Japanese OEMs Make a Play For Canadian Rare Earth Mining Firms

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The “Rare Earth Metal Scare, if we can agree to call it that, has lit a fire under some Japanese global corporations when it comes to securing raw material supply. The Ëœalleged’ rare earth export ban from China has put at least two Asian countries in high gear to kick-start a full-blown global sourcing strategy. The fire started when the Canadian Embassy in Tokyo received a request from the Japanese government in November, to conduct a seminar introducing Japanese trading firms and OEMs to Canadian junior rare earth mining firms. The meetings took place earlier this month. We spoke to a source that told us the trading houses had called the consulate up to 10 times per day inquiring about what metals each of the junior miners have available. Several Canadian mining companies participated (Avalon, Commerce Resources, Pele Mountain, Rare Earth Metals, Rock Tech Lithium, Stans Energy  and Harp Capital) and 65 Japanese companies attended, including Mitsubishi, Marubeni, Toyota, Mitsui, Hitachi, Sumitomo and The Japan Steel Works (JSW), to name a few — with just two weeks notice. Three hundred Japanese firms remained on the waiting lists to meet with the mining firms.

This activity comes on top of a recent Japanese government announcement of a $1.3 billion fund to help Japanese firms secure supplies from abroad. The fund encourages typically risk-averse trading houses and end users to find promising properties to make joint venture agreements to secure long term supply, according to Ron MacDonald, a former MP of the Canadian Parliament, now Senior Counsel Global Markets on behalf of Commerce Resources. Specifically, the $1.3 billion fund will go toward four key programs. The first involves reducing use and creating better economics around the use of the metal involved. The second involves programs toward research and development. The third program examines recycling technologies and initiatives and finally the fourth allows for direct investment in firms such as the ones based in Canada. Coordinated by JOGMEC (Japan Oil Gas Metals National Corporation), the organization will have “significant influence in cutting up these resources, according to MacDonald. Part of JOGMEC’s strategy involves early stage investment. Much of the discussions focused on the heavy rare earth metals and the percentages of heavies within each mine’s reserves.

MacDonald, in an interview with MetalMiner, discussed some of the challenges for Canadian mining firms as well as the Japanese mindset when it comes to investing in early stage companies. He suggested that Canadian firms should “get outside their comfort zone. Canadian firms look for funding from closed sources and private placements, but according to MacDonald, “their business is now truly global the pressure is global and the miners need to become more savvy about the international marketplace as that will drive the investment into production. He added that he felt a lot of these companies will have some difficulty moving in that direction.

MacDonald also offered specific advice to the Canadian government. “You have to represent the broad industry of Canada and make sure there is a level playing field to keep Canadian miners competitive, he said. MacDonald went on to say, “we need to be critically aware of what is going on in the US, particularly NAFTA where additional collaboration between the Canadian and US government via the US Restart program can make it easier for American firms to easily invest in Canada. Finally, with regard to down-stream processing that MacDonald characterized as a “difficult and thorny issue, he called on governments to partner with industry and develop cross-boarder strategies in which the US also participates.

From a Japanese perspective, MacDonald believes companies have historically invested too late in the process, after many firms have established long-term agreements as well as made investments. JOGMEC has encouraged Japanese firms to move more quickly and shore up supply and mitigate risk.

The Koreans have also taken a proactive role in shoring up long-term supply. Traditionally they have accepted the higher risk of early investments, particularly in light of supply shortages.

If the Chinese have reminded us all about one lesson regarding the supply of rare earth metals, it is this it almost never makes sense to rely on a “sole source (or in this case, a sole country) without having at least one other viable option available. How long will it take for American firms to take as proactive a stance as Japan and Korea? If you know of US firms aggressively seeking out long term supply, drop us a line…

–Lisa Reisman

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