Rainbow Rare Earths Share Discussion Threads

[eadwig] 03/4/2017 05:38

Removed post after pasting wrong response. Sorry for any confusion caused.

[sian] 02/4/2017 20:00

Hi Eadwig

Excellent post.....I am in agreement with pretty much all of your comments as above. (if you are not already, you really should consider a career as a brokers analyst)

I would also like to add a note regards REO pricing drivers;

A forgotten fact is that China has also now begun to manufacture products using REE, which has put an additional strain on availability of REE for other nations, since Chinese manufacturers have first call on available REE (Abraham, 2015) (Basic supply & demand rules will apply)

Since the recycling rate for products containing REE is < 1% (Reck & Graedel, 2012), increased mining of these metals is assured, with attendant environmental and ecological challenges.

Demand for selected members of the REE family is expected to grow in coming decades. This demand will be driven by global population increase, increased affluence of the global population, need to replace end-of- life products containing REE, and production of new products containing REE.

As we are all aware, the Gakara mineral basket is weighted heavily towards the magnet rare earths, neodymium and praseodymium, which are driving demand accounting for 70% of annual global rare earth element (REE) sales due to their use in vital components in motors, generators, wind turbines and electric vehicles(not just in the West) This is important for REE projects such as RBW and is what will ultimately drive value.

'Scale' in my opinion, not only rests with the ramping up of mining of known deposits for RBW, but also in discovering/acquiring new deposits either within the licence or further afield (Burundi/Africa.)

Best Regards

[eadwig] 02/4/2017 17:53

sian,

I've re-read your comments with regards to the future aspirations of RBW and its potential. You haven't added anything that I wasn't already aware of in terms of what the company has told us, and its hopes for the Gakara project, we just seem to have a different perception drawn from mostly the same information over the use of the term 'scale'. I think the best response if for me to run through my own reasoning then if you disagree or dispute anything I've said, or still don't think I'm seeing the bigger picture, you can highlight it.

Given the whole nature of the deposit, assumptions surrounding future market demand and the opaque nature of the REE market place, it is not surprising that the company warns investors in the IPO that the Gakara project is "essentially an exploration exercise and the company is still in the exploration phase of the life-cycle of a typical mining company" and that the company will only be able to assess the economic viability of the Gakara project towards the end of the project, with the stated aim to determine if a) the deposit veins can support a profitable mining operation and/or b) can be quantified to report an Ore Reserve or Mineral Resource under the JORC code.

If the latter can be achieved, that would give a very large boost to the share price, I believe. However, the deposit is such that it may not be feasible to do so and that assuming on-going profitable operations are determined as feasible, they may all progress under the JORC heading of 'Exploration Results and Exploration Targets'.

I'm perhaps too wary of anticipating too much beyond the CPR (Competent Person's Report). I know that such a report has to be conservative by its nature and it can only define Gakara as an 'Exploration Target' of 20-80,000 tonnes according to the JORC code. Then again, the JORC code is there specifically to ensure a fair representation of a mineral resource in a given area in terms of grade and quantity, including all details an investor may reasonably expect to be made aware of by an independent accredited expert including the absence of any relative details.

Rainbow’s technical team has declared a mineral inventory estimate at Gakara of:
256,500t of ore with an in-situ grade of 54.3% on average TREO 141,853t of contained TREO (Total Rare Earth Oxide). Again, probably a conservative estimate, with the potential for new discoveries to add to those totals. "Rainbow has identified extensive deposits within the Mining Licence that have been incorporated into the mine plan for the first five years", it states on the web site, but the IPO document looks forward no more than 3 years that I can tell and the Trial Mining Project is just over 27 months.

The trial mining project needs to reveal commercial viability well before its scheduled project completion, otherwise it will run out of ore to process while a decision to mine any further is made. That scenario doesn't seem likely to me, therefore I expect a declaration of anticipated commerciality relatively early, and the addition of at least one more production site from around 12-18 months in (Apr 2018-Oct 2018).

Possibly the first site will produce more REO than expected in which case that decision point may slip back. If so, we will have already had a statement about production targets being exceeded, so either situation is a win.

The beauty of this from an investment point of view, beside the guaranteed offtake for the product (if the expected 54% quality is achieved, and no rel doubts there), is the frequency of positive newsflow we can expect. As a standard listing, RBW aren't required to give us all of it, ironically, but I'm trusting that they will. The JORC codes also seem to indicate that a quarterly update on production and current deposit estimates are required.

Rainbow's strategy is based on the assumption that the trial mining project proves the deposit is commercially viable, even so commercial mining levels mentioned are 5,000t p.a. rising to 10,000t p.a. of concentrate with no need for further expenditure on existing processing capacity. Even though the latter figures are a little confused, I think they may well have capacity to produce in excess of 10,000t p.a, but may be restricted by how much REO they can extract from each site opened up and the costs associated with doing so. Those figures are pretty small scale in my book, which does not mean unprofitable.

There is a heightened risk associated with the choice of each new mining site as the initial two sites become played out. That risk sounds like it may be lessened by recent discoveries in 2016, three especially in the Gomvyi Centre, Kivungwe 1 and Kiyenzi target blocks where boulders of REE veins weighing in excess of 100 kg were encountered suggest that the width of REE veins can locally be up to 50 cm. The longer RBW can stay producing at commercial levels the greater the chance of discovering more commercial concentrations within the license area.

There is only one other non-Chinese productive mine to go by, Lynas Corporation Limited and its Western Australian Mt. Weld mine that has been discussed on this board. It has a defined Mineral Resource (not an exploration target) of approx 2,100,000 tonnes. Just to be clear, to put it in the same terms as the RBW technical team's figures above, that is based on:

c. 32,000,000t of ore with an in-situ grade 7.5%-10.8% TREO c. 2,1000,000t of contained TREO.

These figures based on a mix of 'Mineral Reserves' and 'Mineral Resources' per the JORC code. RBW's figures are to the lesser standard of an 'Exploration Target'.
Lynas anticipate 22,000t p.a. production as of late 2015, I'm unsure if that refers to REO (Rare Earth Oxides) or REE (Rare Earth Elements) or a mixture of both. I think its REO concentrate of approx 40% (Lynas have their own plant in Malaysia to process concentrate into REEs). Perhaps our friend who has invested in them previously can chip in and tell us if I am correct? Their very latest figures from Feb appear to indicate record output to date in 2017, perhaps approaching 'Ready for Sale Volume' of 16,000t inc. 'Ready for Sale Volume NdPr' 5,300t. It could be that the Lynas Malaysian separation plant ends up being one of the ultimate customers for Gakara concentrate via tk Raw Materials.

As we know from the RBW documents, there are at least six other rare earth projects expecting to start production in 2017-19. I haven't yet looked into any of them or how much they expect to produce. I have heard of projects underway in Russia, Vietnam, Malawi, USA. Greenland, India and Chile. How many of these overlap with the projects RBW mention I do not know. Some of them appear to be on a very large scale judging by their Cap Ex, however scale doesn't necessarily equate to profitability and competitiveness, and Martin Eales remains confident that RBW can compete in terms of cost with RBW in the lowest quartile of production costs compared with all other world production.

This encourages me that RBW can relatively quickly turn an operating profit which will in turn soon repay cap-ex costs, them being so low due to Rainbow's low-tech and low cost approach.

So much for operations and competitors who are also external to China, so have that same competitive advantage as RBW. We must also take into account the markets, especially where the product is basically a commodity and therefore subject to the usual swings and cycles associated with global commodities. The rare earths market is less than straightforward though. There are rare earth elements and rare earth oxides, and the latter are often sold as concentrates in various bands, or through negotiation and prices for concentrate are much reduced compared to REEs themselves:

Prices 31 Dec 2016 (I've only illustrated the main Gakara production elements)
Lanthanum metal =>99% 7 US$/kg
Lanthanum Oxide =>99.5% 2 US$/kg
Cerium metal =>99% 7 US$/kg
Cerium Oxide =>99.5% 2 US$/kg
Praseodymium metal =>99% 85 US$/kg
Praseodymium Ox =>99.5% 52 US$/kg
Neodymium metal =>99.5% 60 US$/kg
Neodymium Oxide =>99.5% 42 US$/kg

Prices have remained depressed and continued to fall through 2016, since the upsurge in 2010 when China threatened to curb exports, although Lynas reported a slight uptick in prices in Q1 2017. Even so, prices achieved were pretty woeful based on the 2011 estimates that many projections were based on for production. Lynas itself has cut price expectations by 50% which has had a small impact on how it approaches its deposit.

Gakara's deposits are small and concentrated. It could be that Rainbow can be relatively flexible, perhaps enough to choose the most profitable area to go for next. A mine the size of the Lynas deposit is going to pretty much remove everything anyway, some of which may no longer be economically viable. It may be fanciful, but there is the possibility of an edge there for this type of small scale, high grade, low tech operation.

China has talked of limiting exports to 140,000t p.a. but more importantly it has stated that a programme to shut down 'unofficial production' is now underway and should complete around 2020. It is estimated unofficial production feeds up to one third of global demand and is thus the greatest single contributor to keeping prices flat. Tentatively I would suggest that leaves a hole in supply of around 70,000t p.a. but I really need to do some further research on that - if at all possible - to be certain.

This should help support prices, as I have previously discussed, through the cutting of supply and thus giving an opportunity for projects external to China to remain economically viable. Gobal demand for all REEs remains muted with just a 2.2% global compounded growth rate, more akin to a mature market than the fresh and exciting one that might be expected with so many REEs required for desired 'green' power efficiency.

There is always the possibility of a further clampdown on exports by the Chinese, despite WTO efforts. This possibility is arguably heightened by the US Trump administration's economic 'saber rattling' over protectionist policies to protect its own industries. There is a distinct possibility the Chinese could use the strategic nature of REEs as a bargaining chip and a consequence of that could easily be a return to the price heights of 2011.

The danger for RBW in the above is that a prolonged situation of uncertainty of supply that threatens the medium-long term plans of huge global commercial interests will see them seeking alternatives to REEs in their production materials.
There's always the possibility of other minerals or REEs being found (I believe there was E.g. tin in the area), REEs are almost always found alongside metal ore deposits. All the REE types mentioned so far are from the same group in the periodic table and I don't know if there is any reason to expect others (the high value per kg ones) to be found in the same geographic area.

Another definite plus for Gakara are the low levels of Thorium and Uranium radiation so far detected. These are often high among REE deposits and are obviously of environmental concern and potentially costly to deal with. Hopefully they remain low which will only increase RBW's competitiveness compared to some other producers.

To sum up, I see every chance of Rainbow successfully implementing a profitable, if relatively small scale, mining operation. Global factors beyond its control could boost prices for its concentrate greatly, and the share price will surely respond accordingly. Such a situation is unlikely to last in my view, and if it did it could become detrimental, but it seems unlikely.

Rainbow appear to have the backing of the Burundi government and local populace with all the required permits and agreements for Gakara in place for 25 years. [Strangely I haven't been able to turn up any references in the Burundi press to the project. As the only mine in the country one would expect it to make the news!]. They have excellent experience of mining operations in Africa on the board. If the encouraging deposits play out and more can be found, there is every chance of Rainbow establishing Gakara as a profitable going concern.

From an investors point of view, there is the chance of external factors causing a huge bubble in the share price at some point in the future which could give the potential for a substantial 'killing'. Even if that doesn't happen, the short term nature of the project between IPO and production and production and first sales (5,000t p.a. of concentrate >54% with a further 5,000t p.a. almost certain to be taken up by the agreement with tk Raw Materials over the next 10 years), as well as other factors mentioned above, promises a positive news flow which will support the share price with every chance of a substantial yield through dividends being gained at a relatively very early stage.

A STRONG BUY in my opinion, before the positive news flows start to move the share price upwards (first production expected in April should generate the next one). Don't miss the boat is my advice to anyone reading.

[sian] 01/4/2017 16:13

Hi Eadwig

My comment regards 'strange' is due to the fact that I would not normally point out the macro-economic backdrop of my investment cases to fellow bulls.

I would like to think that this is a given for most investors strategy. (But I concede that this may not always be the case, especially for traders)

I can see a tremendous case for a long term investment here, but as you have stated, that is not necessarily your strategy. Unlike you, I do have a number of professional investors to discuss investments cases with and subsequently do not let BB comment sway my decisions to much (at least, not in the last 10 years or so..lol)

I too would normally read and digest posts for useful information, seldom posting myself unless I felt the need to add further relevant information; however, RBW does seem to have a much muted board regards its potential hence my posts referencing the macro bull case as I assess it.

I do agree with you that BB;s can (sometimes) be an excellent forum to discuss the pro’s and con’s of the company in question and I would always cross reference as such to ensure I am in receipt of current information.

Please feel free to openly discuss the snippet information I have recently posted, your comments are always welcome.

Best Regards

[hazl] 01/4/2017 11:21

I agree with the sentiment above and concur with the analogy of getting into
a stock on past history of success and subsequent regret at not catching up with current vibes!

[eadwig] 01/4/2017 10:21

sian, "it seems somewhat strange to explain my investment reasoning to a fellow investor but here goes"

I'll just deal with what you've said there separately before re-reading your post in detail about RBW.

I don't why it seems strange explaining your investment reasoning to a fellow investor. I think that's a very big reason for posting on these boards, especially if, like me, you're in a situation where it is difficult to find anyone off-line to discuss trading or investments with.

Why do I think discussing investments generally and certain investments specifically is a good thing? In my opinion:

1) I believe you should always review your investments from time to time, explaining your reasoning to someone else accomplishes that.

The process forces you to 'verbalize' your thinking. If you find you're having trouble doing that, its often a sign there is a problem with your thesis. Perhaps something has changed since you first made the investment, either positive or negative. The sooner you realize that, the sooner you can address it, if required.

I always feel that if I can't quickly reel of several good reasons for holding a stock, then I'm overdue a review, and possibly a re-think on that holding.

2) It may be that our reasoning is flawed in some way that we haven't realized. Laying it out gives others the chance to comment. Most of us have good knowledge of some sectors, but very little clue about others. Laying out our thesis for others to examine gives a chance for someone with specific experience or knowledge to point out a mistake. Obviously this is contingent on people actually taking the time to do so.

I think if enough people are prepared to participate honestly and openly in a discussion, then forums like this can be a very powerful tool for the private investor - even if it is sometimes embarrassing to be told that, for example, your 'play on copper' is rubbish, because the company sold its main copper assets last year. A mistake I made when I re-bought shares in a stock I had held previously assuming it was the same old company; a mistake I had a chance to put right in good time because I'd posted my reasoning.

3) There are many different overall investment strategies. Discussions with others can sometimes make you aware of new opportunities or help you avoid pitfalls.

To give a very simple example, several years ago I asked a question on a board about realizing losses in order to set them against tax on profits (actually aimed at someone I knew was an accountant). Someone else I'd exchanged ideas with for years on this particular [high growth] stock came back with, "Are you really saying that you haven't got these shares in an ISA?".

I hadn't. I didn't have a stocks and shares ISA at all. I wont bore you with the reasons why, but since then I've been migrating cash from realized profits (or losses) into an ISA account as far as possible each year. I'm now about half way through that process, and its saved me a lot of money on CGT and likely to save me a lot more as the new taxes on dividends come into play. All because someone woke me up to the fact that I'd overlooked an obvious advantage which was now suitable for my personal circumstances.

The main caveat when discussing investment strategies is that we all have different goals and personal circumstances. What's correct for a wealthy retiree looking to preserve capital isn't necessarily the right approach for a younger person with many years of earnings ahead of them and a much higher tolerance for risk, to give an obvious example.

I could go on [and on], but hopefully I've made the point as to why I think it shouldn't feel strange to you to lay out your investment reasoning. I might have even convinced one or two of the majority of people who read these boards but never post on them that the occasional contribution can be mutually beneficial, if made in the right spirit.

Haha - I don't actually have time to go through your post again right now, but I shall be back to do so soon - in a spirit of co-operation. Hopefully my comments will be taken that way - even if disagreed with. I've noted that many boards on ADVFN are little more than egos abusing each other. Some people must have more time on their hands than they know what to do with. The RBW posts have been useful, even to the company. Long may that remain the case.

[sian] 31/3/2017 19:44

Hi Eadwig

I must admit it seems somewhat strange to explain my investment reasoning to a fellow investor but as we all most probably concede, alternative views should be discussed…R30;…..I take my positive stance subsequent to the following;

Rainbow Rare Earths (RBW) is backed by investor and developer Pella Resources, best known for helping to build Petra Diamonds (PDL) from a small exploration business to become a FTSE 250 multi-project, £840m market cap miner.(Form in building multi-million pound companies)

(maybe this is just a hobby project….but I think not, I think this is a man of foresight)

Rainbow was transformed from a speculative developer of a mineralised patch of African earth, to a potential miner with signed orders from one of the richest companies in the world. ThyssenKrupp (Remember, they sought out and approached RBW - to my mind this is subsequent to corporate aspiration to secure alternative source)

China has a near-monopoly over the supply of rare earth elements. Many non-Chinese end users are eager to mitigate supply risks by actively supporting the development of non-Chinese sources of supply, claims Rainbow.

‘Our average (in-situ) grade is 57% versus 3% average for rare earth projects around the world,’ says chairman Adonis Pouroulis. (Grade divided by average grade x tonnage = scale)

Growth aspiration ?:

There’s a strong likelihood exploration will prove up more material in time, but overall investors will be expecting their reward in yield as much as in capital growth.

Potential to uncover new veins (387 in-situ veins identified to date. Mining and exploration activities have historically uncovered new veins).

Considerable upside to increase tonnage of mineralisation by documenting lateral and down-dip continuity of individual REE veins beyond parameters used for tonnage estimation

Trial mining success will be monitored on ongoing basis and may allow early production from new mining locations

Continued exploration expected to uncover more veins

Potential to partner in the build of small-scale separation plant (greater yield p/t)

The Gakara basket is weighted heavily towards the magnet rare earths, including neodymium and praseodymium. (coincidence....?? maybe)

(BMW, amongst others, has stated that they will only be producing electric cars within 10 years!)

Honda’s press release adds that a magnet made of rare-earth metal neodymium is necessary for a hybrid motor, but without the addition of heavy rare earth metals like dysprosium or terbium, the neodymium magnet is susceptible to damage and performance issues from exposure to high temperature. Daido Electronics (a subsidiary of Daido Steel) worked with Honda to develop a neodymium magnet that could tolerate high temperatures without help from heavy rare earth metals. Instead of sintering the neodymium magnets (a process that can use heat to compress an element but doesn’t liquify it), Daido used a “hot deformation” process to make the magnets. According to Honda and Daido, the hot deformation technique “enables nanometer-scale crystal grains to be well-aligned in order to realize a fine crystal grain structure that is approximately ten times smaller than that of a sintered magnet, which makes it possible to produce magnets with greater heat resistance properties.”

Political Background:

Donald Trump raising the barriers of protectionism, it may be that China starts to use its position in rare earths as a bargaining tool – or, to put it another way, restricting supply.

China’s restriction on rare earth metal export is unlawful, WTO says. Despite environmental concerns, China must open its market to the world.

China's predominance in the market led the US to file a case against the country at the WTO in 2012 after China cut its export quota by 40 percent in 2010. The supply shortage sent rare earth metal prices skyrocketing, according to The New York Times.

The US, which was later joined by the EU and Japan in making its case to a WTO panel in Geneva, argued that China was unfairly restricting exports and allowing its domestic industries to take advantage of a more forgiving rare earth metals market. China, which joined the WTO in 2001 and agreed to abide by the organization's rules of trade, responded, saying that it was restricting supply because of environmental concerns and that it had a right to conserve its exhaustible natural resources.

Eadwig, do you really think that the political establishments of western governments will let China dictate the pace of western technological advances in transport, power generation and communications? Would you deny that subsequent to the above WTO ruling that there must be political aspiration to secure alternative supply source?

The developed economies are moving away from fossil fuels.

In a major boost for the UK car industry, the Chinese car firm unveiling a £300million electric black cab factory in Coventry confirmed expansion plans today.

The plant, which is the first new car factory in the UK for a decade, will also build an electric van alongside the world's first purpose-built, mass-market electric taxis as it ditches diesel.

Although China is investing all over the world in a vast array of industry sectors, I find it interesting that they are also investing in our fledgling electric vehicle market….

Maybe China is securing end user material source preference…hmm... maybe with a view to dictating source....either way they are defiantly looking ahead regards the market.

Reading between the lines of available information, It appears there is good support both politically and commercially for mining concerns such as RBW.....appointing a NE with a great experience in such arenas seems a no-brainier to me....(negotiating commercial contracts across international borders?) I also think that JV's are a certainty at some point in the future and there is without a doubt the potential within the licence to scale up production significantly....

I respect the fact that you are posting your realistic views on the company’s prospects as you see them but maybe you fail to see the bigger picture...... time will tell.

Best Regards

[eadwig] 31/3/2017 12:57

sian, "Personally I think this appointment is a very good indicator of the company's future aspirations to build RBW into a significant player in the RE supply chain."

They don't really need his political contacts, do they? Nor his experience with regulations ... All of that side appears to be sorted. Do you think RBW have their eye on deposits outside of Burundi potentially? Even if they do, it seems early to get him on board.

On the other hand, if someone has expressed an interest in acquiring RBW if the deposits play out, then he certainly sounds like a good man to have in place from day one. Or if they require a partner to J.V. to up-scale commercial operations ...

I dunno. I've only got the RNS to base my comments on - and 20 years experience in the online gaming industry, which is his other main interest, and I really can't see any relevant cross-over.

Have RBW stated the aspirations you mention at all? It seems very early in the life of a trial project to be getting over serious about their future significance. The deposit is very high grade, but figures mentioned so far about the total size of depsoit are pretty small in the global scheme of things.

[sian] 30/3/2017 19:12

Personally I think this appointment is a very good indicator of the company's future aspirations to build RBW into a significant player in the RE supply chain.

As I postulated in an earlier post, there appears to be momentous political and corporate will at work behind the scenes to break the stranglehold of China.

All part of the bigger picture.......me thinks.

[eadwig] 30/3/2017 10:27

Bit of an odd choice for the new non-exec director. Still, if a larger company shows an interest, he's definitely got the experience to help with negotiations, even if no specific mining experience has been named.

"Atul Bali, aged 45, is a corporate CEO with extensive experience in tech, government contracting and regulated industries operating on all six continents. Over more than 20 years he has led more than 50 M&A and JV transactions in more than 25 countries and both managed and served on the boards of several highly regulated businesses. "

Also used to dealing with government agencies, obviously.

[hazl] 30/3/2017 09:23

Early days but the phrase 'debt free' always resonates well.

[eadwig] 28/3/2017 09:34

sian, In the first post of this thread you have quoted:

"Indicative forecasts: 5000t/a initial production capability, ~ $10k/t basket price, concentrate discounted to Thyssenkrupp over 10 year deal, $810/t op costs, $240/t transport costs."

RBW have now amended this to read "280/t transport costs ($200/t transport, plus $80/t made up of 3.5% marketing and 4% royalties)

Project economic, P.22


This is important because it effectively doubles the revenue per tonne estimated.

[eadwig] 27/3/2017 11:56

Agreed hazl, it seems that separation plants are actually a lot more rare than rare earths themselves.

The price of rare earths is currently dictated by 'off-record' production in China, who have stated there is to be a clampdown on unofficial sources as well as a limit placed on total production.


This link shows the estimated supply gap caused between actual supply and official supply for magnetic REOs based on the demand for magnets. [page 7]. Much other interesting stuff surrounding REOs, all based on official government and scientific research papers, hence a bit technical.

[hazl] 27/3/2017 11:07

very interesting posts lately thanks

[varies] 27/3/2017 10:24

Sian
Thank you for providing all this information.
I have held shares in Lynas on and off for a few years and wish I had not ! I hold some now.
The LAMP works in Malaya did indeed attract great opposition from the locals but the latest Lynas reports suggest that worries about contamination etc have proved wrong and everything there is working well. Do you have any recent information on this subject ?
China's neighbours, the Japanese in particular, will not want to depend on China for processed REE. I believe that LAMP will now prove a very valuable asset for Lynas which is (more or less) controlled by the Japanese who lent huge sums for its development.
I had never heard of IBC Advanced Technologies and will look them up. IBC might well prove a safer bet than Lynas whose balance sheet still looks horrid in spite of a recent reconstruction.

[sian] 26/3/2017 22:58

Welcome aboard Mrmacduff......(Private)

[sian] 26/3/2017 22:54

Further background information: (Geological Society Briefing Note: Rare Earth Elements)

[sian] 26/3/2017 22:44

Political Background:

China’s restriction on rare earth metal export is unlawful, WTO says
Despite environmental concerns, China must open its market to the world.

MEGAN GEUSS - 3/26/2014, 8:46 PM

Rare earth oxides. Clockwise from top center: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium.

On Wednesday, the World Trade Organization (WTO) ruled that China has broken international trade law in its efforts to restrict the export of rare earth minerals, as well as tungsten and molybdenum, to the world. If China does not reform its policies regarding rare earth metals, it could be subject to trade sanctions from the US, the EU, and Japan.

Rare earth metals like praseodymium, cerium, and neodymium are vital to digital technology—they are essential to the workings of fiber optic cables and wind turbines, to say nothing of the chip in your smartphone, which can contain up to 60 different elements. And rare earths are almost exclusively mined in China, which has made for some interesting economic politics in the last decade.

China's predominance in the market led the US to file a case against the country at the WTO in 2012 after China cut its export quota by 40 percent in 2010. The supply shortage sent rare earth metal prices skyrocketing, according to The New York Times.

The US, which was later joined by the EU and Japan in making its case to a WTO panel in Geneva, argued that China was unfairly restricting exports and allowing its domestic industries to take advantage of a more forgiving rare earth metals market. China, which joined the WTO in 2001 and agreed to abide by the organization's rules of trade, responded, saying that it was restricting supply because of environmental concerns and that it had a right to conserve its exhaustible natural resources.

Mining rare earth metals is toxic work, and the industry is responsible for a host of problems for miners, who often end up inhaling radioactive dust, and for the environment, which can become a wasteland in the wake of rare earths mining. The New York Times notes that Chinese authorities have been active of late in shutting down the most dangerous mining operations, some of which are run illegally. As Ars wrote yesterday, the external costs to mining these metals is great enough that researchers are starting to look at ways to make recycling them feasible.

Still, the WTO panel wrote in a summary of its decision that “[i]t found that China's export quotas were designed to achieve industrial policy goals rather than conservation... the Panel found that the challenged export quotas do not work together with measures restricting domestic Chinese use of rare earths, tungsten, and molybdenum.”

“The Panel concluded that the overall effect of the foreign and domestic restrictions is to encourage domestic extraction and secure preferential use of those materials by Chinese manufacturers,”; The WTO wrote on Wednesday.

In recent years, companies have looked outside of China to mine rare earth metals with varying success. One company, Molycorp, even has a mine in California, and according to a March 2014 financial outlook, it has been narrowing its losses in a creep toward profitability.

Karl A. Gschneidner, a professor of materials science at Iowa State University and an expert on rare earths, told Ars today that he's optimistic about the WTO's decision. “I think it's a good idea. It's a good thing,” he said. When asked about whether a reverse in Chinese policies would adversely affect American mines like Molycorp, he responded, “It certainly will have an impact on somebody, but that's competition.”

Update: Molycorp responded to Ars in an e-mail on Wednesday with its reaction to the WTO's ruling. In a statement, Molycorp vice president of corporate communications Jim Sims wrote:

Over the past several years, private sector investment has responded to market signals and has already helped rare earth supply lines evolve into much more market-based systems on a global basis. Manufacturers with facilities in the US and around the world can now access multi-year supplies of the full range of engineered light, mid and heavy rare earth materials from Western producers like Molycorp. Rare earth market pricing is greatly reduced from previous highs and is much more stable and predictable. Long-term supply agreements are now able to be offered for the first time in many years, which is another sign of increasing market stability.

[sian] 26/3/2017 22:09

Below is an extract from the MRT white paper document (page 5)

Despite the risks of control of the REE market by a single nation, no effective competition exists elsewhere (Veronese, 2015). The Mt. Pass operation ceased in 2002, but was reborn under new ownership in 2008. However, this deposit contained mainly light REE and these were sent to China for separation.

In 2015, the Mt. Pass operation filed for bankruptcy, leaving only Lynas as a viable competitor in the global market (Veronese, 2015). Lynas mines REE ore in the Mt. Weld region of Australia and ships this ore to Malaysia for separation of individual members of the REE group. Legal action has been instituted in Malaysia to block the Lynas operation. The fear in Malaysia is that the operation will cause severe environmental damage (Veronese, 2015). IBC Advanced Technologies, Inc. (IBC) has the only other operation that is near production of separated individual REE outside of China.

IBC is constructing a pilot plant, commissioned by Ucore (Press Release, 2015, July 8), that is near completion for separation, within U.S. borders, of individual REE (Press Release, 2015, November 11; Press Release 2016, February 17).
This operation makes use of a green chemistry MRT approach to the chemical separation of these metals.(end)

The pieces are falling into place.....even China's neighbours are looking to break their reliance on restricted supplies.....There is most definitely political & corporate will at work in this arena...IMO

[sian] 26/3/2017 21:44

The link below is from last year, it expands on a (new) REO separation process with reduced environmental impact and up to 99% recovery rates.....technical but insightful......

[sian] 26/3/2017 21:19

Hi Eadwig, as always your posts are insightful and thought provoking.....

With reference to the podcast mentioned above, I had assumed it was always the case that TK Raw Materials were so interested in RBW (remember they approached RBW)subsequent to the purity of the concentrate produced. If such high grades prove to be the case with other interests within the license area (as suspected)and production is eventually ramped up to 10k/t pa and beyond, economies of scale will play a great part in the prospects of the company and its revenues.

It was also good to hear Martin Eales,CEO,indicate news-flow will be a regular event over the next few months...

In my opinion and with reference to the macro-economic outlook for the technology sector, I believe that behind closed doors, there is a momentous political and corporate will backing the likes of RBW......time will tell.

[eadwig] 25/3/2017 17:10

Martin Eales, CEO, interviewed for a podcast (Interview starts at 26 minutes 8 seconds)

Interesting to hear a little more that I'm sure came out of the recent presentation, but I've seen no sign of a transcript or video of that and obviously wasn't present myself.

Just a couple of little extras in there that you don't get from the presentation document, like producing before the end of 2017 is a stiff target (as I suspected in a post above) and the hope that 2018 will see 5,000t of production, which will be profitable on an operating basis. That is encouraging.

Also mentions how 'opaque' the REO markets are (as said in the prospectus) and that every bit of production will be negotiated separately. This is looking like where tk R.M. come in - and not processing the ore concentrate themselves as I had assumed previously. However, they believe they have customers for as much as RBW can produce, especially as Eales says they hope to be in the top 25% of global producers in terms of cost, allowing them to be competitive.

I have also noted since I last posted that the off-take agreement with tk only applies to concentrate 54% pure or greater. That means processing the tailings that has been spoken of will probably mean RBW marketing the stuff themselves.

By the way, the fact tk RM are selling the material on RBW's behalf, if I have understood that correctly, gives some explanation as to the 3.5% cost allowance for marketing.

Listen to it yourself and see if you draw the same conclusions.

[eadwig] 24/3/2017 10:10

Dingo, "Gross Profits will be above current market cap from 2018 ... If I have time I'll dig out my notes and put together some facts and figures in"

you should dig those figures out, buddy, because I think you've got mixed up somewhere, either with anticipated revenues or the definition of gross profit.

As a share holder, I don't particularly mind you popping up to say its a cash cow and a steal at @11p once in a while. As someone who may add potentially to a very small current holding, I'd like at least a link to some figures that make sense. I appreciate time constraints may be an issue though.

The very latest figures from the company that we have as of the presentation to investors a couple of days ago, suggest that going into 2018 they will have produced a max of around 1200t of concentrate, by the end of 2018 perhaps a total of 3500t. See Page 19:
hxxp://www.rainbowrareearths.com/wp-content/uploads/2017/01/Investor-Presentation-20.03.17.pdf

Revenue wouldn't exceed current market cap of US$20m [10.5GBp x 154.63m x 1.25], not anywhere close, let alone gross profits. My figures suggest perhaps US$3.75m in *revenues* by the end of 2018. I'm quite happy to accept the document is perhaps over-cautious in its estimates, so far as it can give any, but even if we double the above figure, it still isn't in your ball park.

One of us is way out in our calculations. Everyone's seen mine. Show us yours! If you're right, I'll at least triple my current holding immediately. (I might anyway). Next news flow will be within 5 weeks saying production has started (possibly much sooner). That's almost always a share price boost on a new mining project, I quite fancy having some more on board before then.