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The television commentator and former Jesuit, John McLaughlin, used to make me laugh when he would tell a panelist of an opposing political view: "Once again you've stumbled upon the truth, even though you don't know how you got there."

Yesterday, August 19, 2010, the New York Times reported the facts of a story entitled, "China to Invest Billions in Electric and Hybrid Cars," but failed to stumble upon the truth. So let me do that for the Times and for your benefit, dear readers:

China, as part of its NATIONAL plan, a goal centrally set by those in overall charge of its economy, announced yesterday that its motor vehicle industry will be required to build one million electric and hybrid motor vehicles in the next few years. I believe that this means that the industry will be required to reach a production rate of one million electrifed motor vehicles, the size of passenger cars, per year.

This is part of an overall plan to marshal and deploy China's natural resources and its resources of intellectual property for the benefit of its own people, first. How much more logical can it get than that as a reason to conserve precious natural resources such as the rare earths?

The New York Times points out in the above story:

"The announcement, analysts say, is another example of how China seeks to marshal resources and tackle industries and new markets. The plan also underlines what China describes as its growing commitment to combating pollution and reducing carbon emissions."

When I was in Beijing in the first week of August, three weeks ago, one of the other (I was a speaker at the plenary session) speakers at the Chinese Society for Rare Earths 6th Annual Rare Earths' Summit, stated that a goal of the next two five-year plans, to be completed in 2020, was to have 330 gigawatts of wind turbine generated electricity installed by that time. The speaker pointed out that this would take 59,000 metric tons of neodymium, calculated as 28% of the rare earth permanent magnet alloy, neodymium-iron-boron, since each 1.5 megawatt wind turbine generator will require one ton of rare earth permanent magnet alloy.

The same speaker who was from the Chinese rare earth permanent magnet manufacturing industry didn't mention how much of the heavy rare earths would be required for the project. I will estimate that at most it would be one thousand tons of terbium and three thousand tons of dysprosium.

In any case the total requirements for these new, not replacement, uses for neodymium would be the total production, for three years, at the most recently achieved high production rate,of neodymium and as much as five years of terbium and two to three years of dysprosium.

If the neodymium demand is to be met, and this means that China, AS THE SPEAKER SAID, decides to use only rare earth permanent magnets for its wind turbine electric generator program, then it would require that three years production of the contained neodymium, at the rate it was mined in China in 2008, among all the rare earths mines there, be reserved for Chinese domestic magnet and wind equipment manufacturers and be targeted for the Chinese domestic market!

I think that it is crystal clear that China is not reducing the production of rare earths on a long term basis and is not reducing their export on a short term basis it is in fact pausing to clean up the rare earth mining sector, physically, eliminate illegal mining and smuggling of this precious green resource, and consolidate the rare earth mining industry under the largest state-owned base metal producers of iron, copper, and aluminum to prepare to ramp up the Chinese domestic production of rare earths both to meet and to guarantee the success of its long-term green strategy. THIS IS CALLED LONG TERM STRATEGIC PLANNING FOR THOSE IN WASHINGTON AND ON WALL STREET WHO DON'T UNDERSTAND WHY THE CHINESE ARE "DEPRIVING US" OF THIS VITAL RESOURCE. THIS PROCESS IS ALSO CALLED CONSERVATION OF DOMESTIC RESOURCES, BY THE WAY.

As to electric and hybrid cars they require neodymium, dysprosium, and terbium for the magnets in the rare earth permanent magnet electric motors both that drive them and that power their accessories. Some or all may also use lanthanum in nickel metal hydride batteries AS ALL HYBRIDS MADE TODAY DO. In any case whether or not the Chinese electrified cars use NiMH batteries they are being designed to use rare rare permanent magnet electric motors. A million such vehicles will probably require just one million kg, one thousand metric tonnes, a year. Oh, did I mention that they will need also 10-20 tons of terbium and up to 50 tons of dysprosium. All of this new demand will be added demand not replacement demand, by the way.

I have no doubt that China will remain the world's largest producer of the rare earths indefinitely. In the near term, perhaps over the next 5-10 years China will need to import the "light" rare earths, lanthanum and neodymium to make up any shortfalls created by its proposed quantum leap in demand in the face of the temporary reduction of production for environmental and reorganization reasons. If the non Chinese light rare earth miners get their acts together in time so that they can produce light rare earths at a lower cost than their Chinese competitors are able to do then both Molycorp (MCP) and Lynas have a good chance of success even in the long term.

The real issue for the future of rare earth utilization and therefore of mining is the continued growth of the use and need for the heavy rare earths, terbium and dysprosium.

These "heavy rare earths" are believed by the Chinese to be in short supply domestically. China today is the world's only producer of heavy rare earths mostly from southern Chinese deposits known as "ionic clays" although significant quantities are also produced from the Bayanobo region, even though they report in Bayanobo only in small quantities, due to the overall massive amounts of rare earths mined there. Nonetheless China believes that tis own domestic supply of the heavy arre earths has only between 5 and 30 years remaining at present levels of use.

This means that the real supply opportunity in the non-Chinese rare earth mining sector is for those deposits that have above average proportions of heavy rare earths to be brought into production as quickly as possible.

It is a horse race among those non Chinese juniors with commercially recoverable (i.e.., economically recoverable) heavy rare earths.

They are:

Canada
1. Great Western Minerals Group
2. Avalon Rare Metals, (AVARF.PK)
3. Quest Rare Metals

Note; Some of my colleagues have urged me to add other Canadian juniors to this list, such as Matamec Exploration, but I do not know anything about that company and will reserve my judgement on them for a future time when i have had time to study Matamec Exploration and visit its site.

USA,
1. Ucore Rare Metals
2. Rare Element Resources, (OTC:RRLMF) (a light rare earth deposit but with significant Europium only)

Republic of South Africa
1. Rareco (Great Western is developing a mine along with Rareco)
2. Frontier Rare Earths (private at this time)

The success or failure of any of the above will depend on the quality of their deposits, the effciency of their extractive metallurgy, the ability of the global rare earth refining industry to service them, and the growth of the Chinese, Japanese, Korean, and Indian domestic markets.

Disclosure: I won shares of Great Western Minerals Group, and I am a paid consultant in business development to Ucore and to Frontier Rare Earths.

Source: The Green Revolution in China