Minerals have been of significant importance for mankind throughout industrial history, from the Copper, Bronze and Iron Ages to the present, demonstrating that every new discovery leads in turn to innovations. It is these innovations that bring step-changes in technology, which in turn drives new demand for minerals that may previously have been under-utilised or completely unused. As new technologies have emerged and existing ones have evolved, the demand patterns for raw materials have shifted, with an increasing number of raw materials in demand for their specific physical or chemical properties. These raw materials are often referred to as ‘technology metals’ or ‘strategic raw materials’.
Increasing demand for technology metals and other strategic raw materials has gained momentum in recent years due to growing concerns over the sustainability and transparency of supply. Factors that can affect supply include geological scarcity (of the minerals which have a given critical element that are economic to process), geopolitical stability, production efficiency, processing technologies, trade policy, diversity of supply, local environmental factors and resource nationalism. Securing sustainable supplies of critical raw materials has occupied the attention of a number of economies, including those of the European Union, United States, Japan and Korea, all of which rely on an increasing number of raw materials in the manufacture of high-tech goods and in environmental applications.
China is a key player in the supply of a significant number of critical raw materials, including antimony, gallium, germanium, magnesium, natural graphite, tungsten and rare earth elements (REE) (EU, 2014). There has been much comment and analysis surrounding China’s monopoly on the supply of graphite and rare earths in recent years – two key strategic materials in the ever increasing demand for faster, smaller and more powerful portable devices.
China’s monopoly on the supply of rare earths and graphite
The supply of flake graphite, a key raw material in the manufacture of lithium-ion batteries, is dominated by China, which has had a strong hold on the world’s flake (and amorphous) graphite market, producing 60-70 per cent of world supply for the last 25 years (IM, 2012). Similarly, the rare earths market is dominated by China, which produces around 85 per cent of the world’s rare earths supply and controls 95 per cent of the world’s rare earths metal separation capacity. The rare earths market is highly complex due to the metals’ broad range of applications and the inconsistency between the ratio of the individual rare earths produced and those consumed.
Graphite and rare earths are not like other natural resources in that they are not commodities, but are customer specific (Kingsnorth, 2012). Neither a ‘rare earths market’ nor a ‘graphite market’ exists in normal sense of a market; there are no exchanges on which they are publically traded and the results published for reference. Rare earth oxides (REOs) are typically supplied on long-term contracts, and the metals and their oxides are sold by REE trading companies (BGS, 2011) or are part of larger vertically-integrated supply chains. Graphite is produced to client specifications, and is also typically supplied on long-term contracts.
China’s virtual monopoly on rare earths and graphite has received considerable media attention in recent years, and speculation surrounding the future of China’s dominance has resulted in a host of junior explorers globetrotting in search of sustainable supplies of these ‘strategic materials’ outside of China. Identifying alternative economic sources of supply will, however, solve only part of the problem. For example, the technology to turn flake graphite into battery-grade, spherical graphite is commercially available only in China, with Japan adding the finished coating before it is turned into an anode material (IM, 2014), and the process of separating individual rare earths from concentrates and converting REOs to metals is fraught with difficulties. There are over 200 rare earth minerals, of which process paths have been commercially proven for only four of these species (bastnasite, monazite, xenotime and REE-bearing iconic clays) (Koltan et al, 2014). Therefore, the pivotal problem for all non-Chinese countries in the mining of rare earths is that there is no standard process of rare earth extraction and beneficiation (Coles, 2015).
As such, there are no barriers to entry when it comes to the mining of rare earths or graphite; it is the processing and downstream activities that have given China the advantage and competitive edge. In the graphite and rare earth sectors, the barriers to entry are market size and technology. With China having a stranglehold over processing, extraction and beneficiation technology, Chinese producers can pick and choose where the supply comes from; consequently, why would China buy concentrate from another country when they can mine it themselves? Moreover, is there sufficient demand in the market for additional sources of supply?
Future demand drivers
The demand for individual rare earths is highly dependent on their end use, and the 17 rare earth elements have differing demand profiles (which do not match their natural occurrence). Rare earths are essential in emerging technologies such as hybrid cars, wind turbines, and phosphors utilised in flat screen display panels, and are indispensable in electronic, optical, magnetic and catalytic applications (BGS, 2011). The future demand for rare earths is forecast to be primarily driven by the demand for permanent magnets, with a smaller (but still increasing) demand from the other key rare earth sectors (catalysts, glass, polishing, LaNiH batteries, phosphors, and ceramics) (Kingsnorth, 2015). Rare earth magnets are used in an increasing number of items, including wind turbines, power tools, electric vehicles, computer drives, cameras, maglev trains, mobile phones – the list goes on.
The recent excitement brewing in the world of graphite exploration has been driven largely by the ever increasing demand for faster, smaller and more powerful portable devices, and the trend towards ‘all-electric vehicles’ is fuelling the future for battery technologies. Graphite is a key component in lithium-ion batteries, which are lightweight and provide power in many applications, ranging from portable devices to electric vehicles, and in renewable-energy storage by converting chemical energy into electrical energy to produce a direct current. Lithium-ion batteries are forecast to largely replace nickel metal hydride (NiMH) batteries, which are typically used in portable tools and hybrid vehicles. However, whether the demand for lithium-ion batteries will grow as forecast remains to be seen; at this stage, lithium-ion batteries cost more to produce than NiMH batteries, and are still subject to a number of safety concerns (which are yet to be resolved).
China’s industry consolidation
China was facing intense pressure from the rest of world (ROW) to abolish production and export quotas, to improve environmental regulations, and to curtail the proliferation of private mines and illegal miners who can (and do) supply smugglers (Minter, 2015). In 2012, the US, Japan and the EU challenged China’s rare earths export quotas and taxes in a complaint to the World Trade Organisation (WTO), claiming that China was violating its free trade commitments and that China’s imposition of export quotas on rare earths, tungsten and molybdenum breached WTO rules (USTR, 2014). Despite China’s claims that the export quotas were in place in order to conserve resources and minimise pollution, the WTO ruled in favour of the US, Japan and the EU; as a result China has recently scrapped its export quotas (January 2015) on rare earths, tungsten and molybdenum and its rare earth export taxes (May 2015). However, rare earths production quotas remain in place.
China’s solution to reducing rare earth smuggling, and to controlling the environmental problems surrounding the mining and processing of rare earths and graphite, is through ‘industry consolidation’. In 2014, China announced that it was consolidating its domestic rare earths industry (from mining to smelting, separation and utilisation) into six state-owned enterprises (SOEs) in order to regulate the country’s rare earth producers (Shen, 2014). The six companies include Beijing-based China Minmetals Corp, Baotou Iron and Steel (Group) Co in North China’s Inner Mongolia Autonomous Region, Aluminium Corporation of China (Chalco) in Beijing, Xiamen Tungsten Co in East China’s Fujian Province, Ganzhou Rare Earth Group Co in East China’s Jiangxi Province and Guangdong Rare Earth Industry Group in South China’s Guangdong Province (Ye, 2015). In addition, China announced, in 2014, that it had begun consolidation of its graphite industry, and that it had plans to establish high-technology industrial parks for the manufacture of value-added graphite products (Moores, 2015).
The ongoing consolidation taking place within China, combined with decreasing production quotas and the increasing push to be totally vertically integrated, is likely to result in a reduced availability of supply of rare earth oxides, rare earth metals and graphite products for manufacturers outside of China, resulting in potential opportunities for would-be producers in the rest of the world.
Based on the September 2015 Technology Metals Research (TMR) update, there are currently 36 graphite mineral resources, associated with 33 advanced graphite projects, 25 companies and located in 10 countries. There are 58 rare earth mineral resources, associated with 53 advanced rare-earth projects, 49 companies and located in 35 regions within 16 countries. However, it is unlikely that more than two or three of these highly promoted projects will actually get into production, due to the small size and complexity of these markets, and the necessity to have downstream processing options in place. There are no open exchanges upon which to sell graphite concentrate or mixed rare earths concentrate. Producers have either to go downstream themselves and set-up vertically integrated processing chains, or establish agreements/partnerships with existing downstream processors/manufacturers. Unfortunately, the complexity of the task and the industry means that this is easier said than done.
As highlighted by Scogings and Barnett (2014), ‘without a market, an industrial deposit (ie graphite) is merely a geological curiosity’. Despite the fact that there are a large number of graphite projects being evaluated around the world, the demand for graphite is relatively small, and the simple reality is that graphite is not just graphite. There are a diverse number of graphite products, based on type (flake, vein or amorphous), flake size (fine, medium and large), and purity (ranging from plus-94%) (IM, 2012). In addition, there are a range of graphite forms such as graphene, spherical graphite and expandable flake graphite, all which have differing demand profiles. Despite forecasts that the production capacity for lithium-ion batteries is anticipated to triple by 2020, the raw materials used in the manufacture of lithium-ion batteries are products engineered to client specifications, and producing these raw materials is not as simple as extracting them from the ground and using them ‘as is’. Furthermore, in order to gain entry to the market, processing, engineering, and product testing is required in conjunction with battery manufacturers (Moores, 2014).
In order to meet lithium-ion battery specifications, flake graphite concentrate (typically >85 per cent graphitic carbon) needs to be further purified to over 98-99.95% carbon, then processed using fine grinding, mechanical fusion and thermochemical techniques to create nearly spherical particles (10-40mm in diameter), which are then dried and coated with non-graphite carbon to optimise performance (AIChE, 2013). The process of producing spherical graphite from flake graphite is considered to be somewhat inefficient, requiring three tonnes of flake graphite for the production of one tonne of spherical graphite (EU, 2014). In 2012, Japan, China and South Korea produced over 90% of the world’s spherical graphite (AIChE, 2013).
While rare earth projects face similar hurdles to graphite projects, they are even more complicated and face an even larger number of challenges. Rare earths are commonly (and incorrectly) ‘lumped’ together as a single commodity, when in reality the group of 16 REEs (15 lanthanides plus yttrium) have individual (and differing) supply and demand profiles. As mentioned previously, rare earth deposits are complex and capital intensive; therefore the process of separating rare earth oxides from concentrates and converting REOs to metals is fraught with difficulties. In addition to the usual project considerations (ie infrastructure, commodity prices, exchange rates, political and security risks, etc), whether many of the 700-plus rare earth deposits and occurrences (outside of China), recorded by the USGS (USGS, 2002), will ever reach production is dependent on mineralogy, metallurgy, tonnage, grade and REE distribution (Bogner, 2014a).
The majority of rare earth deposits contain more than one rare earth mineral which contributes to the total rare earth oxide (TREO) grade, and not all rare earth minerals have commercially proven flow sheets or contain high concentrations of REE (Bogner, 2014a). The rare earths distribution of a project plays a significant role in its viability, considering that the distribution of individual rare earths within each rare earth mineral varies, and not all rare earth elements are in short supply (eg La and Ce), while a number of rare earth elements have either limited or niche markets (Ho, Er, Tm, Yb and Lu, Bogner, 2015). The rare earth elements commonly quoted as critical rare earth elements (CREE) are the highest in demand (Nd, Eu, Tb, Dy, and Y, Bogner, 2014a).
There are three main processing stages in the production of rare earth oxides:
- Mineral processing (to produce a REE concentrate)
- Extraction and bulk recovery (to produce a mixed rare earths carbonate)
- Separation (to produce separated rare earth oxides) (Bogner, 2014d).
Rare earth deposits with simple mineralogy are easier to separate, recover and upgrade to a mineral concentrate, while the ability to produce a high grade concentrate (>30% TREO), and significantly reduce the ore feed mass, means less acid consumption. Regardless of host rock or mineralogy, the largest operational cost in the production of rare earth oxides is acid (predominantly in the extraction and separation stages), while the production of a high-grade REE concentrate, combined with a high mass reduction, will significantly decrease a project’s OPEX (Bogner, 2014d).
Any metal or commodity that does not trade on an exchange or open market has two main ‘mine-to-market’ business model options (Bogner, 2014c):
Option 1: produce an intermediate product that is saleable to a vertically integrated consumer or to a processor supplying several consumers (eg a graphite concentrate, mixed rare earths carbonate, mixed rare earths oxide, or mixed rare earths chlorite)
Option 2: undertake further processing to produce a ‘downstream’ product (eg separated rare earth oxides, expanded graphite, spherical graphite, graphene, etc).
Both strategies have advantages and disadvantages, and both models will face numerous challenges. Ultimately, the scenario selected will be a determining factor in the project’s success or failure.
Rare earths and graphite deposits are not similar to other commodity deposits, which typically work on the adage that ‘grade is king’. In the case of graphite, grade, flake size and type are king, whilst in the case of rare earths, mineralogy, metallurgy, rare earth distribution and grade are the most significant factors.
The ever-increasing demand for faster, smaller and more powerful portable devices, together with the emerging markets for ‘green technology’ (wind turbines, electric and hybrid vehicles, energy saving light bulbs, increased efficiency of electronic goods), means that there will always be demand for ‘technology metals’. However, whilst concerns over supply security have resulted in advancements in reduction technology and substitution (to a degree), the rate at which demand for these ‘technology metals’ increases depends largely on the capacity of the ROW to develop sustainable supply chains independent of China.
A sustainable supply means more research and development (R&D) opportunities, resulting in new technological developments, which equates to a higher demand for technology metals. Manufacturers will not invest in R&D opportunities for ‘technology metals’ if there is no sustainable supply, but potential operators will not place projects into production if they are unable to secure a market – a case of which comes first: the chicken or the egg?
*Rebecca Morgan is a senior consultant at Optiro, and research assistant at the Curtin University Graduate School of Business in Western Australia
This article was originally published by the AusIMM Bulletin at https://www.ausimmbulletin.com