So, the Australian government has noticed critical minerals, with Treasurer Chalmers telling the PwC Critical Minerals Summit last week that critical minerals was the “opportunity of the century” for Australia.
It might surprise anyone who believes that the government is omniscient, and business waits to respond to its promptings, but the Australian mining industry has known this for quite some time, and has been looking for – and finding – most of these materials.
What are the critical minerals? Geoscience Australia defines a critical mineral as “a metallic or non-metallic element that is essential to the functioning of our modern technologies, economies and national security, which is also at risk of experiencing supply-chain disruption.”
There are 26 metals on the list, from the relatively recognisable likes of lithium, cobalt, the rare earth elements and vanadium, but also more obscure metals such as niobium, beryllium, bismuth and rhenium.
In particular, the 16 rare-earth metallic elements have seen an upsurge in exploration and project development activity recently, as miners strive to bring-on supply from anywhere other than China, which dominates supply – and that is a huge potential problem for the world.
Everyone is very well aware that the demand for rare earths and other critical minerals is going to swell hugely in the future, on the back of their ballooning use in applications such as renewable energy and electric vehicles – particularly in “permanent magnets” – as well as defence, medical and high-tech areas. As electrification and decarbonisation progress, the need for these metals will be massive. But, China controls up to 90% of the refining and processing of critical minerals in the supply chain and 85% of the refining process of rare earth elements, and just over 55% of the world’s rare earth mining. Quite simply, the world is desperate for other sources of these minerals.
That’s where Australia comes in.
Australia has plentiful deposits of the rare earths, which are not actually all that rare. The group consists of neodymium, praseodymium, dysprosium, lanthanum, cerium, promethium, samarium, europium, gadolinium, terbium, holmium, erbium, thulium, ytterbium, lutetium and yttrium. (Scandium is also included in many lists of rare earths, but its geological occurrences and chemical properties differ from the rest.)
The most important are neodymium and praseodymium, which are used in as a variety of alloys, including those to make very strong “permanent” magnets, which are needed to run wind turbines and electric vehicles. In combination – known as NdPr – the two “light” metals are the major rare earths product in the world today.
NdPr is used in air-conditioning units and to create strong metals for use in aircraft engines. Praseodymium is a component of a special type of glass, used to make visors to protect welders and glassmakers. Neodymium is used to create strong magnets in small volumes for smartphones and microphones and is a crucial ingredient in the ever-growing high-tech industry.
The “heavy” rare earths (“light” and “heavy” are defined by the metals’ atomic numbers) are typically harder to source. They include metals like dysprosium and terbium, which play a critical role in defence, technology and electric vehicles.
There is a big cohort of stocks on the ASX involved in the rare earths – at least 35 of them – at all stages from exploration to production. Australian geoscience is world-class in this area. In the first of a two-part series this week, here’s a look at some of the main players. I’ll start with the producers – and some close to production.
There are massive tailwinds behind these companies, if they can produce at costs low enough to harvest strong margins as metals prices rise – currently these are struck on long-term offtake agreements, individually negotiated.
Lynas Rare Earths (LYC, $8.50)
Market capitalisation: $7.7 billion
12-month total return: –2.9%
3-year total return: 55.3% a year
Expected FY23 dividend yield: no dividend expected
Analysts’ consensus target price: $9.95 (Stock Doctor/Thomson Reuters, ten analysts), $8.00 (FN Arena, three analysts)
Lynas is the daddy of ASX rare earths exposures, being the only producer of rare earths of any scale in the world outside China. Lynas mines rare earths at its world-leading orebody at Mt. Weld in Western Australia, which is one of the largest and highest-grade rare earths deposits in the world, with plenty of potential to grow as further exploration is conducted.
Lynas operates the largest single rare earths processing plant in the world, in Malaysia, which it built in 2012 to process rare earth material at a lower cost than it could in Australia. The company is building a $500 million rare earth processing facility at Kalgoorlie in WA to undertake early-stage processing of ore mined at nearby Mt Weld before it is sent to Malaysia for upgrading. The expansion will start next year and hit full operational capacity in 2024, just as it is becoming crucial for western economies to secure supplies.
Lynas is also building two rare earths separation plants in the US, both of which will receive material directly from Kalgoorlie. The first plant, announced in January 2021, will be a “light” rare earths metals plant equipped to produce about 5,000 tonnes of rare earths products per year, including about 1,250 tonnes of neodymium and praseodymium (NdPr). The second plant, announced in June 2022, will handle “heavy” rare earths. The US projects are co-funded by the US Department of Defense (sic), which tells you how keen the US is on having a non-Chinese supply option.
As prices for rare earth oxides surged in 2021-22, Lynas turned in a belter of a financial year, reporting 920 million in revenue – almost double FY21 revenue of $489 million – and a record full-year net profit after tax of $540.8 million, up more than three-fold on the $157.1 million earned in the previous year. Lynas finished FY22 with $965.6 million in cash and cash equivalents, and has foreshadowed capital expenditure of $600 million in each of the next two years.
The company is spending $575 million to expand its Mt Weld mine – fully funded from cashflow – and building a cracking and leaching plant at Kalgoorlie, that is expected to be operational by July 2023: in fact, Lynas must have the Kalgoorlie plant running by July to meet a deadline imposed by Malaysia to stop cracking and leaching at the company’s Kuantan plant.
Lynas is a victim of its own success in that the stock market does not like to see any stumbles. For example, in the September quarter, revenue was hit by a sharp fall in pricing, after Chinese authorities lifted rare earths production quotas at state-owned miners by 25%. While Lynas does not disclose the price it receives for specific products, it says the average selling price for a mixed basket of rare earth oxides slid more than 37% from the June quarter, to $49.30 a kilogram.
But as the share price came down (about 13%) to reflect that, analysts’ target prices came down with it. Lynas still looks to be a good buy at these levels.
Iluka Resources Limited (ILU, $9.95)
Market capitalisation: $4.2 billion
12-month total return: 22.9%
3-year total return: 29.9% a year
Expected FY23 (December) dividend yield: 4.1% fully franked (grossed-up, 5.9%)
Analysts’ consensus target price: $10.78 (Stock Doctor/Thomson Reuters, nine analysts), $10.89 (FN Arena, six analysts)
In 2020, mineral sands heavyweight Iluka Resources found itself in an interesting situation. It had always known that rare earths were contained in the mineral sands monazite and xenotime, which it previously mined at its mothballed Eneabba mine in Western Australia, and that it could produce them from stockpiles at Eneabba. The Eneabba stockpile contains monazite and xenotime, produced as by-product from Iluka’s Narngulu mineral processing plant and stored since the early 1990s. Simple reclamation allowed the company, in the September 2020 quarter, to begin shipping a rare earths concentrate containing neodymium, praseodymium, dysprosium, terbium, cerium and lanthanum to world markets.
Iluka says Eneabba is the world’s highest-grade rare earths operation. The stockpile does not require any mining infrastructure, meaning it can be brought to market quickly. In April, Iluka’s board hit the green light on its $1.2 billion rare earths refinery project at Eneabba, with construction to start in the second half of the year, underpinned by a low-cost $1.25 billion loan from the commonwealth government, under its Critical Minerals Facility.
Although that deal was struck under the Coalition government, the Albanese government also sees Iluka as spearheading Australia’s strategy to develop a domestic rare-earth processing capacity. First production, of rare earth oxides (REO) containing neodymium, praseodymium, dysprosium, terbium and more, is anticipated in 2025.
Just on what is contained in the Eneabba stockpile, Iluka says it could produce for nine years, to 2033, at an average annual rate of 12,400 tonnes a year of rare earths oxide (REO), with 2,700 tonnes a year of average NdPr production. But the company’s existing mineral sands operations at the Cataby and Jacinth-Ambrosia sites will continue to replenish the stockpile, while its large-scale Wimmera mineral sands resource, located in the Murray Basin of Western Victoria and which is currently the subject of a preliminary feasibility study, contains rare earth minerals similar to those in the Eneabba stockpile, with a higher proportion of the high-value, heavier elements, dysprosium and terbium. Iluka expects Wimmera to be able to feed the Eneabba refinery, too. The company has other deposits, as well.
In the meantime, of course, Iluka is open to discussions with other suppliers – see the section below on Northern Minerals, for details on the outstanding deal it just signed with it.
And, of course, it its day job Iluka is the world’s largest producer of zircon and the high-grade titanium dioxide feedstocks rutile and synthetic rutile, and demand for those materials isn’t going away anytime soon.
Arafura Resources (ARU, 45 cents)
Market capitalisation: $777 million
12-month total return: 119.5%
3-year total return: 68.6% a year
Expected FY23 dividend yield: no dividend expected
Analysts’ consensus target price: 64 cents (Stock Doctor/Thomson Reuters, one analyst)
Arafura Resources is progressing its feasibility-stage Nolans rare earths project in the Northern Territory, which the company calls “shovel-ready.” Arafura says the operation will be vertically integrated – with processing facilities on-site – producing mainly NdPr.
The project cleared a big hurdle earlier this month, with the NT Government issuing Mining Authorisation, providing the final environmental approval for construction to start in early 2023.
Earlier this month, the company signed a binding NdPr offtake agreement with major Korean motor vehicle manufacturers, Hyundai and its subsidiary Kia, under which Arafura will supply up to 1,500 tonnes of NdPr oxide, or its equivalent in NdPr metal over a seven-year term once production at the Nolans project reaches nameplate capacity. Supply from Nolans is expected to begin in 2025, subject to project financing, completion of the project and commissioning. The commercial grade of the NdPr oxide supplied to Hyundai must be greater than 99%.
The supply commitment with Hyundai and Kia represents almost half of the 85% of annual production that Arafura has made available to be secured under long-term sale arrangements.
The Nolans project’s total resource estimate sits at 29.5 tonnes, with a REO proportion of 2.9%. The company’s planned processing facilities will have the capacity to produce 340,000 tonnes of concentrate a year, for 38 years.
Hastings Technology Metals (HAS, $3.61)
Market capitalisation: $457 million
12-month total return: –27.8%
3-year total return: 3% a year
Expected FY23 dividend yield: no dividend expected
Analysts’ consensus target price: $6.40 (Stock Doctor/Thomson Reuters, two analysts), $5.70 (FN Arena, one analyst)
Hastings Technology Metals calls itself “Australia’s next rare earths producer,” with its flagship Yangibana rare earths project in the Upper Gascoyne region of Western Australia incorporating a mine and a proposed beneficiation and hydro-metallurgy processing plant, which will treat rare earths deposits hosting high neodymium and praseodymium content, to produce a mixed rare earths carbonate (MREC) that will be further refined into individual rare earth oxides at processing plants overseas.
Hastings discovered the Yangibana deposit in 2014. It contains one of the most highly valued NdPr deposits in the world, with a colossal ore reserve of about 21 million tonnes, with a rare earth composition of 1.13%. The company is very bullish on Yangibana, estimating that the mine will deliver an internal rate of return of 78%, pay back its start-up costs in 2.3 years, and provide a net present value of $316 million. The company’s CFO, Matthew Allen, told the Financial Times earlier this year hat the miner could supply up to 8% of the world’s demand for neodymium and praseodymium.
In February, the Australian government agreed to a $140 million project financing loan for Yangibana, which will underpin the $400 million in debt for the project.
Yangibana is marketing itself to Europe’s automotive sector. In October, Hastings and Belgian company Solvay signed a non-binding offtake (MOU) for the supply of an initial 2,500 tonnes a year of MREC from Yangibana to Solvay’s plant in La Rochelle, France, which is being upgraded and expanded for the production of separated rare earth oxides for the permanent magnets market. Solvay is looking for a permanent magnet value supply chain, which shows how attractive Australian supplies are.
Hastings has signed three offtake agreements to sell a total of 6,000 tonnes to Chinese companies once production begins.
In August, Hastings bought a strategic shareholding (22.1%) in Neo Performance Materials, a leading global rare earth processing and permanent magnet manufacturer listed on the Toronto Stock Exchange. The proposed acquisition is to be funded by an investment by Andrew Forrest’s company Wyloo Metals, through the issuance of $150 million secured, redeemable, exchangeable notes. This is part of Hastings’ “mine to magnet” strategy – what it calls Hastings 2.0 – as it works to bring Yangibana into production to synchronise with Neo’s planned expansion into neodymium iron boron (NdFeB) sintered magnets production in Estonia. At the moment, Hastings expects the Yangibana plant commissioning to commence in the second half of 2024.
The way that analysts see Hastings Technology Metals, these price levels could make very attractive buying.
Northern Minerals Limited (NTU, 4.2 cents)
Market capitalisation: $210 million
12-month total return: –35.4%
3-year total return: –13.1% a year
Expected FY23 (December) dividend yield: no dividend expected
Analysts’ consensus target price: n/a
I think Northern Minerals is a big sleeper in this space, with great potential to appreciate. The market has known about its Browns Range deposit, in the East Kimberley region of Western Australia, for a long time: the definitive feasibility study for Browns Range was completed in March 2015 and the Western Australian Department of Mines and Petroleum (DMP) approved the project plan in August 2015, with an expected initial mine life of 11 years.
A pilot plant got going in 2018, becoming the first heavy rare earths plant of its kind outside China, and shipped its first rare earth (RE) carbonate that year. But after a three-year test program on the Pilot Plant was completed during the March 2022 quarter, the plant has been placed on care and maintenance, while the company worked out the economic and technical feasibility of a larger-scale development.
In November 2021, Northern Minerals appointed as chairman rare earths industry veteran Nick Curtis, who established Lynas Corporation (now Lynas Rare Earths) and the Mt Weld rare earths mine in 2009, leaving Lynas in 2014. Curtis announced a great deal last month by which Northern Minerals reignites the Browns Range project through supplying rare earths concentrate to Iluka Resources’ proposed Eneabba rare earths refinery in Western Australia, covering the initial eight-plus-year mine life of Browns Range. Iluka gets the right to buy the first 30,500 tonnes of rare earth oxides produced from the project, if it proves to be economically feasible.
In return, Iluka will invest up to $20 million in Northern Minerals – to take up to 19.9% of the company – to help complete feasibility studies.
It’s a win-win arrangement. Iluka gets additional feedstock for its planned $1.25 billion rare earths refinery, underpinning the plant as a long-term producer of highly valued rare earths oxides for permanent magnets; at the same time the strategic partnership with Iluka de-risks and accelerates the development of Browns Range as a producer, particularly of dysprosium and terbium.
The Wolverine mineral resource at Browns Range is considered to be the highest-grade dysprosium and terbium orebody in Australia, at 61,492 tonnes in 6.44 million tonnes, at a grade of 0.96% TREO. At this point, Northern Minerals is targeting completion of the Wolverine Project definitive feasibility study (DFS) in the September quarter of 2023; given full regulatory approvals, the company forecasts first production in 2026.