Everything You Know about Rare Earths Is Wrong

Everything You Know about Rare Earths Is Wrong

What if I told you everything you know about rare earths is wrong?

That’s exactly what happened to me a few months back.

The price charts for those materials? Mostly wrong. Or outdated and old news.

Over the course of an hour, everything I’d read about rare earths from Bloomberg or Reuters was undone…

Introducing Person X

Back in July, I was at the Sprott Natural Resource Symposium in Vancouver.

A geologist friend of mine came up to me and we had a brief chat. He insisted I speak with a colleague of his that was in town.

As I recall, my geologist friend said, ‘No you should speak to this person.’

A couple of hours later, my new contact and I were sitting down over coffee, and he was telling me how the rare earths market worked from deposit to a finished product.

Here’s the rub.

I can’t tell you this person’s name…

Nor what company they work for…

I can’t even reveal their gender.

Before our conversation began, they informed me that they must remain completely anonymous.

Why? Because the global rare earths industry is very small. And unlike bigger commodities markets, there is no one exchange.

As I was about to learn, every single contract for rare earths to a useable product is negotiated independently. Every time.

Not only that, many clients don’t want the media knowing their business.

What they’re working on or what type of rare earth they need…and what the final form will be.

Hence the secrecy.

If this contact of mine ‘outs’ themselves…there goes their business.

Which is why I can only ever call them Person X.

And here’s only a taste of what they told me…

A dark market

What makes rare earths a strategic resource is that properties are both unique…

…and despite their ubiquitous use in technology…

…there is not one clear market or pricing structure behind it.

Gold, iron ore, tin, nickel, copper, coal, gas, and petroleum are all established markets.

All of those commodities are trading through several exchanges.

While commodity suppliers and the wholesale purchaser may have individual contracts in place, generally the prices and conditions would be fairly similar to others around the world.

That, is incomplete contrast to the rare earths market.

For starters, almost every single price chart of any rare earths metal you’ve looked up is probably wrong.

There is no exchange for rare earths…

There is no one set price for rare earths…

Each rare earth metal is a private negotiation between producer and buyer.

Why?

Because the end result of the ‘ore body’ or rare earths — that is, how the metal is shaped into a useable product — is completely different for almost every single company.

No one end use of rare earths is the same as another.

Making the rare earths market extremely opaque.

Because the end use for each rare earth element wildly differs, almost every single rare earth contract is individually negotiated.

Meaning that processing of rare earth elements changes almost every single time. So, the price for every single earth used is unique to that one contract only.

Furthermore, this tells us that it’s not the mining of rare earths that’s the problem…rather the processing of them.

And this is where — and why — China has continued to dominate rare earths mining and processing.

But here’s the kicker.

China has dominated both the resources and supply of rare earths…the industry still struggles to make money.

That’s right. Even with their drastically low labour costs — and illegal backyard rare earth mines — the Chinese rare earth industry still struggles to turn a buck.1

This inability to profit from these highly desirable metals is what’s deterring projects from getting off the ground.

Not only that, but the rapid change of technology has regularly seen one rare earth element swapped out for another one.

This is what makes the rare earth market unlike any commodities market in the world: Potential finance rests on a locked-in contract.

Yet customers won’t sign on the bottom line until they can be sure volume and purity can be confirmed.

Meaning that many potential rare earth mines and processing facilities rarely get off the ground.

Bank’s won’t stump up the coin without a guaranteed customer. And a corporate won’t buy until the rare processor can guarantee supply.

And because supply and end use of rare earths differ for every single customer, a mining company can’t guarantee the customer’s need will be met until they start mining…

National security threat — high

This is only the tip of what Person X revealed to me a few months ago.

China controls the rare earths market today.

And because of that, governments across the world are desperately trying to work out how to wrestle that control back.

It’s become such a threat to national security, that the US, Japan, and Australia are looking at ways to ensure there is somewhere other than China to process rare earths…

And I’ll dig into that tomorrow.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

PS: Person X is just one of many, many contacts I have on my rolodex. And over the coming weeks, you’re going to find out how you can get access to their ‘insider’ information. Keep reading. And over the next few weeks all will be revealed.

1 ‘https://www.ussc.edu.au/analysis/rare-earths-is-there-a-case-for-government-intervention’