February Newsletter – 22.02.2021


  • Why Rare Earths May Leave Europe and U.S. Vulnerable
  • Southern Ecuador’s Cuenca bans large-scale mining
  • Barrick sells Lagunas Norte mine in Peru to Boroo
  • Mining boom could herald commodity ‘supercycle’
  • China hikes half-year rare earth output quotas to record level
  • Breakingviews – New Rio Tinto boss has Mongolian bullet to bite
  • Shandong Orders Safety Inspections After Repeated Mining Incidents
  • Chinese steel mills make mining companies rich

Why Rare Earths May Leave Europe and U.S. Vulnerable

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A dump truck moves raw ore inside the pit at the Mountain Pass mine, operated by MP Materials, in Mountain Pass, California, U.S., on Friday, June 7, 2019. America’s only rare earths producer, MP Materials, has been shipping all its output from the Mountain Pass mine in California to China because there is currently no refining capacity available to handle its production anywhere else in the world, its biggest shareholder said last month.

Rare earths are among the most critical raw materials on the planet, yet few people can name them or know what they do. They are used to make so-called permanent magnets that create a field for motors to run in perpetuity. These are in everything from lithium-ion batteries to electric vehicles, wind turbines and missile guidance systems. They’re fundamental as they help transfer energy into movement. They represent a vulnerability for the U.S., which is 80% reliant for rare earths on imports from China, and also for Europe. Now they risk becoming a contentious issue in U.S.-China trade itself.

1. What are rare earths?

Minerals and metals found in the ground. They’re mined like any other commodity, then processed. The phrase refers to a group of 17 chemically related elements that have magnetic and optical properties useful for making electronics more efficient. Electric vehicle makers rely on them for lighter-weight battery and motor components. Neodymium and praseodymium combine to make powerful magnets used in aircraft, headphones and much more. Yttrium, a silvery metal, is used in cancer and rheumatoid arthritis drugs as well as color televisions and camera lenses. They’re also frequent components of everyday objects like light-emitting diodes, or LEDs, used to light up smartphones and stadium scoreboards.

2. How rare are they?

They’re actually quite widespread in the Earth’s crust. The challenge for mining companies is to find large-enough clusters of them to easily separate into large volumes to sell on a commercial scale, particularly when the mining conforms to the environmental standards of developed countries.

3. Who controls them?

China is the world’s biggest producer of rare earths, with the U.S. a distant second. China mined 140,000 tons in 2020, compared with 38,000 tons in the U.S. The U.S. has about 2.7 million tons of resources that can be mined, but little capacity to refine the metals. Most companies are forced to send their rare earth production to be refined in China. End users only purchase refined metals. Outside of China, the world’s other large reserves of rare earths can be found in Brazil, Vietnam and Russia. Depressed prices in recent years have made opening up new sources unappealing.


Southern Ecuador’s Cuenca bans large-scale mining

Residents of the Southern Ecuador’s city of Cuenca have voted in favour of banning future large-scale mining activities in five nearby watershed zones – an area that stretches over 3,100 square km (1,197 square miles) and is home to more than 580,000 people.

The poll results represent a win for Cuenca, in the province of Azuay, which hosts several mining assets, including Chinese-owned Junefield’s Rio Blanco gold project, SolGold’s (LON, TSX:SOLG) Sharug and Canada’s INV Metals’ (TSX-V: INV) Loma Larga gold-silver-copper project.

The city, the country’s third largest, pushed last year for the referendum on whether or not communities could decide the fate of mining projects in the area.

Ecuador’s highest court handed the community a victory, allowing them to set a date to vote. The ruling made clear locals could only have their saying on mining rights not yet granted, not on licensed projects.


Barrick sells Lagunas Norte mine in Peru to Boroo

Barrick Gold (NYSE:GOLD)(TSX:ABX) announced Tuesday it has reached an agreement to sell its 100% interest in the Lagunas Norte mine in Peru to Singapore’s Boroo Pte Ltd for a total consideration of up to $81 million, plus the assumption by Boroo of Barrick’s closure liability relating to Lagunas Norte of $226 million backed by an existing $173 million bonding obligation.

Boroo, formerly known as OZD ASIA PTE Ltd, is a privately held investment holding company operating, developing and acquiring gold properties globally. Boroo owns and operates various production-stage and development-stage assets in Central Asia.

The total consideration consists of an upfront cash payment of $20 million, additional cash consideration of $10 million payable on the first anniversary of closing and $20 million payable on the second anniversary of closing, a 2% net smelter return royalty on gold and silver produced, Barrick said.

Boroo will also assume 100% of the $173 million reclamation bond obligations for Lagunas Norte in two tranches: 50% on closing and 50% within one year of closing.


Mining boom could herald commodity ‘supercycle’

Analysis: soaring price of copper and nickel raises hopes for investments in clean energy

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Workers in the Oyu Tolgoi copper-gold mine in Khanbogd, Mongolia

It is known as a “supercycle” – and there have only been four in the past century. The term defines periods when commodity prices enjoy an extended boom, and this week’s multibillion-dollar windfalls for mining company investors suggest a fifth supercycle is on its way.

Indeed, there are signs it may have already begun. In recent weeks the price of iron ore, which is used to make steel, surged by more than 85% to reach highs not seen in almost 10 years.

The market price for copper, used in electrical wiring, has followed suit by climbing 80% since last March to reach a nine-year high. Meanwhile, nickel is trading close to 17-month highs and cobalt is at close to two-year peaks.

Mark Lewis, the chief sustainability strategist at BNP Paribas Asset Management, told the Guardian last month: “It feels like any market you look at, investors want to buy.”


China hikes half-year rare earth output quotas to record level

(Reuters) – China on Friday hiked its rare earth output quotas for the first half of the year by more than 27% to record levels, potentially easing concerns of supply shortages after a spike in prices.

China is the world’s dominant producer of rare earths, a group of 17 minerals used in electric vehicles (EVs), consumer electronics and military equipment.

The rare earth mining output quota for the first half of 2021, to be shared among six major producers, has been set at 84,000 tonnes, a joint statement from China’s Ministry of Industry and Information Technology (MIIT) and the Ministry of Natural Resources said. That is up 27.2% from a year earlier.

The total quota for rare earth smelting and separation – or the processing of ore into material used by manufacturers – has been set at 81,000 tonnes, up 27.6% from the first half of 2020.

David Merriman, a manager at consultancy Roskill, said the allowances were China’s largest since half-year quotas were introduced.


Breakingviews – New Rio Tinto boss has Mongolian bullet to bite

LONDON (Reuters Breakingviews) – Jakob Stausholm will have to pick up a travel guide to Ulaanbaatar. Rio Tinto’s new chief executive has a challenging to-do list and atop it sits the miner’s troubled $10 billion Oyu Tolgoi copper and gold project, located 700 kilometres from the Mongolian capital. Trying to satisfy all the interested parties at once is probably a fool’s errand.

It’s surprising the whole sticky mess, along with the high tensions between Australia and China and Rio’s frayed relations with indigenous peoples, didn’t dissuade Stausholm from taking the job. Turquoise Hill Resources, the Canadian-listed company that owns two-thirds of Oyu Tolgoi, lost a fifth of its market value on Jan. 11 after suggestions that the Mongolian government might not continue with the project. Shares of Turquoise, in which Rio holds a 51% stake, have tumbled by two-thirds since 2016.

Oyu Tolgoi should be a real asset. It is expected to churn out 500,000 tonnes of copper annually later this decade. That would make it the world’s fourth biggest producer. And prices for the red metal have soared 70% since March and should stay high as demand for electricity, and therefore copper wiring, soars.


Shandong Orders Safety Inspections After Repeated Mining Incidents

The eastern Chinese province of Shandong has suspended all mining of minerals other than coal, pending safety inspections, after a fire at a gold mine killed six people on Wednesday.

The province’s Department of Emergency Management ordered comprehensive safety inspections for all non-coal mines by the end of March, leaving “no blind spots” for “hidden risks.” While non-coal mines that pass the safety checks will be allowed to resume operations, those that don’t will be forced to shut down.

Shandong launched the province-wide emergency inspections immediately after a fire at a gold mine in the city of Zhaoyuan killed six people, according to authorities. The blaze is said to have occurred during maintenance work Wednesday morning.

Weeks before the accident, 10 people were confirmed dead from an explosion at a gold mine in the city of Qixia, just over 40 kilometers from the site of Wednesday’s fire. That case, which saw 22 miners trapped underground for two weeks before half were rescued, received wide media attention.

Following the Qixia explosion, Shandong’s provincial government vowed to “learn a lesson,” launching an action plan for a six-month safety inspection of local mines as well as select industries such as transport and hazardous chemicals.

Shandong is a major production hub for mineral resources. In 2017, the production value of its mining industry reached 188 billion yuan (then $23.5 billion), ranking it among the largest in China.


Chinese steel mills make mining companies rich

A strong demand for iron ore and copper has caused prices to soar, leading to record profits for BHP Group and Rio Tinto.

The strong demand for iron ore and copper from Chinese steels mills has seen mining companies BHP Group, Fortescue and Rio Tinto pay record dividends to its shareholders.

The price of iron ore, which is used to make steel, has risen by more than 85 per cent to highs not seen in almost 10 years. The market price for copper, used in electrical wiring, has increased 80 per cent since March last year to reach a nine-year high. The metals nickel and cobalt are also trading close to 17-month and two-year peaks, respectively.

The Australian-based companies, BHP and Rio Tinto have new CEOs, have announced their half-year and full-year financial results, respectively, in the past 72 hours.

On Tuesday, BHP Group reported its best first-half profit in seven years. Its underlying profit from continuing operations for the six months ended 31 December 2020 rose to US$6.04 billion from US$5.19 billion last year. It declared an interim dividend of US$1.01 per share, up from last year’s payout of US$0.65 per share.



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