Guest post: Strategy Metals Bulletin (49)

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation

Terence van der Hout

Oct 9 – 15, 2011

This week’s bulletin goes on a myth-busting tour, and takes a look at rare earth recycling initiatives, glances at Molycorp’s HREE semantics, and goes for another moon shot in titanium.

Recycling gains traction… sort of
As prices of rare earth elements careen upwards off the screen, manufacturers are trying to find ways of coping with much higher prices for inputs to their goods. For some, the price does not really affect the end product, because the relative value of the rare earths are so small compared to other inputs. For others, the five or ten-fold price rise of a few hundred grams takes huge chunks out of the margin of the end product, leading to decisions of whether to start forwarding this to the consumer, something most manufacturers are loath to do.

I have previously covered the story of TDK setting on the path to engineer rare earths out of some of their magnets as a strategy that seeks to substitute expensive inputs. As TDK itself admits, substitution is only possible for a small set of their products.

A second strategy that has been receiving a lot of recent air-time is recycling. Rhodia Group, based in France, supplies rare earth containing products for catalytic convertors, light bulbs, optics and flat screen TVs, and has embarked on a path of recycling REE from low-energy light bulbs and nickel hydride rechargeable batteries. Rhodia claims to already partner with companies recycling magnets (one of them being Umicore, in Hoboken,  Belgium), which will recover rare earth concentrate for Rhodia to refine and formulate. Apparently, two recycling facilities are currently under construction and will be operational in Q1 2012.

Rhodia claims the results of recycling should ‘ultimately’ account for several tens of percent of the group’s rare earth supply in the future, although the rare earths contained in the nickel hydride batteries only amount to 7% of the magnet. This 7% is subsequently made up of 4 separate rare earth elements, so the total recovered volume per magnet of for example dysprosium is miniscule. The same is apparent for light bulbs, containing terbium, ytrrium and europium, implying that huge amounts of recyclable material should be supplied in order for the volumes to be substantial. Although rechargeable batteries already exist in numbers, low-energy light bulbs do not, so that I would assume the word ‘ultimately’ to be defined in terms of decades.

In Japan, a similar project is being launched under the guidance of govement. The Tohoku region has been designated to become a hub for recovery of REE from cell phones and other electrical appliances. The technology to recover rare metals has yet to be fully developed, and the intention is to finance this through allocating a small percentage of profits from the sales of recovered metals for further development. This project also appears to require development time, and includes the broader term rare metal as opposed to rare earth,  leading me to conclude that recycling will not account for significant rare earth supply in the short to medium term.

Molycorp semantics
Molycorp has been spreading rumours of the ‘discovery’ of a heavy REE deposit on one of their properties. The rumour has kept the media and many commentators busy for a week, trying to figure out where the deposit is situated and why no one has known about it. To add spice to the story, Molycorp also claims they might be able to begin producing heavy rare earths in a little over a year. The story has done well to halt the rapid erosion of Molycorp‘s share price, immediately bouncing 20% higher.

As yet, no details have been revealed, and analysts have ridiculed the notion of being able to produce HREE within a year of their discovery. Again, the process from discovery to producing volumes of REE takes 10-15 years, and nothing has been disclosed about a project that has serious potential to materially affect the share price. So how do Molycorp’s wizards perform their magic?

Well, the answer is not so hard. Molycorp WILL be able to produce heavies next year. In fact, they can probably do it already. In their original 1967 flow sheet, processes were designed to produce ALL of the heavy rare earths, even the ones they haven’t included in their revised mining plans. In fact, Molycorp is capable of producing europium at 99.99% purity, and yttrium can also be produced at an undefined level of purity. Molycorp has spent recent  years redesigning their flow sheets at some expense, and it is conceivable they have also focused on the HREE. Will they be producing HREE from the latest ‘discovery’? The answer has to be no, if no previous work has been done there. But what  they can do is extract the small amount of heavies that even their LREE deposit at Mountain Pass contains, ét voilà, Molycorp now produces the heavies.
As with almost all of the reports coming out of the enigmatic Molycorp, the answer is in the semantics.

Another moon shot
We have had recent media reports of vast metal deposits in Afghanistan allegedly seen as the pillar for rebuilding a country ravaged by wars started by various advanced economies. We have heard of huge underwater tracts filled with rare metals supposedly ready to be scooped off the ocean floor and put in your cell phone or laptop. The latest round from the realm of fantasy is the notion of mining titanium on the moon. Clearly, ilmenite, which contains titanium, is abundant on the surface of the moon, and Trekkies are touting the mining of these minerals in an existential attempt to give new meaning to their lives and NASA after the US govement grounded the hugely expensive space exploration program, last July.

Although titanium markets are tight, and China is a major importer, the titanium market is large with diversified supply sources, and not necessarily as critical as a whole host of specialty metals. Titanium sponge, one of the forms of titanium traded on the market, is roughly $10 per kg, slightly more expensive than say copper. Not really worth going to the moon for.

Twitter: @GoldDiscFund
 
Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

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