Insight: World battles to loosen China's grip on vital rare earths for clean energy transition

Leading Edge Materials

02/08/2023 11:00

By Ernest Scheyder and Eric Onstad
       Aug 2 (Reuters) - Refining rare earths for the green
energy transition is hard. Just ask MP Materials and Lynas.
    The world's two biggest rare earths companies outside of
China are facing challenges turning rock from their mines into
the building blocks for magnets used across the global economy,
from Apple's  AAPL.O  iPhone to Tesla's  TSLA.O  Model 3 to
Lockheed Martin's  LMT.N  F-35 fighter jet.
    The West's push to develop independent supplies of critical
minerals took on greater urgency after Beijing imposed export
controls last month on the strategic metals gallium and
germanium, raising global fears that China could block exports
of rare earths or processing technology next.
    Recent struggles by MP  MP.N , Lynas  LYC.AX  and other
companies to refine their own rare earths highlight the
difficult task the rest of the world faces to break China's
stranglehold on the key group of 17 metals needed for the clean
energy transition, interviews with more than a dozen
consultants, executives, investors and industry analysts showed.
    Technical complexities, partnership strains and pollution
concerns are hampering companies' ability to wrest market share
away from China, which according to the International Energy
Agency controls 87% of global rare earths refining capacity.
    If projects continue to struggle, several economies could
fail to meet their goal of cutting carbon emissions to net zero
2050 to minimize climate change's impact, without Beijing's
involvement.
    Plans for Australia's Lynas to build a U.S. rare earths
refinery with a Texas-based partner have collapsed, according to
two sources familiar with the matter. Lynas has said it is
trying to finish a rare earths refinery in Western Australia
that has faced hurdles and is building its own plant elsewhere
in Texas.
    MP's goal of refining its own rare earth metals in 2020 was
snagged by COVID-19 pandemic and technical challenges, shifting
its target to the end of 2023. Updates could come on Thursday
when the company is expected to report its quarterly results.
    Late last year, U.S.-based MP said it was commissioning
refining equipment near its California mine as part of an
intricate calibration process that has so far not succeeded,
leaving the company reliant on China for refining and thus
nearly all of its revenue. MP is also building a Texas magnet
facility to supply General Motors  GM.N  that will require the
California refining equipment to be operational.         
    "The (rare earths) commissioning process is painstaking,
with stops and starts," Jim Litinsky, MP's CEO and largest
shareholder, told investors in May. 
    MP, whose second-largest shareholder is China's Shenghe
Resources  600392.SS , declined to comment ahead of its results.
    "The rare earths refining process can be very finicky," said
Kray Luxbacker, who heads the University of Arizona's mining and
geological engineering department and is unaffiliated with MP or
its peers. "There are just so many complex steps."
    Rare earths magnets turn power into motion and are the
essential components in an electric vehicle's motor. They are
lighter and can handle far higher temperatures than traditional
magnets, in part due to their unique chemical properties.       
    Rare earths refineries must contend with 17 metals,
depending on a deposit's geology, each of which are nearly the
same size and atomic weight, making separation complex. Those
rare earths must be teased out in a specific order, preventing
MP and its peers from cherry-picking specific elements they may
want. 
    To extract neodymium and praseodymium to build EV magnets,
for example, MP must first remove the less-desirable lanthanum
and cerium that compose about 83% of its California deposit in a
process that relies on an intricate cocktail of acids, bases and
other chemicals that are tailored to the mine's geology. 
    While MP relied on Chinese expertise to restart its mine—
bought in 2017—that know-how is less helpful when it comes to
tailoring refining equipment. Similar issues could plague about
half a dozen other companies aiming to refine independently
elsewhere in the world, analysts said.
    "What's happened in China over many years is that they've
invested heavily and cleverly in the processing capacity to
convert the (rare earths) material all the way from the mine
through to the magnet," said Allan Walton, a metallurgy
professor at the University of Birmingham.
        
    ECONOMIC CONTROL 
    China's refining expertise has allowed the country to
engineer rare earths prices at different stages in the
processing chains to its advantage, including low prices for
finished products, to inhibit foreign competition, analysts
said. 
    Rare earths refining "is not really being addressed even by
those who are developing magnet capacity," said Ryan Castilloux,
a minerals consultant at Adamas Intelligence.
    By strategically focusing on industries that use the
magnets—built with rare earths refined in China at profit
margins purposefully kept low—Beijing can boost its booming EV
industry, Castilloux added.
    China's model came into sharp relief last month when rare
earths prices sank to their lowest level in nearly three years,
due in part to rising Chinese supply. China also offers a 13%
export rebate to magnet manufacturers using its material, 
furthering its dominance.
    Beijing for years has allowed imports of lightly processed
rock known as rare earths concentrate for refining. The strategy
helps ensure prices that incentivize other countries to dig new
mines but not build processing plants that can also produce
radioactive waste, analysts said.  
    MP shipped about 43,000 metric tons of concentrate to China
last year for refining. Regulatory filings show it has also been
selling China fluoride waste—at a loss—left by a previous owner
at its site in California, which has stringent storage
regulations for the material.
    Myanmar, Vietnam and others also ship concentrate to China
for refining. 
    Lynas refines concentrate in Malaysia that it produces in
Australia, but authorities in Kuala Lumpur plan to block the
imports next year, citing concerns the Lynas plant leaks
radioactive waste, a charge Lynas disputes. It aims to open a
replacement processing plant in Australia later this year.
    The company has long sold rare earth metals in the United
States to privately held Blue Line to process into specialized
materials. 
    In 2019, the pair agreed to build refining facilities near
San Antonio, Texas and discussed with Trump administration
officials their plans to be "the only large scale producer of
separated (rare earth elements) in the world outside of China,"
according to emails obtained by Reuters.
    But that effort, funded in part by the Pentagon, has since
collapsed, two sources told Reuters. Reasons for the collapse,
which has not been previously reported, could not be immediately
determined. 
    Blue Line deferred comment to Lynas. The Pentagon said it
would not be able to immediately comment. Lynas referred to past
press releases but declined further comment. Meanwhile, Lynas
this week updated plans for other refining facilities it is
building along the Texas coast with $258 million in Pentagon
funding.     
    Elsewhere, projects across Sweden, South Africa, Australia
and other countries aim to extract rare earths from mine waste
and byproducts that could supply 8% of global demand successful,
according to Adamas Intelligence.    
    Benchmark Mineral Intelligence, a market data provider,
estimates that China refines 89% of the world's neodymium and
praseodymium, the key metals for EV magnets, a dominance that by
2028 is expected to dip to 75%. 
    China's global control of dysprosium refining is forecast by
Benchmark to slip from 99% in 2023 to 94% by 2028. Dysprosium
helps retain magnetization at high temperatures. 
      
    CLEANER TECH
    Crucial innovation is also needed to break China's
stranglehold on the sector without sacrificing environmental
quality, industry analysts said, with concerns over current
processes' toxic waste impeding projects.       
    Efforts by Leading Edge Materials  LEM.V  to develop
Sweden's Norra Karr rare earths deposit were halted in 2016 over
concerns that chemicals could leach into drinking water. The
company reworked the mine plans to make them more sustainable
and submitted a new environmental application this year.
    Tesla in May announced plans to make EV magnets without rare
earths, citing "environmental and health risks" in the existing
process. 
    "China made a strategic decision decades ago to develop its
rare earth processing capability, despite the environmental
consequences of the available technology," said Melissa
Sanderson, president of American Rare Earths  ARR.AX , which is
developing several U.S. rare earths projects.
    American Rare Earths is working with U.S. government
scientists at the Lawrence Livermore Laboratory to develop
bacteria that could process rare earths. Privately held Locus
Mining and Aether Bio are also studying ways to use
biosurfactants and nanotechnology, respectively.
    UCore Rare Metals  UCU.V , Mosaic  MOS.N  and privately held
USA Rare Earth are also studying various processing
technologies. 
    Still, cleaner solutions are years from production.
    "If you can innovate and bring solutions to market that
produce rare earths efficiently, you have a tremendous market
opportunity," said Nathan Picarsic, co-founder of the
geopolitical consulting firm Horizon Advisory.

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FACTBOX: The complexity of transforming rare earths from mine to
magnet     urn:newsml:reuters.com:*:nL8N39H5NY
Lynas Rare Earths signs updated contract with US govt for Texas
facility, shares rise    https://www.reuters.com/markets/commodities/lynas-rare-earths-signs-updated-contract-with-us-govt-texas-facility-2023-07-31/
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 (Reporting by Ernest Scheyder and Eric Onstad; additional
reporting by Nick Carey and Melanie Burton; Editing by Veronica
Brown and Susan Heavey)
 ((ernest.scheyder@thomsonreuters.com; Twitter: @ErnestScheyder;
+1-713-210-8512; Reuters Messaging:
ernest.scheyder.thomsonreuters.com@reuters.net))