This article is based on Alkane Resources MD Nic Earner’s presentation at the 7th Annual InvestorIntel Summit held in Toronto, Canada, in May 2018.
The EV megatrend is driving demand for rare earths
The exponentially increasing demand for electric vehicles (EVs) is one of the most fundamental and rapid shifts in consumer behaviour in this generation. When we think about EVs, we tend to focus on batteries and concern ourselves with the critical Lithium and Cobalt supply chains. But we should also focus on what the EV battery drives – the traction motor – and the critical supply of Rare Earths for that motor.
0.7kg of Rare Earths (REs) are needed for the permanent magnets in an EV traction motor (such as that in the Tesla Model 3). Another 0.8kg of REs are needed elsewhere in the vehicle, e.g. for other motors in windows and seats, and for sensors and screens. That’s 1.5kg of REs per EV.
In a 100% EV world, we’d need 655% of the current RE supply. Annual sales of 10million EVs are predicted by 2023-24, requiring additional annual supply of 15,000 tonnes of REs, a 35% increase on all current production or a 75% increase on current legal production – see below. Other burgeoning technologies need REs too, including wind turbines, smartphones, computers and magnetic resonance imaging.
Growing rare earths deficit, rising prices, no substitute
We’re already facing a deficit of the principal REs needed for permanent magnets: Neodymium and Praseodymium or Nd/Pr. Last year, this deficit was about 3,000 tonnes. By 2020, the deficit will be 5,000 tonnes, equivalent to the entire production of Lynas, the largest non-Chinese manufacturer of permanent magnet REs.
Consequently, Nd/Pr prices have risen by around 30% this year. Demand for these materials is driving other REs into surplus due to concurrent production, so we’re seeing stagnant or falling prices for some REs. Fortunately for Alkane Resources, our Dubbo Project will generate 80% of its RE revenue (30% of overall revenue) from increasingly valuable Nd/Pr.
With rising demand and prices and a supply deficit, people naturally start to talk about substitution. But the EV market is all about range and that depends on the vehicle’s weight and efficiency. At the moment, there are no viable alternatives for RE permanent magnets that deliver the same high motor efficiency at low weight.
Think outside China for rare earths
China currently supplies 85% of the RE market and has been moving steadily down the manufacturing chain over the past 40 years. Recently, China has been clamping down on illegal and dirty RE production, reducing supply and increasing costs and therefore prices. China won’t rise to meet increasing global demand for REs because it can’t. A Chinese monopoly would be undesirable in such a critical market, anyway.
The global RE market value is US$4-5billion per year. Big companies won’t get out of bed for that, so it’s up to SMEs to meet the RE demand. Several non-Chinese companies, including Alkane Resources, are proposing new RE projects. All of these projects need to enter the supply chain or we will face massive RE deficits and aggressive price increases.
Think outside rare earths too
Alkane Resources’ Dubbo Project can supply 1,200 tonnes of REs annually, for 70+ years, but it’s not just a REs project. The product range includes Zirconium, Hafnium and Niobium, essential materials for a broad range of industries facing similar supply/demand issues and consequent rising prices.
The Dubbo Project is construction-ready, with the mineral deposit and surrounding land acquired. All government approvals are in place and the project has a well-established flowsheet. As the most advanced poly-metallic project of its kind outside China, it offers a strategic, independent supply of critical minerals for a range of sustainable technologies and future industries.
The bottom line
Increasing RE prices + supply disruption = strong incentive to invest in the Dubbo Project.