Strategic Metals & Rare Earths Letter International 1

Transcription

1 Strategic Metals & Rare Earths Letter I N T E R N A T I O N A L the independent information and advisory publication on investing in Strategic Metals & Rare Earths June 2015 Rare Earths Materials play key role in advanced environmental and modern technical products The REE Rare Earth Elements group, known as the lanthanide series, consists of 15 elements, of which 9 HREO and 6 LREO elements. Heavy Rare Earths Oxides (HREO) Light Rare Earth Oxides (LREO) europium (Eu) erbium (Er) lanthanum (La) gadolinium (Gd) thullium (Tm) cerium (Ce) terbium (Tb) ytterbium (Yb) praseodymium (Pr) dysprosium (Dy) lutetium (Lu) neodymium (Nd) holmium (Ho) promethimium (Pm) samarium (Sm) The elements yttrium (Y) and scandium (Sc) are also lumped in with Rare Earths because they have similar chemical properties making 17 REE s in total. In the oxide form, the group is collectively known as Rare Earths Oxides (REOs). REE s are frequently found associated with radioactive elements, such as uranium and thorium, making mining them dangerous and subject to environmental restrictions. Rare Earths play a key role in advanced green environmental products from energy efficient compact fluorescent light bulbs to hybrid cars, automotive catalytic converters and wind turbine generators. They are also essential in the development and manufacturing of many high-technological products from hard disc drives to flat panel displays, ipods and magnetic resonance imaging (MRI) scans. Many defence applications, including missile guidance systems, mine detection, anti-missile defence and communication systems, also require rare earths elements. Because of the large number of high-technology and defence applications that require rare earths, dependable, quality resources, are important to the Western economies and critical to continued manufacturing and production. Historical overview of Rare Earths prices Due to the global economic slowdown which began in the fourth quarter of 2008, many industries have been experiencing inventory destocking as customers use existing inventory to preserve cash. This has caused raw material process to slump significantly at the upstream end of the supply chain. The June 2008 Rare Earths price for Lynas average Mount Weld composition was US$ 15.22/kg REO on a FOB basis, by June 2009 this dropped to US$ 9.52/kg REO, a decline of 37%. In the same period the average composition price for China s Baotou Mine declined 40% form US$ to US$ 7.65/kg REO. Strategic Metals & Rare Earths Letter International 1

2 When export quota costs, export tariff and value added taxes are taken into account a Chinese company is estimated to receive less than US$ 5.00/kg. These price levels are believed to be at the cash cost of production within China, which have increased from approximately US$ 3.50/kg REO in 2002/03 to approximately US$ 5.50/kg over the last five years due to higher energy, chemical reagents, labour and environmental compliance costs. Due to the strong reduction of export quotas, Rare Earth prices, since the end of 2009, more than twenty-folded from US$ 10.32/kg at the end of 2009 to a peak of US$ /kg as at August 1, 2011 (average Mt Weld Composition FOB China basis), but were followed by a steep correction by more than 90% to US$ 22.62/kg at year-end Rare Earth Prices (US$/kg) Rare Earths Oxide China Domestic Average Price Lanthanum Oxide Cerium Oxide Neodymium Oxide Praseodymium Oxide Samarium Oxide Dysprosium Oxide Europium Oxide , , Terbium Oxide , Source : Metal Pages Strategic Metals & Rare Earths Letter International 2

3 Substantial recovery of rare earth magnets market In the two months from mid-november 2014 over mid-february 2015, Terbium oxide prices have risen substantially amid tight surplus because of strong demand from the rare earth magnets market. With mainstream traded prices (tax included) up 47.7% from RMB 2,568-2,650/kg to RMB 3,800-3,900/kg, dysprosium oxide prices showed a significant rise of 21.5% in the same period from RMB 1,380-1,459/kg t RMB 1,700-1,50/kg. The stellar upward trend in pricing is impacted by suppliers holing their supply at current prices. Additionally, China s State Bureau of Material Reserve (SBMR) was planning on proceeding with a new round of rare earths stockpiling after the Chinese Lunar New Year holiday. Strategic Metals & Rare Earths Letter International 3

4 Supply-demand balance for individual elements The supply-demand balance is likely to remaining varying considerably over time for individual elements and between light rare earth elements LREEs and heavy rare earth elements HREEs. An earlier criticality study, based on a combination of importance to the clean energy economy and risk of supply disruption by the US Department of Energy ranked dysprosium as the most critical REE in both the short (0-5 years) and medium term (5-15 years). Neodymium, terbium and yttrium were ranked next in the short term, followed by europium. In the medium term neodymium and terbium were ranked below dysprosium, followed by europium and yttrium. China controls the world s Rare Earths industry The strategic value of secure Rare Earth supplies has been much better and earlier understood in China than in the Western world. Already the late Chinese leader Deng Xiaoping once said There is oil in the Middle East, there is Rare Earth in China. He foresaw the West s growing dependence on these elements for high-tech industries and put China on course to become the world s dominant supplier today with more than 90% of Rare Earths production. However, China holds only 3% of the world s rare earth reserves and decades of excessive exploitation have greatly damaged the environment. However, the path that has led China to a virtual monopoly has not been without its own issues. The Chinese State-Owned Enterprises (SOE) that gained the processing technology could not protect this intellectual property. Strategic Metals & Rare Earths Letter International 4

5 As a result, the Chinese Rare Earths industry grew rapidly in the 1990s as many smaller Chinese enterprises set up Rare Earths processing plants. This lead to intensive competition between Chinese producers which in turn drove down prices of rare Earths from the high prices associated with specialty chemicals to significantly lower commodity prices in a few short years. Accurate production figures are unavailable due to the artisanal mining in this region. However, estimates range from 35,000 55,000 tonnes REO. The fragmented Rare Earths mining and processing industry in China suffered from inefficient extraction techniques leading to low recovery and in addition poor environmental protection compliance was prevalent across the industry. The Chinese authorities realized the industry had to change and rationalization of the industry began in 2003 when export quotas on Rare Earths were introduced and issued to approved local operators. To protect the fragile Rare Earths resources base within China over mining with low recovery processes and to enforce the environmental standards within the mining industry, the Chinese Government introduced production quotas in The tonnage of this export quota has been decreasing every each year, primarily in response to increasing domestic demand. In 2006, the volume dropped to 48,000 tonnes from a record of more than 65,000 tonnes, in 2007 to 43,574 tonnes, in 2008 to 40,987 tonnes and in 2009 to 33,300 tonnes. In addition to this export quota for local companies, foreign joint ventures secured export quotas from the Chinese Ministry of Commerce (MOFCOM). In 2009, these quotas equalled 16,845 tonnes, giving a grand total of 50,145 tonnes. These annually declining quotas, in conjunction with tightening of environmental regulation compliance, has led to the closure of many small processing operations. The production quota for Rare Earths concentrates was 82,320 tonnes of REO in 2009, down 6% from 87,620 tonnes in The quota consisted of 72,300 tonnes for light rare earths from Baotou and Sichuan, down 7.9% as compared to 2008, and 10,020 tonnes for medium and heavy rare earths from the southern ionic region, up 8.87%. Export quotas for the Chinese rare-earth industry (tonnes) Source: Chinese Ministry of Commerce Year Period Chinese-owned Chinese / Sub-Total TOTAL Non-Chinese JV 2009 H1 15,043 6,685 21,728 50,145 H2 18,257 10,160 28, H1 16,304 5,978 22,282 30,258 H2 6,208 1,768 7, H1 10,762 3,746 14,508 30,246 H2 12,221 3,517 15, H1 16,066 5,160 21,226 30,996 H2 6,340 3,430 9, H1 11,136 4,363 15,499 30,999 H2 11,163 4,337 15, H1 10,756 4,354 15,110 30,611 H2 12,036 3,465 15,501 Strategic Metals & Rare Earths Letter International 5

6 2015 production quotas drive Chinese REE consolidation At the start of 2015, China removed the export quotas that were first introduced in When these quotas were cut in 2010 by almost 40%, REE prices spiked between June and August of 2011 on supply tightness. In response, official mines increased production to capture high prices and a large pool of illegal produces emerged offering lower price material, creating an oversupply that has seen prices fall steadily since. The first release of China REE production quotas in 2015 has boosted Chinese government efforts to consolidate its REE sector, by placing over 90% of the country s official allocated production in the hands of 6 statecontrolled integrated groups. Chinese produces were allocated 52,500 tonnes of REO equivalent, up by 11.94% compared with the previous year, while the production quota for smelting and separation products rose by 10.61% to 50,050 tonnes. The 6 largest state-controlled groups Minmetals, Chinalco, Baotou Steel, Xiamen Tungsten, Ghanzou Rare Earths and Guangdon Guangshen Rare Earths received 94.7% of the production quota allocated to rare earths mining products and 93.3% of the allocations for smelting and separation products. There is an expectation within the industry that the sector consolidation will remove illegal REEs that have contributed to pushing official prices down in recent years. According to estimates by the China Rare Earths Industry Association, 40% of Chinese REEs being sold are illegally sourced. China first announced plans in January last year to consolidate its REE sector as part of efforts to control production levels and clamp down on illegal activity. The government aims to complete the integration of all REE mines and separation plants by the end of 2015, said the Ministry of Industry and Information Technology (MIIT) earlier this year and as of late February, a total of 66 mining licences and 77 separation plants have been integrated, with just one licence remaining and 22 plants to be acquired by the big groups or eliminated in the remainder of the year. Oversupply in the REE sector is challenging for the industry, with China s separation and smelting facilities operating well under capacity. China produces 200, ,000 tonnes/year of REEs, while global demand is estimated to be only 120, ,000 tonnes/year. The government hopes that a consolidation of the industry will help to stabilize prices by reducing the number of suppliers. The sector consolidation will also allow these large groups to take over unlicensed producers. But the creation of larger REE groups will do little in the short-term to improve the current oversupply stemming from capacity. In addition, producers are seeing their margins suffer as REE prices have fallen significantly since the peaks of 2011 will remain a challenge for these newly formed groups. Some of these large groups are also less than enthusiastic about taking over smaller players in a weak market climate. China s 2015 mining quota of rare earths set at 105,000 tons China has set its mining quota of rare earths for 2015 at 105,000 tons. The full year quota is unchanged from that in 2014 according to a statement released by the Ministry of Land and Resources (MLR) on their website. The rare earth mining quota includes 87,100 tons or the so-called rock-type lights earths (LRES) and 17,900 tons for the ion-absorption type medium and heavy rare earths (HRES), according to the Ministry. The tungsten concentrate mining quota was set at 91,300 tons in 2015, they reported. The Baogang Group obtained 59,500 tons of the LRE mining quota, Chinalco got 2,600 tons of the LRE quota and 1,000 tons of the medium-to-heavy rare earths mining quota. Ghanzhou Rare Earth Group and China Minmetals obtained 7,965 tons and 2,000 tons of medium-to-heavy rare earth mining quota, respectively, according to the MLR. The valuation of China s rare earth exports for the first four months of this year came in 30.5% lower than a year earlier, at $ 96.2 million, according to the latest figures from China s General Administration of Customs. Strategic Metals & Rare Earths Letter International 6

7 Local media Baotou Daily reported that Baotou s main business income for rare earths in Q1, 2015 reached RMB 2.17 billion( US$ 1.98 billion), up 20.4% from the same period last year. The total profit was RMB 220 million (US$ 35.8 million), up 4% from the same period in China Northern Rare Earth Group reported a sales increase of 56% to RMB 1.69 billion (US$ 0.27 billion) and its net profits up 9.2% from last year to RMB 75.8 million (US$ 12.3 million). China replaces export tariffs with new tax regime China historcally imposed export tariffs of 15% for light rare earths (LRES) and 25% for more valuable heavy rare earths (HRES). The move was made to encurage foreign companies to enter into joint ventures with domestic companies in the country, due to the increased costs of exporting raw materials. On May 20, 2015, China annunced the introduction of a rare earth resource tax. The tax differs for LRE and HRE and is applied to the metals in concentrate form. The new tax rates apply to the value of the concentrate and are: % for LRE from the Inner Mongolia Region - 9.5% for LRE from the Sichuan Province - 7.5% for LRE from the Shandong Province % for Ionic Clay concentrates (and HRE/MRE rich concentrates) - Through replacing export tariffs with this new tax, China is putting its control over the entire domestic market. Joint ventures in China could experience greater costs associated ith the use of rare earths, as mining companies seek to transfer the concentrate tax onto the consumer. Strategic Metals & Rare Earths Letter International 7

8 Global rare earth consumption In 2014, China consumed 86,400 tons of rare earths, with the US and Japan consuming 17,000 tons and 14,255 tons each. Over this period, global demand was reported to have grown 4,420 tons to 152,260 tons (BCC Research). Analysis of industrial consumption indicates that demand is driven by the following 8 consumer groups, with the Other sector representing consumption of rare earths in the chemical, military and satellite industries. Glass Neodymium Magnets FCC catalysts Battery alloys Metallurgy Phosphors Ceramics Catalytic convertors Others Industrial demand in China is benefitting from the rapid development of emerging countries. These include hybrid electric vehicles and wins power generation, which rely on the use of rare earths such as neodymium for permanent magnets. Consumers are also benefitting from the current depressed market prices for rare earths China under pressure from international community on controlling exports Mid-September, 2010, China blocked shipments of raw rare earths minerals to Japan due to a diplomatic dispute, and to the United States and Europe in mid-october. However, by the end of October the export embargo to the United States and Europe was ended. In August 2011, the World Trade Organization (WTO) panel ruled that China had breached international trade rules by restricting exports of magnesium, manganese, silicon carbide and silicon metal. However, Chen Deming, Minister of Commerce, said that he was not concerned about possible WTO challenges to Beijing s policy of Rare Earths. In July 2012, the World Trade Organization (WTO) said that it was establishing a panel to examine China s export restrictions on rare earths, tungsten and molybdenum. The EU in its compliant documents stated that the export restrictions constituted a violation of China s WTO commitments under the General Agreement on Tariffs and Trade (GATT) and commitments under China s Accession Protocol. Japan noted that development restrictions were inconsistent with China s obligations under GATT. China has denied the charges, saying product quality variations account for the price gap between the metals it produces for export and domestic use. In September 2012, the Ministry of Land and Resources said that it had issued 67 mining licences for rare earths and 10 exploration permits, thereby reducing the number of permits to mine rare earths by 41%, tightening production of the metallic elements used in batteries and magnets. The goal of the strong cut in mine permits appears to be to gain greater control over the production of Rare Earths by putting that production largely into the hands of bigger companies to prevent manipulation on production or export quotas. China s eastern province of Jiangxi, which focuses on the production of mid-to-heavy rare earths, has the most number of mining licences withdrawn. Strategic Metals & Rare Earths Letter International 8

9 Western hemisphere urged to respond to China s Rare Earths monopoly With China further tightening supply regulations to shore up prices, there is growing urgency to ensure own supplies in the Western hemisphere particularly for Heavy Rare Earth Elements (HREEs), indispensable for high-tech manufacturing. As to actually producing HREE rich ores and refining them no facilities exist today in the Western world that are extracting and/or refining HREEs to separate and justify them for high technology end uses. All such facilities today are in China. For the United States, it will be necessary to develop, prove-out and construct at least one North American facility to produce the Rare Earth metals and their alloys in metallic form before anyone can make rare earths based magnets for any application. Molycorp Minerals has been the first company in the western hemisphere to challenge Chinese domination in the production of REE s by reopening its Mountain Pass Mine in California in December Lynas Corp., owing the richest deposit of Rare Earths in the world at Mount Weld in Western Australia became the next producer in the June 2013 quarter, but the operational licence for its Lynas Advanced Material Plant ( LAMP ) has been interrupted due to an environmental investigation. Historically the balance of demand and supply in the world rare earth market has been fairly stable. However, in recent years the market has changed substantially from a position of oversupply to demand shortages. Total REO demand in 2008 was 124,000 tonnes, an increase of 45% compared to 2003 when demand was only 85,000 tonnes. Total demand is predicted to reach 190, ,000 tonnes by Significant growth is forecast in most sectors of REE consumption, particularly for magnets and metal alloys which have a predicted consumption of up to 50,000 tonnes and 55,000 tonnes, respectively by Rare Earths demand is expected to grow above-gdp rates over the medium term, driven by increases in demand from key sectors such as Rare Earths permanent magnets, auto catalysts and fluid cracking catalysts (FCCs). These three markets are projected to account for around half of global Rare Earths demand by By the end of the decade, it is projected that these sector demand growth profiles could create supply shortages in certain Rare Earths element markets, most likely in Neodymium/Praseodymium and to a lesser extent, Lanthanum. Strategic Metals & Rare Earths Letter International 9

10 Differing rare earth distribution makes benchmarking difficult, thereby not only considering the economic value of the separate size of TREO elements in the total resource, but also the share of higher valued heavy rare earths elements in the total resource. Moreover, companies are using different cut-off grades while deposits can also include other minerals/metals like uranium, base metals and fluoride. Also, potential environment complications should be considered, particularly in case of higher levels of thorium and uranium. More specifically, comparisons of rare earth projects based on TREO and HREO can be misleading. Some Light REOs are low value, but some are high value and have high demand growth (neodymium and praseodymium).some Heavy REOs are high value, but many are low value (gadolinium) or are produced in small quantities to special order, so do not have a regular market price holmium (Ho), erbium (Er), terbium (Th), ytterbium (Yb) and lutetium (Lu). Metal equivalent grade is a better metric as it allows comparisons to be made between multi-commodity deposits containing different distributions of minerals with different values by connecting individual mining grades into a single, dominant mineral grade. This provides for relative ranking of projects. Metal equivalent grade is widely used measure and common in other multi-commodity deposit environments. Russia can change the world s REE balance of power There are five main projects in Russia on which there is information publicly available. The most extraordinary is near the city of Yekaterinburg in the Ural. There is a large occurrence of monazite concentrate that would be available to process the concentrate to produce 2,500 tonnes a year of total rare earth oxide (REO). Concentrate is chemical content in several lots differing in chemical content and was stored in 1956 in wooden boxes placed in metallic sheets. The boxes average 54% REOs, 22.2% phosphate, 7.8% thorium, along with uranium, zirconium and titanium oxide, plus oxides of iron, aluminium, silicon, calcium and magnesium. The Russians have four possible sites for processing the concentrate. This could be between them produce lanthanum carbonate and oxides, cerium, neodymium, praseodymium, samarium terbium, dysprosium, europium, erbium, gadolinium and yttrium. Production at one plant in the Sverdlovsk region will include manufacturing magnets. It is expected that production of magnets containing REE will be possible from Potential mining operations are: Tantor in Yakutia, is located well inside the Arctic Circle and with only three months a year not covered in snow. The temperatures range over the year from 13C in the summer to -50C in winter. The resource of 150 million tonnes of REE is spread over three main deposits. The Russian documents show that it could be mined by open pit down to a depth of 70 metres with operations taking place between October and April. Production would be possible from 2015 with annual output of 11,000 tonnes of TREOs, 9,000 tonnes of niobium oxide and 4,000 tonnes of titanium oxide. The transport options are northwards by road to a seaport or south by road to the railway at Lena. The Lovozeskoe deposit is located near the northern city of Moermansk (180 km by highway) and is part of a group of mining and processing facilities geared to produce rare earth materials as well as niobium, tantalum, titanium and magnesium. The area was discovered in the 1920s and magnesium production began in the 1930s. Rare earth raw materials production began in The potential production of REEs is 3,600 tonnes a year. Two projects are located near the important Siberian city of Irkutsk. The Katuginskoe deposit, northeast of Irkutsk, is expected to produce REEs, niobium, tantalum and zirconium. Temperatures range from over 30C in the summer to about -60C in winter. Infrastructure is being developed to serve the nearby Udkan copper project and 45 km away there is a coal deposit. Strategic Metals & Rare Earths Letter International 10

11 Preliminary assessments are that annual production could amount to 5,000 tonnes a year of TREOs, 4,000 tonnes of niobium, 300 tonnes of tantalum and 33,000 tonnes of zirconium. Northwest of the city of Irkutsk is the Chukhukonskoe deposit which Russia believes the capacity to produce 9,000 tonnes a year of TREOs, 1,000 tonnes of niobium and 18,000 tonnes of magnesium. Just 110 km away a hydro power plant is under construction. Strategic collaboration between India and Japan for the production of rare earths On May 18, 2015, a strategic Indo-Japanese partnership was announced for the production of rare earths, floated primarily to couner the Chinese hegemony in this sector, is set to break fresh ground. State-owned Indian Rare Earths Ltd (IREL) and Toyota group firm Toyota Tsusho Corporation (TTC) have finalised the modalities of jointly harnessing mixed rare earth chloride. The venture also marks India s re-entry into the production of rare earths, nearly a decade after it stopped production in 2004 due to the launch of market competitiveness. According to a senior Department of Atomic Energy (DAE) official, a crucial impact for fixing the price of mixed rae earth chloride for supply to TTC s plant in Andhra Pradesh from IREL s plant at Odisha, is nearly ready and is awaiting approval by the Cabinet Committee on Security. IREL, which is the only company in India authorised to extract rare earths, has set up a 10,000 tonnes per annum (tpa) innovative processing plant at its unit in OSCOM, Odisha to produce about 26 tpa of nuclear grade ammonium di-uranate. IREL has retrofilled its facilities at Aluva, Kerala to process about 5,000 tpa of mixed rare earth chloride and to produce separated high pure rare earths. Further, IREL has entered into a Memorandum of Understanding with the Bhabha Atomic Research Centre and the Defence Metallurgical Research Laboratory for technology to produce rare eart metals and magnets. U.S. Department of Energy Critical Materials Strategy In December 2011, the US Department of Energy (DOE) published its second Critical Material Strategy report following up on the 2010 report which found that 5 rare earths metals (dysprosium, neodymium, terbium, europium and yttrium) and Indium are most critical in the short term for clean energy technologies. The fundamental factors described in the 2010 Critical Metals Strategy still shape the role of rare earth metals and other materials in the energy economy, although three have been changed in material markets, technologies, research and development, investments and the geopolitical climate. The 2011 Critical Material Strategy addresses the short-term through 2015 and medium-term ( ) development of wind turbines, electric vehicles, solar cells and energy-efficient lighting. Sixteen elements and related minerals were selected in the critically assessment. These include elements and related minerals selected for the 2010 Critical Metals Strategy, as well as two elements used in batteries (nickel and manganese). Eight of the elements are rare earth metals, which are valued for their unique optical and catalyst properties. The magnetic materials used in clean energy technologies are as follows: Electric vehicles (EV): lanthanum, cerium, praseodymium, neodymium, nickel, manganese, cobalt and lithium Magnets for EVs and wind turbines: neodymium, praseodymium and dysprosium, with samarium and cobalt as potential substitutes Phosphors for energy-efficient lighting: lanthanum, cerium, europium, terbium and yttrium Thin films for solar cells: indium, gallium and tellurium Strategic Metals & Rare Earths Letter International 11

12 The National Defensive Authorization Act, which addresses the increasing lack of availability of rare earth production and magnet-making materials for domestic military and defense applications, is currently on the Senate Legislative Calculation for fiscal year The Act proposes to authorize the National Defense Stockpile Manager to acquire several materials determined to be strategic and critical materials required to meet the defense, industrial and essential civilian needs of the United States. The materials to be acquired under the new Act are using up to US$ 41 million of the National Stockpile Transaction Fund. In January 2014, it was disclosed that the Pentagon had temporarily waived laws banning the use of Chinesebuilt components in the U.S. weaponry in 2012 and The waive was for the purpose of keeping the US$ 392 billion F-35 Fighter program on schedule. Specifically, Chinese built magnets were used during the last 24 months in violation of the import transactions in order to avoid further delays with the delivery of the jets. An investigation was ordered into three instances involving the use of prohibited Chinese components in the F-35 program. Europe s raw material diplomacy hampered by bureaucracy In June 2010, a study conducted by the European Commission (EC) for the EC facing shortages of 14 critical raw materials needed for mobile phones and energy technologies such as synthetic fuels. The 14 materials are antimony, Beryllium, cobalt, fluorspar, gallium, indium, germanium, graphite, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten. At the time the EC was ringing the alarm bell on raw materials, China, controlling more than 90% of world supply, commenced to tighten its control over REEs by cutting export quotas and allowing just a handful of state-owned companies to dominate the market. In April 2011, the European Parliament Intergroup Climate Change, Biodiversity and Sustainable Development presented a paper Why is the Arctic critical for the European Industry?, which referred to the thought that Greenland is home to the largest deposit of rare earth metals in the world. This was based on the estimate that the deposit beneath the ice and rocks of the Ilimaussaq Intrusion on Greenland s south-western shore could supply 25% of world demand for fifty years. In March 2012, Polinares, a project designed to help identify the main global challenges relating to competition for access to resources and to propose new approaches to collaborative solutions, issued a working paper on Critical minerals for the EU which concluded that the main risks or EU s future raw materials supply originate from other factors than the natural abundance of resources. In May 2012, the European Commission published a Mid-Term Review of the EU/Greenland Partnership As the main conclusion the Commission said that it recognises the geostrategic importance of Greenland, both in terms of its location in the Arctic and in regards to the possibilities for exploration of natural resource which it represents. In June 2012, Antonio Tajani, Vice President of the European Commission, visited Greenland. At this occasion he said that the EU is willing to offer hundreds of million Euros in REE development in exchange for guarantees that Greenland would not give China, controlling 90% of the world s production of REEs, exclusive access to its rare earth minerals, calling his trip raw material diplomacy. In January 2013, the European Union initiated the EURARE project, a Development of a sustainable exploitation scheme for Europe s rare earth deposits, with the aims to characterize the potential sources of REE minerals in Europe and to develop processes that will supply the European industry with the REE minerals they need. Total funding for the Project is $ 9 million over 5 years. The program involves 8 separate work packages ranging from an assessment of European rare earths resources through the industrial REE metals and alloy production. Also included are field trials and demonstration plant operations. In May 2013, the European Commission published its second activity report regarding EU trade policy in the field of raw materials. It provides an account of progress achieved since the 2010 report focused on the achievements made in negotiations, both in the bilateral and multilateral context and in two subsequently issued communications in 2010 and Trade, Growth and World Affairs Trade Policy as a core component of EU s 2020 Strategy and Tackling the challenges in commodity markets and on rare materials, which furthered the integration of raw material priorities on EU policies. Strategic Metals & Rare Earths Letter International 12

13 On October 24, 2014, the European Commission announced that 217 million will be given in the EU- Greenland partnership to education and vocational training in Greenland for the 7-year period , compared with an allocation of approximately 190 million in the allocation. Considering the increase of the allocation with only 28 million, this did not include an allocation for the EU financing mining activities and particularly developing the two world-class REE sources in Greenland, as was planned in a proposal for discussion in the European Parliament in May 2012 by Bendt Bendtsen, who is a member of the Committee on Industry, Research and Energy in the European Parliament. Greenland has potential to emerge to the Western world s leading supplier of rare earths Production target 2020: 60,000 tonnes Greenland, part of the Kingdom of Denmark, was granted Self-Rule in June 2009 following a national referendum in Greenland. Self-rule will unlock Greenland s rich mineral potential and the development of a mining sector will provide the means to secure full independence from Denmark (half of its public spending still funded by grants from Denmark approximately US$ 540 million). As announced in January 2014, Greenland and Denmark are now working together to finalize a cooperation agreement on responsibilities associated with uranium production, which is officially backed by the government s mining policy in favour of the Kvanefjeld Project on its way to expected commercial production by To date, two recognized world-class REE deposits located in the Ilimaussaq Complex have been identified in Greenland: The Kvanefjeld multi-element REE-Uranium-Zinc Project is located in the Northern Ilimaussaq Complex located in the southwest tip of Greenland, 100%-owned by Greenland Minerals and Energy, which company is publicly listed on the Australian Stock Exchange under the symbol GGG. The Tanbreez (Kringlerne) Project, 100% privately owned by Tanbreez Mining Greenland ALS, is located in southern Greenland between two major cities Narsaq and Qaqortoq. Other notable REE projects are Hudson Resources Sarfartoc and Tiqiusaaq projects, Greenland has a Critical Rare Element Oxide (CREO) resource of 9.5 million tonnes. Most of the REE deposits in Greenland have CREO elements. Overview of top-10 Western REE companies (by market valuation In US$) Country Trading symbol Local share price Change 12 months Total shares June 23, 2015 focus Current Year-end in % prices issued 2014 H L million Market cap. US$ mln. Molycorp Inc. USA MCP NYSE Lynas Australia LYC ASX Alkane Resources Australia ALK ASX Northern Minerals Australia NTU ASX Ucore Rare Metals US UCU TSX.V Tantalus Rare Earths Madagascar TAEN Frankfurt Tasman Metals Sweden TSM TSX.V Greenland Min. and Energy Greenland GGG ASX Avalon Rare Metals Canada AVL TSX Rare Element Resources USA RES TSX.V Strategic Metals & Rare Earths Letter International 13

14 Molycorp Inc. (NYSE - MCP) is the only advanced material manufacturer in the world that both controls a world-class rare earth resource and can produce highpurity, custom engineered rare earth products to meet increasingly demanding customer specifications. With production facilities on three continents, the Company produces a wide variety of specialized products from rare earth elements and five rare metals (Gallium, Indium, Rhenium, Tantalum and Niobium). The Company produces rare earth magnetic materials through its Molycorp Magnequench subsidiary, including neodymium-iron-boron (NdFeB) magnet powders, used to manufacture bonded NdFeB permanent rare earth magnets. The Company also markets and sells a line of rare earth-based water treatment products. At the Mountain Pss Facility located approximately 60 mile southwestof Las Vegas, Nevada, Molycorp owns the open-pit Mountain Pass Mine containing one of the world s most fully developed rare earth element resources outside of China. Active mining at Montain Pass recommenced in December 2010 for the first time since On Molycorp s reconciliation, production in 2012, 2013 and 2014 amounted to 106 thousand, 213 thousand and 257 thousand tons, respectively. Estimated Proven reserves as of January 2012 are 26.3 million pounds of REO contained in million tonnes of ore, with an average ore grade of 8.45% and Probable reserves of 2.91 billion pounds of REO contained in milion tonnes of ore, with an average ore grade of 7.98%, in each case using a cut-off grade of 5%. Revenues of Molycorp s operations, including all of its reportable Chemicals and Oxides and Magnetic Materials and Alloys Segments in 2014 decreased approximately 14% from $ million in 2013 to $ million. These two segments accounted for the majority of the Company s consolidated revenues in 2014 and 2013 at an average of 33% and 46%, respectively. Net revenues from the Resource segment, representing 3% of the consolidated revenues in 2014 and 6% in 2013, decreased about 58% from a year ago. Costs of sale, excluding depreciation and amortization of $ million in 2014 decreased by $ 27.4 million or approximately 13% from $ million in Consolidated depreciation and amortization in costs of sale were approximately 38% higher in 2014 at $ 93.8 million, as compared to $ 67.7 million in Molycorp recognized an impairment charge of $ million on a write-off the carrying amount of its Chemicals and Oxides goodwill. On June 5, 2015, Molycorp announced that it has executed a restructuring support agreement with creditors that hold over 70% of the aggregate principal of the Company s 10% senior secured notes. The agreement provides for a financial restructuring of the Company s $ 1.7 billion in debt and provides up to $ 225 million in gross proceeds in new financing to support operations while the Company completes negotiations with creditors. Molycorp reported higher production volumes in the first quarter of 2015 at Mountain Pass of 1,479 metric tons of REO equivalent. This was an 11% increase over Q4, 2014 production of 1,328 metric tons. Reported Q1, 2015 product sales volume was 3,436 metric tons on a consolidated bases, a 9% increase over Q4, The Company achieved an average selling price (ASP) of $ k/g in Q1, 2015, generating an ASP of $ in the preceding quarter, a 16% decline. Molycorp reported negative cash flows from operating activities of $ 73 million during Q1, 2015 and reported a loss attributable to common stockholders of $ 102 million for the quarter, including inventory write-f=downs on Mountain Pass of $ million. Lynas Corp. (ASX - LYC) began initial production at its operations in Kwantan Malaysia known as the Lynas Advance Materials Plant (LAMP). In November 2013 Lynas commenced commercial production during the June 2013 quarter. Total production was 144 tonnes on an REO equivalent basis. The average selling price increased to around US$ 22.70/kg REO (revenue base) from around US$ 8.00 REO, largely due to a more favorable product mix that included neodymium/praseodymium product sales. Strategic Metals & Rare Earths Letter International 14

15 The basket rice averaged US$ 21.80/kg on a China domestic basis during the quarter. Raw materials are transported to Malaysia from the Company s Mount World mine in Western Australia. Lynas announced in June 2013 it would limit production to 11,000 tonnes per year at Mount Weld, one of the world s richest deposits of rare earths due to low demand and depressed REO prices. On September 30, 2013, Lynas provided an update regarding the LAMP in Malaysia. A series of work programs including equipment changes and materials handling to improve the capability of the cracking and leaching units of Phase I of the LAMP to operate continuously at nameplate production capacity, were planned in the second half of These programs do not involve significant capital investments and are being progressively implemented. Lynas total production of Rare Earth Oxides (REOs) for 2014 was 3,965 tonnes, while shipments during the year totalled 3,008 tonnes. Production output in the 2015 March quarter (third quarter of fiscal 2015) was low in the early part of the quarter primarily due to instability in the Solvent Extraction (SX) phase, specifically the complex SXS stage which separates the lanthanum and cerium from the praseodymium and neodymium. As a result, total Q3 FY 2015 sales volume declined from 2,014 tonne in Q 2 FY 2015 to 1,970 tonnes REO. Gross sales volume declined from A$ 3.9 million to A$ 29.8 million and sales receipts (cash) from A$ 44.2 million to A$ 25.9 million. In the March 31, 2015 quarter, Lynas reported a free cash flow (revenue less operating costs and CAPEX) of A$ 191,100 for the month of March, a first in the history of the Company. Amended financing agreements on the US$ 225 million Sÿitz/JOGMEC loan facility and the convertible bondholder group reduced the cash costs of service through to June 30, 2015 by $ 52 million, providing significantly improved liquidity. FY total production to date (9 months) amounted to 6,193 tonnes REO compared with total FY14 (12 months) production of 3,956 tonnes REO. Alkane Resources (ASX - ALK) is a multi-commodity company focused on te Central West region of New South Wales, Australia. Currently, the Company has two advanced projects in the Tomingley Gold Operations (TGO) and the nearby Dubbo Zirconia Project (DZP). Tomingley commenced production early 2014 with fiscal year 2015 output estmated at 60,000 75,000 ounces gold and the cash flow from the TGO providing the funding to maintain the project development pipeline and assessing with the pre-construction development of h DZP, based on the large in-ground resources of the metals zirconium, niobium, hafnium, tantalum, yttrium and rare earth elements. On June 2, 2015, Alkane announced that the New outh Wales Planning Assessment Commission (PAC), as delegate for the NSW Minister for Planning and Environment, has advised that it has approved the development application or te DZP. This is a significant milestone for the Company to move ahead with applicaions for the Environmental Protection Licence (EPL), Mining Lease and other permitting and to secure project financing and advance the DZP into a development phase, with production of zirconium products and heavy rare earts expected to commence in At a base case throughput of 1 mllion tonnes per annum, zircinium products are expected to account for 30% of annual revenue (15,800 tnnes), niobium for 16% (1,970 tonnes), ligh rare earths for 24% (4,665 tonnes) and heavy rare earths for 30% (1,309 tonnes). Northern Minerals (ASX - NTU) has a large landholding in Western Australia and Northern Territory. Through the development of its fagship project, the Browns Range Project, the Company aims to be the first significant world producer of dysprosium outside of China. Early March 2015, Northern Minerals released a Definitive Feasibility Study (PFS) which delivered a number of technical and economic imprvements from the FS which was released in June Strategic Metals & Rare Earths Letter International 15

16 The updated PFS confirms that the Project is economically and technically viable and ith primary approvals in place and a significant funding partnership with Jien Mining of China, which in February 2015 formally commenced its due diligence process as part of a $ 49.5 million investment in Northern Minerals. The Net Present Value (NPV) increased by $ 106 million to $ 552 million, with an Internal Rate of Return (IRR) of 34% and payback period of 3.2 years. Pre-production capital is calculated at $ 329 million. The Browns Range Project is located on a conventional mining operation involving both open cut and underground operations and a relatively simple prcessing flowsheet with all infrastructure located on site. It has a projected production rate of 279,000 kg of dysprosium per annum contained with 3.1 milion kg per annum of TREO. Northern Minerals also has HREO exploration program underway at the geologically similar Jogn Galt and Bulder Ridge rojects. Ucore Rare Metals (TSX.V - UCU) is a development-phase mining company focused on establishing rare metal resources and beneficiation technologies with near term potential for production, growth and scalability. With multiple projects across North America, Ucore s primary focus is the 100%-owned Bokan-Dotson Ridge REE Property in Alaska. The Project is located 60 km southwest of Ketchikan, Alaska and 140 km northwest of Province Rupert, British Columbia, Canada. In November 2012, Ucore Rare Metals reported the results of a Preliminary Economic Assessment (PEA) regarding the Dotson Ridge Zone, based on an Inferred resource incorported into the mining plan of 5.3 million tonnes, with an average grade of 0.65% TREO. Highlights of the PEA include a Net Present Value (NPV) of $ 577 million pre-tax at a 10% discount rate and at a capital cost of $ 221 million, resulting in an Internal Rate of Return (IRR) of 43% over a payback period of 2-3 years. On May 11, 2015, Ucore Rare Metals announced an upgraded and increased Indicated resource estimate of 4.79 million tonnes containing million pounds TREO at a grade of 0.602% at a 0.40% cut-off and an Inferred Mineral Resource estimate of 1.05 million tonnes containing million pounds TREO at a gade of 0.603%. Construction is targeted to commence at the Project in 2016, followed by production in Tantalus Rare Earths (Frankfurt - TAEN) is currently exploring and developing the 100%-owned Tantalus Project in northern Madagascar. In December 2014, SGC Canada completed a NI compliant Technical Report and a Resource estimate of contained Total Rare Earth Oxides (TREO) of the Project, consisting of Measured and Indicated resources of million tonnes containing tonnes TREO grading 897 ppm TREO. In addition, Inferred resources amount to 430 million tonnes containing tonnes TREO grading 894 ppm TREO, for total contained tonnes TREO. Based on an average basket price of US$ 40.75/k (prices as of January 2015), the estimated grand value of the TREO content is US$ 23 billion. Leaching tests show a high average recovery rate of 84%. After having completed and filed an Impact Assessment in Q1, 2015, Tantalus will file for an exploration licence in Q2, This licence is expected to be validated in Q2, 2016 and allowing for commercial production to be granted in Q3, Ramp-up towards 10,000 tonnes of mixed REO is expected to be achieved during 2018/19 onwards. On May 13, 2015, Tantalus announced the signing of a multi-year supply contract for REOs with Thyssen Krupp Metallurgical products of Germany. Under the agreement Thyssen Krupp will annually purchase 30% of the output up to 30,000 tons of mixed REOs from the Tantalus Project. The option for a total duraton of 10 years is subject to Thyssen Krupp arranging debt funding covering 30% of the planned investments until annual production level of 10,000 tons of mixed REOs is reached. Strategic Metals & Rare Earths Letter International 16

17 Tasman Metals (TSX.V - TSM) is a development company focused on critical metals including REEs, tungsten and chromite in Scandinavia. The Company s flagship Norra Kärr Project in Sweden is one of the most significant known heavy REE resources in the world, enriched in dysprosium, yttrium, terbium and neodymium. Olserum is the Company s other heavy REE project. The Indicated Mineral Resource for the Norra Kärr Project is million tonnes grading 0.61% TREO and 52.6% HREO in TREO at a cut-off grade of 0.4%, as per the end of January On January 25, 2015, Tasman announced a NI compliant Technical Report on the Pre-Feasibility Study (PFS) for the Norra Kàrr Project. The PFS highlights include a after-tax Net Present Value (NPV) of US$ 313 million using a 10% discount rate, the initial cost is US$ 378 million including contingency. The Internal Rate of Return (IRR) is 24% pre-tax and 20% after tax using a 10% discount rate. The Project, which has major exposure to the most critical REEs, with 74% of revenue from magnet metals (Dy, Nd, Pr, Tb, Sm), is able to produce more than 200 tonnes of dysprosium oxide per year for at least 20 years. The Operational Metrics are an average annual TREO production of 5,119 tonnes at an average mining grade of 0.59% TREO and an overall recovery rate of 77%. The operating cost per kg TREO, including REO separations, is US$ On June 2, 2015, Tasman announced closing of the acquisition of a 100% interest in the Akanvaara and Koitelainen chromite projects in north-eastern Finland. Greenland Minerals and Energy (ASX - GGG) is focused on the development of its 100%-owned Kvanefjeld Project including two other significant deposits Sørensen and Zone 3, located on the southwest tip of Greenland within the Ilimaussaq Intrusive Complex, which is recognized as the world s largest identified multi-element occurrence of rare earths-uranium-zinc. On May 26, 2015, GMEL announced that it has completed a Feasibility Study for the Kvanefjeld Project, with the Base Case evaluating the development of a mineral concentrator, a refinery and supporting infrastructure located in Greenland treating 3.0 million tonnes per annum of ore to extract rare earth elements, uranium and zinc. The Knavefjeld resource of 673 million tonnes, containing 7.4 million tonnes TREO and 368 million pounds U3O8, JORC-code 2012 will support an initial mine life of 37 years with a cost competitive large producers of rare earths and uranium and provide scope to both expand and extend the life of the Deposit significantly. Of the resource, 143 million tonnes is in the Measured category grading 1.27% TREO, 303 ppm U3O8 and 0.24% zinc. The Kvanefjeld Project has an after-tax Net Present Value (NPV) of US$ 1.84 billion (at a discount rate of 8%) and an Internal Rate of Return (IRR) of 21.8% The forecast basket price for the Company s critical rare earth concentrate is US$ 28.6/kg REO producing an operating margin of approximately US$ 70/kg. In March 2015, GMEL signed an amended Memorandum of Understanding (MoU) with NFC of China to form a fully integrated global rare earth supply chain Outlook: GMEL has completed environmental baseline studies and is well advanced in social impact studies. The Environmental Impact Assessment (EIA) and Social Impact Assessment (SI) will be submitted to the government of Greenland as part of its application for a mining licence in the second half of Approval of the Mining Licence is expected in 2016; plant construction to commence in 2017; and commercial production targeted for Strategic Metals & Rare Earths Letter International 17