[Editor’s Note: This article was edited Friday, July 31, to reflect that the U.S. government had reached separate agreements with Lynas and MP Materials, not a joint venture deal. The article also now includes an analysis of the materials Lynas processes and information regarding the possibility of a new Kalgoorlie plant.]
Potentially the biggest shakeup to the U.S. rare earths market in years was announced this month, in a move by the U.S. to bolster the country’s rare earth supply chain that has been almost totally reliant on an increasingly belligerent China.
But the reality is an agreement has been cooking for months.
Road to a Lynas deal
Last year, the Australian government earmarked funding to help raise investment for new rare earths mines in the country. Fifteen have been identified as being commercially viable.
However, it wasn’t until this year that plans for the refining operation in the U.S. finally came together.
According to the Financial Times, in April the U.S. Department of Defense approved funding for two heavy rare earth processing operations, the first a joint venture between Australian listed Lynas Corp. and Blue Line in Texas to process the full range of rare earths that Lynas currently produces at the Lynas Advanced Materials Plant in Malaysia.
Lynas processes lanthanum (La), cerium (Ce), praseodymium (Pr) and neodymium (Nd) in Malaysia. It would be logical for Lynas to send the balance of its rare earths — otherwise known as SEG concentrate, short form for Samarium (Sm)/Europium (Eu)/ Gadolinium (Gd) concentrate — to the new facility it is building in San Antonio.
The real value here is in the terbium (Tb) and dysprosium (Dy) content, along with the gadolinium (Gd), according to this post in Investor Intel.
Currently, the only market for the SEG is China. China is the only real producer of heavy rare earth elements in the world, presently with 97% control of this market segment.
By doing this with Blue Line, Lynas will be able to capture the full value of the Tb and Dy market internally.
The agreement also holds out the possibility of funding for a new plant to be built in Kalgoorlie, Australia, a resource the Australian government is also willing to support in developing.
However, the Pentagon subsequently put the funding on hold pending review. Congressional lawmakers argued only U.S. companies should receive funding. Lynas is the only major non-Chinese producer of rare earth intermediates after the 2015 collapse of the debt-laden Mountain Pass refining operation in California.
Eventually, common sense carried the day and the project has been given the go-ahead.
The second DoD investment is with U.S.-based MP Materials, owner of the California Mountain Pass mine, to develop refining facilities it was building out before Mountain Pass hit the buffers in 2015. Now, MP exports some 26,000 tons a year of concentrate to China for refining, on which the Chinese have levied a 25% tariff during the current trade war.
Lynas nearly suffered a similar fate, in 2016, shareholders, including state-owned Japan Oil, Gas and Metals National Corporation, agreed to a debt restructuring of Lynas, saving it from collapse.
The challenge for Western miners and refiners is China’s dominance of the market (at over 80%).
If China chooses to raise production or flood the export market, rare earths prices collapse and challengers are bankrupted.
Although RE’s are in reality not rare, the processing is environmentally and technically challenging. In short, it’s expensive.
But the metal oxides are so critical to so many key industries and technologies. As such, it is inconceivable in an increasingly hostile trade environment that the West cannot support and subsidize, if necessary, its own supply chain.
As such, Australia and Lynas make an ideal partner.
The country holds a sixth of global rare earths deposits. The Australian government is making investments to support the mining of at least nine of the 15 rare earth elements.
Combined with Mountain Pass, a wider suite of light and heavy could be available. Both firms have prior refining experience on which to build.