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Chinalco steps up drive for rare earths: Ominous News for Non Chinese Rare Earth Juniors, but Perhaps, Not for All of Them

An article in this evening's Beijing based "People's Daily" freely available on the Internet states that:

"Chinalco has initiated discussions with the Guangxi State-owned Assets Supervision and Administration Commission (SASAC) to develop rare earth mines with local miners, and also participate in the processing projects, said the source on condition of anonymity."

For the almost total number of non-Chinese rare earth wannabe miners who failed to bother to show up this week in Beijing for the 6th Annual International Conference on Rare Earth Development and Application & China Rare Earth Summit 2010 this will be devasting news to their business models.

With the exception of the higher atomic numbered "heavy rare earths" China likely has more than enough rare earth reserves to satisfy even its growing domestic needs indefinitiely. What has been holding up the progress of China's rare earth mining sector is a combination of historical environmental mismanagement that has now led the government to curtail the activities of the exisitng mining operations pending a vast clean up and a need to consolidate to take advantage of economiees of scale and to eliminate illegal mining and smuggling.

The People's Daily article also says that:

"Industry sources said Inner Mongolia-based Baotou Steel Rare Earth High-Tech Co has led rare earth consolidation in northern China, while Jiangxi Copper Corp and Ganzhou Rare Earth Mineral Industry Co will take up the mantle in Sichuan and Jiangxi."

So now China will have just three, or at most four, rare earth miners, and each one will be a subsidiary of a massive commodity metal producer/refiner with all of the mining and refining and fabricating skills that go along with that status to say nothing of management skills and access to capital.

I think we need to look now only for non-Chinese junior miners, who have the heavy rare earths in commercially significant quantities, as long term investments. I believe that in the near term there will be a large and growing Chinese/Japanese/Korean market for lower atomic numbered rare earths such as neodymium and lanthanum for rare earth permanent magnets and nickel metal hydride batteries, but this market will be supplied ultimately from the massive Chinese resources now to be developed or expanded by the iron, copper, and aluminum enterprises within China.

There is still going to be a growing demand for the heavy rare earths and these will be supplied by non-Chinese miners unless, that is, the Chinese investment community snaps them up too.



Disclosure: I own Great Western Minerals Group stock