties plan to produce value-added REE products from natural monazite sands, a byproduct of heavy mineral sands mined in the southeastern United States. Pursuant to this initiative, in late-March 2021 Energy Fuels commenced ramping-up commercial production of a mixed rare earth carbonate (“REE Carbonate“) from natural monazite sands at the Company’s White Mesa Mill. Under an agreement in principle signed on March 1, and subject to completion of definitive agreements and successful ramp-up of production, Energy Fuels will ship a portion of its REE Carbonate production to Neo’s REE separations facility in Sillamae, Estonia  (“Silmet“). Neo will then process the REE Carbonate into separated REE materials for use in REE permanent magnets and other REE-based advanced materials.”

Energy Fuels is an emerging U.S producer of rare earth element products, plus an existing uranium & vanadium producer (on standby) at their White Mesa Mill in Utah, USA

Source: Energy Fuels

The monazite ore is supplied to Energy Fuels’ White Mesa Mill in Utah, USA by The Chemours Company’s Offerman Plant in Georgia, and potential future supply of additional natural monazite sands is contracted via a non-binding MOU from the Titan heavy mineral sand project in Tennessee owned by Hyperion Metals Limited. All of this means that a new USA supply chain for rare earths carbonate has begun.

Energy Fuels’ President and CEO, Mark S. Chalmers, stated:

“Without a doubt, Energy Fuels is making major strides toward restoring critical U.S. rare earth supply chains, while also maintaining our position as the leading U.S. uranium producer…..On rare earths, our efforts over the past several months culminated in the announcement on March 1 that Energy Fuels and Neo Performance Materials were creating a new, U.S.-European rare earth supply chain……However, as I’ve said many times, we have much bigger rare earth plans, and the momentum is building rapidly as we execute our purposeful strategy. We are now taking real steps toward designing and building fully integrated, U.S. rare earth production capabilities.”

It seems the mass media is yet to realize the significance of CEO Chalmer’s statement, especially given Energy Fuels trades on a market cap of just US$873 million. When comparing to MP Materials on a market cap of US$6.08 billion, Energy Fuels looks cheap, but it should be noted that Energy Fuels is not yet a fully integrated rare earths carbonate producer and has less capacity (up to 2,500 tons per year of monazite) than MP Materials (noting mining in USA and processing in China). Of course, the plan is for this to change in coming years, plus Energy Fuels has uranium and vanadium on standby production awaiting better prices and/or to supply uranium into the U.S. Uranium Reserve once it is established by the U.S. government. You can read more on Energy Fuels rare earths plan here.

In the case of Neo Performance Materials, they are further along the supply chain specializing in advance materials including rare earths magnet materials. Neo trades on a market cap of C$616 million (US$497 million). Neo states:

“Neo is the only company in the world that operates dual supply chains inside and outside of China for REE separation and REE advanced materials. Neo owns the only operating commercial rare earth separation facility in Europe.”

You can read more on Neo here.

Neo Performance Materials produces rare earths advanced materials (magnet materials etc) and sells globally

Source: Neo Performance Materials company presentation

Closing remarks

For investors wanting to get involved in western based rare earths and rare earth magnet materials companies then it would be sensible to consider both Energy Fuels (intermediate rare earths carbonate materials) and Neo Performance Materials (advanced rare earth materials).

Both companies appear to be moving in the right direction with a large runway of growth ahead. Demand for their products looks to be exceptional in the years ahead, thanks to the electric vehicle and renewable energy booms, which should support strong pricing and margins.

As a result of all of this, the West’s sustainable future looks brighter thanks to increasing rare earths products supply from Energy Fuels and Neo Performance Materials.

“What has happened finally with the US government is that they have recognized the supply chain problem and that we have been too dependent on China for too many things. The two things that are mentioned the most inside the Federal government are pharmaceuticals and rare earths… Rare earths are very much on the radar of the US federal government. In fact, one of our senators, Senator Rubio of Florida is a champion in the US to revive the rare earth supply chain. It is very exciting and it is the biggest move in this commodity that I have seen from the US government.” States critical materials expert Jack Lifton, in an interview with InvestorIntel’s Tracy Weslosky.

Jack went on to say that we should look at the total rare earths supply chain and then try to make that domestic in North America (The US and Canada) or with closest allies like Australia. Jack continued, “The anchor of any supply chain is the mine, the source of the minerals. We have got several in North America and we have 2 or 3 close to production. In Australia, we have two in operation – Lynas and Northern Minerals. The next step is separating these materials. The mixed rare earths into individual rare earths that can be further processed into products that we actually use.”

Jack also said that there is no heavy rare earth separation operation outside of China and if we consider health and safety requirements of North America then Chinese materials will be unacceptable.

To access the complete interview, click here