Natural Resources Committee on Feb. 13th, 2014

[Dr. Steven Wilson]

If I may, the Canadian industry, because it is so dependent on the resource sector to begin with, is very sensitive to the overall health of the resource market, and the last two years have been a significant challenge in mining and metals. So I think that has drifted into what may still be a very attractive opportunity in the rare earth metals, but there's a general uncertainty and discomfort with the mining space in the last 24 months.

[Joan Crockatt, Conservative, Calgary Centre, AB]

So prices are low right now?

[Dr. Steven Wilson]

Generally.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Now, this is the quintessential natural resources story, right? It reminds me so much of the oil sands. We have MPs here from Saskatchewan who are really familiar with the uranium industry, etc. At the beginning it's always tough, but I'm wondering if at some point we would be irresponsible if we didn't say we need to see some kind of economic study that shows this would actually be of benefit and what kinds of economic benefits we might realistically be able to see from this industry to know how excited we should be getting about it. Right?

We hear a lot of people come in with great ideas in the formation stages. We know that getting financing at the beginning is going to be difficult, so often industries will come to government. I think that's the piece that we would look for. Is this industry going to be economically viable, and do we have some hard statistics?

Is that the kind of study you're talking about right now?

[Dr. Luisa Moreno]

Part of what we do is look at the economics of the project to reach a stock price, and obviously, the price of rare earths is an important input in the evaluation, as well as capital costs and operating costs and so forth. From the mining perspective, assuming that these companies are able to secure off-take agreements and sell these products, I could say from my analysis that they are economic. Some of them are very economic.

There are two components here. Obviously, being economic is very important, but also there is recognition that there is a strategic component to these elements. If they were not strategic, I think the United States, the EU, and Japan would not have gone to the World Trade Organization to file a lawsuit against China. They are extremely important for the technology we use at present, and going forward as well.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Crockatt.

We have Mr. Julian next, followed by Mr. Trost, then Mr. Bevington.

Go ahead please, Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thanks to our witnesses. This has been very interesting testimony that will be very useful for us for our study.

I wanted to start by coming back to the issue of where we would be in 2018. If we look at that 20% market share that the network is looking at obtaining, what kinds of investments would be needed to attain that market share? If we're looking at 20% of rare earth metals around the world, what would the worth be in terms of production? What is Canada's current level of consumption of rare earths? We've talked about the manufacturing industry, but I'm interested in knowing what we currently use in our industries across the country.

Those are the first three questions to start things off.

[Dr. Luisa Moreno]

In terms of consumption, I don't know exact numbers. We know most rare earth products are produced in Asia—China and Japan. Canada is buying finished products. There is a need to study and understand how much rare earths is included in some of the products we consume.

I think in cars it's been quite understood and then I guess it's a question of understanding how much we consume in cars and then other things, wind turbines and so forth. That is a way of understanding how much the Canadian economy is exposed to rare earths in tonnes.

I'm fairly sure we purchase rare earth compounds. I know of one company that produces fluorescent lights, which use rare earth compounds, europium and so forth, but I'm not sure there is a comprehensive study around that.

What was your other question?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

It was about investment and the worth in terms of production, if we're looking at 20% market share by 2018.

[Dr. Luisa Moreno]

One way of estimating investments is that we could look at the feasibility studies of various companies—

[Dr. Steven Wilson]

Sure.

[Dr. Luisa Moreno]

—at least of those that are more advanced. Two companies—and please correct me if I'm wrong—have completed a feasibility study and that would be Avalon Rare Metals and Matamec Explorations in Quebec. I'd better get these right. I believe Avalon's capex, which includes infrastructure and so forth, is about $1.5 billion. Matamec is a smaller project. Its capex is estimated at $350 million right now, I believe. I should know that because I cover both companies. Then you have others at the pre-feasibility stage and until they complete their feasibility we don't know for certain. Even after they complete the feasibility study, capex usually expands a little as well.

[Dr. Steven Wilson]

Unfortunately, I'm not sure we have the details of what each of those would produce in terms of how many you would need to make up a 20% market share. Ian could have provided that information, or we may be able to come back to you with it if you would like.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I certainly think the committee would appreciate any additional studies that you're aware of that you could pass on to us. I think that would be helpful for our study.

Thank you.

I'll go on to Mr. Papangelakis. You mentioned U.S. policy and how the U.S. has put in place a policy with the rare earth compounds that's been successful in starting to develop rare earth industries. Could you give us some more details about how the U.S. has approached this question? I assume that would offer some advice on how Canada should move forward as well.

[Dr. Vladimiros Papangelakis]

From my limited exposure, first they initiated a study that resulted in prioritizing what the most critical metals are to ensure an adequate supply to grow the energy sector in the United States into the green era, low carbon emissions. This is when the rare earth elements were identified, particularly the heavy rare earth elements, which possess the higher risk, were identified as the most critical to supplying the future development of green energy technology. Once this study was completed—and there was a similar study in the European Union after it that ended up with more or less the same conclusions—the United States launched a competition within United States research groups about how they could involve academia, industry, and government, bundled together spontaneously, to handle the problem of developing domestic resources for rare earth production, and at the same time, look at replacing technologies for rare earth elements in an effort to reduce the dependency of the United States on China's exports and reliance on rare earth elements.

The budget allocated was $120 million over five years. I was involved in this review process, that's why I have some additional information. There were a number of groups within the U.S. that were formed, completed, and finally, one group was awarded—the Critical Materials Institute based at Ames Laboratory in the United States. This involves three to five universities, five companies, and Ames Laboratory, which is government funded in the United States. This is how the Critical Materials Institute was created.

[The Chair, Conservative, Leon Benoit]

Thank you, doctor. Thank you, Mr. Julian.

We now go to Mr. Trost, followed by Mr. Bevington.

Thank you.

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

Thank you, Mr. Chair.

In our couple of sessions here, listening to witnesses, I've come to understand that there are two types of risk in dealing with the rare earth industry. One is the technological, particularly the processing aspects. The other, and one of the reasons that is driving interest, is the geostrategic, the political, because this market tends to be so dominated by one supplier. One of the difficulties with that supplier—and we saw this with how the markets reacted to some of their export data the other day—is that their numbers are sometimes questioned by people on the outside as being unreliable.

My first question would be to Dr. Moreno. How certain can we be about what China's doing and why they're doing it? China has its own problems with some of these minerals being sold through the black market. How reliable are their figures? How do we really understand what their strategy is? What's the possibility that, when the Canadian industry gets up and running, all of a sudden the China Geological Survey announces that they have a really cheap, low deposit, and are just going to flood the market and wipe us out?

Talk to me a little bit about some of the difficulties in understanding China, its position, and how it affects how everyone else, like Japan, Canada, etc., is making their decisions.

[Dr. Luisa Moreno]

I think it's very hard to anticipate what China is going to do next, and that is the position that manufacturing economies like Japan and Germany and others are facing right now. Those that are dependent on critical materials from China are thinking exactly that. It's very hard to understand where China is going to be next in terms of their policies with these critical materials that they control. They control rare earths, but they also control the supply of graphite, antimony, indium, and many other strategic materials.

So I think there's an interest in being more independent from China. What needs to be done, and I think CREEN is trying to do that, is to involve downstream players, so we have GE as part of the steering committee, and I know from contacts with other large companies that there is an interest in securing the supply. So what I believe will happen is that when new mines actually come into production—because there's a lot of talk about finding new deposits, and we have found many deposits—developing these projects will be complex.

So you asked, what if tomorrow China comes in with a new deposit? It's possible, and then they have to develop it. Then they have to crack it, they have to separate it, and do all these things that everybody is facing. If it was that easy, they obviously wouldn't be decreasing the quotas the way they are doing and trying to restrict the supply of the less common elements.

So I think it will be difficult for China to come up with a brand new source of the heavy rare earths, for instance.

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

Before my time elapses here, how then is the industry in Canada, Australia, the United States, and some of these other countries coordinating with the more manufacturing-based centres in Germany and Japan? How is that tie-in? Is that just through large multinationals like GE, ones like that? Or are there industry associations from the manufacturing side working cooperatively with organizations like what you're representing today and similar organizations in Australia? How are manufacturing and mining working together? Is there anything the government needs to do to be involved in that?

[Dr. Luisa Moreno]

In Europe there's an institution called, I think, Resource Alliance. I don't know if you're familiar with that group, Professor, but essentially it's a German group. ThyssenKrupp, I believe, is part of it, and Siemens, Bosch, and a number of other large manufacturing companies. The strategy is to secure critical materials.

To answer your question, we have KORES, Korea Resources, basically looking at critical metal deposits and bringing together industry—Samsung and others. In Japan you have JOGMEC.

So there are institutions around the world, some semi-governmental, that other independents such as Resource Alliance...I'm not sure if they have government support, but it's very industry-focused. But again, these are large companies with better cash positions than the emerging mining companies we have now. So there is an effort to do that, and that is the solution. If these companies want to secure these metals, I think they realize they have to make investments. Toyota Tsusho made an investment in Matamec, and I can tell you that I've met a number of them who are very interested, but again there is a technology risk that they don't really understand. Many of these companies are not mining companies, so I think they will need institutions like CREEN.

[The Chair, Conservative, Leon Benoit]

Go ahead, Dr. Wilson, if you'd like to add to that.

[Dr. Steven Wilson]

Yes, very quickly.

You asked about where government can contribute to that. I think government's opportunity to contribute in that area is just in the overall support of the industry. I think we have to rely on the industry players and the manufacturers to get together and to partner where they need to partner. They will find the right way to do that. Part of how they are.... You asked about the risk in China and the risks of what might happen there. I think the best indication of that, as Dr. Moreno said, is that they're going to still have those same development challenges and the same development issues.

The willingness, even at the early stage of these unproven projects, of the manufacturers to get engaged I think is the biggest measure of how they are interpreting the risk of what you talked about; that is, they don't see it as a tremendous threat to the industry. They're looking to secure production. They're looking to forward-buy from properties that aren't even operating yet in order to know that they will be in a secure place, or they're actually buying ownership stakes in the producing companies to secure their own supply chain.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Trost.

We'll go now to Mr. Bevington for up to five minutes.

[Dennis Bevington, NDP, Western Arctic, NT]

Thanks, Mr. Chair.

Thank you, witnesses. It's been an interesting time.

I come from the Northwest Territories, so I've been engaged with Avalon for many years on this. That project has gone through environmental assessment now, not only the feasibility but environmental assessment, so it's probably one of the more advanced projects—

[Dr. Steven Wilson]

Very close.