INDUSTRY BULLETIN: As US/China hostilities escalate, so does risk on security of supply of rare earths
The world is watching as tensions increase between China and the United States, threatening supplies of critical minerals, most notably the rare earths.
The most recent incident was China’s retaliatory closing and takeover of the US consulate in Chengdu, following the US government’s decision to close the Chinese consulate in Houston "to protect American intellectual property" and the private information of Americans. This has led to increased speculation that China may soon impose restrictions on exports of rare earths and their derivative products to the US, leading to higher rare earths prices and increased investor interest in companies with advanced rare earths assets. Shareholders of Avalon Advanced Materials Inc. will recall seeing this happen in May 2019, when China threatened to weaponize its control of rare earths supply in the context of the US trade war.
While the US government has recently been taking steps to support re-establishing domestic rare earths supply chains, these will take years to fully establish - making near term shortages and higher prices quite likely. The US Department of Defense recently announced it has resumed funding for two projects to process rare earth minerals for military purposes, after a review found the grants were in the best interests of the country. On April 22, 2020, the Pentagon announced funding for Australia’s Lynas Corporation Ltd. and MP Materials (owner of the Mountain Pass rare earths mine in California) to build rare earths separation facilities in Texas and California. The question remains as to where the rare earths products will be further refined to produce the metal alloys needed in the magnet applications - as this capacity does not presently exist in North America.
More recently, MP Materials announced it would be going public through a merger with a special purpose company backed by private equity firm Fortress Investment Group in a deal valued at $1.47 billion. Fortress is controlled by Japan’s SoftBank Group Corp. The Japanese government is also concerned about security of supply of rare earths and are taking steps to create a strategic reserve to reduce risk of shortages, if China restricts exports to Japan as they did some 10 years ago.
Avalon and its Nechalacho Rare Earth Property co-owner, Cheetah Resources Corp. (now a subsidiary of ASX-listed Vital Metals Ltd.), continue to advance the project toward bringing a new Canadian supply of neodymium-praseodymium concentrates (the magnet rare earths) to the market in the near term. Cheetah’s project work has been delayed with the COVID-19 lockdown, but is set to go ahead when restrictions are lifted.
Avalon is also continuing to look at other potential near term sources of supply of rare earths, such as recovery from historic mine wastes using new extraction technologies.
About Avalon Advanced Materials Inc. (AVL:TSX)
Avalon Advanced Materials Inc. is a Canadian mineral development company specializing in sustainably-produced materials for clean technology. The Company now has four advanced stage projects, providing investors with exposure to lithium, tin and indium, as well as rare earth elements, tantalum, cesium and zirconium. Avalon is currently focusing on developing its Separation Rapids Lithium Project near Kenora, Ontario while looking at several new project opportunities, including re-activating its 100%-owned Lilypad Tantalum-Cesium Project in northwestern Ontario. Social responsibility and environmental stewardship are corporate cornerstones.