Neodymium, praseodymium, dysprosium, terbium: Key blockers to EV ascendancy

EVs, F-35s, green economy

US President Biden said his goal is that 50% of cars sold in 2030 will be zero-emission vehicles: less than 9 years away. So … is that doable?

Maybe, but the US needs 10X more rare earths for magnets.

Currently, less than 2% of cars on American roads are electric. About 17-19 million cars are sold in the US annually, and a little over 300,000 are EVs. So we’re at about 2%.

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One of the things you need is batteries. The other is electric drivetrains, and for that you need rare earths for magnets: neodymium, praseodymium, dysprosium, and terbium. Plus, of course, lithium for batteries. It’s not just electric cars … the F-35 fighter jet needs a ton of rare earths. Wind power requires it, and so do batteries that power energy storage for green economy plans.

In fact, according to Pini Althaus, CEO of USA Rare Earth, the U.S. needs 10X more by 2030, and maybe 25X more by 2050. In this episode of TechFirst with John Koetsier, we chat about what that looks like … and what he’s doing to try address the problem.

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(This transcript has been lightly edited for length and clarity.)

John Koetsier: Remember that big meeting in Washington about electric cars, that didn’t include Tesla?

U.S. President Biden said that his goal was that 50% of cars sold in the year 2030 will be zero emission vehicles. That’s less than nine years away. So, the question is, is that doable? Currently less than 2% of the cars on American roads are electric. The U.S. sells about 17, 18, 19 million cars annually and just a little bit over 300,000 of those are electric. So we’re at around 2% right now. Of course, one of the big things you need for an EV is a battery, a big battery. About 40% of the cost of an EV is battery, and most battery production is based in China.

So the question is, can the U.S. jumpstart local production? To chat about that, we’re here with Pini Althaus, the CEO of USA Rare Earth. Welcome!

Pini Althaus: Thank you, John. How are you? 

John Koetsier: Hey, doing well. Thank you for coming. What’s the biggest blocker to achieving this monstrous 50% goal?

Pini Althaus: Yeah. Well, I think it’s not only the batteries, as you’ve mentioned, it’s the rare earths that are required for the EV drivetrain. So we have two, if you will, groups of critical minerals … none of which are being produced in any sort of quantities today outside of China that would assist the supply chain here and get us to that goal.

So whilst I think the announcement by President Biden and the executive orders are extremely important, and it’s always important to have goals, we have a lot of roadblocks ahead of us in order to achieve that 50% electrification by 2030 — primarily starting with obviously the supply chain issues, having domestic battery manufacturing, having domestic mining and processing of rare earths that can then be turned into permanent magnets that go into the electric vehicles.

John Koetsier: What are those rare earths specifically? And where are they used primarily? 

Pini Althaus: So there are four rare earths that are in the permanent magnets.

You’ve got two light rare earths: neodymium and praseodymium. And you’ve got two heavies, which is dysprosium and terbium. And they are used in the EV drivetrains and they’re high-pressure temperature magnets that stop the car from overheating.

They allow the vehicle to do what it needs to do as far as sort of the key electrification. In fact, we find these magnets in, for example, cell phones.

So, to stop your cell phone from overheating there are magnets in there.

They’re found in most advanced weaponry defense equipment — F-35 striker jet has about a ton of rare earth magnets in them. Wind turbines have a significant amount.

So we actually, it’s not just EVs, we have a national security issue in this country which is being recognized by yesterday’s bill — a bipartisan bill by Eric Swalwell and Guy Reschenthaler — and it has been recognized by Congress as well. I mean, we can’t build defense applications and obviously electric vehicles and other things without these materials. 

John Koetsier: That is super interesting. I want to dig into that a little bit in what that bill is about, but I believe China has — you mentioned off the top, that China is the source of most of the world’s rare earths.

And I believe that recently, I think it was about half a year ago, they said something about it’s a strategic resource and they created some directives about how they could be exported, if they could be exported, other things like that. This U.S. government resolution that you mentioned, what does it mean? What does it say?

Pini Althaus: Yeah. I mean, there’s four parts of the supply chain.

So you’ve got the actual raw materials that come out of a mine. You’ve got the processing, you’ve got the metal making, and the magnet manufacturing. So this is an extremely ambitious and very intricate process to go all the way from mine through to magnet. And the bill yesterday, it touches on one part of this, which is the — and a very important part — which is the magnet manufacturing.

There are other acts like the RARE Act that’s also bipartisan that touches on the other parts of the supply chain, including the mining, the processing, the metal making. And that’s there, first of all, to alleviate the concerns around China potentially manipulating the pricing by further subsidizing their own domestic rare earth sector. But it’s there to also incentivize the United States and, I guess, investors here and companies involved in the sector to actually proceed with developing mines, processing facilities and magnets. So it’s all very important. It affects the bottom line and it does take away some of the potential sting from China.

That being said, you know, China, if you want to talk about sort of protectionism, etc. I mean, the United States has its own regulations through CFIUS. China has its regulations and we’re in a very different situation now than we were back in 2010 when China cut off rare earth exports from Japan for 40 days, and the U.S., Japan, and others went to protest the WTO and China was forced to reverse that decision and resume exports.

And the reason we’re in a different situation now than we were then is at that time, there was an abundance of these materials, there was a surplus of these materials, and it was just a nefarious action on the part of China.

Since 2018, China has become a net importer of rare earths, and as part of their Made in China 2025 mandate, as part of their Belt and Road Initiative, the aspiration is to have 25 million electric vehicles on the roads. They, today, are well within their rights to have those materials for domestic consumption, domestic production of materials, or product to be shipped around the world.

So we’re in a situation right now where it’s less around the potential weaponization of rare earths, and it’s more a supply and demand issue. And if we look at the numbers of what we require as far as the supply chain in this country and even countries like Japan, Korea, Germany where automotives are manufactured, where you have consumer electronics manufactured — we have a huge disparity in current demand and supply, and it’s going to grow even further as we move toward 2030.

And you know, rare earth deposits, lithium deposits, but especially rare earth deposits, they don’t just get turned on by the flick of a switch. They evolve, sometimes a decade or two of drilling, having the right economics, being able to develop those projects.

So a lot needs to get done for us to have any sort of independence from China if we’re going to get to the goals that we’re trying to achieve.

John Koetsier: Big picture, how much do we need? How much do we use right now? How much do we produce locally? And if we’re going to get to this 50% figure, what kind of domestic production of rare earths does the U.S. need?

Pini Althaus: So, if you look at some of the experts and analysts in the space, they’re looking at we need 10 times more between now and 2030. We probably need about 20 to 25 times more than we have now, between now and 2050.

And I think that’s understated. The reason I think that’s understated is because what’s being factored into those figures are the projects that are coming online or the projects that are online already. But what’s being neglected in some of this information is that some of these projects already have offtake agreements with China, already have offtake agreements with German companies, already have offtake agreements with the governments of Japan.

So if you look at what’s coming online, what’s online already, we may need 20 times what currently is available today, by 2030. But certainly even using that figure of 10 times, you know, we don’t have any magnet rare earths being produced in the country today, and we don’t have any rare earths actually being produced and processed in the United States today.

So we need to get a number of projects online. We’ll also have to collaborate with countries like Australia and Canada where they do have some rare earth production starting. In the case of Australia, you’ve obviously got Lynas and a couple of other companies there, but you’ve got, for example, Lynas has an offtake with the Japanese government through JOGMEC.

So do those materials come to the United States? Do they come to the supply chain? A lot of questions. And then that’s the mines. We don’t have processing in this country right now, so our company USA Rare Earth has developed a processing method not just for our project in Texas, but also to be able to treat third-party materials. So our ambitions are to actually bring more of these materials from Canadian projects, from Australian projects, from elsewhere in the world, into our supply chain and assist with the processing as an alternative to those materials going to China today for processing.

John Koetsier: So if we need 10X more materials, rare earth materials by 2030 … give me a sense, what kind of tonnage are we talking about there? Are we talking a hundred thousand tons of this material? Are we talking a million? What’s it look like roughly? 

Pini Althaus: So if we look at the end product magnets, for example, so we acquired last year the only permanent rare earth or centered neo magnet plant in the United States, or in the Americas for that matter. That was the magnet plant formerly owned and operated by Hitachi, North Carolina.

So that magnet plant is capable of producing 2,400 ton of permanent magnets a year. In 2019, that accounted for 17% of overall neo magnet imports into the U.S.

That would account for a lot less today and certainly as we move into the future.

So whether the requirements for EVs is 8,000, 10,000, 15,000 ton of magnets, we obviously have requirements for the national defense stockpile. We have requirements for defense contractors, consumer electronics companies, renewables. We are well short because other than this one plant which can produce 2,400 ton a year, there’s no other magnet manufacturing capabilities in the United States today. So, there’s a difference of opinion as to what that tonnage is, but it’s certainly many multiples of this one magnet plant. 

John Koetsier: Wow, which means that if you’ve got this plant up and running, you need multiple others and you need your mine up and running.

I’m guessing that’s a multi-year process as well, and there’s probably tons of environmental regulations to go through as well to get that kicked off. When do you anticipate being able to start production?

Pini Althaus: Yeah. So John, you’ve touched on a very important point here.

So the Round Top deposit which is located in Texas is scheduled to come online in 2023. So what we’re doing now is we’ve commissioned our pilot plant which has been completed. We’ve already started laying the groundwork for a demonstration plant onsite, which should be up sort of end of this year, beginning of next year, which will provide materials to customers — sample materials to customers, and then full production in 2023.

We’re fortunate that we’re on state of Texas land, so we have a different environmental regime, if you will, to those sort of on federal land. And we’re already seeing with lithium companies like Lithium Americas, Piedmont — two companies that we actually need to go into lithium production — we already see they’re experiencing issues with environmental groups, NGOs, etc. So I think there’s going to be a balancing act for this administration.

Looking at where are the materials coming from today that are going into EVs, renewables, and if you look at that situation, it’s completely unacceptable. We have materials coming from mines and processing facilities in China that by their own admission — this has been reported on 60 Minutes, BBC, and elsewhere — I mean, they’re causing significant environmental devastation to the surrounding areas.

People in the population nearby have gotten sick from the processing and mining of these materials. Yet we’re taking them and putting them into our EVs. I mean, that’s not sustainable. The U.S.-based EV companies are aware of this. The Germans, the Japanese, the Koreans, all aware of this and that this has to change, and there is the sustainability aspect not just the supply chain issues. 

So any mine that’s going to get permitted to come into production in this country is certainly going to have to go through environmental rigors, some more than others, but no mine in the United States can get permitted into production without having or adhering to the highest environmental standards … certainly a lot better than anything coming out of China. So there’s going to have to be a balancing act by the administration to say, you know, what’s reasonable? We want to have electrification. We want to have a green economy. We want to have renewables.

Well, where are we getting these materials from?

And there has been talk about a reliance on Canada and Australia, and this is a very foolhardy way to approach this for a couple of reasons. One, Australian and Canadian project owners, they’re not required to sell into the U.S. supply chain. They don’t have CFIUS regulations. They could sell to anyone — they can sell the materials to China. In fact, some Australian companies have offtake agreements with China in place already, which means those materials will not come into the U.S.

The other thing is the U.S. government doesn’t have an apparatus similar to that of China or even Japan, where they’re buying materials or entering into agreements on behalf of whether it’s the automotive sector, consumer electronics companies. I mean the U.S. government is going to buy materials for what’s needed for defense and for the national defense stockpile. But beyond that, I mean, they’re not going to be buying materials for a GM or Ford or anyone else, so that’s not a sustainable—

John Koetsier: So that’s actually really interesting. So what you’re saying is that China will buy materials for its entire industry, which means it can act as a single player for a large number of organizations and be a very big buyer that you’ve got to listen to. The U.S. just lets the companies go and get their — source their own supply, correct?

Pini Althaus: Well, it’s not only China will … China is doing that. 

John Koetsier: Yeah.

Pini Althaus: And China, the way that the system is set up there, it’s they buy and then they decide where these materials will go to. Of course you have individual companies that are entering into offtakes, but a lot of them are state-controlled or there’s a lot of state influence on those companies.

But even Japan. I mean Japan has, because of what happened in 2010, as I mentioned earlier — Japan has taken a very important and robust approach to this, which is working through METI and JOGMEC to fund companies like Lynas, secure the offtake for their materials, and then they’re bringing those materials, whether it’s for defense, whether it’s for consumer electronics, other sectors, but they are working on behalf of not just defense, but they’re working on behalf of the overall economy that will require these materials.

I mean, the Australian government as well, but this is sort of from the export side, the Australian government has put funding packages together. They handhold their rare earth mining companies, they introduce them to investors, introduce them to off-take partners. The U.S. government doesn’t operate that way and I don’t see that changing anytime in the near term. So the question is, is how can we spur the capital markets and private capital to be funding these projects? And how can we make it easier, not harder, for companies to get projects up and running and producing?

John Koetsier: Well, I’m guessing if the price of those is going up, then the private markets are going to be very interested.

Now the question is, is there enough supply in the ground, in the U.S., in accessible places? Do you think there is? 

Pini Althaus: Not right now. So if you look at the Round Top deposit, which is our deposit in Texas … in Texas, about 30% of the deposit are rare earths, primarily heavy rare earths, and 30% is lithium. So we’re quite a unique project and we have some of the key materials.

We’ve got the largest gallium resource, and hafnium, zirconium, some materials required for 5G, for chip sets, semiconductors, etc.

Yet, if you look at the materials that we have for permanent magnets or for lithium, it still accounts for sort of a percentage of the overall supply chain requirements in the United States. We would need another four or five Round Tops to go up to start looking at having sort of what we would call independence or a lack of complete reliance on China.

I mean, we’ve got to get to 50%, 60% so that it’s not weaponized, so that we can be independent similarly to what’s happened sort of, you know, if you remember the old days of OPEC and the embargoes and the U.S. now has become a net exporter of oil and natural gas. I mean, that’s removed a huge security issue, if you will, from us and an economic one as well. And a similar tack needs to happen. The issue here is that we have a few projects that are still in what we call development phase, uncertainty around whether or not they will get into production, whether they’re economic.

So we still have a decade at least before we have a clear picture on whether or not the U.S. has enough materials. We are going to have to rely on Canada to a great extent, which has some projects that are sort of in development phase as well. But for the foreseeable future, we’re going to have to have materials from the United States, from Canada, from Australia, and other friendly countries as well, in order to establish a secure supply chain. 

John Koetsier: I’m guessing that as we move to a green economy, clearly there’s a lot that needs to be done to make that happen. But it’s not just EVs … I’m guessing it’s also wind turbines. I’m guessing it’s also generators and other areas of sustainable energy that require these magnets and rare earths. Is that correct? 

Pini Althaus: That’s correct. I mean, you look at a wind turbine — a wind turbine also has almost a ton of rare earth magnets in them to make them function. So—

John Koetsier: Wow. I can have a wind turbine, I can have an F-35. Which do I want? [laughs]

Pini Althaus: Well, exactly. The problem is that the materials today for both are coming from China, right? And in the case of defense applications, you’ve got a national security issue. In the case of the wind turbines, you’ve got a big sort of sustainability hypocrisy, if you will, of taking materials that haven’t been mined and processed in a friendly way or environmentally friendly way at all, yet they’re going to our green economy. And I think what we’ve seen, for example, with John Kerry imploring China to cut down emissions, that what’s done in one part of the world has an effect on another part of the world.

So it’s no good for us sitting in the United States saying, let China destroy their environment and send the materials here. I mean, that’s just going to bring us all down. It’s all or nothing kind of thing. So, but I mean from the environmentalists, and I get where they come from — certain mines in certain parts of the world have caused issues; we’ve seen the oil spills in the Gulf of Mexico, etc. It’s very different.

And I mean, you’ve got organizations like IRMA, which Ford and BMW and Microsoft and others have signed up to, to adhere to some sort of ESG rating. What we’ve done as well at USA Rare Earth is we’ve voluntarily signed up to a partnership with a group in Australia called Source Certain International.

They use a DNA chemical fingerprint to actually trace the provenance of the materials all the way from mine to magnet, so that we can provide an end-user certification to our customers and they in turn can provide that to their customers.

So you see where the materials have been mined, where they were processed, where the metal making happened, and where the magnet manufacturing happened. And this is not blockchain. This is DNA chemical fingerprints so it can’t be manipulated. And I think these kinds of measures are very important to enact at this stage, and one of them is doing is very important as well. 

John Koetsier:  Very, very interesting stuff. Challenging stuff, because I don’t think there’s any such thing as a totally environmentally clean mine, but obviously there’s better ways of doing it and worse ways of doing it. And it’s also very important for us to get on renewable energy and to stop pumping hydrocarbons into our atmosphere. Pini, I want to thank you for your time and your insight.

Pini Althaus: I thank you very much, John. Thanks for having me.

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