Hello, I'm Peter Bell and I'm here with Mr.
Don Lay from Medallion Resources. Hello, Don!
Hi Peter. How are you doing?
Great, thanks. May 17, 2019. Good to be talking
to you. You had some news out on May 1st to
start the month here.
Yes, we did. We put out some important news
on our process development work -- test work
at a couple places including the Saskatchewan
Research Council and the University of Toronto.
Both are sort of the final final legs of our
bench-level test work. We will get all that
work completed so that we can start to look
at economic studies for the proposed monazite
processing plant.
The first time that I've seen a flow diagram
included in any of the materials from the
company -- that was neat to see.
We thought it was a good idea to, at least,
present a top-level flow sheet on the process.
There's obviously different levels and lots
more detail in some that we've put together,
but this shows a top-level of the monazite
feedstock coming in, major processing steps,
and different products produced -- rare-earth
products, phosphate byproducts, and waste
streams as well. It's quite exciting to get
that out and talk to people at a macro level.
Talking to people, right? It gives you something
specific and tangible here to start to put
some flesh on the bones of this plan that
you've had for years. It's coming together.
It certainly is. We had initially looked at
the sector on a global basis in more heady
days of the rare earth element marketplace.
Over the last few years, we have really focused
on North America as the first place to get
processing going. We've been doing a lot of
work on process development, like flow sheet
work. The bulk of that test work has been
done at the Research Council in Saskatoon
and managed by Kurt Forrester, our metallurgist.
Also, we've been working with the feedstock
providers in North America to ensure that
we've got adequate supplies available to process
on an operational basis. Then, we've also
been starting to analyze which jurisdictions
could and should it go to -- where is the
most appropriate for the plant. Those are
important business development activities
that we've been working on for a number of
years now. In the last nine months or year,
we've really been able to accelerate it because
we've raised additional capital to move forward
more quickly. There's more interest in the
rare earth market given the the magnet metals
and their use in electric vehicles and electrification,
in general. That's going very well.
I appreciate the guidance on the timelines.
There is increased specificity there. It's
encouraging to see, especially given all the
changes going on out there in the broader
world right now. It seems like it's headline
news more and more .
It certainly seems to be. China controls the
sector -- they produce about 80% of the world's
rare earths. Between that, the geopolitical
tensions, and people's recognition that rare
earths are critical to everything from magnet
metals, defense systems, and a lot of other
advanced technologies, it's sensitive given
the geopolitical landscape we're in right
now.
Increasing attention paid to the whole "critical
materials" thing with regards to batteries
with the increased use of electric vehicles
out theren -- that seems to be hitting Main
Street more and more as well.
It is interesting. I was at Benchmark Minerals
event in Vancouver this week for their annual
show focusing on the battery materials. Lithium
is the key one, of course, but cobalt is a
very important. Nickel, too. Manganese, to
some extent. Graphite, of course. The bulk
of battery demand, 80% of the future battery
demand, is anticipated to be either mobile
or stationary batteries for cobalt and lithium,
at least. Everybody's really focused around
that. UBS, the Swiss investment banking group,
has identified that next to lithium and cobalt
it's NdPr, the rare earths, that are critical
to electrification and EV -- you need those
powerful magnets to drive those cars, buses,
wind turbines and all the rest of it. It wasn't
mentioned by them, which is fine because they
do focus on the battery stuff. Listening for
four hours to discussion on the value chain
related to EV, I found it interesting that
it didn't come up once. Nonetheless, it is
on other people's radar.
SP Angel, a boutique out of London recently
published a report on NdPr in the last couple
weeks highlighting the increased usage given
demands from EVs and other electrification
technologies that are happening now. They
pointed out that this is sort of a blind spot
in the commodity world, which it has been
for a while. When the prices start to move
up, then everybody will recognize it and I
think there will be a re-rating of the industry.
Commodity markets certainly go in and out
of favour, don't they?
They certainly do.
That SP Angel report was amazing. I was surprised
to read some of the statistics around the
environmental costs associated with the illegal
mining, domestically, in China for rare earths.
Yes, that's long been the case. What has also
been happening -- starting in 2014 I think
it was -- is that the Chinese government has
dictated that six of the state-owned enterprises
in the mining business buy up and aggregate
the rare earth processing industry. A large
part of that was not only controlling the
resources and the processing capacity, but
also ensuring that the processing was done
more cleanly. The Chinese are well aware tjat
they have a poor record of environmental protection,
but they're very keen to change that over
time. Of course, it's not going to happen
immediately. The population is upset about
the pollution of rivers and lakes and also
the air. Their whole thrust towards electric
vehicles is sort of twofold. One is to clean
up the air so the people aren't as sick. And
the other one is that China's got the ability
to be the leading player in the automobile
market, globally, if they can lead in the
electric vehicles. Obviously, the Americans,
Japanese, and Germans would dominate the internal
combustion engine markets but transportation
is being re-imagined over the next 10 to 20
years. China wants to have a big role in it.
There are a lot of things in flux at the same
time.
Fascinating. An example of how emerging societies
can kind of leapfrog over the status quo from
prior leaders. I've heard that mentioned before
with examples in telecom and banking, but
this transportation story is potentially a
very large example of that. I appreciate you
pointing it out there, Don.
They published a paper I think it was last
year called "Made in China 2025". In effect,
it's their blueprint for becoming the dominant
manufacturing powerhouse on the globe in 2025.
They're already a huge manufacturing powerhouse.
I don't know if they're the world's biggest
-- if they're not the biggest then they're
number two or number three and certainly growing
faster than any anybody of comparable sizen.
Much of that is around encouraging sectors
like robotics and things that would automate
the processing. Additive-manufacturing or
3D printing -- there's are a number of different
things the Chinese are encouraging from a
top-down perspective and funding, in some
cases, that will enable this to happen. They
really themselves as the workshop of the world,
much like America has been for a hundred years
and Britain for the hundred years before that.
China sees this as their era to dominate and
we see a huge opportunity in providing alternatives
on the rare earth side to Chinese dominance.
Certainly, the automakers are starting to
pay attention to that. The defense establishment
and others that require rare earths in their
equipment are paying attention as well. Our
story is resonating pretty well.
I always appreciate seeing you as non-mine
solution, as well. It's somewhat unconventional,
maybe, for people who follow junior mining
and exploration companies. There's a different
development pathway here, which is encouraging
again.
Yes. As we've discussed before, Peter, we
don't have a rare earth property. We had them
before and we explored them, but they didn't
come up well. A number of years ago, we decided
to go down the byproduct processing route.
We chose monazite as the target because it's
an available mineral that comes out as a byproduct
of heavy mineral sands processing. We've been
developing the flow sheet for that, as well
as the business model for that. Of course,
it's got the advantage that we don't have
to explore, drill, assay, develop metallurgy,
build a mine and all the rest of that. Rather,
we buy somebody else's waste product and process
it in our plant, which will be a no-tailings
facility -- more like a chemical plant than
a mining facility that will produce rare earths
concentrate products, phosphate byproducts,
and waste streams. We're thrilled that we
are modeling-out this solution, which could
help solve a critical shortage of materials
and dominance by one power that isn't aligned
with the Western countries. It's an interesting
project, but it's not your typical mining
company.
A couple quotes from the SP Angel report that
jumped out at me -- I might read them off
to you and discuss briefly. First one being,
"rare earth concentrates imported by China
through 2018 and early 2019 have been largely
sourced from Myanmar, however, questions are
being raised over potential smuggled material."
This was from a report published at the start
of May and, already, the field has changed!
Within China, there's both legal and illegal
mining and processing of rare earths. The
illegal part of it is shrinking as the state-owned
enterprises have aggregated the bulk of the
mining and processing operations, as well
as government oversight and crackdowns on
it. What the'yre referring to here is the
processing of the South China clays. There
are quotas on the production, mining and processing
in China, but that doesn't stop people from
doing it illegally. The Myanmar problem is
probably bad material being exported to Myanmar,
and then being re-imported for processing
in China. I think the Chinese government has
said that we're not gonna let anything in
from Myanmar. That's likely happening now.
There are imports of other material going
into China, as well. Some of it coming from
United States. Others from Africa. That's
raw ore going into China for processing, if
you will. There's always lots of dynamics
around that. Regarding that particular SP
Angel comment, the perception is that stopping
that re-importing of material would create
a shortage and the stock of three of the Chinese
rare earth companies went up by 10% in one
day, which is limit-up. That was happening
just the other day. Never a dull moment in
the rare earth space.
It would seem so! And that's this week. Lots
of eyes looking at other things and other
things happening in markets these days, who
cares about rare earths? A niche, little area
that is critically important.
They don't care until they do, and then that's
all they care about! I suspect at some point
in time it could be some dust-up in the South
China Sea involving Japan, China, Philippines,
US -- you name it, there's lots of countries
down there. If China threatens shortages of
rare earths or somebody else threatens to
hold them back, then that could be significant.
There could be trade tension between the US
and China bringing some retaliatory action.
It could be related to defense requirements
and threats of war or other military action.
There's all sorts of things that could happen.
Or it could be just that prices, all of a
sudden, decide to move up quickly in response
to demand for NdPr for the magnet metals for
EVs. The projections I saw at that Benchmark
Minerals presentation for EV rollouts were
huge in terms of volumes. Each new EV requires
about a kilogram of NdPr rare-earth metal
material in its traction motor to drive the
car. That is going to make the demands for
this commodity virtually double within the
next five to seven years.
The SP Angel report from the start of May
has some really interesting information on
comparing a permanent magnet motor and an
induction EV motor -- comparing metal intensity
and some of the costs and economics on the
different motors. Fascinating technical detail,
critically important as a backdrop for it
all.
The intensity on the magnet side is noteworthy.
An NdPr magnet is ten-times more powerful
than a standard magnet. Hence, you can make
them so much more compact and, of course,
weight is critical in anything involving transportation.
The battery is really the problem today, in
the sense that they've got to be large and
heavy. The motor that drives the Chevy Volt
today only weighs 38 kilograms. It's very
light, so the energy intensity of it is fantastic.
One quote again from this SP Angel report
at start of May. Imports in China ten times
higher in 2018 than 2015 and climbing 167
percent year-over-year. Pretty impressive
numbers.
It is. It's long been projected that China
will become an importer, even though it mines
the bulk of the world's rare earths and processes
the bulk of them, around 80 percent. It's
long been on the lips of many analysts, like
Adamas Intelligence, which is probably the
best recognized rare earth analytical group
outside of China, that China would need to
restart importing rare earths. Particularly
since they were controlling their own processing
through quotas and such. They don't want to
lose their resources, so they're careful about
making sure prices are managed and production
quotas are managed so that the resource lasts
a long time. They feel that's critical to
their economy. They don't want to give away
the resources cheaply, which they felt they
did for many years. Now, however, with the
demands for material, particularly NdPr, and
the processing capacity China has, they're
importing certain ores, including monazite
from some places into China and processing
it. Some of the ores are coming from United
States. Mountain Pass in California, which
is the old
Molycorp mine, is shipping ore to China for
processing. You can imagine there's a lot
of folks in the US that aren't happy about
that, but that's what's happening. We live
in interesting times. Also, there is some
material from Africa going into China. Of
course, our model is different. We've got
an automated process, which won't have many
people and will be cost effective, and we're
looking to process material here in North
America.
Wonderful to hear it all. Thank you, Don.
Mention of Molycorp again in that SP Angel
report -- I hadn't realized the operation
was acquired there for $20.5 million USD.
They have some comments in their report talking
about the operation being "stung by tariffs
targeting semi-processed output... encouraging
owners to process rare earths domestically."
That seems to be very much tied in with the
headline news that I see on Forbes and in
the US media regarding the tariffs wars and
this being a small part of that bigger story.
It's one of those sensitive elements that's
part of the mix. Interestingly, the US didn't
put tariffs on Chinese rare earths coming
in. Partly because they don't want to hurt
those industries that are using them. The
flipside is that they don't really have any
alternatives. We're looking to provide alternatives
and we've been working on that for quite a
while. It's an interesting place to be because
the sector's got a lot of noise. I expect
it to re-emerge with a lot of public interest
here at some point in time. When, exactly,
is hard to say. You've been following the
story a while and you can hear drum beats
in the distance. They seem to be getting a
bit louder nowadays.
I think I came in around the tail end of the
last bubble. I have danced close to the exit
since then, but at some point you have to
jump in and seize the opportunity. The bull
will run!
Exactly right.
A bunch of other things worth noting and discussing
in the report, but maybe one I'd point out
about the "trend of legitimizing unsanctioned
production being supportive for the Chinese
industry" and how taxes are "proposed to be
levied to finance their rehabilitation efforts
associated with past rare-earth mining".
SP Angels have made some bold assertions,
I think correctly so. They obviously wouldn't
have done it without speaking to a few people
close to the situation. They have some statements
about including full, life-cycle costs of
the processing of rare earths so that they
can rehabilitate and clean up some of the
problematic sites they've got from rare earth
mining and processing. Things that wouldn't
have been allowed, of course, in mining operations
in North America, for example. I think we're
well aware -- we've seen the pictures of bad
actors showing bad behavior from processors
in China from different times. The government
is now cracking down on bad processing and
looking to implement and remediate current
sites. That will increase the cost of things,
over time, when the whole life-cycle cost
is included. That's coming and that will likely
be supportive of our efforts, as well, because
we're doing it in a clean fashion to begin
with. If you do it clean from the beginning,
then it's relatively easier. If you do it
messy from the beginning and clean it up later,
then that's expensive. We just prefer to do
it better out the gate and time, hassle, and
money in the long-run.
A question that you must face a lot from people
who are trying to figure out if there's a
good opportunity here with Medallion is the
potential scale you're facing on the production
side.
Most mining operations have a scale threshold,
if you will. They need to get past a certain
size to get economies of scale. In the rare
earth business for hard rock mines it typically
tends to be $300 or $400 million dollars at
a minimum to get a mine that's big enough
so you could put in a processing system that's
big enough to create adequate quantities of
material to cover both your variable and fixed
costs and make a profit. Three or four hundred
million at a minimum, but many of the projects
on the books are at eight hundred million
or a billion or more -- that's the sort of
scale they need. From our perspective, we
can start at a much smaller pace than them.
Maybe at twenty or thirty percent of the volume
that they've got, but our capex would be a
fraction. A plant to process all the available
material in North American and produce, say,
2,000 tons of rare earth oxides a year would
be maybe $20M twenty million dollars. A similar
plant would probably be $150-200 million dollars
for a similar mining operation, as a comparison.
We're just a fraction of the capex number
and we can scale it up in a linear fashion
quite easily as additional feedstock becomes
available from the miners that we look to
buy our monazite from. Those are very interesting
conversations because our ability to scale-up
in the business is very capital-efficient.
And providing some sense of completion for
those heavy mineral sands operations who have
that waste product sitting. There may be concerns
and uncertainty around the implications of
that material if government regulations in
the US were to change.
The heavy mineral sands mines, end up with
upgrading and producing this monazite as a
by-product. Monazite, because it's rare earth
material, it ends up having some uranium and
thorium in it, which are both radioactive.
If it's sitting there in a pile then it's
not gonna hurt you, but it needs to be stored
properly, transported properly, processed
safely, and the waste dealt with properly.
Those are all things that we're working on.
For heavy mineral sands miners who aren't
after the monazite but end up getting it from
their processing, it's a bit of a hassle.
They're in the business of mining for titanium
or zircon. They end up with this material,
which is valuable because it's a rare earth
ore but also has this radioactive signature
that needs to be dealt with. They can put
it back to the pit and bury it over -- that's
fair game. Nobody's going to get hurt and
they are certainly allowed to do that. Or
they can figure out how to take advantage
of it and earn some money -- that's where
we come forward as a commercial partner to
buy the material off of them and then process
it and deal with everything correctly and
safely. Of course, that's an important thing
for them because they're good stewards with
their mining operations and they want to make
sure their business partners are as well.
Wonderful. I appreciate it all. Mr. Don Lay,
Medallion Resources. Thanks very much for
talking with me.
Thank you Peter, appreciate it. Talk to you
soon.
