Ian Higgins: Establishing a non-Chinese vertically integrated supply chain for the production of rare earth based magnetic alloys

Asian Metal: In the past two decades, Less Common Metals (LCM) has emerged as one of the leading global manufacturers and suppliers of high purity metals and magnetic alloys. Would you mind providing a brief synopsis of LCM’s history and explaining how it came to realize its prominent market position today?

Ian: Less Common Metals was founded in 1992 and operated as a privately held company for approximately 16 years. Originally it was founded by a gentleman named David Kennedy, who was the formal technical manager at Johnson Matthey rare earth products. Approximately four years after he founded LCM, it was purchased by another private company called Meldform, which was a trading house with a strong position in both rare earths and cobalt, two of the raw materials of interest here at Less Common Metals. At the time it was a very good strategic purchase for Meldform because it provided Less Common Metals greater access to the funds necessary to expand. When you fast forward to mid-2000’s though, you could see Less Common Metals as a stand-alone company in the west, had become vulnerable to the security of raw materials supply. LCM was purchased by Great Western Minerals Group in 2008 as an important component of their overall integrated mine to market business model for rare earths, LCM being the market end of this model.

LCM manufactures alloys based on rare earths, the prime market being the rare earth magnet industry. Our main focus is on neodymium iron-boron and samarium cobalt magnetic alloys, but we also produce a variety of alloys based on other rare earth and transition metals, including lanthanum, cerium, gadolinium, yttrium, terbium, dysprosium, nickel, cobalt, and aluminium.

One of the distinguishing aspects of LCM is the fact that we are totally independent of any specific magnet manufacturer; we do not make magnets and we do not have a tie in to a specific magnet manufacturer. We have a very strong emphasis on customer relations. There is a relatively small customer base that is available to us, that being the non-Chinese magnet makers, so we work very hard to maintain a good level of communication at all levels, whether it relates to technical, commercial, shipping, or anything else. We make sure we fully understand the customers’ needs and that we are prepared and ready to meet those needs and other requirements. The main reason we have gotten to where we are today is our customer focus; there is a small customer base and we do everything we can to look after them.

Asian Metal: I understand LCM recently completed its relocation from Birkenhead to the current facilities at Hooton Park in Ellesmere Port. Could you briefly discuss the key benefits and attributes of the new facilities, including new equipment as well as expanded production capabilities?

Ian: It is a much larger factory; it’s roughly double the floor area. As part of GWMG, LCM needed to make sure it was in a position to process the group’s relevant rare earth output. The old facility was not adequate, particularly in terms of size and capacity. It was more than an issue of floor area, it was roof height, and storage for raw materials, works in progress, and finished products. We decided to search for new premises, and after 7-8 months identified the new facilities as an ideal fit in terms of size. LCM is a very heavy user of electricity, so we had to have a dedicated specialist HV power supply put in.

As part of the move, we looked to refurbish all of the equipment that was at the old site. In the case of certain pieces of equipment we had to apply upgrades, primarily because of changes in legislation and regulations that do not apply to equipment in situ but take effect as soon as the equipment is moved. A lot of thought went into the layout of the factory floor. We used the floor employees input as much as possible in an effort to make the work flow as convenient and efficient as possible. We also put in an upgraded analytical laboratory that is geared up with the modern tools and facilities necessary to meet all of the various requirements for where we expect to go in the future.

In terms of new equipment, we took delivery of our first strip casting furnace at the very end of 2011. We had just taken over the lease at the new facility so the furnace came directly here. It was constructed through the end of 2011 and commissioned in early 2012. We also purchased a second strip casting furnace in the early part of 2012 that is being installed right now. It is probably two thirds of the way through the installation process so we expect to commission it in the late second quarter, or early third quarter, 2013.

Capacity is always a slightly subjective concept in terms of how you operate shift patterns and things like that, but if we were to operate the site at three shifts we would be able to produce around 1,100 tons per year of alloy before we installed the strip casting furnaces. Each strip casting furnace can produce around 700t/y alone, which would bring our total production capacity up to approximately 2,500t/y, more than double our previous production capacity level. Strip casting furnaces are not just for increasing production capacity though, they are also there for technical advantages. Strip casting alloy is the industry standard for making NdFeB magnets. Historically we use to produce that alloy by book-moulding, where you simply cast into relatively thin slabs, but still slabs in a static mould. The microstructure you get from this is not ideal for magnet making. It is relatively inhomogeneous; you see a fine grained chill structure around the edges and quite big grains going into the center of the solidified alloy. Most alloy manufacturers are moving away from book-mould alloys to strip cast alloys, so if we are to realize our target of processing GWMG neodymium units into alloy we need to have this technology available to us.

Also as part of the integrated mine-to-market model, there is a need to convert rare earth oxides into metals. Historically we have made metals by a process called vacuum reduction and re-melting, in which you mix a rare earth fluoride with calcium, heat the two together and end up with calcium fluoride and rare earth metal as two immiscible liquids. Upon solidification, these liquids form two separate solid entities, where you can just break one off from the other, which then leaves you with the by-product (calcium fluoride) and a quite impure rare earth metal. By re-melting the rare earth metal in a high vacuum you can actually remove most of the impurities and get a relatively pure rare earth metal. This production method is cost effective for higher value rare earth metals; indeed it is the standard method for production of pure dysprosium or terbium. However for light rare earths, such as neodymium, processing costs for vacuum reduction and remelting are relatively high.

The current industry standard for making metals like neodymium is electrolysis, where you pass a DC electric current through a molten salt bath, which is primarily neodymium oxide in a neodymium fluoride carrier bath, and end up recovering neodymium metal on the cathode. The production of rare earths by electrolysis is a uniquely Chinese process. We have worked with an industry expert who produced general engineering drawings. After working with a UK foundry technology company to turn these vague drawings into actual design drawings for electrolytic cells, we have had two cells built, which are now on site. We are looking to commission the cells probably in late Q2 or maybe early Q3 of 2013, and depending on the results, we plan to go into full scale production of rare earth metals at this site. Whereas today for our alloying business our raw material shopping list is comprised of rare earth metals, our obvious next goal is to get to where this shopping list made of oxides that can be processed into metals on site, with the rare earth oxide supply coming from in house production being the ultimate goal.

A key focus for LCM’s electrolytic metal making programme is to develop a process that conforms to the highest possible levels of Environmental, Health and Safety standards. We have invested heavily in extract systems, suitable guarding and handling equipment and are committed to extensive site monitoring during operation. Conformance to legislation is seen as the absolute minimum requirement for our process.

Asian Metal: LCM manufactures and supplies both samarium cobalt (Sm-Co) and neodymium ferro-boron (Nd-Fe-B) magnetic alloys. A lot of emphasis is placed on the substantial growth prospects for Nd-Fe-B magnets, with the market for Sm-Co frequently receiving less attention. Would you mind explaining some of the unique advantages/disadvantages of these two products and discussing some of the potential growth sectors for Sm-Co magnetic alloys?

Ian: Generally speaking, magnets made from NdFeB have much higher properties at room temperature: higher energy products, higher remanence, etc. In addition NdFeB was historically a lower cost material, being made from raw materials that are more readily available than that of the SmCo alloys. As a result, NdFeB was traditionally viewed as a material that would face less supply issues than SmCo. If you go back to the days before rare earth prices became volatile, cobalt was one of the highly price volatile metals, which definitely caused some nervousness in the off take of SmCo alloys.

David Murphy, one of our resident experts on magnetic alloys, also provided me with some commentary on the differences between these two materials. SmCo is actually a lot more brittle than NdFeB, making it more difficult to machine. Furthermore, the main SmCo alloy, Sm2Co17, is actually difficult to magnetize in situ, meaning magnet manufacturers need to assemble their products with the material already magnetized. Most magnet manufacturers like to magnetize products once they are fully assembled as the logistics of handling magnetized materials complicates the assembly process for obvious reasons.

SmCo, however, does have better high temperature properties. One of the main reasons you add dysprosium (Dy) to NdFeB alloys is to improve high temperature performance, but even high dysprosium alloy does not really compare with SmCo. By the time you are slightly over 100 degrees Celsius, SmCo is a stronger material. And of course, adding dysprosium significantly brings up the cost of NdFeB, which for certain applications, has rendered SmCo a less expensive alternative to high-Dy NdFeB magnets. The price volatility of cobalt has also settled down recently, which has helped to contribute to the attractiveness of the material.

There are indications that there has been some substitution during the past 18 months, but in the case of most applications, if you are going to change a magnet there is a long requalification process.

We are at the stage now where if a design engineer has a requirement that may necessitate the input of a rare earth magnet, he will instinctively go with the NdFeB, and will only consider other materials if there is some unsatisfactory feature of NdFeB.

In addition, samarium availability is relatively more limited. If you assume Chinese REO equivalent production to be around 120,000 tons per year, where samarium accounts for only 1% of production, you are left with about 1,000 tons of samarium metal, which equates to approximately 3,000-3,500t of Sm2Co17 alloys. While the Chinese internal market is a bit unknown, based on estimations we would say that the current market for samarium cobalt alloys is about 1,400-1,500 tons per year. So there is scope that demand could double without encountering issues with supply, but when you contrast that with demand for NdFeB, which is somewhere in the 70,000+ tons per year region, it becomes clear that you simply do not have that much room for substitution.

Asian Metal: In the past few years, concentrated R&D efforts, largely coming out of Japan, have made leaps and bounds towards the effective reduction of dysprosium content in permanent magnets through the introduction of new, high-efficiency production methods. How much of an impact do you think these important technological break throughs will have on global demand for dysprosium? What needs to happen to reverse the current market trend focusing on the transition away from dysprosium-reliant magnet technology?

Ian: First off, I want to say that this type of research is necessary because of the imbalance in the production of the rare earth products used in high performance magnetic alloys, specifically neodymium, praseodymium, and dysprosium. While the global supply of praseodymium and neodymium is bolstered by Northern China’s huge production capacity, dysprosium production is much more limited. At the rate dysprosium is being used today, it will be the rare earth material that limits the global production capacity of high performance NdFeB magnet alloys.

Most of the new sources outside of China are deposits dominated by light rare earths with very little dysprosium content. In the next few years, the market will see significant expansion to global neodymium and praseodymium output, but without the dysprosium availability there are limits for the off-take of these new neodymium and praseodymium units. Research into decreasing the amount of dysprosium used in high performance magnetic alloys as well as the continued development of new sources of dysprosium are both necessary to avoid constrictions on supply and to facilitate future market growth.

Asian Metal: In 2008, Less Common Metals became part of the Canadian junior mining company, Great Western Minerals Group (GWMG). When GWMG’s flagship project, the Steenkampskraal project, reaches production it will effectively represent the development of a vertically integrated supply chain for the production of rare earth magnetic alloys. Could you briefly discuss the importance of this development and what it will mean for LCM?

Ian: It is absolutely vital that LCM has integrated availability of critical rare earths. Prior to the GWMG acquisition, LCM was vulnerable to material demand and price fluctuations on raw materials that are subject to an unfair open market where it can disadvantaged by price differentials. The rare earth industry as a whole needs the assurance of a secure supply with stable and realistic prices that can fulfil the potential demand requirements for all of the different applications utilizing rare earths, and unfortunately this goal is unachievable when there is effectively a sole supplier. China has implemented many legitimate policies, and the overall sentiment of trying to bring an industry into regulation, address environmental concerns, and improve health and safety standards is laudable, and they are right to do that. Granted, some of the manners in which these policies are applied in practice are less than ideal, but overall you can not criticize China for what they are trying to do.

Simply put, the market requires the introduction of alternative sources to China. It is almost a mantra for us now, but “secure supply, stable and realistic prices,” is technically what the whole industry is going after, and both LCM and GWMG are very much working towards being in a position to achieve that. Certainly for LCM, the fact that we have an internal source of supply independent of Chinese production is absolutely vital to our future. It also gives us this expansion possibility, which is an opportunity we are now working to realize.

It is also important to recognize the critical role of LCM in GWMG’s production model. Rare earth products are not off the shelf items, they are customized materials that require extensive technical expertise to manufacture. In order to actually realize value, a producer must manufacture something that an actual end user wants. LCM gives GWMG the technical know-how, the market knowledge, and the processing capability, that is needed to realize the value from the neodymium, praseodymium, and dysprosium units the group plans produce.

Asian Metal: Behind Molycorp’s Mountain Pass and Lynas Corp’s Mt. Weld, GWMG’s Steenkampskraal is scheduled to be one of the first rest of world (ROW) projects to reach production. Would you mind discussing the importance of this “early mover” advantage and some of the key benefits it will provide?

Ian: It is absolutely critical that new non-Chinese rare earth suppliers reach production. At this point in time, it is important to re-establish confidence in the supply chain for rare earth otherwise there will be a shift of technology. No matter how much better the rare earth based materials are than alternatives, if there is this nervousness about availability, about price volatility, or about possibly having to relocate your plant to China, you are going to see a slowing of growth or even a shrinkage of the market. Again, the only way to reassure end users is through the diversification of global supply sources beyond the Chinese model. Granted there is still a real risk of oversupply in the industry. There is probably already an oversupply of cerium and lanthanum, especially considering what the new ventures will contribute with the additional cerium and lanthanum production capacity. It is tough to say where all of this additional material is going to go, what type of applications will be absorbing this additional production. Given the limited availability of dysprosium and the resulting constrictions on high performance magnetic alloys, it is possible the neodymium market may reach oversupply when some of the new projects reach production.

There is a real risk of oversupply in the market, and in that sense, the “early mover” advantage is important because it enables a project to both approach consumers and establish itself as a supplier before other projects are even in production and some of these rare earth materials go into oversupply. Today the opportunity to become a rare earth supplier is there, but it will not be there forever; the industry simply does not have room for a dozen additional rare earth projects. That being said, a project’s product mix is also critical. There is understandably a lot of interest in heavy rare earth deposits, and even though many of the new ventures are still years away from production, there is still plenty of opportunity for them to reach production.

Asian Metal: Many rare earth metal prices have been trending downwards during the past few months with little prospect of a recovery in the near future. GWMG will satisfy the majority of your rare earth raw material procurement requirements once the Steenkampskraal project reaches production, however, in the interim period how will you manage to maintain sufficient stock levels while avoiding exposure to raw material price depreciation?

Ian: Less Common Metals is a very experienced purchaser of rare earths. Many LCM employees, including myself, have spent decades working in the rare earth trading industry with an emphasis on purchasing raw materials for manufacturers. We pursue very classical purchasing strategies; in a falling market we do what we can to avoid going long on raw materials. We also try to make sure we have order cover by backing off alloy sales against raw material purchases. We do our best to keep everything as balanced as possible, but of course this can be difficult due to shipping lead times and our need to be able to meet a client’s short term material requirements, which generally keep us in a slightly long position.