The hunt for rare earths

Abundant in Inner Mongolia

Oct 8th 2009
From The Economist print edition

China has cornered the market in some indispensable minerals

WHAT do smart bombs, euro banknotes and headphones have in common? They all contain rare
earths: 17 obscure chemical elements, sales of which add up to less than $2 billion each year. But
without them, industries worth trillions of dollars would grind to a halt. Their phosphorescent and
magnetic properties make them indispensable for electronic displays in mobile phones, portable
music players and plasma televisions. They are also used to make proliferating green goods,
including wind turbines, energy-efficient lighting and batteries for electric cars.
Most rare earths are not that rare, but they are difficult to find in concentrations worth mining that
are untainted by uranium. About 95% of the worlds supply comes from China, where production is
dominated by the state-controlled Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Company. The
Chinese realised the strategic importance of rare earths decades before the West, says Alistair
Stephens of Arafura Resources, in Perth, Australia. Deng Xiaoping, declaring rare earths to be the
oil of China, encouraged the development of mines in the mid-1980s. Prices fell dramatically and
existing mines in America were priced out of business.
Chinese industry now consumes about two-thirds of rare-earth production. Analysts expect
domestic demand to lap up all of Chinas output within a few years. To safeguard its dwindling
surpluses, the Chinese government has been stockpiling rare earths, taxing them and imposing eversmaller export quotas. Earlier this year a Chinese government report suggested an outright export
ban for the scarcest rare earths. Toyota and Mitsubishi are worried enough about future supplies to
have struck agreements with Canadian firms to seek out new rare-earth deposits. Americas House
of Representatives has requested a report on the role of rare earths in the countrys military supply
chain.
All this has prodded mining firms to find new deposits in Australia, North America and South
Africa. This month a mining firm called Lynas Corporation raised A$450m ($400m) to develop the
richest deposit of rare earths outside China, at Mount Weld in Western Australia. A bid for Lynas
earlier this year by a state-owned Chinese firm failed, but China will still have the market for rare
earths sewn up for years. Mount Weld will not be operational until 2011, and the handful of other
prospective rare-earth mines are still on the drawing board.
This has not bothered investors, who have been piling into rare-earth stocks. An index of 12 rareearth miners has risen by more than 600% this year; one firms share price has soared by more than
4,000%. The biggest gains have been among Canadian miners, which own deposits that are rich in
heavy rare earths in Alaska and Quebec. These are about 30 times more expensive than their
more common light counterparts. Small doses of dysprosium or terbium, for instance, make
batteries operate better at high temperaturesa must for electric cars.
At least some of this exuberance is not quite rational, reckons Merrill McHenry, a metals analyst.
One Canadian mining executive admits that rare-earth mania is a bet on the future of green
technology as much as on fear of further Chinese restrictions, which are not watertight anyway. The
speculative frenzy is being driven by investors outside Japan and China, the countries that consume
most of the worlds rare earths, according to John Kaiser, whose website, Kaiser Bottom Fish,
tracks rare-earth firms. Commodity bubbles, after all, are not rare at all.