Canadian miner vies to be major rare-earth supplier (RTGAM)

PAV JORDAN

The race is on for mining companies vying to become the world's next big producers of heavy rare-earth minerals, used to manufacture components for everything from vent fans for jet engines to laser-guided systems for smart bombs.

From hundreds of companies actively exploring for rare-earth deposits, only a handful – including a few Canadian – have made discoveries that could establish them as key suppliers in the quickly evolving market.

The 17 so-called rare-earth elements have been mined for half a century – with most of them coming from the Bayan Obo mining district in China. The minerals had been largely ignored until recent years, when they found their way into technological innovations ranging from smartphones to super-magnets used in wind turbines and automobiles.

Prices for the minerals touched all-time highs after No. 1 producer China tightened export restrictions on rare earths by nearly half in 2010 as it sought to guarantee supplies amid booming demand from its own market, which analysts say could consume all it produces within a decade. The caps were highly criticized by governments in Europe and the United States, which have complained to the World Trade Organization.

“People are trying to get to that position where they can produce and take advantage of the marketplace and that then creates sort of an artificial barrier to entry,” said Jim Forbes, global metals leader at PricewaterhouseCoopers.

Rare-earth elements are split roughly in half into light rare earths and heavy rare earths. The heavy rare earths, which get their name from their relatively heavier atomic weight, are most rare and consequently more expensive than the “lights.”

“There is room in the world for three, maybe four light-rare-earth projects,” said Jon Hykawy, an analyst with Byron Capital Markets in Toronto. “There is room for maybe four or five heavy-rare-earth companies out there, producing up to the 5,000 to 10,000 tonnes per year level,” Mr. Hykawy said. “I hope they realize they are in a race.”

Key producers of the “lights” outside of China include Molycorp Inc., Lynas Corp. and Great Western Minerals Group Ltd., essentially controlling the field of non-Chinese producers.

In the heavy rare earths, one Canadian miner appears closer than most to becoming a major player.

Quest Rare Minerals Ltd. says its Strange Lake Deposit in Northern Quebec could supply as much as 10 per cent of global demand for rare earths once it is up and running, and as much as 30 percent of demand for the more pricey heavy rare earths.

“It’s a large resource that obviously will be able to deliver and satisfy a long-term shortfall,” Quest chief executive officer Peter Cashin said in a recent interview.

The trick, industry experts say, will be to bring the project to commercial production ahead of all the other rare-earth exploration companies jockeying to supply the shortfall created by Chinese export caps.

As well as neodymium, the light rare earth used in high-powered magnets, Quest intends to be a producer mainly of the heavier rare earths. The Montreal-based company says it could be churning out as much as 15,000 tonnes of rare element oxides – the processed and purified form of the minerals – as early as 2016, once it completes a prefeasibility study by the end of this year and a bankable, definitive feasibility study by the third quarter of 2013.

Some industry observers worry about Quest’s ability to get to market as a meaningful producer before prices become depressed and form a natural barrier to entry for new producers.

Mr. Hykawy has a sell recommendation on Quest, mostly on concerns about how long it will take to get to production. He points to at least two other projects that could come to market in the heavy-rare-earth sector, including one by Montreal-based Matamec Explorations Inc. and another by Ucore Rare Metals Inc. of Hammonds Plains, N.S.

Matamec, for example, announced an agreement in December with the trading company of Toyota Motor Group to potentially supply it with rare-earths production from its Kipawa heavy-rare-earths deposit for its hybrid and electric vehicles.

Quest CEO Mr. Cashin shrugs off concerns about his own company’s timeline, saying he is likely being more realistic than others and that he prefers to deliver on more conservative milestones.

He said Quest is in discussions with U.S., Asian and Western European interests, including corporate players and sovereign governments, and could announce a significant customer by year’s end.

“They are waiting for our prefeasibility study, which is what we are working toward,” he said.