If you can’t beat them, copy them, which is a very rough way of describing why there’s a new rare earth star emerging on the Australian stock market.
The aptly-named Australian Rare Earths (ASX: AR3), which received passing mention in a Small Caps story last week, has continued to catch the eye of investors who have enjoyed its 165% share price rise in five weeks.
From a float price of $0.30 and a first trade at $0.55 on 1 July, Australian Rare Earths has stormed up to last sales at $0.795 making it one of the year’s best new floats.
It would be easy to describe the stock’s success, which has seen a lift in its market value to $90 million, as a function of global interest in rare earths and their strategic importance thanks to extensive use in new technologies such as the magnets needed in electric vehicles and wind turbines.
There is also the well-understood dominance of China in the rare earth business and a rush by other jurisdictions, including the United States and Europe, to break the grip of a country known to use trade as an economic weapon.
China’s competitive advantage
For a variety of reasons there has been limited success so far in shaking off China’s shackles with one of the most important Chinese advantages being the country’s abundance of rare earth elements in easy to mine, near-surface material called “ion-adsorption clays”, sometimes referred to as “the holy grail” of rare earths.
In the simplest possible terms, ion-adsorption clays have members of the rare earth family on their surface (rather than absorbed into the structure) which means high value elements such as neodymium and praseodymium can be relatively easily separated.
Most other sources of rare earths, including the Mt Weld mine of Australia’s leader, Lynas Rare Earths (ASX: LYC), mine hard rocks such as monazite which requires more extensive (and costly) processing, exposing their operations to Chinese price-cutting tactics which have been used in the past to squash competition.
Until recently China, and its near-neighbour Myanmar, were believed to be the only countries with commercially significant deposits of ion-adsorption clays though a first step in matching China’s rare earth clay advantage was taken last year by Ionic Rare Earths (ASX: IXR) which controls a deposit in the central African country of Uganda.
The Makuutu deposit shows similarities to Chinese clay but two issues weigh on the project: Uganda is not a tier-one mining jurisdiction, and Chinalco, one of China’s mining giants, has signed a non-binding memorandum of understanding with Ionic which means any output could potential simply disappear into overall Chinese controlled supply.
Australian Rare Earths’ Chinese-style discovery
It’s into this heady mix of Chinese control, strong demand, high prices and geopolitical intrigue that Australian Rare Earths has unfurled its ion-adsorption clay discovery in a tier-one jurisdiction: South Australia.
The Koppamurra rare earth project is a surprise on several levels with its roots found in the South Australian Core Library where records of past drilling campaigns were being reviewed by Rick Pobjoy and Bryn Jones. They noted the previously unreported presence of rare earths in samples collected in a region along the border with Victoria by earlier explorers believed to be looking for titanium minerals and zircon.
A sniff of rare earths in the core library led to early-stage field work (shallow sample taking) on the verges of public roads and along bush tracks followed by applications for 4,000 square kilometres of tenements, mainly on the SA side of the border but also in western Victoria.
The first results from 470 shallow aircore, augur and pushtube drill holes extending down no more than 11m were remarkable because they revealed ion-adsorption clay of similar grades to that mined in China, complete with the added appeal of low radioactivity.
From that first stage work, Australian Rare Earths has been able to produce a first pass mineral resource of 39.9 million tonnes at 725 parts per million total rare earth oxides (TREO).
Most of the rare earth-rich clay is located in bands measuring between 2m and 3m metres thick, with some material at the surface, but generally found at depths between 2m and 9m.
More work is required but the results so far appear to show a rare earth deposit with close geological similarities to that mined in China and Myanmar which is believed to be the source of 60% of China’s rare earth raw material, perhaps because Chinese deposits are being worked out.
Encouraging early signs
Mr Pobjoy, a geologist, and Mr Jones, an industrial chemist, are two of the three directors of Australian Rare Earths which is chaired by a veteran of the industry and former project manager of Mt Weld, Dudley Kingsnorth.
“The potential for what’s been discovered so far is quite exciting,” Mr Kingsnorth told Small Caps on the sidelines of this week’s Digger’s & Dealer’s mining conference in Kalgoorlie.
“The material is close to the surface and there is no uranium or thorium present,” he added, referencing the radioactive waste problems which have dogged his old company, Lynas.
“Grades on the western side of Koppamurra, in the Red Tail prospect, are running at around 600 parts per million of total rare earth oxides. The eastern area which includes the Yellow Tail prospect are running at 900ppm.”
To put those assays into perspective, Mr Kingsnorth said China’s rare earth clay deposits had been running at between 600-800ppm but were now believed to have dropped to between 400-600ppm.
Much more work is required before the commercial significance of Koppamurra can be calculated but the early signs are encouraging, especially the broad similarities to Chinese rare earth clays and the location in a world-class mining jurisdiction.