Australian Rare Earths (ASX: AR3) is up another 21% on Monday on the release of an update to resources in their ionic clay deposit for rare earths. This is of course interesting for AR3 itself, but we should perhaps think about this as being a precursor to how the rare earths industry as a whole is likely to change. The more Australian Rare Earths proves - in the sense of moving from resources to reserves - those rare earths contents then the worse things are going to look for a certain segment of the current rare earth producing market.
We've pointed this out before about Australian Rare Earths but it is one of those things which bears repeating. Rare earths are always found as mixtures. Separating that mixture is the most costly part of the process - from $15 per kg material (Opex costs only) to $20 (a likely all in tolling fee). The light rare earths, cerium and lanthanum, sell for perhaps $1 a kg at present. The magnet metals in the $hundreds (Pr, Nd, Dy) to thousands (Tb). So, you lose, horribly, on Ce and La, gain on the others - it's the value of the basket that matters. The more we want the magnet metals the worse this gets, the Ce (although that one can be mitigated) and La production being an inevitable part of the magnet metals supply. Obviously, those miners with a higher Nd, Pr, Dy and Tb content in their concentrate of mixed rare earths have a competitive advantage over those with high Ce and La levels.
Australian Rare Earths share price from ASX
The standard rare earth ores, xenotime, monazite and bastnaesite come with a greater or lesser thorium contamination problem. But they're also all quite high in those money losing Ce and La. But AR3 (and the same is true of OD6 and a growing number of others) are looking to mine an entirely different source - the ionic clays. These are, by their nature, much higher in the magnet metals and lower in those light rare earths. That's the big competitive advantage.
The thing is we used to think these ionic clays only existed in South China and the Burmese border areas. We're now finding out that they're a common result of the weathering of granites in subtropical climes. Instead of this being a rare geology, it seems to be a common one. The biggest impact of this is probably upon the more traditional rare earth miners therefore - a significant part of the Chinese industry and in the west Lynas and MP Materials. Of course, they have the advantage of being up, running and fully funded. But this finding of a widespread availability of an inherently more efficient geological source - the ionic clays - could change that over time.
Whether Australian Rare Earths will bring this into production is of course unknown. So too the others with the same geology. But the base point here is that these ionic clays really are a better rare earths source as long as it's the magnet metals we're after. That's a big competitive advantage.
