Canadians chip away at China’s rare earth monopoly

China may have cornered 97% of the global rare earth market over the last two decades, with its low-cost structure putting many non-Chinese suppliers out of business, but a handful of Canadian juniors hope to challenge that monopoly and develop a niche in the heavy rare earth elements.

Avalon Rare Metals (AVL-T), Great Western Minerals Group (GWG-V), Matamec Explorations (MAT-V), Quest Rare Minerals (QRM-V), Rare Earth Metals (RA-V), and Rare Element Resources (RES-V) are all companies to watch as China continues to tighten supply of rare earth metals by consolidating inefficient and polluting operations (and keeping more of the metals out of the export market) in a move that will likely lead to supply shortages and higher prices.

By some estimates, China has reduced its export quotas on rare earths by more than 50% in the last five years. In August 2009, the Chinese government restricted the annual export of rare earths to 35,000 tonnes per year and banned exports of heavy rare earths such as dysprosium, terbium, thulium, lutetium and yttrium.

The urgency of developing rare earth deposits both in Canada and the U.S. reached new heights earlier this year. In March, a Republican senator from Colorado, Mike Coffman, introduced a bill called HR 4866 Restart, which proposes to use taxpayers’ money to build up a national defense stockpile of the metals.

News of the bill was followed in mid-April by a long-awaited report on the shortage of rare earth metal supply outside of China, which was published by the U.S. government’s General Accounting Office (GAO). The report concluded that it would take at least 15 years for the U.S. to establish a competitive supply chain for rare earth metals domestically.

The GAO report also concluded that while privately-held Molycorp’s Mountain Pass project in California was the largest rare earth deposit in the world outside of China, it does not have meaningful quantities of the more valuable heavy rare earth elements, or HREEs, such as dysprosium, that are in such high demand in a large number of applications in industry and defense.

Molycorp, which is preparing for an IPO, is modernizing its processing facilities and says it will be in full production by the second half of 2012 at a rate of 40 million lbs. of finished rare earth products a year.

“Mountain Pass can displace much of America’s current rare earth import dependency on China,” mining analyst John Kaiser penned in the April 19 edition of his newsletter Bottom Fish Report, but “the broader solution involving the full spectrum of rare earths lies north of the border in Canada, which has an advanced mine permitting system and a domestic commitment to mine development.”

Kaiser also points out that the GAO report noted that other rare earth deposits do exist apart from Mountain Pass, in places like Idaho, Montana, Colorado, Missouri, Utah and Wyoming, but warned that these are at an “early development stage which would still require 7-15 years from a production decision to achieve commercial production mainly due to multiple state and federal permitting regulations.”

“These are not encouraging timelines,” he continues, “for it can easily take an early stage exploration junior 3-6 years to complete a feasibility study, and then on top of that have to spend an eternity navigating the approval gauntlet.”

Canada hopes to exploit China’s shortage of the heavier rare earth elements. An estimated 98% of the 97% production monopoly that China has is in the LREE space.

Gary Billingsley, executive chairman of Great Western Minerals, argues that Canada’s endowment of HREE puts it at a distinct advantage over China and many other countries in the world. “China’s heavy rare earths mostly come from the ionic clays in southern China and we’re told they have a finite life — maybe in the neighbourhood of ten years or so,” he says. “At the same time, demand for HREEs is going up as they are in demand for permanent magnets so it’s putting pressure on China to supply demand internally and puts pressure on the rest of the world.”

Permanent magnets are used in “green” applications, such as electric motors in hybrid vehicles and generators in wind turbines. They are also used in the aerospace, defense and electronics industries.

Demand for these technologies and the media hype around them has driven up the share prices of a number of exploration juniors in the rare earth sector over the last 12 to 18 months. But that doesn’t necessarily mean that they’re overvalued, management says.

“The sector may be frothy. . . (but) there’s tons of impetus for this pushing forward,” says Peter Cashin, president and chief executive of Quest Uranium, now called Quest Rare Minerals, whose stock last year moved from 6¢ a share to a high of $3.38, an increase of 5,633%. “There is a consumption component to feed all the technologies for rare earths such as hybrid motors, solar panels, PDAs, wind turbines, you name it, and a government component with defense such as smart bombs, lasers, high-speed electronics and rechargeable batteries in military zones.”

Of Canada’s junior rare earth explorers, Avalon Rare Metals may be the most advanced. The company is poised to release a prefeasibility study on its flagship 100%- owned Nechalacho property at Thor Lake this spring.

Nechalacho is 100 km southeast of Yellowknife and 5 km north of the Hearne Channel of Great Slave in the Northwest Territories and is believed to have a high proportion of the more valuable heavy rare earths (HREEs).

In January, Avalon released an indicated resource estimate based on 44 definition drill holes (9,101 metres) from its 2009 summer drill program. The result was an indicated resource in the Nechalacho Basal zone of 9 million tonnes grading 1.86% TREO with 23.1% HREO/TREO at a cutoff of 1.60% TREO.

Avalon acquired the project in 2005, and the deposit contains yttrium, rare earth elements, beryllium, tantalum, niobium and zirconium. Six deposits or zones having rare metal mineralization of potential economic interest have been identified at Thor Lake.

As of April 2010, about $18 million and 27,000 metres of drilling had been completed in exploring and developing Avalon’s property, resulting in a project entering its prefeasibility stage with 9 million tonnes of inferred resources.

In addition to Nechalacho, Avalon owns four other rare metals and minerals projects, in Canada, three of which are at advanced stages of development.

At presstime, Avalon’s share price was $2.52, trading within a 52-week range of 55¢-$4.24, with 78.8 million shares outstanding.

Quest is banking on its discoveries of deposits at Strange Lake and Misery Lake. Strange Lake is 195 km northeast of Schefferville in northeastern Quebec and 125 km west of the giant Voisey’s Bay nickel-copper-cobalt deposit in eastern Labrador. Misery Lake is about 120 km south of the Strange Lake property.

Last year Quest discovered a new rare earth metal deposit known as the B-zone on its Strange Lake property and heavy rare earths (HREEs) represent between 43% and 51% of the total rare earth oxides (TREO) in the deposit.

On April 7, Quest confirmed a large National Instrument 43-101 inferred resource at Strange Lake. Using a base case cutoff grade of 0.85%, the B-zone contains an inferred resource of 114.8 million tonnes grading nearly 0.999% TREO, 1.973% zirconium oxide, 0.208% niobium pentoxide, 0.053% hafnium oxide and 0.082% beryllium oxide.

Mineralization is open in all directions and this year Quest is planning 15,000 metres of higher density diamond drilling with four rigs, as well as a program of trenching, geological mapping and geochemical sampling.

Of the 15,000 metres, 13,000 metres will focus on the B-zone area with the objective of upgrading and expanding the deposit by drilling at either 75-metre or 50- metre centres across
the area of mineralization.

Results from a metallurgical study on the bulk sample taken from the B-zone, will be ready in June. “We built the project in nine months from a historical resource to one in excess of 100 million tonnes so we’re obviously on to something,” Cashin says. “It’s a flat-laying deposit and comes to surface. There’s no topography issues, we’re above the tree line, so you can move machines around fairly efficiently and in short order you could move it into production quite quickly.”

Because it would be an open-pit operation, the company could be in the position to break its first ground rock by 2015 or 2016, Cashin adds, “at a time when the Chinese have suggested they won’t have any surplus production to provide non-Chinese consumers.”

At its development-stage Misery Lake project, meanwhile, Quest has expanded its plans for exploration this year and includes a 2,500-metre reconnaissance drill program starting in August.

Quest has defined a concentric, magnetically-ringed geophysical feature, 6 km in diameter, and airborne magnetic surveys have uncovered a magnetite-rich horizon with quantities of REE, zirconium, niobium, iron, phosphorous, titanium and yttrium.

A 3-D interpretation of the airborne magnetic surveys identified a continuous, concentric magnetic sheet ranging up to 450 metres in thickness and extending vertically to a depth of 2 km.

Early grab sampling in 2007 of part of the magnetic ring-feature returned a surprising 2.25% TREO along with strong iron, phosphorous and titanium values. In the spring of 2009, Quest completed a detailed, 585 line-km airborne radiometric and magnetic survey over the Misery Lake feature.

Follow-up sampling last summer of Quest’s airborne geophysical survey over the feature confirmed the presence of a strongly-magnetic ring anomaly having a diameter of 6 km.

Sampling around the circumference of this ring feature returned even stronger results, up to 8.56% TREO, 42% iron, 7.1% phosphorous, 4.85% titanium, 3% zirconium and 2.7% niobium. Individual rare earth analyses returned up to 1.38% neodymium oxide, 1.57% yttrium oxide, 0.41% praseodymium oxide, 0.144% dysprosium oxide, 0.15% gadolinium oxide and 0.24% ytterbium oxide. Values in excess of 0.97% TREO represent 40% of the total samples collected on the property.

Mineralization is associated with magnetite-rich magmatic segregation layers and zones of iron-enrichment within the peripheral intrusive phase of the Misery Lake intrusive complex. The heavy REE content represented 13.0 % to 17.3% of the TREO but recent sampling has identified a new area of REE enrichment returning upwards of 40.2 % and 59.0 % heavy REE. The apparent strike length of this anomaly is 20 km.

In addition to the Strange Lake and Misery Lake projects, Quest is looking at rare earth potential in the Kenora area of northwestern Ontario and the Plaster Rock region of northwestern New Brunswick.

At presstime, Quest Rare Minerals was trading at $3.53 per share. The junior has a 52-week trading range of 5¢-$4.26 and 37.02 million shares outstanding.

Saskatoon-based Great Western Minerals, is making headway in at its 100%-owned Hoidas Lake rare earth project, 50 km northeast of Uranium City, Sask.

Hoidas Lake has one of the highest proportions of neodymium present in any known rare earth deposit, making it important to the permanent magnet industry.

Originally discovered in the 1950s in a wave of post-WWII uranium exploration, the property has more than 30 known rare earth showings along a fault structure with a 10-km strike length.

This structure is part of the Black Bay fault system, a major geological feature that runs for 50 km southwest to Uranium City. These showings had never been investigated for their rare earth potential until recently, and only one showing (the JAK zone) has seen any serious exploration work.

Based on a resource estimate in November 2009, the Hoidas Lake deposit has a measured and indicated resource of 2.56 million tonnes grading 2.431% TREO at a cutoff grade of 1.5% TREE. Inferred resources add 286,596 tonnes at 2.139% TREO. About 87% of the resource consists of lanthanum, cerium and neodymium.

Billingsley notes that a realistic time frame for production at Hoidas Lake could be as early as 2014. Its other projects are at the grassroots stage and at least seven years away from production.

Its Benjamin River rare earth element project is about 53 km west of Bathurst, N.B. The property is made up of 493 claim blocks covering 114 sq. km and has a heavy rare earth element-enriched, apatite-diopside-magnetite vein. The provincial geological survey was the first to notice the apatite occurrence at Benjamin River in the early 1930s.

A magnetic survey by a private mining group in 1969 defined a 2,000 ft. long by 300 ft. wide magnetic anomaly on the property, which appeared to be associated with the apatite showings. The anomaly seems to be caused by the presence of magnetite veins that are spatially associated to the REEbearing apatite veins, the company says.

In 2002 and 2003 previous owners collected samples that were analyzed for complete REE content, which showed an unusual concentration of HREE, in addition to the previously recognized light rare earth (LREE) enrichment.

Last year, the company completed a 36-line-km ground magnetic and electro-magnetic survey as well as a 1,712-line-km airborne magnetic and radiometric survey of the property.

Based on the ground geophysics and surface trenching, drill targets were selected, and 2,000 metres of diamond drilling was completed before year end. The airborne survey identified more anomalies that will be drill-tested in 2010.

In addition, Great Western owns the Douglas River rare earth property– two claims about 21 km south of the former Cluff Lake uranium mine and roughly 420 km northwest of La Ronge, Sask. On top of significant yttrium, the showings had significant heavy rare earth mineralization in the form of europium through lutetium.

On April 12, Search Minerals (SMY-V); Great Western and its subsidiary, Alterra Resources, entered into an option agreement to explore a Labrador rare earth property. Under the agreement, Great Western can acquire a 50% working interest in Alterra’s Red Wine property, about 100 km northeast of Churchill Falls, Labrador. The Red Wine property is made up of 100.3 sq. km held under 401 claims.

Samples with up to 1.3% TREO and greater than 3% zirconia were obtained in the preliminary sampling by Alterra on the Red Wine property. Of the TREO, up to 50% of the REEs were HREEs.

On March 5, Great Western Minerals and True North Gems signed a deal to explore rare earth elements in the Yukon. Great Western can acquire up to a 65% working interest in TGX’s True Blue property in the Yukon.

The True Blue property is 55 km south of Ross River and is accessible via an all-weather road to the Ketza River gold mine. During a 2009 exploration program on the property, TGX discovered three new rare earth element showings, which returned assays of up to 6.02% TREOs plus yttrium and 2.52% niobium oxide with a high proportion of neodymium and HREEs.

In addition to its properties, Great Western owns a manufacturing facility in the U.K., which it bought in 2008 and which produces rare earth alloys for permanent magnets. It also owns a start-up production plant in Troy, Mich., in the U.S.

“We want to bring something into production in the near term that will complete our vertically integrated business model and work on these Canadian projects,” explains Billingsley, “particularly the ones that have the HREE potential.”

Another Canadian junior to watch is Matamec Explorations, which is working on the Kipawa deposit in Quebec. The Kipawa REE-yttrium-zirconium deposit has a favourable REE distribution emphasizing heavy rare earth elements, particularly dysprosium, yttrium and terbium.

On April 29, the company released assay results for the final third group of core samples from it
s November-December 2009 drill program on the west and east portions of Kipawa, within its Zeus property. Mineralization and the host syenite have been traced for a length of 1.2 km and the deposit is considered to be open laterally and at depth.

The mineralized zones intersected by the 10 drill holes of the third preliminary analysis group ranged from 0.329% to 1.56% TREO over thicknesses of between 2.5 metres and 24.5 metres. In the drill hole intersections, between 28% and 53% of TREOs were made up of heavy rare earths and yttrium.

Matamec is trading at about 20¢ per share. The company, which has 86.9 million shares outstanding, has traded in a 52-week range of 4¢-27.5¢ per share.

Rare Earth Metals has started working on its flagship Clay Howells carbonatite project, 30 km north of Kapusking, Ont. The property has a historic iron ore resource and REE potential. It has completed a 5,400-metre drill program and in late April released assay results from the four remaining drill holes.

The Main zone has been drill tested for a strike length of about 700 metres with numerous magnetite zones encountered in all drill holes, including drill hole 13, which intersected 105.3 metres averaging 0.694% TREO, 0.14% Nb₂O₅ and 57.83% Fe₂O₃ including 16.9 metres of 1.088% TREO, 0.14% Nb₂O₅ and 65.95% Fe₂O₃.

The magnetite zones continue to exhibit good continuity with the rare earth elements, niobium and iron values. The company is doing preliminary metallurgical test work.

Prospecting crews are on the property following up on all magnetic and radiometric anomalies on the 110-sq.-km complex. Only about 4% of the property has been explored to date.

Rare Earth Metals has three advanced projects in Ontario and Newfoundland and Labrador, all exhibiting multi-element potential (niobium, beryllium and iron ore). Its flagship property is the Clay-Howells project, which was the focus of a recently completed 5,400-metre drill program.

The Clay-Howells prospect contains between 6% and 20% heavy rare earth oxides and the individual zones also contain appreciable niobium (up to 0.47%) and iron content averages between 23% and 71%.

Clay-Howells is hosted in a circular carbonatite complex that the company believes is analogous to China’s Bayan Obo mine, currently the world’s largest REE producer, but also has iron and niobium production.

Highlights from preliminary assay results received in April included 76.6 metres grading 0.69% TREO, including a 4.9-metre intersection grading 2.45% TREO from hole CH-09, and 35 metres grading 0.85% TREO, including a 6.5-metre intersection grading 2.06% TREO in hole CH-17.

Rare Earth Metals is trading at 27¢ per share and over the last year has traded within a band of 17¢-68¢ per share. Rare Earth has 67.8 million shares outstanding.

Finally, Rare Element Resources, which is best known for its Bear Lodge gold and rare-earth-element deposits in northeast Wyoming, acquired the Eden Lake carbonatite REE project in Manitoba, from VMS Ventures (VMS-V), in 2009. It has since optioned a 65% interest in the project to Medallion Resources (MDL-V).

Eden Lake is 35 km northwest of Leaf Rapids, Manitoba. The highest REE concentrations encountered by VMS are in the carbonatite dikes (up to 1.6% TREO) and in hydrothermal REE-rich veins (up to 13.8% TREO). VMS also discovered heavy REEs (Eu-Lu) on the project during its fieldwork.

In January it acquired the Nuiklavik rare-earth-element prospect from Altius Resources (ALS-T). Limited sampling of the felsic dikes and other felsic intrusive rocks by Altius yielded up to 1.4% zirconium oxide, 1.27% yttrium oxide, 1.15% niobium oxide and 1.1% total rare-earth oxides with heavy REE representing up to 67% of the total rare-earth-oxide component. The property is about 25 km from tide water and 50kmfromHopedalein Labrador.

The junior is trading at $3.19 per share. Over the last year, it has traded within a 61¢-$4.69 per share range and has 29.5 million shares outstanding.