Heavy Rae Earths (ASX: HRE) shares are up 30% on their latest results from their ionic clay rare earths project. Ourselves we worry about the enthusiasm for rare earths. We think that there's so much exploration activity going on that it's likely that supply will get ahead of demand a few years down the road and so prices will crash again. This did happen after 2010 after all. However, this doesn't mean that we cannot learn from what is happening in that current rare earths exploration world - as here at Heavy Rare Earths. Please note that HRE is a small company, $7 million market capitalisation. They're at very early stages of testing the deposit. Any activity in this stock is high risk.
The important part of the announcement is in fact this: “ a desirable rare earth composition where 25% are the valuable magnet rare earths and 23% the strategic heavy rare earths”. That's not going to make much sense without explanation. But without understanding the explanation none of us should be playing in the rare earth space. The true cost and difficulty in producing the individual rare earths is not in mining a concentrate of them. It's in separating them one from another, the part from concentrate to individual element. That can and does cost in the range of $15 to $20 per kg material. Unfortunately at least 50% of a standard concentrate will be lanthanum and cerium which these days sell for maybe $1 per kg. So, roughly enough you lose $20 a kg on half of production and have to make it up on the other, more valuable, magnet metals.
OK, that's fine, if everyone faces the same problem then so what? Except not everyone does. These ionic clay deposits as here at HRE (and also OD6 and AR3) have a different mixture of the rare earths in the concentrate produced. It's much higher in the heavy rare earths and much lower in those lighter ones like cerium and lanthanum. The value of the basket is therefore higher. Or, if we prefer, the losses on the processing of the lower valued elements is lower.
Heavy Rare Earths share price from ASX
Five years ago we all thought that these ionic clays were limited to South China and the Burma border. Now we're aware that they're entirely common in weathered granite in subtropical climes. Look, we've three of them just on the ASX alone right now.
The real lesson of Heavy Rare Earths - and OD6 and so on - is not really about the prospects for any one individual deposit here. Rather, it's that the geology of rare earths is not quite what was commonly assumed. We might end up with a bit of an industrial revolution here, with all the difficulties for the current market participants that implies.