Tom Hayes' Worldwide Rare Earth Wonderland

Includes: REE
by: The Gold Report


Industry consensus is that REE annual growth will be anywhere from 3–8% until 2020.

Reduced Chinese export quotas will probably result in Western demand meeting Chinese supply.

When we talk about REE demand growth, we must consider specific minerals among the 16 REEs.

It's not the size of a rare earth elements project resource that determines its success, declares Tom Hayes of Edison Investment Research. In this interview with The Mining Report, he explains that companies will win based on their holdings of heavy and strategic rare earths and their ability to secure funding. With the race on to develop non-Chinese REE sources, he suggests projects likely to end up on the podium.

The Mining Report: It is now known that China's State Reserve Bureau intends to begin stockpiling medium-to-heavy rare earth elements [REEs], and that China will also strengthen REE export quotas. Will these actions lead to a race to get non-Chinese REE projects into production?

Tom Hayes: It will. One shouldn't view the general tightening of heavy rare earth elements [HREE] export quotas in isolation, however. It's more relevant to look at actual demand for particular REEs. About 30-40% of Chinese supply is subject to an export quota, but Western demand does not currently meet the amount of REEs approved for export. Reduced export quotas will probably result in Western demand meeting Chinese supply. This, along with China's reform of its REE industry, will probably aid rare earth prices in the long run.

TMR: What is the nature of this reform?

TH: China's central government aims to exert control. Lack of central control has resulted in large, illegal REE operations, which have had a widespread negative effect on the environment.

TMR: Does the scale of these illegal operations suggest some level of political support?

TH: This support is likely local and not national. It is local corruption that has allowed illegal mining of REEs to expand to its present level.

TMR: What's your forecast for REE demand for the rest of the decade? And how will changes in demand and supply affect prices?

TH: Edison doesn't have specific growth forecasts for REEs, but the industry consensus is annual growth anywhere from 3-8% until 2020. What will that mean for the supply and demand of particular REEs? This is an industry that is plagued by misnomers. When REEs were first in the limelight in 2011, when the bubble was forming, there was a complete lack of understanding of what "rare earths" meant.

Since then, people have begun to understand the difference between light rare earth oxides [LREOs] and heavy rare earth oxides [HREOs]. The industry has now become an even more granular and complex story about the actual supply and demand drivers with regard to particular REEs. When we talk about REE demand growth, we must consider specific minerals among the 16 REEs. To comment on where REE prices are going is not particularly useful.

TMR: What is it about the heavy and strategic REEs that make them particularly valuable?

TH: It's really their use in particular applications such as green technologies. Wind turbines are a case in point. Political support for renewable energy sources drives further development of wind farms and, by extension, boosts actual demand for the metals used in those applications.

TMR: If the average initial capital expenditure [capex] of an REE project is $700 million [$700M], how much of that is the optimum amount companies should have to raise themselves, outside of offtakes and other deals?

TH: There's a burgeoning strategy behind financing these projects, considering that the equity markets are pretty much dry. Companies are looking for funding from governments, from offtake loans and from strategic partnership loans. From the figures that I've seen, REE projects might expect to get one-quarter to one-third of capex from government agencies and export quota agencies, and maybe another one-quarter to one-half through strategic partner loan agreements.

This still leaves a considerable shortage, and this is a real challenge for REE projects. It could mean they will remain unfunded until the equity markets pick up and/or investor interest in mining picks up.

TMR: What's the most interesting American REE project?

TH: There is a particularly interesting one from the point of view of its mineralogy: The HREO Round Top project in Texas. It's completely different from other REE projects, in that the geology is rhyolitic.

TMR: What is the significance of that?

TH: It could lead to a much lower capital intensity. In fact, the very preliminary project work suggests that it could be developed as a heap-leach project, whereby acid is used to drain off the REEs for further refinement. That would be quite a significant alternative to the traditional REE model, whereby large amounts of money are needed to crack and refine these REE metals.

TMR: How advanced is Round Top?

TH: It is still in the early stages of metallurgical and mineralogical investigations and drilling.

TMR: What other American projects to you want to discuss?

TH: Rare Element Resources Ltd.'s (NYSEMKT:REE) [RES:TSX] Bear Lodge project in Wyoming is another interesting one. The company is working toward a DFS this year. Rare Element has proprietary technology that might allow it to reduce its capital requirements. However, it will take a little bit more work to firm up its ability to create concentrates at an economically viable level.

TMR: Greenland has been described as the planet's last frontier for metals.

TH: It could also be considered one of the last frontiers for conservation. Greenland has a political situation that could be quite tricky for the development of a mining industry.

TMR: Tom, thank you for your time and your insights.

This interview was conducted by Kevin Michael Grace of The Mining Report.

Tom Hayes has been a mining analyst at Edison Investment Research in London since 2010. He worked previously for the consulting firm Mouchel and has been a lead production geologist and resource definition geologist for mines in Australia and Saudi Arabia. He holds a Bachelor of Science from the University of Plymouth and a Master of Science in mining geology from the Camborne School of Mines.


1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.

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3) Tom Hayes: I own, or my family owns, shares of the following companies mentioned in this interview: None. Edison Investment Research's disclosures are available here. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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