Great Western Minerals Group on their Business Model and Lessons

Gary Billingsley: The strategies are not broad, but very specific.  The jurisdictions in which we currently operate have very strict environmental legislation and related guidelines in place.  We must adhere to these environmental regulations right from the exploration stage through development, production and eventual mine closure.  The fact that we are from Canada, and from the province of Saskatchewan, means that we are used to working within a strict environmental framework.  When working overseas, we strive to use best mining practices, from a Canadian viewpoint, and to meet Canadian standards for all environmental parameters.

 

Because we have been working within a strict environmental framework for many years in Canada, we view it as all part of the process in exploring and developing a project.  Even at the exploration stage, we generally start baseline environmental work and start to engage the local impact communities.  We do not wait until the project is going into production and then think “Oh, wait, we have to do a bit of environmental work…”.  Environmental considerations are as much a part of project development as field surveys and drilling.  This approach highlights areas of concern that need to be addressed early on, so that when it is time for the production decision, all concerns have been satisfactorily addressed for all the stakeholders involved.

 

Mining IQ: GWMG has a vertically-integrated business model from exploration, mine development and specialty metals production. Can you give an overview of this?

 

Gary Billingsley: The vertically-integrated business model was derived from necessity and from both the upstream and downstream segments of the business.  Here in Canada, we were focused on the exploration and mining side and we quickly realized that mining rare earths is a complicated business that isn’t very profitable when prices are low, even with a high grade deposit.  This prompted us to consider getting into downstream manufacturing so there was at least the potential of a profit at the value-added end of the business if the mine couldn’t make any money.  At the other end of the business in the UK, they were completely reliant on China for rare earth metal used to manufacture permanent magnet alloys in the UK plant.  The management there became concerned that at some point, if China continued to consume their own rare earth materials internally and reduce the amount available to the outside world, that the UK business might be in jeopardy as a going concern.  This prompted them to look for a buyer that could supply them with a source of rare earths outside China.  So now we had the two ends of the vertically-integrated business model.  Unfortunately, outside China, there are a number of other steps in the supply chain, between the mine and the alloy plant, which do not exist.  Once the ore is mined, it needs to be made into a mineral concentrate (which has no value outside China), then it needs to be leached and turned into a mixed rare earth chloride or carbonate (which has no value outside China), then it has to be separated into individual rare earth oxides or similar product (which IS a saleable product outside China), and then it needs to be turned into metal so it can be turned into alloy.  This then forced us to also add separation and metal making capability in-house to complete our vertically-integrated business model.  Since by-and–large, the Chinese are the current state-of-the-art experts in separation and metal making, we entered into an arrangement to work with a Chinese company to give us those capabilities in-house.

 

Mining IQ: What advice do you have for companies interested in integrated this business model into theirs? How can they learn from your lessons and mishaps?

 

Gary Billingsley: The other major players in the rare earth industry heading to production outside China, and expected to be in production over the next couple of years, are already at least partially vertically-integrated.  They have gone through the same process we have in acquiring expertise to allow them to put a complete supply chain in place internally.

For the other companies that won’t be in production anytime soon, they will have to seriously consider how they can best produce a product that can actually be sold outside China, or even to China for that matter.  They may have to consider joint venturing or amalgamating with another entity to make it work.

The lessons we have had to learn are mostly at the exploration/mining end of the business.  Metallurgy is a critical part of exploiting a rare earth deposit.  There are hundreds of rare earth minerals but only 3 or 4 have ever been successfully mined and beneficiated.  We had to learn to start serious metallurgical work as soon as we set foot on a property and took the first sample.

 

Mining IQ: In your opinion, what are the necessary components here to ensure a commercial successful rare earths supply chain process?

 

Gary Billingsley: I think you need to consider, early on, who your customers are going to be, and what specific products you will be producing.  The parts of the supply chain down to at least separation have to be in place outside China, either within your own company, or in collaboration with others.  There are a lot of other factors to consider as well, right from having your mine in a mining-friendly jurisdiction, used to permitting radioactive deposits, to the proximity of shipping infrastructure for your products.

 

Mining IQ: Where do you see the global rare earths industry in the next 2-3 years? What challenges do you foresee for all players?

Gary Billingsley:  In 2 to 3 years I see a more stable, less volatile industry.  If Molycorp reaches their 40kt/year REO target and Lynas are there with 20+kt/year, and one or two other potentially big players, like Arafura, also at 20+kt/year REO, there will be enough rare earths around, certainly light rare earths, to meet demand and stabilize pricing.  I see Ce, La and Sm in significant oversupply; Nd, Gd and Dy in balance; and possible shortages of Eu, Tb, Dy and Er.  Interestingly, if you look at where the demand comes from, you could see China with Nd supply barely meeting demand and actually experiencing a shortfall of La, Eu, Tb and Dy.  This could lead to the situation where China has to import specific rare earths for their value-added processing.  I also see the number of players exploring for rare earths being reduced significantly.

The challenge for the players with advanced mining projects will be to make sure they execute and get into production as quickly as possible or the window of opportunity may close.  The challenge for players with exploration-stage projects is that the window will be closed before they can get to production.  The challenge for end users is to make the decision to start taking on some risk and invest in the supply chain-make sure the capital is there to build mines, separation facilities and metal plants.  The challenge for governments is to make sure that the legislative framework is in place to support investment in, and construction of, mines and processing facilities.