This article is a sponsored feature from Mining.com.au partner ABx Group. It is not financial advice. Talk to a registered financial expert before making investment decisions.
The proverb ‘A chain is only as strong as its weakest link’ has both a literal and figurative meaning in that it applies to relationships as well as the link of an actual chain.
Emerging rare earths developer ABx Group (ASX:ABX) is in the midst of assembling a series of pieces to connect the $12 million market capitalisation company across the rare earths supply chain.
As CEO Dr Mark Cooksey explains to Mining.com.au, the ABx strategy is to produce a mixed rare earth carbonate (MREC) enriched in dysprosium and terbium – the two heavy rare earths with the highest value and most acute supply risk.
Cooksey explains in part one of this feature series ABx is undertaking due diligence on potential connections in which “each customer of one stage is the supplier to the next stage – like links in a chain”.
To this end, the company is taking a measured approach to identify suitable customers to target while engaging other stakeholders interested in ABx’s Deep Leads project development journey.
The opportunity began when ABx discovered rare earth accumulations within its bauxite tenements in northern Tasmania – the first to discover REEs within the island state.
Since then, Cooksey and his team have identified a burgeoning market opportunity based on growing terbium and dysprosium demand and the limited new supply in the sector.
Chain of command
A crucial step in capturing market share is investigating and engaging relevant industry players along every stage of the supply chain starting from the ore mined at Deep Leads to prospective end users wanting to manufacture products containing the rare earths produced.
This commercial approach includes potentially establishing strategic partnerships with third parties, which is no small feat. There’s no real blueprint for rare earths explorers to follow like those in mature markets such as precious and base metals.
“Imagine we’re trying to cross a chasm with a seven-link chain, representing the steps in the supply chain from the ore to the electric motor containing a permanent magnet. And there’s seven pairs of people making each link. Along that chain you then have to agree that roughly at the same time, we’re all going to make our links and put them together, and then we’ll span the chasm,” the CEO tells this news service.
“I have to be confident that each link is compatible and strong enough to ultimately keep the chain together”
“ABx is at the very start of the chain. No matter how much I care to, it’s very difficult to do anything directly about the fifth link, but I have to be confident that each link is compatible and strong enough to ultimately keep the chain together.”
To tie it all together questions are being asked and answered around who are the direct customers? Where are they based? At what stage are discussions? Who are other relevant stakeholders that could be the next link in the chain?
“Now, the next leap of the analogy is to say, ‘Well, how thick is that link? Is it just a light link, or is it really thick steel?’ You don’t necessarily need it to be large. A light chain could be enough for everyone to get going. We all then say, ‘Right, we’re ready? Are you ready? Is the next person after you ready? Yeah, let’s go. Okay, we’re all going’,” Cooksey says.
“We’ve built the first light link across the chasm, now we’re all going. It’s not necessarily a single chain because we might sell to two customers. Likewise other parties in the chain might have multiple suppliers and customers.
“Then you try to make the links thicker and thicker over time. As an example, copper now globally is a tangle of thick chains where there’s lots of producers, lots of customers, lots of downstream customers, and there’s strong links going everywhere.”
Linked-in to the market
The early stage nature of the rare earths market means ABx is a first mover. As such establishing the entire chain is paramount to ultimately begin production and for project financing talks to progress.
“If you’ve only got a single chain, or just a couple of multiple links in the chain, and a key link goes down, the risk is that the whole thing falls over,” the CEO tells Mining.com.au.
This is not usually the case in the resources industry. A common mindset is that if a company discovers a resource then end users or offtakers will buy the materials mined.
“It’s that build it and they will come mentality – assuming that there is a customer for any new supply,” Cooksey adds.
That only works for mature markets where the upstream and downstream processes have long been established and the market of buyers is well known. For common metals such as aluminium, copper, and gold, institutions such as the London Metals Exchange (LME) exist and the customer perspective is often simplified to a standard specification.
That option is not available for smaller volume metals like rare earths where suppliers sell directly to customers, who often have unique production specifications. The reality is companies must deeply understand the customer perspective.
“If you mine gold, you can sell it. If you produce copper – provided it meets some standard specification – you can sell it. What a lot of people forget is you always need to understand your customer but in a lot of commodity markets that’s pretty trivial because the customer is very well defined by the existence of standard specifications,” Cooksey explains.
“That’s not the case for rare earths. You can’t just say, ‘Oh, we’ll just build a rare earth mine. As long as we produce some material of this specification, we can sell it’. It’s just not the case at all.”
The cornerstone of ABx’s strategy is producing a mixed rare earth carbonate that can be sold to separation plants for conversion into separated oxides. Numerous discussions with potential customers and investors confirm the strengths of its rare earth deposits.
On 4 September 2024, ABx further validated this by cementing a memorandum of understanding with Canada-based Ucore Rare Metals (TSX-V:UCU) regarding the supply of mixed rare earth carbonates to the US. The agreement also opens the door for potential investment from Ucore into ABx.
Customer specifications
Ionic adsorption clay (IAC) rare earth deposits like Deep Leads are a rarity. They’re a less common source of rare earths and have historically been mined only in southern China.
A major advantage of these deposits is that REEs can be extracted from the clay via a low-cost desorption process. Secondly, they often exist at shallow depth. These advantages enable Deep Leads to be developed rapidly and at lower cost.
Additionally, IAC deposits typically contain a higher proportion of highly sought after heavy rare earths compared to hard rock deposits and contain low concentrations of radioactive elements like uranium and thorium.
So, who are ABx’s customers? Ultimately, at the end of the chain, it’s the public who want affordable, reliable, and clean mobility and energy, Cooksey says.
Working back through the supply chain are companies such as vehicle producers, motor manufacturers, magnet manufacturers, metal makers, and refiners – all direct customers of each other.
Gaining insight into all these different markets is challenging. Developing deep knowledge of prospective customers and understanding their strategies, any risks involved, even the personalities of decision makers is a serious undertaking.
ABx will only consider partnerships with third parties that have demonstrated competence and have formed long standing close relationships with their own direct customers.
“For a small emerging market like rare earths, that’s really complex because if we talk to our customer and say, ‘Well, what do you want?’, they say, ‘Oh, hang on a minute we’re still talking to our customer about what they want’,” Cooksey explains.
“So, along the entire supply chain questions need to be asked such as who the customers are, what they do, when do they want or need the product, and what specifications. It’s attempting to say, ‘Well, maybe I should just talk to everybody’.
“Theoretically I could go and talk to every vehicle manufacturer and every wind turbine manufacturer in the world and have this perfect understanding of the rare earths market. But I can’t do that, it’s too big a task to be even remotely practical.”
Developing relationships and trusting that stakeholders are doing the same with their own customers all the way down the supply chain is central to ABx’s strategy.
“It’s a bit of a leap of faith, but also being very disciplined about it,” the CEO continues.
“Honestly, aspects like trust and integrity are paramount because you’ve got to find the people that you really believe are committed and disciplined about creating a project.”
Connecting to separation plants
The direct customer for ABx is likely to be a separation plant that separates the mixed rare earth carbonate (MREC) into separate rare earth oxides.
Only a small number of current and prospective separation plants exist outside of China. Each of these has individual and possibly multiple specifications for the MREC, depending on their customer requirements.
China (including Myanmar) dominates the mining of terbium and dysprosium, providing 98% of global supply. China has the lion’s share of demand too, producing over 90% of permanent magnets.
A significant challenge therefore is the minimal existing supply chain outside of China and consequent lack of certainty of customer requirements.
It’s difficult for a company planning to build a separation plant to provide definitive information on required volume and specification of a mixed rare earth carbonate.
To reduce the single source supply risk, non-China operations need to be established.
“The companies that succeed will be the ones that can most rapidly establish production that consistently meets specific customer requirements such as cost, volume, and product quality,” Cooksey adds.
Outstanding attributes of Deep Leads
A vital aspect of the ABx value proposition is the metallurgy of Deep Leads. As mentioned, clay deposits that are ionic are expected to be significantly low cost. Grade is another aspect. The Deep Leads deposit contains one of the highest proportions of Dy+Tb in the world.
Location is a further crucial attraction. MREC supply from Australia appeals to global customers as the country is known for political stability and high environmental standards.
Amid this backdrop, ABx is obtaining intelligence on how to strengthen its overall supply chain. There’s a level of trust in that each party in the chain is working in good faith with a view of being an integral part.
Cooksey suggests that while there’s no blueprint for those in the REEs space to follow, the principles are consistent with recently established markets like lithium. For rare earths, understanding each individual customer and finding trustworthy ones also establishing their own connections is key.
“That principle of understanding the customer is universal. The mechanism and the pathways of doing it is different in every situation,” the CEO tells this news service.
In part two of this series, CEO Dr Mark Cooksey details the options being assessed around project financing and potential partnerships on this pathway towards production.
Part two highlights global demand nearly doubling for magnet REEs between 2015 and 2023 to reach 93 kilotons (93,000 tonnes). Meanwhile, the share of clean energy technologies – driven by new EV sales and wind turbine deployments to meet climate ambitions – has expanded some 18% during the period.
The International Energy Agency reports total demand for magnet REEs could reach 131,000 tonnes by 2030 before hitting 181,000 tonnes by 2050. The share of demand from EV motors is poised to rise most sharply – from 7% in 2023 to nearly 30% in 2050.
Write to Adam Orlando at Mining.com.au
Images: ABx & Rochelle Padua
