Side Views

Malaysians, shall we tell Lynas to go to China? — Rama Ramanathan

MARCH 18 — “In 1992, on a visit to China’s largest rare earth mine in Bayan Obo, Chinese leader Deng Xiaoping said, “There is oil in the Middle East; there is rare earth in China.” Seven years later Chinese president Jiang Zemin wrote, “Improve the development and application of rare earth, and change the resource advantage into economic superiority.”  (See Cindy Hurst, The Metal’s Edge, 22 Nov 2010.) 

In previous posts on Lynas, I’ve mentioned the energy crisis of the seventies which was precipitated mainly by the countries of the Middle East. The OPEC cartel developed a stranglehold strategy and implemented it. 

The Chinese took a leaf from the OPEC playbook. They woke up one day and said: “We can do what OPEC did.  We can strictly control the exploitation and export of rare earths.  We can be more powerful than OPEC, because we can insist on making everything that requires rare earths, rather than exporting the rare earths.” 

Rare earths, comprised of 17 different elements, are essential for much of modern technology. 

Rare earths are common — for instance, Cerium is as abundant as copper. 

Rare earths are rare — because they occur dispersed, in small concentrations, in remote locations; this makes them hard to mine and refine. 

Rare earths are becoming very expensive.  For instance, US-based MolyCorp sold rare earths for an average price of USD 5.4/kg in 2009, and for USD 16/kg in 2010. 

What makes rare earths so important to modern life and technology? For common folks, rare earths make possible high energy efficiency lamps, hybrid-car batteries, microwaves, lasers, high-refractive index glass for lenses, screens for electronic equipment, disk drives, photo-voltaic (solar power) cells and much else. 

For industry, rare earths make processes safer and more efficient, while also enabling miniaturisation and thus reducing use of other materials.

Examples include catalytic converters for oil refineries and car exhaust systems; wind turbines; small, clear displays. 

Rare earths are also essential to weapons guidance systems. China currently produces more than 97 per cent of the world’s demand for rare earths. Over half of the rare earths are used to make products in China, much of it for export. This is how China assures that jobs are created and technology is developed and retained in China. For instance, in 2006 General Motors shut down its Miniaturized Magnet Research activities in the US and moved all of its staff to China. 

China’s commitment to making products rather than shipping materials results in worldwide changes. In 1986 GM created a company to produce NdFeB (Neodium-Iron-Boron) magnets, which have high resistance to being demagnetised by environmental factors and age.

Magnaquench began operating a factory in Indiana. In 1995, two Chinese companies joined with an American company to purchase Magnequench.

The sale was approved by the US government with the condition that Magnaquench must stay in the US for at least 5 years. 

Exactly 5 years later the operations were moved lock-stock-and barrel to China. China dedicates resources to rare earths: in March 2010, the Chief Executive Officer of Molycorp (owner of the rare earth mine in Mountain Pass, California) said “I have 17 scientists and engineers that are competing with over 6,000 Chinese scientists.” 

Back now to Bayan Obo, the venue of Deng’s speech in which he urged the Chinese to view rare earths just as Middle Easterners view petroleum. Bayan Obo is in Inner Mongolia.Yes, the place where riots were recently snuffed out by the use of military force, curfews and imprisonments. Bayan Obo is rich in economically exploitable ore. Bayan Obo has deposits of iron, bastnaesite and monazite; the latter two deposits are sources of rare earths. (The Mt Weld deposits are easier to process as they do not occur together with iron). 

In the late 1950’s the Baotou Iron and Steel Works began to exploit these deposits. China dedicated resources to developing more efficient ways of recovering the Rare Earth Elements, and to developing technologies which used rare earths.

Deposits in other parts of China also began to be exploited. [China didn’t pay sufficient attention to the environment and to public health.

The extent of environmental pollution and harm to health due to mining and processing in China is enormous, for many reasons.  China is actively working to improve the situation, while supplying the current needs of the world.] 

Between 1978 and 1989, the average increase in Chinese production of rare earths was 40 per cent per year. China’s rare earth strategy, built around resource utilisation, technological superiority and employment worked. 

In the 1990’s, due to plunging prices, Molycorp and others either shut down their mines or vastly reduced production. 

Thus China’s near monopoly today. China’s monopoly could have intensified. Lynas originally planned to ship concentrated ore to China for processing.

In 2005 the executive management team of Lynas included 2 Chinese nationals: Madam Bai Jai, who had previously put in twelve years as Director of the Rare Earths Administration Office of the State Council; and Harry Wang, who had been Vice Director of the China National Nuclear Corporation. Nick Curtis, the founder and CEO of Lynas, had worked in China for many years, has “very good connections,” having worked with Madam Bai for 6 years from 1994 at a unit of China National Non-ferrous Metals Industry Corporation. 

If you’ve been following the Lynas story, it should come as no surprise that the design of the processing facilities was the work of Chinese technologists. 

What many Malaysians don’t know is that when, in 2009, Lynas found itself in a financial crisis and had to raise money, China Non-ferrous Metal offered to buy a 51.6 per cent stake in Lynas.

The purchase didn’t go through because it was blocked by the Australian government. 

Eventually Curtis raised capital in the equity market (in September 2009).

I wonder how much funding was provided by Malaysians, and who they are. Judging by the track record of Nick Curtis in doing business, I would not be at all surprised if he has “very good connections” in the Malaysian Federal government and in the Pahang and Terengganu state governments. 

I am certain China is watching Lynas in Malaysia gleefully. I am certain China would be glad to take the concentrate from Mt Weld, and process it for our benefit.

I am certain this will not spoil Malaysians’ enjoyment of rare earth based products. Let the Chinese accept industrial risks and responsibilities.

Let’s just be consumers.

* Rama Ramanathan reads The Malaysian Insider

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.

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