11.03.2013/XNUMX/XNUMX Institute for Rare Earths and Metals - Until the middle of the last century, interest in rare earths was relatively low. The increasing technology changed this drastically in the last decades. Today the rare earth elements (REE) are required in almost all areas of the high-tech industry. Green technologies such as electromobility, wind power and photovoltaics are also dependent on rare earths.
In the early 1990s, the USA held the largest extraction and market share of rare earth metals. However, due to increasing production quantities with significantly lower production costs and low environmental and occupational safety standards and consequently low sales prices, China soon advanced to become the market leader in the SEE sector. The extraction from existing mines and the costly development of previously unused deposits outside of China turned out to be increasingly unprofitable. China was able to expand its production and market share in the SEE sector to today's 96%. This means that the Middle Kingdom has a quasi-monopoly over rare earths.
China's political leadership has long been aware of its strategic positioning in the market, which former President Deng Xiaoping has already expressed to 1992 with his statement, "The Middle East owns oil, China owns rare earths."
The situation in the market of rare earths
When China announced in 2010 a serious reduction in the export quota on rare earths for the following year, the buyer countries reacted with outrage. The industry feared existential supply bottlenecks. Contrary to all protests in China, 2011 enforced its restrictive export policy and levied export duties on rare earths. In this country too, reports of a real scarcity of rare earths in the industry piled up.
The reduction of the export quota in 2011 led to an enormous increase in the price of rare earths. This in turn initially improved the situation of international producers. The prospect of higher sales revenue supported by media coverage attracted investors and led to a significant increase in the stock prices of global rare earth miners.
In order to participate in the booming market, new corporations (AGs) were founded, which were also offshoots of companies that were already successful in the mining industry. The IPOs generated capital to finance the expensive development of new mines.
But the optimistic starting position was quickly restrained by unaccounted for costs and delays, because unlike other raw materials, the mining of rare earths is many times more difficult. Although rare earths are not, as their name suggests, really rare, they often occur in relatively low concentrations. Also, the separation process - ie the separation of the rare earths of rock, other metals and ultimately the achievement of a high degree of purity of the SEE - proved to be more expensive and more complex than initially calculated. Other costs include the acquisition of necessary concessions and the implementation of new environmental standards in the mining sector. Many mining companies also lack the necessary know-how that China has acquired over the past few decades.
Ultimately, unaccounted for costs and delays lead to the absorption of additional capital. In times of a generally difficult market environment caused by the financial and economic crisis, many AGs had to increase their capital through new issues. As a result of the additional issuance of shares, they recorded a significant decline in value, which was reflected in the dramatic decline in prices from mid-2011 to the penny-stock level.
For its part, China is trying to bring the market under control again through the accelerated supply shortage in the form of product stoppages of some mines and to stabilize the prices for rare earths. But even with China's illegal exports, 1,2 times as high as the legal exports, this strategy proved to be not very successful.
Future and Opportunities in the Rare Earths
If the prices of rare earths and the stock prices of producers in the near future do not stabilize, some companies could face insolvency. Because even though rapid production starts are forecast again and again, no profits can be expected until 2014 / 2015 from the ongoing execution projects.
In addition, the development projects are financed almost exclusively through debt, which makes them extremely dependent and vulnerable. On the other hand, companies that already had sufficient capital prior to the IPO and otherwise generate income in addition to the mining of rare earths are comparatively well placed. The buzzword is diversification. In order to be prepared for dominant positions in the rare earth sector in the race, the long time between exploration and production should be planned. On average, this dry spell is seven to ten years.
In our opinion, various companies are well placed to mine both "common" metals such as iron, chromium, boron, manganese, etc. and rare earths. Revenue on the one hand can cushion expensive exploration on the other. Furthermore, investors should invest in an investment in young mining companies prior to an IPO and go the time to go public with the company than go through quick earnings hopes in listed companies that are often forced to sell shares to cover the ongoing costs. The mass sale of own shares usually dilutes the own price, which leads to a falling price in the long run.
Further information at: www.institut-seltene-serden.org
