From the Wall Street Journal:
Prices of Rare Earths Succumb to Gravity
Smaller Players in Once-Hot Minerals Field Get Caught in a Squeeze Amid Fears of Overinvestment, Supply Glut
SYDNEY—Companies that bet on rare earths as a hot commodity play are canceling investments or switching attention to other metals like gold after being caught by a sharp fall in prices this year.
While smaller in size than industry heavyweights like Molycorp Inc. MCP -3.53% and Lynas Corp. LYC.AU -9.03% Ltd., these mining companies are responsible for millions of dollars of spending each year to find and develop elements used in products ranging from iPads to Prius cars.
Many of them capitalized on fears of a China-induced supply shortage of rare earths two years ago to attract new investors and debut on some of the world's biggest stock markets. Some—like Australia's Kimberley Rare Earths Ltd. KRE.AU -1.64% —were so confident of the commodity's outlook thatthey enshrined it in their name.
But now, these companies have started to turn their back on rare earths as fears of overinvestment and a supply glut drive down prices of some elements by as much as 80%. With sentiment in the wider mining industry souring on concerns over the slow pace of the global economic recovery, many of them are also finding it harder to raise cash to fund projects.
"All of a sudden we have 400 years of rare earths being drilled out," said Tim Dobson, managing director of Kimberley Rare Earths. "Smaller projects just aren't viable anymore."
Building a rare-earths mine and refinery is very costly, due to complex processing methods and what has traditionally been a long lead time between beginning the development and the startup of production. As the market value of their minerals falls, aspirants require projects with a larger volumes in order to generate enough earnings to recoup startup costs.
Kimberley listed on the Australian Securities Exchange last year with a plan to develop Cummins Range, a rare-earths project in a remote corner of the Australian Outback. Within a month of listing, the company's shares had risen 15% as tighter export controls in China, which accounts for more than 90% of global rare-earths output, pushed prices to a record high.
At their peak, prices of some rare-earth elements had jumped more than tenfold in little more than a year.
However, Kimberley abandoned plans to develop Cummins Range because of the rapid fall in rare-earths prices, saying it would focus on commodities like copper and gold instead.
The Perth-based miner isn't alone in giving up hopes of a rebound in prices. Southern Crown Resources Ltd. SWR.AU -15.00% of Melbourne, Australia, sold its rare-earths unit in July, while Perth-based Black Fire Minerals Ltd. BFE.AU -5.26% last month said it is also abandoning rare earths.
Black Fire Minerals last year secured an option to buy a 70% stake in the Longonjo rare-earths project in Angola from Sable Minerals Pty Ltd. "However, in light of the significant fall in rare-earth prices, we have decided not to move ahead with it," said Managing Director Simon Rigby. "The sector now has significant challenges."
Clouding the outlook for small companies are several big mines in the process of starting up that analysts think will swamp the market with too much supply, limiting any recovery in prices.
In the arid mountains of California, Denver-based Molycorp expects to be producing rare earths in large volumes by the end of this year. Australia's Lynas is poised to add to supply after a Malaysian high court last week rejected calls by local activists to suspend its operating license for a new processing plant there....MORE