White Paper Peak Resources – Neodymium and Praseodymium (NdPr) The biggest blind spot in the global commodity market
Today we are happy to share with you our recent finished white paper and why we believe NdPr is the biggest blind spot in the global commodity market.
The world is so scared of not having enough battery metals like lithium, graphite and cobalt. But it will become interesting as soon as the wider audience will realise that behind each battery is a motor and nearly all announced NEV (new energy vehicles) and other mobility applications will be equipped with a neodymium praseodymium permanent motor. The heart of the next industrial rEVolution „the electrification of our society“!
Download here, for free, our 115-page whitepaper: http://www.peakresources.com.au/whitepaper/
This report has been compiled with the aim of providing a comprehensive understanding of the dynamics of the Neodymium Praseodymium (“NdPr”) business as well as sharing the overall corporate strategy of how Peak African Minerals (PAM) respectively Peak Resources Limited (“Peak”) intends to position and distinguish itself as a supplier of choice in the rare earth industry.
The objective of this report is to connect the dots between information and facts already available in the public domain, giving a comprehensive understanding of how the rare earth industry and market operate, how we believe the market will develop and how this will ultimately effect Peak as a competitive producer.
The most accurate material and knowledge available in the public domain on the individual areas has been sourced and collated to provide a comprehensive summary. We do not claim to be the sole author of the content of this document and recognize that some content has been copied, modified and arranged in a new context as relevant from different sources. Where possible, the individual sources of the content have been listed.
Disclaimer and Cautionary Statement
The information contained in this document is provided by Peak Resources and the author for general educational purposes only. Certain information herein is based on third-party sources that are believed to be reliable, but whose accuracy is not guaranteed. This document contains statements that could constitute forward-looking statements, describing expectations, opinions, or guidance that are not statements of fact.
Forward looking statements may include, among others, statements regarding future market supply and demand, government policies, and other market dynamics, or the assumptions underlying any of the foregoing. In this document, words such as “may”, “could”, “would” “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “goal”, “estimate”, “forecast” and similar words and the negative forms thereof are used to identify forward-looking statements.
Forward-looking statements are subject to known and unknown risks, uncertain ties and other factors that are beyond Peak Resource’s control, and which may cause actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements.
This document is provided on an “as is” basis, and neither Peak Resources nor the author make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the third-party information, data, or charts contained herein, for any purpose. Use of all information herein is voluntary, and reliance on it should only be under taken after an independent review of its accuracy, completeness, efficacy, and timeliness. Any reliance placed on such information is therefore strictly at the risk of the user.
In no event will Peak Resources or the author be held liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data
With the white paper, we will share with you our understanding of the rare earth market and market-outlook-dynamics as well as the corporate strategy and overall vision for Peak as a Company.
Electrification is the Future of Mobility
Peak anticipates that our society will ultimately be driven by electrification – be it on the road, water or air. If you too believe this is the future of our society, Peak should be on your radar as its Ngualla Rare Earth Project is one of the largest and highest-grade undeveloped neodymium praseodymium (NdPr) deposits globally. Perhaps of even greater significance is Peak’s position as the only rare earth project developer worldwide who aims to be fully vertically integrated by building its own oxide and carbonate refinery, ensuring it maintains complete pricing power in the supply chain. NdPr is the raw material which is literally the driving force behind the majority of automotive electric motors and the heart of the upcoming global electric revolution.
Our main product, NdPr oxide, of which we aim to produce 2,810 tpa, is the key ingredient for the strongest magnets in the world which are the heart of permanent magnet motor/generator. NdPr is a core enabler of the electrification era of our society and lacks any real substitution threat on the horizon whilst offering greater torque than competing technologies at the same values of current and voltage and more power by weight. In some occasions there might be a potential to reduce the usage of NdPr in NdFeB permanent magnet motors by adding Cerium but in no case NdPr can ever be totally replaced.
95% Penetration of NdPr Electric Motors
This technology represents an unprecedented growth opportunity for NdPr due to the almost 100% adoption of this technology by the automotive industry as a drive line solution for electric vehicles. In addition to the existing positive sentiment towards electrification in the market, we anticipate an acceleration of demand due to tighter global emission standards and stricter legislation on environmentally harmful technologies (see page 19). For these reasons, we see Peak operating as a core raw material supplier in the most attractive growth segments of the next industrial revolution. In addition to the strong growth forecast from the Electric Vehicle sector, additional demand drivers such as automation and robotic solutions combined with AI (see page 91), sustainable wind energy (see page 66) and the global trend of electric mobility (see page 50) are supporting this extraordinary growth story.
Peak is operating in an attractive market in the backdrop of a strong macroeconomic environment. The NdPr market is already demonstrating a compound annual growth rate of 7.4% (CAGR) that is outpacing the individual GDP growth rates of the biggest industrial nations worldwide. Estimates for the growth in electrification show high double digits year after year for the coming decade. For example, in 2017 global plug-in vehicle sales reached nearly 1.2 million vehicle resulting in a 57% YoY growth. Therefore the overall fundamentals are already beginning to look exceptional.
Significant Supply Shortages in NdPr
Due to the increasing technological shift in mobility from combustion to E-mobility technologies and the cost competitiveness of wind energy compared to established energy sources, we anticipate that our main product, NdPr, will face a significant supply shortage around 2025 and will be heavily under supplied. Estimates by leading industry observers expect this shortage to be in the range of ~20,000 – 30,000 tpa which is equivalent to current legal production levels. This will be further exacerbated by the restricted Chinese production quotas which are to take full effect by 2020, limiting their annual legal NdPr production to a maximum of ~27,000 tpa. It is also forecast that China will become a net importer of NdPr by 2020.
The market entry timing of Peak is perfectly aligned with the overall market dynamics allowing Peak to capture the first significant volumes when demand ramps up. Notably, the market forecasts that by ~2023, the cost of ownership of an electric vehicle will be lower than that of an internal combustion engine thus allowing Peak to take full advantage of what is likely to be an enormous gap in supply versus demand.
Demand is Underpinned by Government Legislation
Already in 2017, several major government announcements have been made regarding future plans for these technologies. The Netherlands aims to ban the sales of new internal combustion engines (ICE) vehicles entirely by 2030. France and UK announced that by 2040, they too intend to accomplish this goal. The European Union CO2 reduction goal for 2050 requires 95% decarbonisation of road transport.
China, the largest single electric vehicle market worldwide, recently announced a new law which will enforce a NEV car quota. Commencing in 2018, the Ministry of Industry and Information Technology has proposed to introduce regulations that will require car manufacturers who produce more than 50,000 conventional fuel driven vehicles p.a, to meet the New Energy Vehicle (NEV) budget requirements. This will be represented by a credit system with minimums of 8%, 10% and 12% for 2018, 2019, and 2020 respectively. The credits are transferable from car manufacturer to another. Furthermore, the Chinese Government confirmed in 2017 that they are working on a deadline for the sales of ICE vehicles in the Chinese market altogether.
The Indian government has recently announced significant investment into an EV industry and wants to see electric vehicle use reach 100% by 2030.
In the backdrop of a demand cycle underpinned by Government legislation, it seems a foregone conclusion that the momentum behind e-mobility electrification is here to stay.
One of the Largest and Highest-Grade Development Projects Globally
The Ngualla Rare Earth Project, located in Tanzania, is one of the largest undeveloped, highest grade, NdPr rich rare earth deposits outside of China. The deposit has favourable weathered bastnaesite mineralogy with low levels of phosphate and carbonate and low radio-nuclei levels. The highly economic Bankable Feasibility Study (BFS) utilised only 22% of the total mineral resource and still yielded a 26-year mine life. This demonstrates the scale, expandability and strategic significance of the Ngualla Project.
Being one of the lowest cost producers in this specialist commodity segment will reward Peak Resources with becoming a truly viable vertically-integrated, non-Chinese supplier offering a sustainable, 100% transparent, traceable, ethical and quality focused supply solution with top tier environmental standards located with its refinery in the UK with sustainable economics. These features will enable Peak to enter successful relationships with the downstream business and become a prosperous corporation delivering consistent profits to its stakeholders.
Peak is the Only ‘Fully-Integrated’ Rare Earths Developer
In comparing the various rare earth development projects, the market is not comparing apples-to-apples. Other than Lynas, an existing NdPr producer, Peak’s development peers all aim to produce an intermediate concentrate which they will export to a third party Asian refiner. Given the strategic significance of this commodity, not having the means and expertise to separate the final rare earth elements means losing ultimate control over the pricing and supply chain.
At its planned UK separation refinery, Peak will be producing the final rare earth elements which can be exported directly to the integrated magnet manufacturers. Whilst other developers are working on pilot test programs to attempt the final separation themselves, no developer, other than Peak, has yet been able to demonstrate their ability to be fully-vertically-integrated to a Bankable Feasibility Study (BFS) level. This is due to Peak’s exceptional in-house expertise as well as the comparatively simple metallurgy of the Ngualla deposit.
Simple Refining Process Reduces Execution Risk and Lowers Capex and Opex
Peak deliberately designed the refinery process to reject the low-value material cerium from early on, therefore allowing the planned UK refinery to operate on a much smaller scale with most of the focus being given to Peak’s champion product, NdPr.
This enables Peak to run the UK refinery process just a little bit above ambient temperature on low acidity levels, directly resulting in a low corrosion risk operation meaning we are able to use simple, lower-cost materials like polymer piping and tanks rather than steel and other expensive exotic materials such as titanium or tantalum equipment.
Located in a modern industrial park providing easy access to all production relevant utilities and supplies, the UK refinery provides exceptional versatility and adaptability. A major infrastructural advantage is that we do not need to build tailings infrastructure or facilities for our residues and effluents as pre-established facilities are already available on the chosen site. These supporting attributes of Peak’s industrial footprint will assist in securing our future position as an industry leader.
Our corporate strategy is focused on being one of the lowest cost operators in the sector and at the same time being one of the most innovative. Peak plans to achieve this using a smart and sophisticated IT approach which will support us to secure leadership amongst our peers and offer a premium experience to our customers, combined with an ethical and sustainable supply chain solution providing services unprecedented in the mining industry. This will place Peak with an attractive and unique selling proposition which will differentiate us from our competitors.
More Than $100 Billion Already Committed to the Electric Vehicle Revolution
As previously highlighted, applications in the automotive and wind sectors will be key applications in influencing future demand growth of permanent magnets, and in particular for NdFeB, respectively, NdPr.
The Automotive Industry has the clear leading position in impacting the global demand on NdPr magnets and the related raw materials. Bloomberg confirmed just recently that more than 90 billion USD will be invested in electric vehicles by the global automakers and the number is still growing with Nissan and Porsche. Furthermore, in a recently published market summary by McKinsey & Company, it was established that 200 new electric vehicles will be launched by 2019. Market experts predict that electric and plug-in-hybrid vehicles will most probably make up two thirds of the automotive market by 2030 in a market of +100 million units sales per year.
After Tesla announced they’d chosen to use an NdFeB permanent magnet motor (“PMM”) for their high volume vehicle Model 3, the already strong position of this rare earth technology has moved from a ~90% market share towards nearly 100% market share among all passenger car manufacturers. In this context, it’s important to also understand the nature of the automotive business and the lifecycle management of these platforms and the impact on the lifecycle of components.
The aforesaid positive developments in total cost of ownership (TCO), country targets, governmental incentives and announcements of the car manufacturers themselves indicate that there is a very good chance that the pool of operating electric cars will grow from 3.2 million globally today to approx. 9 -12 million by 2020, and between ~30 million and ~60 million by 2025.
The development of a large variety of popular EVs in the market space from 2020 will be a game changer in regards to the global NdPr demand and its global supply chain. It is predicted that during 2022-2025, the cost of ownership of a HEV/EV will become lower than that of a traditional combustion engine vehicle. This is the moment when the classic S-curve for innovations kicks in and the demand for NdPr will skyrocket (see similarities of the life cycles like the shift from Black/White TV’s to colour TV’s and from a standard mobile phone to smart phones, see page 21).
To give you an idea of the order of magnitude of this evaluation, the automotive industry alone will have the potential to absorb today’s global annual production of legally manufactured NdPr in just one year when electric mobility will reach a global market share of ~40%. Demand from the automotive industry will create a massive shortfall in global NdPr by 2025 at the latest.
Robotics and Automation: The Great Disruptor
Furthermore, we see the robotics and automation solution sector is becoming a reality as another upcoming disruptive force in the century of electrification. With autonomous driving reaching stage 5, Artificial Intelligence has tackled one of its biggest hurdles and robotics is set to take-off in a big way. We believe there will be an unprecedented shift from manual industrial labour to AI robotic solutions. This upcoming technology shift, in which NdPr is to play a vital role in the permanent magnet motors within robotic solutions, represents a life changing industrial revolution equivalent to those triggered by the invention of steam engines, motor cars and electricity.
The NdPr Price Hasn’t Yet Seen Demand-side Pressure
We believe that the supply chain will first consume their existing inventory levels to delay any purchases as long as possible. Particularly in the export business, we will see a classic trade-off between air shipment costs versus actual price increase. This is caused by the established industry practice to manage raw material prices with a raw material price index formula which causes a 3-4 month delay on pricing effects in the wider market. This short-term focus on maximizing profits of the rare earth industry and the fact that the magnet industry still operates on fixed price long term contracts will seriously amplify the future pricing trend as getting new industry capacity online will take a minimum of 3 years. In mid-2017, the first investors from the capital market entered the rare earth market to speculate, adding more complexity to the market environment. In the last 12 months, between February 2017 and February 2018 the NdPr price performance was +30% reaching ~52 USD/Kg NdPr oxide domestic China.
With these facts in mind, we project an overall sustainable continuous uptrend for NdPr prices, despite the classic short-term pull backs as we have experienced recently (Q4-2017), as NdPr represents a core pillar of this new century of electrification.
Peak Resources Offers Investors the Most Leverage in the Sector
Peak Resources represents the absolute value investment proposition among its peers when it comes to worldwide development projects in the special metals sector. The market fundamentals are unfolding and provide an idea on the project potential and upside. At a market capitalization of only $28.33m (as at 7 Feb 2018) the potential upside for any investor is substantial.
We aim to become the next Lynas. We aim to produce 9,290 tpa rare earth oxide equivalent, which is a little bit more than half (58%) of Lynas’ established product output of 16,003 tpa in 2017. Like them, we are planning to be fully integrated with our own refining capability which assures that the company retains the pricing power through the supply chain to the final saleable oxide product stage. No other western project developer currently has publicized plans to be capable of this. All our peers are aiming to commercialize an intermediate concentrate or intend to find a tolling partner for processing their material to the final commercial saleable product stage. None of our peers have been successful in securing binding commercial tolling agreements, however they incorporate in their business cases tolling assumptions, projected sales and revenues of finished oxides for which they do not currently have a secured route to market. It is important to note that currently there is no solid understanding as to values or established routes to market for intermediate rare earth concentrates (pre-refining).
It is interesting to acknowledge that their indicated capital and operational expenditures still remain higher than that of Peak’s, which has been fully stress tested under the BFS. This further underpins the quality of Peak Resources, its asset in Tanzania and the planned refinery in UK.
If you have a look at Peak’s project KPIs (see page 27) you will see that Peak has a better cost base, better product mix and better overall project economics compared to its peers. Furthermore, Peak’s Ngualla Project is one of the biggest undeveloped NdPr resource worldwide of which the BFS only takes into account 22% of the resource – once again demonstrating the scale and significance of this deposit and the opportunity Peak represents.
Peak is aiming to produce over 9,290 tpa of rare earth products in total (2,810 tpa NdPr and 6,480 tpa other rare earth materials) at an operating cost of ~US $91 million p.a. Taking just the annual NdPr portion into account, Peak’s unit operating cost would be just US $32.24/kg per kg NdPr (91 million divided by 2,810 tpa).
With the market price for NdPr sitting at US $51.84kg (RMB 328) as at 10/01/2018. Using this price, Peak would generate a profit of US $19.60/kg or US $55.08 million cash per year. And don’t forget – this is completely ignoring sales profits from the remaining 6,480 tpa of additional rare earth material available.
If you compare Peak’s Net Present Value (NPV) projections against Lynas’ market cap of AU $1.06 billion (8 Feb 2018) one is able to fully comprehend the true potential value of Peak Resources.
JUST DO THE MATH!
Peak Resources is the go-to Fully-Integrated Rare Earth Specialist
Author: Michael Prassas / Peak Resources
Date: Update 10th January 2018
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