Home » Bagana, Issue 5

Rare Earth Elements: not so rare, especially in Mongolia

[29 July 2011 | Ес далан зургаа]

Only a few months ago, rare earth elements were an obscure commodity tracked by only a handful of analysts around the world. Today, it has become a hot global media topic, an international investment trend, and, most importantly, it is being hailed as a key ingredient to a greener and better future. What happened?

On September 7, 2010, a Chinese fishing boat collided with a Japanese Coast Guard patrol in a disputed territory in the East China Sea, and its crew was taken into custody pending possible charges. On the same day, China flexed its geopolitical muscle as the world’s brand new “bully”. It demanded the immediate release of its crew, and, in the meantime, blocked all rare earth shipments to Japan. Although the Chinese government denied any wrongdoing, this unofficial embargo intensified international tension concerning trade with China. Facing strong opposition from the Chinese government and desperately needing its rare earth orders, Japan had no option but to release the Chinese crew after only a week. However, Japan’s deference did not appease China as it took another two months for the Chinese to resume shipments to Japan. For the Japanese high-tech industry, China’s embargo brought great uncertainty, and rare earths catapulted to global attention as a strategic industrial resource.

In scientific circles, 15 out of 17 rare earth elements are collectively known as lanthanides, after lanthanum (atomic number 57). Yttrium and scandium, which are chemically similar to lanthanides, are also included in the family of rare earth elements, rounding up the total to 17. Although the first rare earth element was discovered more than two centuries ago, rare earth elements languished in relative obscurity until the 1940s, when scientists finally managed to separate and purify each element. Another twenty years later, researchers began discovering their usefulness.

Today, rare earth elements have become a crucial industrial resource because they have unique electrical, magnetic, fluorescent andthermal properties that make them indispensable in the manufacturing of many modern day amenities, such as laptops, LCDs, auto catalysts, energy efficient lighting and hybrid vehicles.

Without these 17 elements, one would have to imagine a world without cell phones, flat screen TVs or jet engines. Let me put it this way. You, the consumer, would live in a world with no laptops or color TVs, where portable technology and entertainment would be just mere words. You, the consumer, would live in a world without mobile connectivity, and yes, you, the consumer, would live in a world without reliable civil aviation, where flying would be on the list of “10 crazy things you should do before you die”. Without these 17 elements, most of the mainstays of modern life that we now take for granted would not be possible.

The importance of rare earth elements is not limited to consumer products. They are also the basis of “enabler technologies” such as superconductors, lasers and imaging systems, and they are used to improve the performance of permanent magnets, catalysts (emission control systems) and rechargeable batteries. Moreover, rare earth metals are vital to the production of wind turbines, which are believed to be a key technology for reducing carbon emissions, along with other renewable energy options.

In some developed countries, rare earth elements are categorized as strategically important for a different reason – national security. According to the U.S Department of Defense, rare earths are used in the production of a number of missiles, including the deadly Tomahawk cruise missile, as well as radar surveillance systems, Abrams M1A1 Tanks and F15 Fighter Jets.

Rare earth elements are undoubtedly important, so what’s the fuss about? The problem is China. Today, almost 97% of the world’s rare earth supply comes from China and most of it is extracted at the Bayan-Obo mine, the largest deposit known to date, located in Baotou (Bugat), Inner Mongolia. Interestingly enough, the Bayan-Obo deposit lies only 80 kilometers from our southern border. It is estimated that Bayan-Obo holds over 300 million tons of rare earth oxide ore with an average grade of 1.5% (this means that only 1.5% of the total deposit is actual rare earth oxide, the rest being earth’s crust). Single source of supply is definitely not a new concern. Prior to the discovery of Bayan-Obo, the Mountain Pass deposit in California, the United States, was the world’s monopolistic supplier of rare earth elements.

Although rare earth elements are essential to the production of most high tech devices, only a minimal amount of it is required in every single device. According to Credit Suisse, the global rare earth market barely topped 1.3 billion USD in

2008 with a total volume of 124 thousand tons, an amount equivalent to only 6% of the total copper market in the same year. Nevertheless, as clean-energy technology takes off, demand for rare earth elements is expected to explode, which may create further problems for world markets. Forecasts estimate that global consumption may increase to 220 thousand tons by 2012, a 77% increase from 2008.

On the supply side, with China introducing export quotas, prices have soared sevenfold in the last six months for cerium oxide, which is used for polishing semiconductors, while the prices of other elements have more than doubled, according to London’s Metal-Pages Ltd., a company that tracks rare-earth prices.

Even with rising prices, new mines cannot be brought online overnight, so China will enjoy a very powerful position at least in the short term. Nevertheless, the competition is heating up. The Mount Weld deposit in Australia, which hopes to become the first major supplier of rare earth elements outside of China, is planning to begin production in late 2011. The re-establishment of the Mountain Pass deposit will follow, along with a few other mines. However, global supply may still not be able to keep up with the rapidly growing global demand.

Multinational corporations and countries that have a significant stake in rare earth related industries have already started pursuing new investment opportunities. This is where Mongolia comes in. For instance, Japan, which currently accounts for 65 percent of Chinese rare-earth exports, reached out to Mongolia as it seeks to diversify its suppliers. On October 2, 2010, Prime Minister Sukhbaataryn Batbold and his Japanese counterpart Naoto Kan agreed to cooperate on promoting Mongolian rare earth projects at a meeting in Tokyo. “Development of mine resources in resource-rich Mongolia will benefit both countries. Our country’s research team will launch exploration of rare metals this month,” Mr. Kan said. Not long after, Mr. Kan met President Elbegdorj, further agreeing to cooperate on developing various mineral resources in Mongolia.

In the wake of World War II, the Soviet Union initiated extensive mining exploration in its satellite countries, including Mongolia, with the ambitious goal of uncovering major uranium deposits. Currently, there are over 60 registered rare earth occurrences in Mongolia, all of which were discovered as a by-product of these explorations. Since Soviet explorations mainly covered southern and western Mongolia, other parts of the country remain mostly untapped and unexplored.

Considering Mongolia’s wealth of resources, experts believe that Mongolia has the potential to become the next major “rare earth player” in the global market.

There are 4 large deposits of rare earth elements in Mongolia known to date. The largest of these is the Mushgia Khudag deposit, located in the Umnugobi province. It is estimated to hold around 200 million tons of rare earth oxide ore with an average grade of 1.5%, which is comparable in size to the Bayan-Obo deposit in Inner Mongolia. “Mongol gazar” LLC, owned by Mr. Tseveenjavyn Myanganbayar, currently holds the license for the majority of the deposit. Khotgor, the second largest deposit, is expected to deliver another 200 million tons of rare earth ore at a lower average grade of 0.7%. The remaining two deposits are also considered to be respectable in size.

It is several years away before rare earth production commences in Mongolia, and there are still a few roadblocks that the government has to maneuver. First of all, rare earth deposits aren’t even considered strategic yet. Undoubtedly, their status will be upgraded in the coming months, and as a consequence, a lot of changes may come. Secondly, there is no existing legal framework for regulating rare earth mining. A clear legal environment is imperative because rare earth elements will need special care and a different type of approach, especially when compared to bulk commodity mining. The development of a new legal framework will be time consuming, and investors will not start spending big until all the rules are in place.

Apart from it, there is another, probably a more sensitive side to the story. Despite their name, rare earth elements are actually not so rare. According to US Geological Survey (USGS), global rare earth reserves would last for 800 years at current consumption rates. However, rare earth extraction is a very expensive process given the similar chemical properties of the elements and their tendency to mix with each other. Rare earth production is not only expensive but it is also one of the most environmentally unfriendly processes in the mining industry due to the radioactive nature of rare earth ores. The Mountain Pass mine in California, once the dominant producer of world’s rare earth elements, was shut down for environmental reasons when waste water disposal created serious problems.

Furthermore, extracting even a small amount of rare earth elements requires digging and moving vast amounts of earth’s crust. Some people believe that China imposed export quotas partially because of environmental issues. When the US halted production in Mountain Pass, China stepped up because it was willing to pick up the world’s dirty work. Now, they may be revising their strategy – China reduced its second-half rare earth export quota by 72 percent as early as July, 2010, several weeks prior to the Japan debacle.

It is ironic that the minerals most commonly used in so-called green technologies would create such a host of environmental issues. Western hipsters may think that they are saving the planet with every purchase of a hybrid car, but someone has to live with the pollution caused by the mining of minerals used to produce that very car.

Would we be willing to do the world’s dirty work? Mongolia is already suffering from extreme climate change thanks to improper mining activities. Inadequate oversight and lax environmental regulations may create further problems if Mongolia decides to capitalize on its rare earth supplies. Is it worth it?

 



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