Rare Earths: Disruption from Ionic Clays
July 31, 2023
1st half 2023 provided investors with a welcome distraction from the sectors’ otherwise dour performance (-30% in the past 12 months). The market is abuzz following Meteoric Resources (MEI.ASX) claims they have a genuine ‘Ionic Clay’ deposit. Since announcing the acquisition of the Brazilian Caldeira project in December, MEI’s shares have risen from A$0.03/sh to $0.27/sh. The company raised $25m at $0.12/sh in which Terra Capital was a participant.
Such a meteoric rise has seen a proliferation of juniors claiming to also be ‘ionic’.
Investors are right to ask the question… What is an ionic clay?… Why is it so special? …. Who gets to benefit?
What is an ionic Clay?
Prior to MEI, our awareness of the subject was isolated to:
1. Memory of the environmental catastrophe in-situ leaching did across southern China.
2. China’s annual production quotas (~10% of the total) were consistently targeted from that particular source.
There appears to be no clear definition of what an ionic clay is. According to our copy of ‘Extractive Metallurgy of Rare Earths Volume 1’, ‘Ionic Clay’ is not featured as one of the primary 13 rare earth minerals. However, under ‘Other Minerals’ a small reference cites “An unusual type of ore known as ‘ion adsorption’ is found at various locations in southern China… formed by the weathering rare earth primary granite… followed by adsorption of soluble rare earth species on clays”.
Additional commentary also highlighted:
· In 1989, China’s ‘ion adsorbing clays’ accounted for 10% of world production, behind Bastnasite at 50% and Monazite 40%.
· While each deposit is different, they are relatively rich in the mid and heavy rare earths.
Ionic clays make up <3% of China’s reserves but generated ~26% of total output between 1988-2007
It appears the textbook on the subject was underwhelming in terms of content, possibly due to no producers existing in the western world. Further analysis on the topic we surmise as follows:
· Deposits are a specific type of lateritie deposit. Mineralisation is typically 3-10 meters thick, relatively shallow often outcropping.
· Discovered in 1969, in Longnan, Jiangxi Province. Exports began in 1983 to Japan, EU and US. Mining rapidly expanded from 1986 to 1995. Between 1996 to 2009 mining spiraled out of control, requiring a government clampdown.
· Resource cut off grades appear to average 500ppm (0.05%) REO with resource grade typically 1000ppm (0.1%) REO:
· It is not uncommon for 2-3000 tonnes of clay to be mined to recover 1 tonne of REO
· Our database indicates clay deposits have an average resource size of 621mt and grade of 1000ppm (0.10%).
· Despite its low grade, they are important sources of the more valuable heavy rare earths.
· Deposits are typically low in radioactive content (Thorium, Uranium).
· Deposits are easily mined and processed because the RE’s can be released from the clays by simple leaching methods using ammonium sulphate:
o “Clays are the easiest and most affordable resource from which RE concentrates can be extracted’
o Heavy REEs are generally more expensive to process and separate than light REOs.
o Mining can occur in situ or as a heap leach (aside from the obvious environmental issues).
What’s so Special…? Market Disruption
It appears both mining and processing ionic clays are a lot easier and cheaper than conventional hard rock methods. While no producing ionic clays exist outside of China and Myanmar, there are several in development including Serra Verde in Brazil (currently under construction). Analysis of the various projects PEA and feasibility study indicate:
Simplicity: Mining and processing appears ‘agricultural’ in its ease. Metallurgical flow sheet appear limited to three stages: 1) Leach 2) Impurity Removal 3) Precipitation.
Low Capital Intensity: Capex for two projects were estimated at ~US$120m for a three stage process plant with throughputs ranging between 1.7mt to 5.0mtpa.
Low Opex: estimate for operating costs average ~US$13/t per tonne of mill feed. Such a low cost enables low grade ore to be treated economically, even with high environmental abatement controls.
In our view, conventional rare earth extraction has the highest barrier to entry of any commodity.
Historically recovering rare earths from hard rock sources (Bastnasite/Monazite) has proven to be a widow making trade for equity investors. We believe 10 years and over a billion US dollars is required without a guarantee of success due to:
o Lynas (LYC.ASX) (Monazite) spent >A$1.5 billion and over 10 years before becoming cash flow positive.
o MolyCorp spent US$1.6 billion at Mountain Pass (Bastnasite) before filing for Chapter 11 after 6 years.
Who benefits?
With no clear definition and a proliferation of explorers now touting them, investors may struggle to determine which deposits potentially benefit. A review of metallurgical test work is required to make an assessment, particularly:
· Short leaching reaction time using ammonium sulphate solution in low PH (4) conditions.
· Recovery rates unchanged regardless of leaching time.
· Recovery rates do not change with additional reagent use.
· Contaminants not reporting to rare earth solution.
There are several projects which appear to meet such a criteria, however, few appear to be economic. At spot prices we estimate an average ‘Net Smelter Return’ (‘NSR’) value per tonne of ore to be worth US$15/t, which implies a thin margin relative to feasibility study opex forecasts of US$13/t. But those with positive margins we expect to be able to scale and potentially value add at a low capital intensity.
Summary: Cautiously Optimistic
China currently dominates the heavy rare earth market (100% of supply) and we believe Ionic Clays in the western world could prove to be a viable competitor. Whilst it remains very early days for the emergence of these deposits as a viable western (non-China) production source, we remain cautiously optimistic on the sector and look to the commissioning of Serra Verde as the next catalyst to de-risk future projects.
Terra Capital
