Canadian rare earths look for shot in arm from U.S. funding
Washington investing millions of dollars for North American plants: document
In a development that could resuscitate Canada’s rare earths metals’ sector, the U.S. government is putting up millions of dollars for the construction of processing plants in North America, according to a document obtained by the Financial Post.
Rare earths metals are considered increasingly important for cutting-edge military and technological applications, but the supply chain is almost entirely located in Asia with Chinese companies dominating the sector.
Now, as part of a U.S. government-led effort to build out a North American supply chain amid rising tensions with China, the U.S. Air Force Research Laboratory is planning to award an estimated US$40 million in matching funds to companies that can separate and process anywhere from 500 to 5,000 metric tonnes of rare earth elements on an annual basis.
Canadian companies are eligible to apply for money under the program, a sign that the two countries are working co-operatively on the endeavour to build a North American supply chain. Last year, Canada signed on to a U.s.-led initiative that aims to reduce global reliance on China for critical minerals, such as rare earths.
“It’s a really intricate value chain with a lot of steps along the way,” said Ryan Castilloux, managing director of Adamas Intelligence, a rare earths advisor. “Outside of China, there’s only a few players dipping their toes into the upstream part of that chain.”
In North America, the sector faces many “chicken-and-egg” dilemmas, he said. Private investors see little upside to funding mines until there are processing plants; and conversely, investors are unwilling to put up capital for processing plants until there is a definite supply of feedstock.
The sheer number of processing steps — very roughly, ore must be mined, the rare earths extracted and separated, then further refined and transformed into oxides, then alloys and magnets — has hampered the sector, said Castilloux.
Geopolitical tensions have also coloured investors’ attitudes toward investment. In 2010, China limited exports of rare earths to Japan and prices rose briefly through 2011. Since then prices have declined dramatically, limiting many Canadian companies’ ability to raise money for projects.
That’s led many of the companies to look to for feedstock that’s being mined as a byproduct of another operation.
“China controls large parts of all the steps in the value chain, so it’s kind of the gorilla in the room,” said Don Lay, chief executive of Vancouver-based Medallion Resources Ltd. “So everybody in North America pays attention to it, because pricing is dictated by the Chinese market.”
His company, Medallion Resources Ltd., is planning to extract rare earths from the byproduct of heavy mineral sands mined in the southeast U.S., and could potentially look at waste products from the Alberta oilsands as a source of future feedstock. It would produce a chemical concentrate that could be converted into oxides, which could be refined into alloys and eventually magnets.
Another company, Toronto-based Innovation Metals Corp., has spent several years working to improve the “solvent extraction” process to separate out rare earth metals, and has plans to build a pilot plant in Ontario.
Gareth Hatch, chief executive of Innovation Metals, said his private company received U.S. government funding several years ago, and is considering applying for financing under the latest proposal.
Raising money in public markets has been difficult in recent years for rare earth companies, he said.
“You’ve got to have a lot of patience in this game,” Hatch said. “It helps to have a high quality potential mine, or a good idea of how to process it, but a lot of times the investor community doesn’t appreciate the potential or vitality of these elements.”
Rare earths are considered vital to the electric vehicle industry. They are used in magnets, which power motors that drastically reduce the overall weight of vehicles, and thereby increase fuel efficiency.
They are also used in various other electronics, as well as military tools.
The latest U.S. government funding opportunity applies to light rare earth elements, which are considered essential for electric vehicles. It follows an announcement last year that the U.S. government would fund two-thirds of the cost to build a refinery for heavy rare earths.
More recently, last May, Chinese President Xi Jinping visited a rare earth magnet facility accompanied by his trade negotiator. Afterwards, U.S. President Donald Trump declared rare earths to be a critical mineral, which helped unlock U.S. Department of Defense funds to establish a North American supply chain.
“That was basically a trigger for the reawakening” of the sector, said Don Bubar, chief executive of Toronto-based Avalon Advanced Materials Inc., which has identified several rare earth deposits in Canada.
California-based MP Materials operates the largest rare earths mine in the U.S., but ships its ore to China for most of the processing, and counts China’s Leshan Shenghe Rare Earth Co. as a non-voting minority shareholder.
It may be best positioned to win part of the latest pot of U.S. government funding, which would provide up to US$35 million in matching funds for a company that could produce 5,000 metric tons of separating capacity in the U.S. The company has said it aims to restart downstream processing this year.
“They mine the ore, they upgrade the ore, and they ship it to China” for further processing, Lay said.
“Maybe this will be enough to allow them to do more processing in the U.S.”