Rare earths: the new star in the raw material sky. What consultants and your clients should know about it Part 3

Part 2

5 investment opportunities in rare earths

Who wants to invest in the business with rare earths, has basically three different possibilities of the plant:

a) direct investment in SE mines, manufacturing companies: The purchase of shares of individual SE companies presupposes that the investor deals intensively with the market and the respective companies. For this he should know how the management is composed, how serious the individual projects are worked on, which SE elements are present in which concentration and how quickly a project reaches production readiness.

b) Investment in SE oxides and metals: Investors have the opportunity to benefit directly from the price movements of rare earths by buying shares of companies that physically own and trade SE oxides and metals. Recently, some companies in Germany and Switzerland are physically offering the elements of rare earths as investments.

c) Investment in SE Indices, ETFs and Certificates: This relatively new financial instrument for technology metals offers the opportunity to diversify the investment somewhat and spread the risk. However, here too the development of the market and the composition of the individual securities must be studied regularly and continuously re-evaluated.

6 crisis, euphoria, uncertainty and big opportunities

Although the investment market for rare earths is still very young, it already has the first major price storms behind it. The recognition of an impending supply crisis was followed by a period of euphoria, which peaked in the summer of 2011. Where just a few months ago, a simple, positive exploration report of a mining company was sufficient to trigger investors' thriving price fantasies and a corresponding desire to buy, today there is more of a certain uncertainty about the long-term relevant success criteria of a rare earth company.
The reason: The two largest future SE companies outside of China, Molycorp Inc. (Mountain Pass, California) and Lynas Corporation Ltd. (Mount Weld, Australia) are nearing the start of their production, which will enable them to meet much of the demand for rare earths outside China in the future. However, as these companies only produce light rare earths, this can not ultimately solve the supply problem. In addition, it is anticipated that within a few years China will change from a SE net exporter to an importer, which will have a lasting impact on demand and thus on prices.
The gap that the West must fill is less to seek for exploration of rare earths than to seek the know-how of how to separate the heavy rare earths from their carrier material. With the acquisition of Neo Materials, the US company Molycorp bought the know-how for 1,3 in April for separating the heavy rare earths from their carrier material. Neo Materials was the only Western company under the leadership of Alastair Neill to build a refinery north of Shanghai for the separation of light and heavy rare earths. Alastair Neill is currently working for another US rare earth company, Black Sea Metals Inc. It has recently announced that it would build a refinery similar to the one in Shanghai, in the Asian part of Turkey.
Every month, the rest of the world moves closer to China in the race for knowledge about the rare earths. Thus, the US and the EU are trying to gain time in the trade dispute with China before the WTO (World Trade Organization). For example, in the period from 2007 to date, the US has conducted 73 commercial investigations against China. China, on the other hand, defends itself with arguments such as: The increasing environmental awareness of the Chinese is contrary to an increase in the production of rare earths, or the increasing demand of China for rare earths places the domestic use before the export.
But on the other hand, more and more high-tech products are being launched on the market, which need more and more rare earths and unfortunately these are usually the hard-to-reach HREE (Heavy Rare Earth Elements). Better and better LCD screens, increasingly effective wind turbines, solar panels, electric motors, computers, smartphones, etc. are driving the consumption of rare earths ever higher. If, as is to be expected, China converts from an SE exporter to an SE importer in the next five years, a supply gap will be preprogrammed despite increasing production in the West.

7 The trade dispute between the US, EU, Japan and China

China is preparing for a lawsuit brought by the United States, the EU and Japan over China's export controls on rare earth minerals. The triumvirate of industrial powers brought the case on 13. March before the World Trade Organization (WTO). The Chinese Ministry of Industry and Information Technology said the country was ready to comment on the allegations. Mei Xinyu, research associate at the Academy for International Trade and Economic Cooperation, said at 16. March China Securities Times Securities Times his point of view. Below are edited excerpts:
China did not export rare earths before the early 1970s, and the world market for rare earths was dominated by the United States, Europe and Japan. In the 1970, China gradually entered the world market for rare earths and its market share increased sharply in the following decades. With its current share of more than 90 percent in the world's rare earth mining, China is virtually monopolizing it. There is an urgent need to improve the use of this important raw material, not only by producing individual rare earth products, but also by optimizing the individual stages of their processing.
China has every reason to impose strict controls on its exports of rare earths, even if this means raising the prices of these precious raw materials, because the existing pricing mechanism has serious shortcomings. Currently, the impact of mining on the environment is not reflected in the price, not to mention the scarcity of these raw materials.
The problem is that the WTO rules, hard-pressed by the United States and Europe, are unfair. Western states are tricky enough to interpret these rules in their interest, but accuse developing countries and regions of violating WTO rules when trying to protect their legitimate rights. China, these tricks are not foreign. Therefore, China should keep an eye on the following two issues during the coming conflict over rare earths: China should do everything possible to win the dispute, while intensifying efforts in the production and sale of rare earths at home and abroad, so that the Western countries can not win even if China loses the process.
The coordination of the mining of rare earth resources, which started one year ago, should be our highest priority. This is where the founding of an industry association for rare earths begins. This will allow China to exercise better control over the rare earths market, especially as Chinese companies are making limited profits in extracting rare earths. Restructuring of the sector should consolidate the industry. The main aim is to close down the many small businesses, especially in southern China, and to give the large state-owned enterprises a higher share. This also benefits environmental protection.
However, this will lead to income losses at local government level. In order to ensure sustainable development in areas where rare earth mining is halted, large firms should provide adequate financial resources to help communities clean up the environment and promote new sectors of the economy.
In the existing tax system, levies are still too low for outside investors who enter into transactions with local governments on a supraregional scale. In addition, large companies and conglomerates often maximize their profits through in-house billing and other measures. Thus, they reduce their tax payments and other taxes on which the local governments depend. In such circumstances, conflicts between corporate and local governments are inevitable. But if the proceeds go to the central government, they can spread them across the country evenly through transfer payments, or they can be returned directly to the local government, which exploits sources of raw materials in its administrative territory.
The consolidation of the industry through restructuring should not falter; the leading position of the central government in collecting taxes and allocating public funds should not be changed; and the market-oriented activities of large companies should not be disturbed. Under these conditions, adjustments in taxation should allow local governments to benefit more from the use of their land by large-scale mining operations. A win-win situation for both large companies and municipalities can only be achieved by taking appropriate measures.
In addition to restructuring the industry, we should also turn our attention to the question of how other countries are reducing these raw materials. China's rare earth resources make up only forty percent of the world's resources. If foreign resources are not mined, China's rare earth industry will collapse at some point in the future, unable to sustain sustainable development.
If we do not consider the rare earth minerals from abroad, our goal of raising rare earth prices and improving yields for our rare earth industry will benefit even the rare earth industries of other countries. After China has stepped up its control of its rare earth exports in recent years, other countries have launched 200 projects to develop their own rare earth reserves. In the United States in particular, Mountain Pass, the country's largest rare earth mine, is expected to resume production with an annual output of 10 000 tonnes.
Of course, many countries will reluctantly sell their rare earths, primarily because these commodities have become a much sought after commodity. In order to gain a competitive advantage over the global competition and to maintain its control over the rare earth market, China must first further develop its separation and purification techniques and its processing technologies.
The splitting of rare earth elements into their chemical constituents is very difficult because of their similarity. The process takes time as well as expertise. The most difficult part is the separation of praseodymium and neodymium. Some foreign companies had a monopoly position in these technologies, which reduced China to the role of exporter of rare earth ore and slag.
China has been trying to deal with this problem since its first attempts in 1972 to separate praseodymium and neodymium. Led by Xu Guangxian, a member of the Chinese Academy of Sciences, Chinese scientists successfully developed the world's most advanced cascade extraction technology, ending the monopoly of Western countries in this field.
With this advanced technology, China has almost reached the level of Western rare earth mining companies. The high purity rare earths from China have conquered the global market. As a result, prices in the international market have been reduced by thirty to forty percent. Under this "China influence," some Western countries that had long monopolized the world market for rare earths have curtailed or ceased production, and some have sought cooperation with Chinese companies.
If China seeks cooperation with other countries, it should maintain exclusive ownership of rare earth companies in order to maintain and strengthen control over the separation and purification of rare earths and effectively protect Chinese core technologies in the area.

8 An industry association for the sustainable development of the industry is founded in China

A trade association for the sustainable development of the rare earths has been set up at 08.04.2012 in China. The association consists of 155 members from the entire Rare Earth industrial chain. Some members are real heavyweights in the industry, such as the Aluminum Corporation of China or the China Minmetals Corporation. Among other things, the association's tasks are to establish a reasonable price system for SE. It also aims to slow down SE's illegal exports from China, create environmental standards and settle disputes with foreign companies and governments.
In the opening ceremony, the association's president Gan Yong said, "Many countries have rare earths. The rest of the world should not just let China do the dirty work. "
The United States, the EU and Japan believe that the real reason for founding the association is China's desire for centrally controlled regulation of the SE market.

9 focus on the essentials

An investment in the rare earth market still offers well-informed investors high profit opportunities. In order to use the available potentials, an investor should, however, observe some key success criteria:

a) Short, fast routes: Focus on projects that do not require a complex infrastructure. The most economical and proven source of rare earths is the mineral monazite, which is primarily found in heavy mineral sand deposits. Since the production of an SE concentrate without detours directly from this mineral is possible, eliminating many costly precursors and related problems. The time from exploration to marketing is reduced from five to seven years to approximately 18-24 months.

b) Heavy rare earths: Focus on producers of heavy rare earths. The demand for light rare earths will most likely be met in a few years by new producers outside China. However, the supply forecasts for important, heavy elements such as dysprosium (Dy), terbium (Tb) remain extremely critical in the long term. This creates great opportunities even for smaller SE projects with appropriate resources and access to the necessary know-how.

c) Long value chain: Focus on companies which not only reduce rare earths but also process them into high quality end products. The greatest added value in the rare earth business arises only after its degradation in the process of separation and the production of high purity oxides and metals. However, the necessary know-how to this day comes almost exclusively from China. A fact that gives projects with Chinese joint venture partners a clear advantage.

d) Marketing made to measure: Focus on companies with experience in the marketing of rare earths. Every purchaser of SE oxides and metals has very individual, specific requirements for the purity of the individual SE elements, which are defined by the respective intended use. The economic success of an SE company thus depends very much on its marketing experience. Close cooperation with the customer on a technical level and long-term contracts are essential for success.

e) Networked management: Focus on companies run by managers with years of experience in the rare earths business. In order to make SE projects a success, a number of difficult hurdles have to be overcome - from the recruiting of the few experts to the negotiation of operating permits (a major and often insurmountable stumbling block for many projects, as the processing of rare earths is always radioactive By-products such as thorium and uranium) to raising capital and establishing strategic partnerships. Anyone who can rely on a proven network here is definitely getting a lot closer to success.

f) price potential: In the past few years, many rare earth companies have jumped by several 100 percent. The usual suspects, like Molycorp, Lynas, Great Western and Avalon, have already traveled most of the journey. They have a market capitalization of high three-digit millions; Molycorp and Lynas are now even worth several billion euros. On the other hand, many new corporations have emerged in the field of rare earths to jump on this train of euphoric investors. Many of them have no real value to date that could reasonably justify the given market capitalization. Here caution is required. The Institute of Rare Earths and Metals eV is pleased to provide information about value.

10 About Institute of Rare Earths and Metals e. V.

The world economy depends on the oil. This has become clear at the latest in the oil crises 1973 and 1979. As awareness of the scarcity of this resource increases, so does its price.
However, largely unnoticed, we have long since fallen into a second dependency - from the so-called rare earths: these metals are difficult to obtain in 17 are needed in numerous high-tech areas, from cell phones and LED TVs on modern medicine to electrical and electronic Hybrid engines, which should solve the mobility of the oil. Rare earths are among the most valuable raw materials in the world today.

Largest supplier of indispensable elements is by far China. And like the Arab states in oil, the People's Republic thus has the market in hand. In the past, China has already drastically reduced its export quotas for rare earths, and further reductions have been announced for the near future. One of the reasons for this monopoly position is that China has so far not paid attention to environmental compatibility during dismantling. Air, soil and water were ruthlessly polluted.
In order to break this dependency on Chinese exports and promote clean mining, the Institute for Rare Earths was founded. We see ourselves as a counseling center and network platform and offer not only comprehensive information about rare earths but also professional research analyzes on occurrences, dismantling projects and stock investments. The aim of the institute is to bring together suppliers, buyers and investors in order to open up the economically critical resource rare earths outside of China.

The seat of the institute for rare earths and metals registered association is in Duesseldorf. According to the statute, the institute is a non-profit association that can not make a profit. The founding members come from the fields of economy, mining, electronics and the processing industry from Germany. In addition, the institute is supported by a team of experts, the panel, from the rare earths sector.

11 A recommendation of the Institute of Rare Earths and Metals

Against the background of the current development of the SE market described above, the Institute for Rare Earths and Metals eV recently examined young SE companies:
Of the total of 220 listed companies that are active in the SE market, over half are worth less than their website cost. Nevertheless, the Institute for Rare Earths and Metals eV visited, analyzed and presented a handful of highly interesting projects. You can get more information directly from the Institute for Rare Earths ( [email protected] ).

12 A challenge for ambitious investors and investment advisers.

Since there are no alternatives for the rare earths in the longer term, the demand for these critical metals will continue to rise in the coming years. The battle for market share will increasingly shift towards the heavy rare earths, know-how and integration of downstream production stages. Understanding these complex and dynamic relationships requires investors and consultants to have a great deal of personal interest and commitment. Rare earths are an area for people who are looking for challenges, where knowledge and experience can create lucrative potential - a challenge for you?

Autoren:
Arndt Uhlendorff, Institute for Rare Earths and Metals eV, Dusseldorf
Andree Löschke, CEO of GIA Industrieberatung AG, Wipperfürth

Link to the online article:
http://institut-seltene-erden.org/wp-content/uploads/2012/05/sAnlagebrief_spezial_2012_09.pdf

Links to the topic rare earths:
www.institut-seltene-erden.org
www.edelmetallinstitut.com
www.oeko.de
www.techmetalsresearch.com
www.ree-investor.com
www.roskill.com