201204 rare earth elements

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Policy

Brief

The Canadian Chamber is committed to fosteringa strong, competitive and profitable economicenvironment that benets all Canadians. This paper is

one of a series of independent research reports covering

key public policy issues facing Canada today.

We hope this analysis will raise public understanding

and help decision-makers make informed choices. The

papers are not designed to recommend specic policy

solutions, but to stimulate public discussion and debate

about the nations challenges.

1 U.S. Department of the Interior. Mineral Commodity Summaries, 2008-2011. U.S. Geological Survey. 2011. India accountfor the other 2.0 per cent of mine production, Brazil 0.4 per cent and Malaysia 0.3 per cent.

EconomicPolicySeriesApril2

012

Canadas Rare Earth DepositsCan Offer A SubstantialCompetitive Advantage

On March 13, 2012, the United States, theEuropean Union and Japan led a complaint at

the World Trade Organization (WTO) againstChina over its restrictions on exports of rareearth elements, also referred to as rareearth metals.

China controls 97.3 per cent of the worldsproduction of rare earths,1 leaving importingcountries vulnerable to supply disruptions.

Few of us have heard of these metals. Withnames like lanthanum, promethium andpraseodymium, they sound more like city-states

in Ancient Greece. Although often neededin small quantities, these metals are essentialto the production of many technologicallysophisticated products that are important to thedaily lives of consumers. They are also in highdemand by the defence and renewableenergy industries.

Introduction

Economic Policy Series Sponsored by


2/10The Canadian Chamber of Commerce

Rare earth elements are found in hybrid andelectric cars, uorescent lights, plasma screens,

portable computers, hand-held electronicdevices, wind power generators and optical andmedical devices. Several rare earth elements are

essential constituents of automotive pollutioncontrol catalytic converters and petroleum uidcracking catalysts. Rare earth elements have awide variety of defence applications, some ofwhich are critical to countries national security.They are used in precision guided munitions(missiles and smart bombs), lasers, satellitecommunications, jet ghter engines and

radar systems.

But the story of rare earth elements is far moreinteresting. It is story about a countryin this

case, Chinaembracing a strategic culture thatfocuses on very straightforward, pragmatic,long-term-oriented decision-making that prizesa set of objectives that might be pursued over along period of time.2 Chinas dominance of therare earths market is not by accident. It is partof a far-sighted government policy going backdecades that envisaged the rare earths as theoil of the twenty-rst century.3

Chinas early recognition of the value of rareearth elements and keen forward-thinking

ability enabled the country to change itsresource advantage into a competitiveadvantage. It has built a strong foundationfocused on the study and research anddevelopment of rare earth elements and theirapplication to achieve economic superiority.

The United States, once self-reliant in rare earthelements production, is now dependent onimports, with over 90 per cent sourced fromChina.4 For the United States, an adequate,stable and reliable supply of rare earth metals

is critical for economic well-being, industrialproduction and national security (because of thevarious defence applications). Its competitiveedge in high tech has been threatened asmanufacturers have been shifting operations toChina to gain access to an uninterrupted supplyof low-cost rare earths.

Canada is an enviable position. Not only does ithave oil, it has some of the worlds largest rareearth deposits and expertise in processing them

The question remains: Will Canada developthe kind of strategic culture that allows it topunch at its weight or above its weight?5

2 Global Brief Magazine. On States, Strategy and Strategic States. Interview with Fareed Zakaria. October 19, 2009.

3 The Economist. The Difference Engine: More precious than Gold. September 17, 2010.

4 U.S. Department of the Interior. Mineral Commodity Summaries, 2008-2011. U.S. Geological Survey. 2011. The U.S. sources 91 per cent of rare earth elements from China, three per cent from France, three per cent from Japan, one per cent fromRussia and two percent from other nations.

5 Global Brief Magazine. On States, Strategy and Strategic States. Interview with Fareed Zakaria. October 19, 2009.



Despite their name, rare earths are neither rarenor earths. They are moderately abundant in

the earths crust. Some are even more abundantthan copper, lead, gold and platinum. However,they occur in relatively low concentrations sothey are not easily exploitable economically.

The term rare earths refers to a series of 17chemically similar metals, consisting of the15 elements known as the lanthanides, plusyttrium and scandium. They have uniquechemical, magnetic and uorescent properties.

Perhaps the most important application ofrare earth metals is in the production of the

worlds strongest permanent magnets. Two rareearth elements, neodymium and dysprosium,are used to manufacture magnets which havehigh magnetic strength but lower weight. Thismeans that they are used in electric motors toproduce higher power and torque with muchlower size and weight. These characteristicsmake them very useful in the development ofhybrid and electric vehicles, as well as in theminiaturisation of hard disk drives used inmany electronic devices.6

What in the world are rare earth elements?

6 Davies, Simon. Applications of the Rare Earth Elements. Chemistry@suite 101. January 8, 2010.



Over the past several years, China has beenraising duties on some rare earth exports andreducing export quotas of rare earthsfromabout 65,600 tonnes in 2004 to around 30,300tonnes in 2012.7 However, exporters only lledroughly half the quota last year.

The Ofce of the United States Trade

Representative stated: Because China is atop global producer for these key inputs, itsharmful policies articially increase prices for

the inputs outside of China while loweringprices in China. This price dynamic creates

signicant advantages for Chinas producerswhen competing against U.S. producersbothin Chinas market and in other markets aroundthe world. The improper export restraints alsocontribute to creating substantial pressureon U.S. and other non-Chinese downstreamproducers to move their operations, jobs, andtechnologies to China.8

Chinas foreign ministry spokesperson, LiuWeimin, responded: Based on environmentalprotection and in order to achieve sustainable

development, China carries out managementpolicies over the export of rare earths.9

The mining and processing of rare earths cancause considerable environmental damage.Commercial-grade rare earth deposits tend to

be found in the same ore bodies as radioactivethorium and uranium (which are not a rareearth element). In China, thousands of gallonsof acid are pumped into streambeds to extractand separate the rare earth minerals. Theradioactive sludge laced with toxic chemicalcompounds is discharged into rare earth lakesor reservoirs not far from the Yellow Riverwatershed that supplies drinking water to muchof northern China.

The Chinese government has taken steps tobetter regulate the industry and improve

environmental and mining practices. It islimiting production by closing smaller andillegal operations and consolidating larger onesunder the control of state-owned enterprises.Stricter control of the industry will alsomake it easier for Chinese authorities to curbsmuggling. According to the Xinhua NewsAgency (September 14, 2009), about 20,000tonnes of rare earth was smuggled from Chinain 2008. Customs statistics showed that in 2008the country exported 47,449 tonnes of rare earthoxide. This means smuggling accounted for

about 30 per cent of the total volume of rareearth leaving China.

The trade tussle over rare earth elements

7 Sources: China Ministry of Land and Resources, U.S. Geological Survey and Ministry of Commerce of China.

8 The Ofce of the United States Trade Representative (USTR). United States Challenges Chinas Export Restraints on RareEarths. March 13, 2012.

9 Business Spectator. China defends rare earth export quotas. March 14, 2012.



The Mountain Pass rare earth mine insoutheastern California (owned by MolycorpInc.) was once the largest rare earth supplier inthe world. The mine closed in 2002 in responseto both environmental restrictions and stiffcompetition from China. The United States wasonce the leader in both the innovation and tradeof rare earth elements. American research ledto groundbreaking uses for rare earth elementsboth for commercial and military uses.

In the 1980s and 1990s, China embarked ona mission to become a global leader in theproduction of rare earth elements. Between1978 and 1989, China increased production ofrare earth elements by an average of 40 per centannually, making it one of the worlds largestproducers.10 With rare earths at the center,China focused on research and development,education and innovation to give the country adecisive competitive advantage.

In 1986, as part of its strategic plan to become

a world leader in high-tech innovation, Chinaintroduced the National High TechnologyResearch and Development Program, known asProgram 863. A great deal of money has gonetoward researching rare earths. The Programsobjective during the 10th Five-year Plan periodis to boost innovation capacity in the high-

tech sectors, particularly in strategic high-techelds, in order to gain a foothold in the world

arena; to strive to achieve breakthroughs inkey technical elds that concern the national

economic lifeline and national security; andto achieve leap-frog development in keyhigh-tech elds in which China enjoys relative

advantages Through efforts made in the 5years, the program will greatly enhance Chinashigh-tech innovation capacity in selected elds

and improve the international competitiveness

of major industries.11

The Chinese leadership has long recognizedthat this valuable resource confers a strategicadvantage like no other. In 1992, former ChinesePresident Deng Xiaoping famously said, Thereis oil in the Middle East; there is rare earth inChina.12 In 1999, President Jiang Zemin wrote:Improve the development and application ofrare earth, and change the resource advantageinto economic superiority.13 This is preciselywhat China has done.

In 1997, China introduced a second programknown the National Basic Research Program ofChina, or Program 973. The strategic objectiveof the Program is to mobilize Chinas scientic

talents in conducting innovative research onmajor scientic issues in agriculture, energy,

How China has come to dominatethe market

10 Minnin, Wang and Dou Zuehong. The History of Chinas Rare Earth Industry in C.H. Evans Episodes from the History ofthe Rare Earth Elements. Netherlands: Kluwer Academic Publishers. 1996.

11 Ministry of Science and Technology of the Peoples Republic of China. http://www.most.gov.cn/eng/pro-grammes1/200610/t20061009_36225.htm

12 Baotou National Rare Earth Hi-Tech Industrial Development Zone. Rare Earth: An Introduction. http://www.rev.cn/en/int.htm

13 Ibid.



information, resources and environment,population and health, materials, andrelated areas.14 The study and research anddevelopment of rare earth elements and theirapplication is a signicant component of

Program 973.

There are two state laboratories in Chinathat focus exclusively on rare earths: TheState Key Laboratory of Rare Earth MaterialsChemistry and Applications (afliated with

Peking University in Beijing) and The State KeyLaboratory of Rare Earth Resource Utilization(afliated with the Changchun Institute

of Applied Chemistry, under the ChineseAcademy of Sciences, located in Changchun).15

There are also two institutes in Chinadedicated to rare earth elements. The BaotouResearch Institute of Rare Earthsthe worldslargest rare earth research and developmentinstitutionand the General Research Institutefor Nonferrous Metals.

While the laboratories and institutescomplement each other, they each focus on aparticular research area.16

Finally, two journals published in China

theJournal of Rare Earth and the China RareEarth Information Journalare the only twopublications globally that focus almostexclusively on rare earth elements.17

In summary, China used its vast resourcesof rare earths and knowledge gained frombasic and industrial-applied research of rare

earth elements to advance technology-basedmanufacturing. Many high-tech manufacturersfrom across the globe have relocated to Chinato ensure adequate supply of rare earths andto take advantage of the growing pool ofengineers, scientists and researchers focused onthe development and application of rareearth elements.

The rest of the world was seemingly asleep asChina grew to become a goliath in the rare earthindustry. It took the rest of the world nearly 20years to suddenly wake up to the realizationthat the future of high technology could be inthe hands of this one supplier.18

14 Ministry of Science and Technology of the Peoples Republic of China. http://www.most.gov.cn/eng/pro-

grammes1/200610/t20061009_36223.htm

15 Hurst, Cindy. Chinas Rare Earth Elements Industry: What Can the West Learn? Washington D.C.: The Institute for theAnalysis of Global Security. March 2010.

16 Ibid.

17 Ibid.

18 Hurst, Cindy. Chinas Rare Earth Elements Industry: What Can the West Learn? Washington D.C.: The Institute for theAnalysis of Global Security. March 2010.



While China controls production today,

sizable rare earth deposits exist in Canada, theCommonwealth of Independent States (i.e.Russia and former Soviet republics), the UnitedStates, Australia, India, Brazil and South Africa,among other places.19 The challenge is to put inplace the infrastructure and processes necessaryto mine and process rare earths economicallyand in an environmentally-friendly way. Thiscan take years.

The West has accelerated efforts to developalternatives to China. There are now two main

rare earth mining operations outside of China,one run by U.S.-based Molycorp Inc. and theother by Australia-based Lynas Corp.

In late 2011, Molycorp Inc. restarted rare-earth-mineral production at its agship Mountain

Pass mine in California (which closed in 2002)and is expanding its operations.

In February 2012, Molycorp Inc. announcedthe sequential start-up of the new ProjectPhoenix rare earth manufacturing facility at

its Mountain Pass operation. The facility takesfresh rare ore mined on the site and feeds it intoa new crushing facility. Mechanical completionof the initial cracking facility has been achievedand feedstock from stockpiled material hasbeen fed into the system. Other operations inthe Project Phoenix facility will be brought

online over the coming months, including

milling and mineral extraction, expandedcracking, impurities removal, rare earth oxideseparations, product nishing and paste tailings

processing and storage.

In March 2012, Molycorp announced that isbuying Neo Material Technologies, a Canadiancompany with cutting-edge technologiesthats also one of the worlds main rare earthprocessing companies. Neo Material takes fairlypure rare earth feedstock from mines (mainlythose located in China) and processes them into

high-tech materials in the companys factoriesin China and Thailand. Molycorp has indicatedthat it would ship some of its rare earths fromCalifornia for processing at Neo MaterialsTechnologies factories. Molycorp will also gainaccess to Neo Materials sales channels in Chinaand Japan, two of the worlds largest rare earth-consuming nations.20

In Western Australia, Lynas Corp.s MountWeld mine is set to provide a new sourceof supply when production comes online

in the second quarter of 2012. Lynas is alsoconstructing a rare earths processing plant inMalaysia that will be supplied with rare earthmaterial from the Mount Weld mine. Theprocessing plant has capacity to meet one-fth

of the worlds demand.

19 U.S. Department of the Interior. Mineral Commodity Summaries, 2008-2011. U.S. Geological Survey. 2011.

20 Bradsher, Keith. Molycorp, a Rare Earth Mining Firm, Is to Merge With a Processor, Neo Material. New York Times.March 8, 2012.

The world nally takes notice



Japan, the worlds biggest importer of rareearths, because it is home to several of theworlds major high-tech manufacturers, hasbeen shaping a national strategy on rare earthscentered on increasing stockpiles, recycling from

discarded electronics21

and nding new sources.The Japanese government has also introduced aUS$1.31 billion plan to develop new technologiesin the hope of reducing the countrys relianceon rare earth imports by 30 per cent in themedium-to-long term. It is also pursuing jointventures with other countries with known rareearth reserves (such as Vietnam and Canada),providing nancial support for the development

of new mines and reneries.

Researchers from the University of Tokyo,

the Japan Agency for Marine-Earth Scienceand Technology, and the Tokyo Institute of

Technology have found abundant, rich depositsof rare earth elements at numerous sites in thePacic Ocean. The rare earth elements are on

the surface layer of mud and can be recoveredby acid leachingi.e. using solutions of

hydrochloric or sulphuric acid.22

End users of rare earths, like General Motors,Toyota, Volkswagen, General Electric and manyother U.S. and foreign manufactures, are activelylooking for alternatives to rare earth metals. In

January 2012, 12 major German manufacturers,including Daimler and Bosch, announced analliance intended to ensure their supply of rareearths.23 The alliance has the goal of takingshareholdings in commodity projects to achievea long-term improvement in the supply of raw

materials to industry.24

21 According to a report (Recycling Rates of Metals, May 2011) published by the United Nations Environment Programmeless than one per cent of rare earth metals are recycled today globally. While recycling is a highly promising source offuture material, the logistics and processes are complicated and will require greater consumer awareness andparticipation, and extensive R&D. See Molycorp Inc., http://www.molycorp.com/Technology/RareEarthRecycling.aspx

22 Nature Geoscience. Deep-sea mud in the Pacic Ocean as a potential resource for rare-earth elements.July 3, 2011.

23 Rosenbaum, Andrew. A Rare-Earth Opportunity. The Wall Street Journal. March 12, 2012.

24 Reuters. 12 companies join German commodity alliance. March 30, 2012.



Canada has 1.1 billion pounds of rare earthslocked in black shale deposits (the Alberta Black

Shale Project) worth an estimated $206 billionthat were previously not recoverable unless largeamounts of cyanide and arsenic were used toliquefy the oresa process that is considereddangerous and illegal in many parts of theworld. Now, a new, more cost-effective andenvironmentally friendly technology that useswater, air and microbes (a technique known asbioheap leaching) can be used to release the rareearth from the black shale deposits.25 The newtechnology has a limited track recordonly onemine (operated by Finlands Talvivaara MiningCompany Plc.) is producing metals throughbioheap leaching. Toronto-based DNI Metals,a junior mining company, has said it needs $1billion to get the project going.26

Several other Canadian mines showgreat potential.

Avalon Rare Metals Inc.s NechalachoRare Earth Element Project, located at ThorLake in the Mackenzie Mining District of

the Northwest Territories, has exceptionalwealth of heavy rare earth elements. Itcontains some of the largest deposits of lightand heavy rare earth elements outside ofChina. Avalon estimates a possible start dateof 2015 for full capacity production.

Great Western Minerals Group Ltd.sHoidas Lake Project, located in northernSaskatchewan, has one of the highest

proportions of neodymium present in anyknown rare earth deposit. This makes it

strategically important to the permanentmagnet industry. The company is workingon designing an optimal concentration/leaching process with the goal of startingproduction in 201516. Great WesternMinerals is also exploring the heavyrare earth-enriched Red Wine Propertynortheast of Churchill Falls, Labrador; theBenjamin River Property near Bathurst, NewBrunswick; and the Douglas River areaof Saskatchewan.

In July 2011, Midland Exploration Inc.started exploration with state-backed

Japan Oil, Gas and Metals National Corp.(JOGMEC) on its Quebec rare earth project,Ytterby. The Japanese Ministry of Economy,Trade, and Industry is investing in projectsworldwide to receive access to stablesupplies of rare earth elements.

Pele Mountain Resources is focused on thesustainable development of its Eco RidgeMine Uranium and Rare Earth ElementsProject, located in Elliot Lake, Ontario. Thegovernment of Ontario has recently grantedtwo renewable 21-year mining leases for EcoRidge, giving Pele the exclusive right to minein the leased areas.

Matamec Explorations Inc. is currentlyexploring its Zeus property, located in theTemiscamingue region of Quebec. ToyotaTsusho Corp. has signed a non-binding

25 Absolute Wealth Contributor. Rare Earth Mineral Stocks. February 23. 2012. Also, Commodities Reporter. MassiveMine in Canada. September 20, 2011.

26 Gordon, Julie. DNI Metals enlists ore-munching bacteria to extract base metalsPDAC. REE-Investor. March 5, 2012.

The rare earth opportunity for Canada


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For further information, please contact:

Tina Kremmidas, Chief Economist | [email protected] | 416.868.6415 ext 222

The Canadian Chamber of Commerce

memorandum of understanding withMatamec to fast-track the development of theKipawa deposit to secure a supply of heavyrare earths, which are used in the productionof Toyotas hybrid and electric vehicles.

Quest Rare Earth Mineral Ltd. is currentlyadvancing several rare earth projects inthe Strange Lake and Misery Lake areas ofnortheastern Quebec. The mineral depositsare exposed at surface and are amenable toa low-cost open pit mine with the potentialto provide a long-term, stable supply ofseparated and rened heavy rare earths.

Cache Exploration Inc. is exploring theWelsford rare earth properties in NewBrunswick and the Cross Hills and Louil

Hills rare earth properties in Newfoundland.

Kirrin Resources Inc. operates rare earthexploration projects in Newfoundland andLabrador and in Quebec.

Rare earth potential has been conrmed

on Forum Uranium Corp.s North Thelon

Project in Nunavut.

Other Canadian-based rare earth explorers andminers are developing mines in Canada andaround the world. Nova Scotia-based UcoreRare Metals Inc. is exploring a project on BokanMountain on Prince of Wales Island in Alaska.Toronto-based Stans Energy Corp. is progressingheavy rare earth properties in areas of the formerSoviet Union, and Great Western Minerals Groupis focused on putting the Steenkampskraal minein South Africa into production.

27 Pouliot, Gatan. Canad entra en la carrera por tierras raras, claves para la alta tecnologa.Agence France-Presse (AFP).December 19, 2011.

28 Blachford, Kevin. The Canadian Pivot to China? The Montral Review. March 2012.

Everyone has started to search for rare earthelementsThe Japanese are desperatelysearching all over. Europe has a new strategic

plan to secure rare earth elements too. It allstarted with concerns over Chinas monopoly,triggering a race to nd new deposits and

mine them,27 said Michel Jebrak, a mineralresources specialist at the University of Quebecin Montreal.

Canada has been blessed with great geology.Many Canadian mining companies are activelyexploring for and delineating rich, rare earth

deposits in a number of geographic regionsacross the country.

Rather than being the unassuming neighbourof the United States the hunger of the worldseconomy for resources may mean that Canadawill increasingly have political leverageand inuence.28

Conclusion

201204 rare earth elements

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