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As China limits exports, MP Materials ( MP ) leads US bid for

alternatives

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Heavy elements dysprosium and terbium are hard to source

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Brazil emerges as key heavy rare earth ore exporter

By Eric Onstad

LONDON, Nov 19 (Reuters) - The West's push to build a

home-grown magnets supply chain to reduce its reliance on China

- led by massive U.S. backing for Nevada-based MP Materials ( MP ) - is

running into a critical problem: the scarcity of so-called heavy

rare earth elements.

The United States and allies have been scrambling to create

an alternative supply chain to make super-strong rare earth

magnets, which are vital components in everything from defence

technology and electric vehicles, to electronics and wind

turbines.

MP Materials ( MP ) aims to integrate the entire supply chain

from mining rare earths to magnet production and has ambitious

plans to produce magnets within years, buoyed by a July deal

comprising billions of dollars in U.S. government support.

It trumpeted its success earlier this month, boosting processed

output of two light rare earths by 51% this quarter.

But shortages of heavy elements dysprosium and terbium could

be an Achilles heel for MP Materials ( MP ) and the West's campaign to

forge a magnets industry away from geopolitical turbulence that

has constricted supply from China, analysts say.

MP's Mountain Pass mine in California contains only traces

of those two elements, which are used in small quantities in the

magnets but are vital. Dysprosium and terbium help magnets

retain their magnetic qualities under high temperatures, such as

in EV engines.

"MP Materials ( MP ) may have a formidable challenge," said Ilya

Epikhin, senior principal with consultants Arthur D. Little.

"They'll need to go to Brazil or Malaysia, or some African

states to find those resources, but it can take a lot of time."

In an analysts conference call on November 6, Chief

Operating Officer Michael Rosenthal said MP was "actively

engaged" with a number of potential feedstock providers for

heavies, but did not name them.

Another source of feedstock will be recycled materials supplied

by Apple ( AAPL ) that contain heavy rare earths under a $500

million deal for MP to supply magnets to the tech giant.

"We believe we are very well positioned," MP's Matt

Sloustcher, executive vice president of corporate affairs, told

Reuters.

MP is a high-profile example of the impact of continued

dependency by the West on China for heavy rare earth processing.

According to consultancy Benchmark Mineral Intelligence, the

West will still rely on China for 91% of its heavy rare earths

needs by 2030, down only slightly from 99% in 2024.

Chinese export restrictions imposed in April on heavy rare

earths in the magnets have in some cases suspended operations at

auto plants and jolted the West into action. On October 30,

Beijing agreed to delay new controls under a U.S.-China deal.

SCRAMBLE TO LINE UP HEAVIES

The proportion of heavy rare earths in deposits is much smaller

than the other elements used in magnets, with the relative ratio

of heavy rare earths in global mines only half of their relative

ratio in permanent magnets.

The scarcity of heavy rare earths outside of China is

evident in the price of dysprosium oxide in Rotterdam at $900

per kg, more than triple the price in China of $255, according

to data provider Fastmarkets.

"If you talk about critical resources, it's really the

heavies, the heavies, the heavies - all the rest we will get,"

said Erik Eschen, CEO of Germany's Vacuumschmelze (VAC), one of

the few rare earth magnet producers outside China.

VAC has been busy inking deals with miners that produce

heavy rare earths to supply its new U.S. plant in South Carolina

that recently opened.

VAC has agreed supply deals for heavy rare earths with

Canada's privately-held Torngat Metals from its Strange Lake

project in Quebec and Aclara Resources ( ARAAF ) from its Carina

project in Brazil.

"Even with limited capacity in the West, we're succeeding at

securing the capacity we need," Eschen said.

Magnet production capacity outside of China and Japan is

expected to hit 70,000 metric tons a year by 2030, which would

need 1,650 tons a year of dysprosium oxide, according to

critical minerals consultancy Adamas Intelligence.

"Heavies are definitely the next piece of the puzzle that

needs to be dealt with to unlock widespread Western magnet

production at scale," said Adamas managing director Ryan

Castilloux.

Despite the flurry of recent deals and rhetoric in the West,

mines outside of China are forecast to meet only 29% of the

heavy rare earths consumed outside China in the auto and wind

sectors by 2035, according to data from London-based commodity

consultancy CRU.

"To close this gap, more mine supply will be needed with

costs higher than the current supply base," said Piyush Goel at

CRU.

PROJECTS TO TAKE YEARS

A wide range of companies have been publicising new projects

and processing facilities for heavy rare earths, but most of

them will take many years to come to fruition.

The two biggest Western firms in the sector, MP Materials ( MP )

and Lynas Rare Earths ( LYSCF ) of Australia, are both looking

for additional ore to process since their own mines are not rich

enough in heavy elements.

Lynas kicked off heavy rare earth separation earlier this

year in Malaysia, becoming the world's first such producer

outside China.

The Australian group announced last month it would expand

output of heavy rare earths to 250 metric tons of dysprosium and

50 tons of terbium a year, but gave no timeline, saying it

depended on regulatory approvals.

CEO Amanda Lacaze told analysts on a call on October 30 that

Lynas planned to source heavy rare earths both from its own Mt.

Weld mine in Australia and from Malaysia, where its processing

plant is located.

"We have a team whose job it is to work with various

Malaysian partners on that development process."

This contrasts with a global deficit forecast by CRU by 2035

of 2,920 tons in the supply/demand balance of dysprosium and

terbium oxides.

Another Australian company, Iluka Resources ( ILKAF ), is

building a refinery at Eneabba in Western Australia that will

eventually be able to process up to 750 tons a year of heavy

rare earths. It is expected to be commissioned in 2027.

The company told Reuters it has moderate amounts of heavy

rare earths in its own material and has agreed a deal with

Northern Minerals ( NOURF ) to supply heavy rare earths from its

new mine in Western Australia, due to start production in 2028.

MP MATERIALS' ( MP ) MINE HAS SCANT HEAVIES

MP Materials ( MP ), which owns the only U.S. rare earths mine,

aims to eventually lift magnet output to 10,000 metric tons a

year.

It plans to launch a heavy rare earth separation facility

next year that will eventually be able to produce 200 tons a

year of dysprosium and terbium.

But MP Materials' ( MP ) mine produces mainly light rare earths,

with its deposit containing less than 1.8% medium and heavy rare

earths.

MP said it has stockpiled several hundred tons of medium and

heavy rare earth concentrate in preparation for magnet

production, but this only contains 4% dysprosium and terbium,

according to the company's website.

ENVIRONMENTAL CONCERNS SEEN AS BOTTLENECK

Brazil is emerging as a major heavy rare earth (HREE) ore

exporter, but the real challenge lies in processing capacity,

said Neha Mukherjee, a rare earths analyst with Benchmark

Mineral Intelligence.

"While the technology for HREE refining is expected to be

available globally by 2029, costs outside of China remain 5-7

times higher," Mukherjee said.

Higher amounts of heavy rare earths are found in ionic clay

mine deposits, where the standard extraction technique involves

flushing the deposit with chemicals, which in Myanmar has caused

contamination of water supplies and deforestation.

Western miners say they use environmentally-friendly

extraction methods, but they have sometimes met with scepticism

and opposition by residents to mine plans.

Rare earth mining of deposits from monazite ore includes

radioactive elements uranium and thorium, which can be difficult

to dispose of safely.

"A key bottleneck for new production will be the higher

negative impact of heavy rare earth mining and processing on the

local environment," CRU's Goel said.

Some companies, including VAC, have produced magnets without

heavy rare earths, but they have limited applications, such as

slow-moving wind turbines, said Eschen.

"The moment you go into other applications, for example, a

motor for EVs, turning very fast, going 120, 140 degrees

Celsius, then you need the heavies."

(Additional reporting by Melanie Burton in Melbourne and Ernest

Scheyder in Houston; Editing by Veronica Brown and Claudia

Parsons)