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Forget all the frenzy—a supply shortfall is not in the cards


Despite widespread concern that China's declining production and increased demand for rare earths will leave the rest of the world short, a combination of Chinese efficiency improvements and new global production means that little or no supply gap is actually in store for the sector, according to analysts.

"I do not believe there is any great crisis," said Jack Lifton, independent rare earth metals consultant at Jack Lifton LLC and publisher of the Jack Lifton Report.

Although China might be forced to import some outside rare earth minerals in the near to midterm to meet its own soaring demand, internal mining efficiencies slated for completion within the decade should keep China largely out of the global marketplace going forward, he said.

"China's now restructuring its mining industry in general and consolidating and reorganizing to remediate pollution and to increase productivity. When you're doing that, production goes down because you're closing, you're consolidating, you're reconfiguring," Lifton said of short-term disruptions in Chinese rare earths supply. "But what everybody needs to remember is China will recover. They'll fix their environmental problems, they'll improve the efficiency and productivity of their mining sector and sometime within the next decade China will come roaring back as a light rare earths producer certainly able to satisfy its own needs."

Data compiled by Dudley J. Kingsnorth, executive director of Industrial Minerals Co. of Australia Pty Ltd., confirmed that China should largely be able to meet its own midterm needs.

Although Chinese rare earths production, which totaled some 125,000 to 140,000 tonnes in 2008, will fall to between 110,000 and 130,000 tonnes this year, annual production will rebound in subsequent years, he said. In 2015, for example, China is forecast to produce between 170,000 and 185,000 tonnes of rare earth metals, or some 74 to 88 percent of that year's estimated global demand of 210,000 to 230,000 tonnes.

Using simple subtraction, those figures suggest a roughly 45,000-tonne supply gap in 2015, but analysts believe that new non-Chinese projects—Lynas Corp. Ltd.'s Mount Weld deposit in Western Australia and Molycorp Minerals LLC's Mountain Pass Mine in California are two examples—should be able to pick up any slack when it comes to rare earths supply.

"I think by and large that will satisfy the non-Chinese demand," Kingsnorth said at the Technology and Rare Earth Metals Policy Conference in Washington earlier this year.

"There is sufficient production available coming up to resolve any short-term issue," Lifton agreed.

But while many miners claim to be sitting on rare earths, only a handful of projects are actually needed to fill any supply gap.

"The rare earths sector is seeing names popping up like mushrooms after rain," Hallgarten & Co. analyst Christopher Ecclestone said in a research note, adding that the market has come to view rare earths mining as "sexy." But "some of the players may not be serious about mine building and may be just paying lip service to the concept," he added.

By Lifton's count, some 161 companies claim to have rare earth deposits outside of China, but less than a dozen will ever reach production. "(The serious candidates) can produce more than enough material to relieve the pressure in the event that China reduces or eliminates its exports. It is not possible for any of the others to come into production soon enough for them to make a difference in the near term and I don't think it matters in the long term," he said. "The important thing in the West is we bring Lynas and Molycorp online as soon as possible so we will not be dependent on China in the short term or maybe ever in light rare earths."

But since the two producers, which arguably are closest to production, are sitting primarily on light, not heavy, rare earths, analysts said it is crucial to bring a Western supply of heavy rare earths online as well. Heavy rare earths, such as europium and dysprosium, are scarcer—and, therefore, costlier—than their "light" counterparts, like cerium and lanthanum.

"Light rare earths aren't rare. There's more cerium on the planet than copper," Ecclestone told AMM.

And it is heavy rare earths, not light ones, that China said it might be out of within 15 years, according to Kingsnorth's research.

Although a light rare earths supply gap is unlikely, the heavy rare earths cause a little more concern, Ecclestone said. "The Chinese have been supplying the world with rare earths for almost 30 years at full pelt. Is it that big and bottomless that's it's going to go on forever? The Chinese have not depleted most of their other resources in exporting, and yet in rare earths, where they're supposedly the smartest people around, they're the ones who have sold off their rare earths for a song," he said.

But a supply solution for heavy rare earths is in sight, too. Even if Chinese restructuring doesn't yield an improvement in heavy rare earths output, a number of Western producers slated to come on-stream in the next few years could save the day.

Saskatoon, Saskatchewan-based Great Western Minerals Group Ltd., for example, will bring its heavy rare earths project online in South Africa in 2012, which could supply the Western World with enough heavy rare earths to fill any 2012-through-2015 supply gap, according to Lifton.

But the real heavy rare earths solution comes after 2014, when Toronto-based Avalon Rare Metals Inc.'s Nechalacho project in the Northwest Territories is forecast to come on-stream. Together, the two Canadian companies will be able to totally satisfy the Western World's heavy rare earths needs, Lifton said. "When Avalon comes into production, the heavy rare earths crisis will be over forever." ANNE RILEY

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