Natural Resources Committee on Feb. 13th, 2014

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

As you all know, we are here today to continue our study on the rare earth industry in Canada. It's a fascinating topic, and I think we all see the potential of this industry. We are very much looking forward to hearing the witnesses here today.

I understand Mr. Wilson is prepared to present the material that Mr. London was going to present. Before I introduce the witnesses I wanted to mention to the committee members that Mr. Julian has asked for a couple of minutes at the end to discuss the witness list for the cross-country benefits of the oil and gas sector study.

I'll introduce you all first, and then we'll start with Mr. Wilson. We have with us today as individuals Luisa Moreno, senior research analyst, Euro Pacific Canada; Vladimiros Papangelakis, professor, chemical engineering and applied chemistry, University of Toronto; and Steven Wilson, senior vice-president, minerals services, SGS Canada. Welcome to all of you. If Mr. London does get online, he is the chair of the Canadian Rare Earth Elements Network.

We will start the presentations with Mr. Wilson and then you can go ahead in the order that you would like from there.

Go ahead, please, Mr. Wilson.

[Dr. Steven Wilson, Senior Vice-President, Minerals Services, SGS Canada, As an Individual]

Thank you, Mr. Chairman.

We're pleased to be here today and to be able to participate with you. I apologize that you don't have a translated presentation that we can show you as part of this. With the invitation timing and some of the other things that were going on, we haven't had a chance to do that. We do have a set of slides that will be translated and distributed following the meeting, so you will have an opportunity to review some of the information.

I will also apologize briefly up front for my inadequacies in representing what Mr. London was going to present. But I would like to share with you a little bit about the emerging or developing Canadian Rare Earth Elements Network. Then Luisa will take a chance to talk a little bit about the overall economics of the rare earth elements in the industry and the capital market perspective of those things. Then I'll come back to you and talk a little bit about processing and production challenges. Then Dr. Papangelakis will talk a little bit more about the science and engineering aspects, and I'll try to close up. I understand that generally you do this in several short presentations. We're going to try to pull it all together in one if that's all right with the committee. Then we'll take questions as a group if that's okay.

I know that you have had some introduction and background to rare earths and to their importance. There are tremendous applications in a number of industries that are important in Canada and obviously globally. Certainly considerable aspects relate to magnets and permanent magnets in particular, as they are used in defence applications or in high-tech radar systems and other strategic initiatives like that. But they are also a very important aspect in many of the emerging green technologies, hybrid motors, wind turbines, battery storage, and long-term storage applications.

Canada has a tremendous opportunity and tremendous potential to get out into the forefront of the global rare earth industry with some of the things that we'll talk about later...and the pullback from China. We have tremendous resources, we have valuable and valued expertise in our Canadian mining and processing industries, and we have a tremendous group of companies who are prospective producers developing projects and properties.

As part of that, earlier this year that group has come together to try to establish a rare earth elements network in Canada that we have called CREEN. The vision of CREEN is to establish a Canadian-based rare earth production within five years that is supported by technical and innovative solutions and championed by that collaborative network.

It's a little bit of a paradox or a dichotomy when you talk about potential competitors in an industrial market who come together to collaborate to build infrastructure and to build capacity to enable all of them to succeed. But that's really what the CREEN vision is. As an industry-led multistakeholder network, the intent is to provide collaborative solutions that advance our Canadian rare earth element sector, and our goal is to produce and secure a 20% global supply of the market share of those critical rare earths by 2018.

There are a number of supporting goals that will be driven by that. They include providing that industry-driven vision that can be supported by researchers, by universities, by government agencies, by consulting engineers, and by entrepreneurs to contribute to the industry. But it also will require the timely delivery of solutions for the technical and economic problems to support the industry. There are opportunities for us to facilitate partnerships with other organizations and potentially with other countries as we develop these strategies. One of the key outcomes of the CREEN network and of our progress will be the education and training of highly qualified persons in the industry to continue to support that industry.

We do have a map in the presentation. I think you've seen it before. It identifies more than 200 potential rare earth projects that were identified as part of a 2011 study. A number of the largest—

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I have a point of order. I'm sorry to interrupt, Mr. Chair, but I'm looking around the room and half the room seems to have decks. Were they or were they not distributed?

[The Chair, Conservative, Leon Benoit]

No. I think Mr. Wilson is referring to the departmental presentation where the map was—

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

My mistake, Mr. Chair. My apologies.

[The Chair, Conservative, Leon Benoit]

Okay, great.

Go ahead, Mr. Wilson.

[Dr. Steven Wilson]

In the investigations or the studies of the industry you will have heard, potentially, a number of different monikers. We talk about the rare earth elements. There are light rare earth elements, there are heavy rare earth elements, and as part of a study in the U.S., they have identified a different group that they call critical rare earths. I think Luisa will talk a little more about some of those as we go through.

In the slides that you will receive in the future there is a table that talks about the Canadian dominance for resources, particularly in those critical rare earth areas. But the reality is that the Canadian potential includes about 50% of the known rare earth elements in recognized deposits globally. So essentially, half of the rare earths that are available for exploitation outside of China are available in Canada. In particular as we look at advanced-stage projects, globally there are 28 that are in an advanced exploration and development stage. There are another 28 that are in resource identification and development. Together, out of those 56 projects, 19 of them are in Canada. By comparison, there are nine in Australia, five in the U.S., and 23 in the rest of the world.

One of the influences in our development of CREEN was the Critical Materials Institute that was formed recently in the United States. It was a Department of Defense initiative and includes, I believe, $125 million of government funding over five years to develop a research and development network that will help the U.S. industry to secure their share of rare earth elements for supply in the industry.

There were two significant concerns that were identified in their strategic study. One is the lack of primary heavy rare earth sources in North America. Projects exist, but we don't have operating producing properties. Finally, there is the lack of resource refineries to actually separate and produce final metal from the rare earth projects. We do have a reputation in Canada as miners, as resource stewards, and we do have experience and expertise in our metallurgical community to do this.

Really, the messages we're trying to share with you today is that Canada has the opportunity and the potential from a resource and a project perspective. We have the capability and capacity as engineers and scientists, and we need to support the industry as together we develop an infrastructure and a capability, a capacity to move forward.

With that, I'm going to pass it on to Luisa, and we'll try to keep things on time.

[The Chair, Conservative, Leon Benoit]

Go ahead, please, Doctor.

[Dr. Luisa Moreno, Senior Research Analyst, Euro Pacific Canada, As an Individual]

Thank you to the committee for this opportunity.

I will start by going straight to the point that these elements are critical.

I just would like to emphasize that there are light rare earth elements as well as heavy rare earth elements that are critical. For instance, for magnets, neodymium and praseodymium are used in significant amounts in some of the magnets, such as the neodymium iron boron magnets. The estimates are very positive for those elements.

The issue with the heavy rare earths—I believe you have heard this before—is that China supplies almost 100% and they have indicated that their resources are diminishing significantly. They have less than 30 years now in regard to supplies. There has always been a fear that China might decrease further their exports of these elements that they control.

But the way the market sees it and understands it is that, as the global economy recovers, there will be an increased demand for many materials that utilize these rare earths. For instance, in the magnets space again, we have forecasts of an increase in demand of about 40% between now and 2017.

You might ask, then, if these elements are critical, and if there is a consensus among analysts that demand will increase significantly, why we haven't seen more activities from the capital markets and more interest. I want to go back in history a little bit and explain that China has controlled the supply of rare earths in the last few decades. The export quotas were introduced in 2005. At that time, they were around 60,000 tonnes. They decreased that significantly, to about 30,000 by 2010, and when that happened, the markets realized that there was a need for sources of rare earths outside China.

From 2008 to 2010 and part of 2011, many rare earth companies were formed. Over $3 billion was invested in many projects, particularly the larger projects, such as Molycorp in the U.S. and Lynas in Australia. Also, many projects in Canada received investments.

A number of events happened. China usually puts out export quotas semi-annually. In 2010, they reported the first half of exports, which were 35% lower than the previous year. That caused a frenzy in the market. Rare earth stocks were up and prices were up. Many end users stockpiled significantly. Examples include lanthanum, which was $2 per kilo back in 2007 and went as high as $250 per kilo at the peak in 2011. The market did not know and the end users did not know what the next move was and what China was going to do next.

In 2011, however, a number of things happened. China did not cut the export quotas further, as everybody thought. The second half was actually quite high. It was higher than the first half. China reinstated the 30,000 tonnes. Other things happened as well, such as the earthquake and tsunami in the country with the second-largest consumption of rare earths, which is Japan. Their economy slowed down in 2011. There were also a number of flood events in Thailand, which is a region that manufactures electronic equipment, so we saw a decrease in demand for rare earths in that region.

At the same time, during 2011-12, we saw a slowdown in the whole commodity market. The demand for many metals slowed down, and in the capital markets we saw a number of asset management firms that usually invest in mining stocks in recent years consolidate, or even close doors. We have seen a number of boutique investment banks as well that have discontinued their businesses as a result of the significant slowdown in the mining space.

So moving forward, we don't know what China is going to do. Export quotas are now 30,000 tonnes, but again, heavy rare earth demand is increasing, and their supply is diminishing. End users have done a number of things in the last few years. They stockpiled significantly and they exited the market in early 2011, so demand for rare earths in 2011 and the last few years has been really low and prices have collapsed.

Meanwhile, the end users have used their stockpiles, but they have spent hundreds of millions of dollars improving their manufacturing efficiency, particularly in reducing waste. There is this technique that is known as additive manufacturing that essentially is a little bit like 3-D printing. Instead of machining a piece, you add layers of the material, effectively reducing your waste to zero. They're also looking for alternatives for recycling, redesign, and substitution.

I will conclude by saying I think it is clear that there is demand for these materials. They're attached to many important sectors even for Canada, for example the automotive sector. They are very much linked to many green technologies and the green technology sector that is emerging around the world. From the perspective of the capital markets, we understand there is a race to supply. End users are looking for places around the world where they can set up infrastructure, where they can set up separation infrastructure, metal capabilities of rare earth materials, and other manufacturing capabilities associated with the rare earths.

This is a decision that they are certainly thinking about and will be making, and a number of countries have realized that. Brazil has had a number of meetings with Vale and other large mining companies, and they are looking into becoming a large producer of rare earths again. We know Russia is looking into that. We know even North Korea is looking into that.

In Canada's case, we have unique resources, with distribution skewed towards the critical elements. We have what I would call a culture and a knowledge infrastructure of mining that we can make use of to achieve the target that the network wants, which is to set up production and separation capabilities within five years. I think we have all or most of the components that other countries don't have. If the sector could have a little bit more support from the government, as we have seen in other parts of the world, that would be ideal to accelerate this vision.

Finally, the network will be instrumental for this, because what we have right now is individual islands of complexity—the rare earth stocks outside, the rare earth companies—and with this network we'd have a network of solutions where all the companies can come together and potentially solve many of their problems, advance the rare earth industry in Canada, and motivate end users to build the infrastructure of separation, metal-making, and so forth.

So that is the idea, and with that I conclude my remarks.

[The Chair, Conservative, Leon Benoit]

Thank you, Doctor.

Professor, do you have a presentation as well?

[Dr. Vladimiros Papangelakis, Professor, University of Toronto, Chemical Engineering and Applied Chemistry, As an Individual]

Yes, but I think Mr. Wilson is next.

[Dr. Steven Wilson]

I'm going to take a spot in the middle.

[The Chair, Conservative, Leon Benoit]

You're going to go to your own presentation now.

Go ahead, please.

[Dr. Steven Wilson]

Mr. Chairman, just as a time check, so that I know, I didn't notice what time we started. When do we need to be prepared to finish?

[The Chair, Conservative, Leon Benoit]

We want to take time to hear your presentations. So if you can be finished, both of you, in roughy 10 minutes, can you do that?

[Dr. Steven Wilson]

I think we can do that.

[The Chair, Conservative, Leon Benoit]

We do want time for questions. There will be lots.

Go ahead, please, sir.

[Dr. Steven Wilson]

I'm pleased to be able to talk to you a little bit about some of the unique processing and production challenges associated with rare earths. I'm a process engineer and a metallurgist by background. I've spent many years in the Canadian mining industry working on technology development, and more specifically on the application of technology development.

Rare earth projects, from one perspective, are like any other mine. You have to identify a resource, you have to dig the stuff out of the ground, you have to find a way to concentrate the valuable minerals and to sustainably and environmentally dispose of the material that is not in your value chain, and you have to go through and refine and purify.

Rare earths go through all of those same common steps, but the steps have to be applied a little bit differently. We're still, in many ways, at the stage where that front-end conventional mineral processing, which would be a size reduction and a physical separation, has to be developed for the unique minerals that are associated with the rare earth elements in their atomic matrixes. That's the kind of conventional development that a mining company would have to go through to produce a concentrate of some kind that could be further purified and refined.

The challenge in rare earths, as I know you have heard, is that after you get to that primary concentration of minerals, the challenge is that you don't actually have a rare earth mineral yet, you have a mineral that has a little atomic component of rare earths that then has to be separated by a process called hydrometallurgy. Dr. Papangelakis is going to talk a little bit more about some of those details.

Even after that, in rare earths you have a challenge because the testing that's required to do that hydrometallurgical flow sheet development, and then the actual separation and production of metals, still requires a sufficient sample to be able to test. What that means is that instead of having a couple of kilograms of sample that you might get from a drill core for a copper mine, or a gold mine, or a nickel mine, you have to take hundreds and hundreds of kilograms of material so that you can get a kilogram of concentrate to do the next testing. What that means is for the producers and for the potential operators of these projects, the development costs might be an order of magnitude larger than they would be for a conventional base metal or precious metal mine.

As we look at those things, specifically in those separation technologies, it's that production of an intermediate concentrate, which you can do further testing and development on, that creates the unique challenge to rare earth elements. Then as you do that test work, each of those heavy and light rare earths are very close on the periodic table and they are very difficult to separate. The final separation and refining stage is tremendously more complicated or complex than a typical gold mine might be, where you're just smelting and pouring off a doré bar.

As I mentioned earlier, Canada has some tremendous leadership in expertise around that science and technology and about applying those technologies into the mining industry. We are uniquely placed in the world, with some competition in South Africa, some competition in Australia, around being able to deliver those services effectively.

Similarly, on the environmental side, we have challenges around the often radioactive nature of minerals associated with the rare earths. There is an effective treatment requirement for uranium, for thorium, for some of the aluminiums that are associated with rare earth deposits. There are challenges there and issues around developing and understanding the toxicity. We have some significant efforts still to go through to be sure that we can produce these metals in an environmentally sustainable and appropriate manner.

The metal production piece, as I mentioned, the difficulty in that final separation and producing something that's available for your customer, is really the key to realizing the overall economic benefit to the industry in Canada.

There are no rare earth refining facilities in Canada, and no real research or development facilities to do that last step in the development process. Most of our Canadian companies are forced to go to Mintek in South Africa or to ANSTO to be able to find that capacity at the moment. Part of the objective of the network is to be able to pull some of that together effectively to be able to deliver those things where we have experience and expertise, to be able to provide an infrastructure and a joint capability to deliver that final stage of the process.

In the short term, our objectives are to look at very focused, industry-driven project work that will apply existing technologies that will get us to that early stage production with what we know now. But the longer-term need that we have as an industry is actually to develop better technologies, to develop more appropriate solutions, and to focus on the downstream opportunities there.

There are conversations in the marketplace about substitutions. At the same time, we have an opportunity as an industry in Canada to develop new applications and to look for new opportunities to take advantage of those things. As I mentioned earlier, the long-term true benefit to our science and technology community is the development of those highly qualified persons who are capable of carrying the industry forward to the next generation.

Dr. Papangelakis.

[Dr. Vladimiros Papangelakis]

First of all, thank you for the opportunity and the privilege to be here with you to present a few things about the academic and research community in the country.

I would like to emphasize that chemistry, by means of hydrometallurgical technology, is key to the processing and separation of rare earths. I'm sure many of you already know this, but I want to reiterate that hydrometallurgy involves water chemistry. Basically, we selectively dissolve metals—in this particular case, rare earth metals—that exist at a fraction of a per cent by weight in the raw material, in the ore. We try to do that as selectively as possible, put them into a water phase, and then continue with chemistry.

We reject the impurities on the wanted metals, and then separate this multitude of 18 elements from the aqueous phase into separate streams, into as pure a form as possible in order to produce pure rare earth compounds or pure rare earth metals. Chemical processing and treatment are both crucial to achieving these objectives.

Here in Canada we are fortunate to already have a critical mass among researchers and academics, throughout the country from coast to coast, in metallurgical technology. This has to do with Canada being traditionally, for a number of years, at the frontier of developing new technology for the metals industry.

The cost of doing research in Canada as compared with other countries, particularly the United States and the European Union, is much lower. I think this is an advantage for us, because it helps industry engage in university research at a lower cost than in other research-intensive countries, such as, again, the United States and the European Union.

Mineral processing and separation, extractive metallurgy, hydrometallurgy, chemical engineering, design—all of this expertise exists in Canadian universities. I have to make a comment here that in the last 15 years, because of the acquisition of several major Canadian producers by international companies, this activity has somewhat diminished. It's taking place mainly with only the few still remaining truly Canadian companies. Nevertheless, this critical mass exists, is there, and is ready to engage in collaborative research with industry.

The rare earth industry, because it's an industry in its infancy and is not a producing industry. Right now it does not have sufficient cash, like the big metal producers do, to directly support university research—i.e., as Barrick or Inco in the past, Vale, and Xstrata, previously Falconbridge, used to do. One of the reasons we are here today is to emphasize the need for Canada to develop some sort of national policy on the rare earth industry that would help academics not only attract new talent and students, because of the importance that will be evident out of this initiative, but also develop at the same time the resources to pursue focused research in Canadian universities.

It has happened in the United States. For example, President Obama declared, I think two years ago, that the development of the rare earth industry in the United States was a national priority. There is a precedent there. It would be nice if we could have something similar here in Canada.

We have a lot of models in Canada that already support university research. I'm sure you're aware of NSERC, the Natural Sciences and Engineering Research Council, which provides support. It has a number of university-industry collaborative grants. This can be a vehicle for supporting and funding university research in this area.

Provincial research programs, I refer to the Ontario Centres of Excellence in Ontario, this is something that I am most familiar with. Mitacs, another national organization based in Vancouver, British Columbia, is providing support to graduate students and post-doctoral fellows. Canada Foundation for Innovation, CFI, is providing infrastructure support.

So the universities are well adapted to engage in the short term and longer term, as Mr. Wilson explained, to solve problems that will enable the industry to jump-start and be closer and faster to production, and also engage in longer-term, more thorough, science-based, innovation-focused research to push the industry forward. There are a number of models, successful examples. I think it is straightforward if the resources are there for us to do it.

In closing, in our presentation you will find a collage of a various academic institutions from coast to coast. This is not an all-inclusive list. These are universities where activity is already taking place but is uncoordinated, I would say, at this point. CREEN is planning to organize a workshop here in Ottawa in about a month to bring academics from the industry and industry representatives together in the same room. I think this will be housed at CANMET here in Ottawa to discuss projects of common interest among the industry in order to improve efficiencies and push forward the research in Canada as efficiently as possible.

I would like to thank you for your attention and if you have any questions I would be happy to respond.

[The Chair, Conservative, Leon Benoit]

Thank you very much, professor.

Thank you to all of you for your presentations.

We will get directly to questions and comments by members starting with the government side.

Mr. Leef, up to seven minutes, go ahead please, sir.

[Ryan Leef, Conservative, Yukon, YT]

Thank you, Mr. Chair.

Thank you to all of our witnesses today. You touched a little bit briefly on what some of the other countries are doing. Whoever is prepared to answer this question, I'll leave it open.

What is the rate that other countries are developing in this industry in comparison to the rate Canada is developing it?

[Dr. Luisa Moreno]

By rate, do you mean speed?

[Ryan Leef, Conservative, Yukon, YT]

Yes, speed and efficiency....

[Dr. Luisa Moreno]

For instance, in Brazil they have actually put out a white paper. I believe the government has approached at one point, Vale, which is one of the largest mining companies, to investigate potentially the production to develop separation technology. Another company in Brazil, which is CBMM, has announced that they have invested $50 million in trying to separate rare earths as well. As you know CBMM is the largest producer in the world of niobium. Brazil accounts for about 85% of niobium production and niobium has been identified by EU officials as one of the top five critical materials. So that is an example of what is going on there.

Russia is a little bit less transparent. They have produced rare earths in the past. We have seen some press releases of large business individuals that are investing in the country to develop separation technologies and the government is supporting that.

In North Korea, it's even less transparent, but they have said apparently they have found a large deposit. We don't know how much they have done. I don't think it is of great concern personally, but it is interesting that a number of countries are realizing that.

[Ryan Leef, Conservative, Yukon, YT]

You mentioned that—