Rare earth policy guidance remains unclear under condition of internal strife and external aggression

Asian Metal: Hello, Mr. Liu! Thank you for accepting Asian Metal's interview. Firstly, could you please give us a brief introduction about the main business of your company?

President Liu: Ji’an Xintai Technology Co., Ltd. (hereinafter referred to “Xintai Technology”) was established in February of 2012 and put into production in 2013. Our company passed environmental impact assessment, safety evaluation and clean production acceptance in 2015, and during the year we also passed the recognition of hi-tech enterprise, the provincial enterprise technology center and the standard system of quality management, environmental management as well as health and safety management. In August 2016, Xintai Technology is officially listed on the New Three Board (stock abbreviation: 838975). Xintai technology fulfilled the acquisition of Jishui Jinching New Materials Co., Ltd. in March 2017 and Zhejiang Zhonghang New Materials Co., Ltd. in August 2017 respectively. Now Xintai Technology is growing steadily through its own strength!

Our company is mainly engaged in the recycling of waste NdFeB magnet and the production of praseodymium oxide, neodymium oxide, PrNd oxide, terbium oxide, dysprosium oxide and relevant rare earth oxide which are widely used in the permanent magnet motor, wind power, new energy vehicles and other high-tech fields.

Asian Metal: Thanks! Besides, would you please introduce yourself basically?

President Liu: Ok, I have been working in the rare earth industry for more than 30 years, and have been committed to the rare earth metallurgical technology and management work. I had once worked in one of subsidiary companies of China Nuclear Industry Corporation for ionic rare earth concentrate separation from the 1980s until the establishment of Xintai Technology in 2012.

Asian Metal: In mid-December, Chinese PrNd oxide prices hit the bottom and then rebounded sharply. Over the past two weeks, the suppliers continued to raise their offers while most downstream plants held a watchful attitude, resulting in rare spot deals. So, what are the main reasons for rises in rare earth product prices? And what do you think of the market prospects in the coming year?

President Liu: The reasons that accounted for the recent revive in prices for PrNd products are as follows: the downstream magnet plants boycotted the high prices of PrNd oxide and thus the prices dropped sharply from mid-August to mid-December. By mid-December, the prices had returned to the level of early this year. At that moment, the separation plants and smelters had little intention of selling owing to high production costs. And the magnet plants had run out of their previous stocks and started to make replenishments. From the aspect of the whole market, the rare earth production and consumption are in unbalance with most products oversupplied. I forecast that it would be hard for PrNd oxide prices to maintain above RMB300,000/t D/P in the long run.

Asian Metal: As far as I am learnt, your company’s outputs of PrNd oxide and single praseodymium oxide and neodymium oxide products are equal now, and the neodymium oxide 99.5%min prices are around RMB5,000-10,000/t higher compared with those for PrNd oxide. As a major producer, how do you decide your production strategy?

President Liu: We arrange the production of single praseodymium oxide and neodymium according to the marker demand. We usually increase neodymium oxide and praseodymium oxide outputs when we receive more orders, or else we mainly produce PrNd oxide.

Asian Metal：From the point of rare earth resource recycling industry, what do you think about the strict regulations and inspections led by the rare earth office of MIIT, the rare earth industry regulation documents made by Jiangxi province on September 13 and the Rare Metals Management Rules proposed by MIIT on December 19? What about the implementation of relevant policies? What effects would those policies have on the rare earth recycling plants?

President Liu: Firstly, we welcome the regulations laid down by the relevant departments of the government, and it is beneficial to the development of rare earth industry. But the introduction of policies should focus on real problems. As for the rare earth resource recycling industry, it is the encouraged industry for the urban mining, which would reduce the overspend of mineral resources and release the environmental pollution, which would benefit the nation and the industry. The rare earth recycling plants supply around 1/4 of PrNd oxide products needed by the industry and would consume the amount of more than one 100,000t of solid waste. So the government should take advantage of this industry, enhance the management skills, as well as support the rare earth resource recovery companies. Therefore, the government should, on the one hand, strengthen management, and on the other hand, support rare earth resource recovery companies.

Asian Metal：The Chinese government persists in cracking down on illegal activities in the rare earth industry and carrying out rare earth national reserves, what do you think about these moves? In addition, although the central government has been cracking down hard on illegal activities, the illegal rare earth industrial chain still exists, so what’s the problem? And what’s your opinion about the development of imported ionic rare earth concentrate and the monazite products?

President Liu: About the crackdown on illegal activities, rare earth resources comes from the mining of mines, which get the majority share of profits, so it is necessary for the government to make efforts to crack down illegal activities. In addition, the illegal activities in the rare earth industry cause tax evasion and environment pollution, but the punishment on those who reap huge profits through illegal activities is too moderate. Considering the heavy pollution caused by exploring ionic rare earth concentrate in South China, I advise to ban mining in the area and encourage import of the material in accordance with laws. About the national reserves, the best solution is to carry out resource reserves, rather than the product reserves. That is to say, no mining in South China would reduce excess capacity. Why do we still have to reserve as we hold the resources and technology?

Asian metal: On December 25, 2016, the twenty-fifth session of the 12th National People's Congress standing committee adopted the . As China's first separate tax law to promote ecological civilization, the environmental protection tax law will go into effect on January 1, 2018. The environmental protection tax law specifies that the tax rate will be RMB1.2-12 per unit of atmospheric pollution, RMB1.4-14 per unit of water pollution and RMB5-1,000 per tonne of other different types of solid pollution. Of course, there is an important principle in the formulation of the environmental protection tax law, which is to realize the smooth transition from charging to taxation. What do you think of the impact of the environmental protection tax on rare earth enterprises in 2018 and the next 3-5 years?

Mr. Liu: We have only one earth, and it is the duty for every enterprise to strengthen environmental protection. Circular economy advocates pollution elimination and resource recycling.

Asian metals: According to Asian Metal's interview to lynas, the company held 5,223t of neodymium available for sale in the 2017 fiscal year, up by 34.1%YOY compared with 3,896t in fiscal 2016. For the fiscal year of 2017, the total volume of rare earth oxides (REO) for sale was 16,003t, up by 26.7% YOY compared with 12,631t in fiscal 2016. The sharp rise in prices in Q2 and Q3 of 2017 has also boosted the cash flow generated by the division's operations from A$4.1 million in fiscal 2016 to A$34 million in fiscal 2017. Considering the company supplies nearly half of its products directly to China, what do you think about those data? Would the increase in market share of rare earth enterprises impact China's rare earth supply? As a veteran of the rare earth industry, what advice would you give to competent authorities in China?

Mr. Liu: In the future, foreign rare earth resources would have a major impact on the domestic rare earth industry, which would require stronger domestic environmental protection, and the advantage of domestic rare earth industry would gradually disappear.

Asian Metal: According to the investigation of Asian Metal, affected by the rising prices in former three quarters, the foreign rare earth ore projects have been put on the agenda. For example, the Rainbow Rare Earth Co., Ltd. has started operation in middle of 2017 and sold from December. The Northern Mineral Limited planned to supply rare earth ore from July of 2018, and Hastings Technology Metals Ltd. has signed several long-term contracts with Chinese companies. Facing with the sufficient supply of rare earth resources, how do Chinese enterprises take chance? From the aspect of policy, whether adding production quotas or concentrating the import right into six rare earth groups would be helpful for China to price rare earth products?

Present Liu: We should encourage import of rare earth ore and the import right should not only belong to six rare earth groups. Supposing those foreign rare earth resources are more competitive than ours, why not take use of those resources?

Asian Metal: To sum up, what do you think Chinese government should do in order to deal with the condition of internal strife and external aggression?

Mr. Liu: Firstly, to support crackdown on illegal activities, as it would be useful for both the nation and the industry; Secondly, to encourage import of rare earth concentrate, in order to protect the strategical resources; Thirdly, to adopt marketization, aiming to promote efficient allocation of quality assets. As a matter of fact, pricing power is not dependent on monopoly led by six rare earth groups. It relies on product quality, quality service and scientific research capability.

Asian Metal: Back to the topic of your company, what’s the current production condition of your company？As one of the top 3 enterprises of the rare earth resource recovery industry, can you briefly introduce the business and development plan in 2018?

President Liu: The production and operation of Xintai Technology go well in 2017. About the plan in the coming three years: Firstly, we would expand the scale of production in the coming one to two years for business horizontal development; Within three years, our company will run at full capacity, and become the leading enterprise in terms of the recycling and utilization of rare earth resources. Secondly, within the coming one to three years, we would extend the industrial chain, creating a closed-loop industrial cluster and forming an advantageous complementary cycle chain with complementary advantages for vertical development. Thirdly, we would promote talents development in various fields, especially innovative talents, and focus on creating three teams: high level R&D team, reliable management team, and competitive staff team. Fourthly, we would continue to strengthen cooperation with universities and research institutes in order to further step up efforts in scientific and technological innovation, to develop new products and technologies, so as to develop the product industry chain in a deep direction.

Asian metal: As far as I know, your company completed the reform in January 2016, and then was listed on the New Three Board in August 2016 as the first public company in ji’an county. What changes have your company experienced before and after the New Three Board listing? What suggestions do you have for those rare earth companies who intend to be listed on New Three Board?

President Liu: Xintai technology launched the asset reorganization and connected the capital market after being listed on the New Three Board, providing the platform for the company to do a great job and also promoting the rapid development of my company.

Asian Metal: At last, can President LiuCould you please share your experience about the enterprise management and administration with us?

Mr. Liu: Enterprise management must be based on honesty, law-abiding spirit and quality. Upholding the "Pragmatic and excellence, honest and trustworthy, pioneering and innovative" business philosophy, Xintai Technology has established long-term stable cooperative relationships with a number of well-known domestic enterprises and won good reputation in the industry with high-quality products and perfect service.

Asian Metal: Thanks for the inverview, Mr Liu! May the rare earth industry fulfill the prosperity and wish you every success in your business!