Miners usually have to have a good relationship with their host countries, workers and major shareholders, and that’s about it. Those hoping to mine and sell rare earths have far more stakeholders, and the products’ geopolitical significance means getting it right is critical.
China dominates supply, demand and processing. But two London-listed companies are looking at building plants to process their Africa-sourced products in Europe, either in the north of England or on the continent. An Australian-listed company is also looking at the Tees Valley for a rare earths processing plant, so it's possible three could be built in England within a few years.
These metals – which aren’t that rare – are used in electric vehicle motors and offshore wind turbines. Each of the new offshore turbines need tonnes of rare earths. The two key rare earths are neodymium and praseodymium, known as NdPr together.
Pensana Rare Earths (PRE) is developing a mine in Angola and Mkango Resources (MKA) has one in the works in Malawi. Both companies are also looking into building plants in Europe, with Pensana focused on the north of England and Mkango yet to pick a region.
The Beijing element comes from Pensana’s likely funding source, a Chinese state-owned construction company that would also build its mine, as well as the current dominance of the rare earths market, with over 60 per cent of the world’s rare earths mined in China and almost all of the magnets made there.
But this isn’t as simple a story as opening up supply in readiness for forecast demand increases from electric vehicles (EVs) and renewables. Rare earths have become a political issue because of China’s dominance and their strategic status, given they are used in military products.
There is just one major processing plant outside China, Lynas Corporation’s (Au:LYC) operation in Malaysia, and only a couple of mines, and the plunge in US-China relations saw a Chinese government body threaten to cut off American supply, according to the Financial Times.
That geopolitical tension is apparent in the Pensana and Mkango offerings to investors.
Both have links to China, like any rare earths company would. It’s like a prospective iron ore miner developing ties to the country, given its position as the world’s largest steelmaker. Rio Tinto (RIO) and BHP (BHP) could not afford to ignore the biggest player, for example.
But Pensana’s mine, Longonjo, will likely be funded by the Chinese. This raises the question of why the government of Xi Jinping – through a state-owned enterprise – would pay for a project sending a strategic resource to the UK and Europe?
Geology politics
Pensana chairman Paul Atherley told us the financing terms offered by China Great Wall Industry Corporation were attractive, but the company would have to be careful of the deals it signed.
“Is there then the possibility that China or the Chinese have some form of control over where the rare earths go? That's where we are, as a company, where we've got to be very careful and see whether we want to go down that track,” he said.
Pensana told shareholders on 16 November it could break ground at the Longonjo project in the first quarter of 2021, so this financing decision will have to be made soon. The company has previously presented the Great Wall loan of $200m as a fait accompli, and a heads of agreement is in place for the deal.
Mr Atherley, who has served as the chairman of the British Chamber of Commerce in China, said the company was considering other options as well. The company has not yet finished a bankable feasibility study on the mine in any case, which is usually the last step before financing.
Mkango is not as far down the development route, still needing a mining permit from the Malawi government, and expects its own feasibility study to be done next year.
The company has a very different backer than Pensana, in trading company Talaxis. The Noble Group subsidiary owns 49 per cent of the Songwe Hill project and is funding the feasibility work.
If Talaxis pays for the mine itself, Mkango shareholders will end up with a 25 per cent stake, although won’t see the dilution and debt pile-on normally associated with mines being built as this will be free-carried. Mkango has also received support from the EU, and President Alexander Lemon told us the company had “very strong” relationships with EU and US and UK governments.
Mkango is completing scoping studies into building a separation plant – taking its rare earth product one step up the value chain – in the UK and Europe. Three sites are under consideration, according to a recent company publication.
Mr Lemon told us the rare earths market was responding now more to supply and demand drivers than geopolitical concerns. “Bentley announced all of their vehicles are going to be electric, and it's not going to be long before all car manufacturers are announcing the same thing,” he said. Bentley has said it will produce only electric cars and be “end-to-end” carbon neutral by 2030.
Greater expectations
Both these companies will be feeding a supply chain that is focused on passing environmental, social and governance (ESG) checks. Pensana has made a pitch based on its hydro power and rail links to port, as well as the Angolan government’s 18 per cent shareholding in the company.
Mr Lemon from Mkango said he was keen to make the company a major contributor to Malawi’s economy, and export a “high-value” product to the eventual overseas separation facility. Mkango also owns a stake in a magnet recycling venture, through research subsidiary Maginito.
But there is certainly a way to go for both companies on the governance front. Each has an all-white board, an odd look for companies focused on Africa, and five of six directors on each board are men. Mr Lemon said the company’s subsidiary in Malawi had country manager Burton Kachinjika on the board.
These are not the only companies in London with rare earth prospects. Rainbow Rare Earths (RRE) had been in early production in Burundi, although pulled back on commercial production plans last year after a management change.
The company is unlikely to tick environmental, social and corporate governance boxes given the country it is operating in, which despite a change in leadership, still has a government that is all too willing to lock up critics.
Peak Resources (Au:PEK) is an Australian-listed hopeful with a project in Tanzania and a planned Tees Valley separation plant. Peak has made the non-Chinese rare earths supply central to its pitch to investors.
Rare earths were previously just another energy-exposed mineral that speculators turned to after lithium, cobalt and graphite seemed tapped out. Now, given Europe’s push to expand renewables and local electric vehicle manufacturing, the hype could be right. These companies just have a year or so to make sure their supply is there to meet demand and green expectations.
