By Ed Richardson – USMMA/Thomas & Skinner
Recently, I attended the TMS 2013 conference in Toronto. It’s clear that the rare earth industry is well into consolidation mode. This comes near the end of a wild roller coaster ride for the rare earth industry over the past three years.
The curious thing about the rare earth industry now is that the companies operating in this space are all very different. In fact, they are so different, there are some interesting ways to organize and classify them. For instance, one way to think of them is in terms of the lands of Disney’s Magic Kingdom. Stick with me here:
Main Street, USA: These are the companies that have been in business for years and are already profitable. Examples of these types of companies are the domestic rare earth magnet producers. They were here long before rare earths got hot, and are one of the fundamental drivers for the demand for rare earth elements. Really, there’s not much flashy stuff here. No wild rides or exotic shows. Just good old healthy capitalism. These are relatively small operations selling US products. They tend to be locally owned and operated. Boring, stable, and yes, profitable.
Frontierland: These are the rare earth prospectors. Many current rare earth projects reside here, and there are many questions on how many will ever get out. There are still a lot of rare earth projects with little more than a hope and a prayer. But that’s how mines get started. It takes a special type of organization to dig samples and figure out where the best places are to dig for rare earths. Perseverance and diligence are important qualities. Sometimes a bit of luck helps too.
Adventureland: These are the rare earth companies that have gotten things started, but are struggling to get key pieces of their project either underway or completed. There’s no question about the difficulty in identifying a good rare earth deposit, but as these companies will tell you, that’s just the beginning. The planning, testing, permitting, engineering and building are all significant efforts, requiring incredible amounts of time and capital. Infrastructure development may be required, in addition to the funding for mining, separation and processing. The work, at times, appears to be endless for companies in this realm. But they are game to try to overcome the many obstacles. The question is whether investors will wait for years for profits to come, with no guarantee that they will ever materialize.
Fantasyland: These are rare earth companies that really have no business being in business. Often their deposits are poor, they lack key pieces of infrastructure or technology, and/or the money required for these projects to succeed is in the billions. They are described by their executives as some of the best proposals, but often these individuals suffer from reality avoidance. In sum, these are tremendous projects with outstanding potential. And little else.
Tomorrowland: This is where many rare earth companies will reside in the coming years. Once their current supply of capital runs out, these projects will go dormant, and stay closed until the economics for the rare earth industry improve significantly, and someone is willing to give them a go again. It’s unfortunate, but true. The good thing is that these assets don’t go away. They will remain intact until the time is right for them to reopen again.
Liberty Square: This area contains the ability to convert rare earth oxides to pure metals. It sounds simple, but this land doesn’t exist anywhere in North America. No US companies, or North American for that matter, reside here. It’s called Liberty Square, because the capability of converting oxides to metal is critical for the US rare earth industry to be independent of the tyranny of overseas suppliers such as China. Currently, oxides from US rare earth mines must be shipped to overseas countries, such as China, in order to be converted to metals. Despite our progress in producing oxides, the US will not be an independent producer of rare earth products until it develops the capability to convert rare earth oxides to metals. How and when this will happen is unknown.
Comparing the rare earth industry to an amusement park may seem inappropriate to some. But considering some of the characters involved with the sector, it’s appears to be a fitting analogy. At least in Disney’s case, theirs is a tremendously profitable operation. Whether the various parts of the rare earth value chain will ever be able to produce a profit is likely where the analogy breaks down.
About the Author
Ed Richardson is vice president of Thomas & Skinner, and president of the United States Magnetic Materials Association (USMMA). He has more than 18 years of experience in industrial manufacturing and business-to-business marketing. He has a B.A. from DePauw University, where he was a Management Fellow. He also has an M.B.A. from Indiana University’s Kelly School of Business. Mr. Richardson has written numerous articles on rare earth supplies and their impact on the US magnet industry. He has been quoted in an array of news publications and media outlets, including The New York Times, The Washington Post, The Wall Street Journal, US News and World Report, The Financial Times, Bloomberg Business Week and NPR.