Isaac74/iStock via Getty Images

Isaac74/iStock via Getty Images

As I've noted a number of times here, there are two stages to the rare earths problem. The first is finding nice concentrations of the rare earths themselves. The second is separating them into their individual elements. The two are very different problems and near all of the cost is in that second one. That's where the industry's concentration of value is.

Rare earths aren't rare - nor are they earths - and it's actually trivially easy to round up a few thousand tonnes of something containing significant rare earth content. Pretty much any zirconia processor - to give the one example - will have some. So will most other mineral sands operations. I can think of half a dozen places to gain more - phosphate mining residues, tin slags, well, I'll not make the list longer and more boring.

However, the separation plants are large and expensive things. Capex for a new one likely runs around a billion $ for a full scale operation. (Here is the original Lynas estimate for their Malaysian plant. $220 million which then grossly overran and required a hugely dilutive recapitalisation). This is just a function of the difficulty of the chemistry. Until and unless - and there are people working on it, believe me - someone comes up with an entirely new concept here, that's just how it's going to remain too.

It's possible to reduce that Capex by abandoning the process of extracting all of the rare earths in the concentrate. That's what Pensana is doing with their new plant in Britain (Here is Pensana's current estimate of a $500 million Capex for their system). Just extract the high value magnet metals and leave the more minor values still mixed together and not extracted nor even sold. An entirely valid approach.

However, even that costs £200 million for a production size plant (that being Pensana's cost just for the separation plant, without the associated mine).

So, what tends to happen is that such large Capex and high volume plants don't want to have heterogeneous supplies of concentrate. A few hundred tonnes from there, a thousand from the other source, that doesn't cut it. Instead the desire is for homogeneous supplies in quantity. Preferably just from the one mine through the one plant. The same material, day after day, being processed. This militates in favour of rare earth mines, not supplies from the byproducts of other processes.

OK, Rare Element has the plan to deal with that. They've a lovely deposit at Bear Lodge. No, it's great, really, I've said so before.

Except, they've done near nothing at all to try and gain permitting for that deposit to be mined. On the logical basis (look at the older piece for more details) that it's most unlikely that they'll gain such a permit. Sure, it's all politics and we can agree or not with it but it just doesn't look likely in the slightest.

But as I've said there are two parts to the rare earth business. And Rare Element, in association with their majority shareholder, Synchron (itself owned by General Atomics) have an answer to the other half of it. A change in the method of separating rare earths. Reading between the lines I think it's a method of using traditional techniques but optimised for - and thus cheaper by discarding some other elements - the Nd/Pr which is of such interest these days.

Nothing wrong with that at all.

There's so little wrong with this that Rare Element won a DoE award for half the cost of building the pilot and demonstration version of the plant using the new Synchron technology. $21 million or so. They've also been able to raise $25 million - so, their half plus a bit - with Synchron taking up its allocation of new shares, the market providing the rest.

There's nothing wrong with this either. They'll build the plant over the next couple of years, process some of the Bear Lake concentrate they've got on hand and prove that new technology.

As part of the process of building a new rare earths production system it all looks good.

Just to note what the new process is. Rare Element is being fairly private about the exact steps but the base idea can be divined:

The separation pilot plant test will utilize the Company’s enhanced proprietary technology to produce several products- a high-purity neodymium/praseodymium (Nd/Pr) oxide, lanthanum (La) oxide, and a mixed mid-and heavy rare earth concentrate. The enhanced process, if successful, is expected to significantly reduce process steps and operating costs as well as further reduce environmental impacts and associated costs.

Not a million miles away from the Pensana solution that is. Or even something that MP Materials (MP) is doing at Mountain Pass. Each of them are different in detail but the same base approach. Instead of processing all of the concentrate down to individual and separate elements, optimise the process to only gain access to those that are really desired. So, MP Materials cuts the cerium out of its concentrate before sending on for further refining. Not having to pay the costs of that further refining on that portion of cerium cut out saves money - for any cerium produced is worth less than the cost of refining it out.

The same base idea at Rare Element. The Nd/Pr fraction is the one really wanted. The lanthanum loses money - the processing costs are greater than the revenues - but it is necessary to process the lanthanum out to get to the Nd/Pr fraction. The cerium can be dropped out, as MP Materials does. OK, that reduces the price of gaining access to the ND/PR, great. Then the rest of the material, containing the samarium, dysprosium, terbium and so on, is not processed at all. That's left as a concentrate again and, at this stage, perhaps not even monetised.

This isn't some miracle new technology which solves the base rare earths problem, that the processing costs are high. But it is one which minimises, as far as is possible, those costs to gain access to the currently desired rare earths. The actual costs of doing this we don't know as yet.

There's one vital little part of this we need to understand. From my previous piece:

We could think that the intellectual property developed to separate the rare earths has value if applied elsewhere. The problem there is that RER doesn't own that IP. The deal with Synchron is that the IP, if it is to be used more widely, belongs to Synchron. RER has the right to usage on the Bear Lake project but not anything else. That is, RER has the right to use the new extraction technology but only on its own and single property, not more widely. There won't be any revenues to RER from the more widespread possible use of this IP.

This makes it much less attractive for us to be Rare Element stockholders. I'm entirely willing to agree that a new rare earth concentrate processing system would be of value. One that beats the competition on costs would be great in fact. Current costs run around the $19 to $20 per kg of rare earth concentrate processed. Beat that by any substantial margin and there is money to be made.

But note how much of that value - if the new method works at scale - accrues to Rare Element stockholders. Only that amount that stems from the use of the technology actually at Bear Lodge. The use of that same tech elsewhere in the world doesn't. That belongs to Synchron.

Yes, it would be possible - if that new tech works well - to make money from contract processing for other ore sources. But this still doesn't really solve the Rare Element problem, does it?

I agree that these developments are interesting. But there are those two barriers to significant value accruing to Rare Element stockholders. One is that the wider value of this new separation technology - if it works - accrue to Synchron, not Rare Element. Secondly, that Bear Lodge mine just doesn't look any closer to gaining a permit. And given the current administration's views - sure they could change given the desire to have home grown minerals - don't seem to be currently in favour of changing that situation.

I don't see anything wrong here other than the lack of any obvious route to make money for stockholders. But since we stockholders do desire to make money I think looking elsewhere is a better bet.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.