It is my pleasure to release a transcript of a recent conversation with Mr. Jack Lifton, organized by Mr. Mark MacDonald, VP of Business Development for Ucore. Please read on for some insight into the situation facing Ucore Rare Metals Inc. (TSXV:UCU), how we got here, and much more. Thank you, from Peter Bell.
PB: Hello, this is Peter Bell and I am here with Jack Lifton and Mark MacDonald. It's my first time talking to you, Jack, and I'm looking forward to it. Thank you, Mark, for setting this up. Mark, would you like to start us off?
MM: Sure, thanks Peter. Jack has been a proponent of ours for about 6 or 7 years now. Long ago, before most of us understood it, he pointed out that finding the right deposit was a small part of puzzle with REE. He led us to understand that processing technology was very important, but even the technology was only part of the puzzle because you have to find out where you fit in a supply stream. Jack was ahead of everybody on that and we have benefited from his foresight.
JL: When you've been doing this as long as I have, you're lucky if the majority of what you say is right. There is a perception in the public that so-called experts are never wrong, which is amazing considering that economists are always wrong.
JL: I don’t often emphasize this but I am an "anti-credentialist”. So many of these brochures on junior mining companies tell me all about where the person went to school and which successful stock promotions they have done, but I have to hunt and hunt to find people who have actually done mining or processing. I think of them as “the group that likes to talk to each other”.
JL: The junior space is non-producers. The purpose of a junior mining venture is normally to develop it to the point where you can sell it to someone who can mine it. The rare earth sector started down that path, but then it never happened! The major miners were not in the rare earth space -- the Chinese had it all, so there was nobody to buy the juniors' projects. That is what led to the supreme screw-up of Molycorp: a junior continuing down the road, without the no skillset to analyze the situation. They lost billions of dollars and scared everybody away from rare earths. I see something similar now in lithium and graphite, but it’s not as bad.
JL: Gareth Hatch and I analyze this stuff to death at our company Technology Metals Research, and we realized that half of the rare earth deposits discovered in the last 50 years have been in Canada. Unfortunately, Canada doesn’t have any super-large deposits. Some of the Canadian companies have tried to move these forward by starting organizations with funding from the Canadian government, but I have stayed away from those because I think that dealing with government has tended to be a dead-end. The Canadian government has a lot to gain by supporting mining, but they don’t seem to really understand the critical and strategic metal space. They've missed the boat.
JL: Let me tell you a story that really explains why the end-user industry looked askance at all of this. At the Technology Metals Summit in 2013, when Dr. Tony Mariano received a Lifetime Achievement Award, I was the moderator for the panel on new- and newly-applied technologies for separation.
JL: I invited Alain Leveque, who actually did the chemistry for Solvay’s LaRochelle plant in France -- the oldest continuous-operating rare earth separation plant in the world. I remember it so well: Alain and I listened to someone from a junior talk about how they were going to go from a mixed-con to four-9's right away. Afterwards, Alain said "these people have no idea what they are talking about." I said, "Welcome to the world of junior mining."
JL: Alain said to me, "Jack, we finished construction 47 years ago. From the time we figured out how to separate all the rare earths to the time when we actually made a four-9 oxide was ten years." This was Rhône-Poulenc, which was a 100-year old French chemistry company at the time. The scientists behind the company were not thinking "how can I make a lot of money?" They actually were thinking "How can I do good chemistry?" Obviously, that would be very unamerican today.
JL: This same problem appeared with Molycorp: they spent $1.3B building Project Phoenix and it never produced any spec material. They announced that they produced 5,000 tonnes in their last year, but 4,000 of that went to Xebo in China, the Neo Materials separation facility, to be re-processed because it didn’t meet customer specs. The remaining 1,000 tonnes went to Estonia to be reworked because the Japanese wouldn’t accept it.
JL: It cost Molycorp more to separate it in California than the Chinese would have charged for the same thing, and then they had to do it again! After transporting the material 7,000 miles to China or 5,000 miles to Estonia – and before they even sent it to customers. All of this was before they shut down, of course.
JL: They did not have the faintest idea how to make material competitive in the market. They spent $1.3B and, at the time, Alain Leveque said to me that they had "Perhaps, 9 years to go" before they could produce four-9 oxide material. I have a lot of respect for Alain and I try to honour him by referring to the "Leveque Principle" that it takes longer than you think to figure out solvent extraction for rare earths.
JL: The point I am making is that Molycorp's emphasis on one tiny aspect of the supply chain was fatal.
PB: Indeed!
JL: I've been an industrial executive for a long time. I can tell you that the hardest thing to hire is marketing people or research people. What happened with Molycorp was that there was no marketing study, whatsoever. They didn’t know what the market wanted. Mixed-con was certainly not it.
JL: Two years ago, Ucore reported three-9s dysprosium at PDAC. That was, in my opinion, the first three-9s dysprosium produced in a commercial technology. It wasn’t produced commercially, but the technology is used commercially for other materials. That was the first time anybody had ever done it. It was also the first time dysprosium was ever produced in North America using commercial technology, beyond the lab scale or bench scale.
JL: I thought that announcement was wasted on that crowd. I remember being at the conference that day and thinking to myself, if Albert Einstein sat down in a cafeteria and said "You know what? Nothing can move faster than the speed of light." People would probably think -- what's this old fool talking about? I got the impression from most of the analysts that was their attitude: what difference does it make?
JL: If you have an existing mine, like the Chinese or Lynas, where you have spent $1B and I tell you that your $800M separation plant should have been built for a fraction of the cost, would work faster, and produce better material, then you would say "So what?" I wouldn't blame you -- it's too late! You don’t go back to the Board of Directors and say "I wasted $1B, but here's what I'd like to do next time." For anyone who hasn’t started yet, they have to look at this. This is the way to be competitive.
PB: I am with you. Any comments on the downstream aspects of the REE markets, generally?
JL: There is a fantasy that the Chinese stuff is good. Most of it is not -- most of it is mediocre and not well made. The Chinese tend to mix things together until they get something that looks like it will work. They are not making high-quality material, but they are making a lot of it. They don’t need anybody else for their own market and they get away with supplying our market because ours is much smaller.
JL: There are people still importing Chinese cinderblock neodymium-iron-boron and machining it, but my sense is that it is not very good. I have been told that the metal coming out of the Chinese-owned plant in Vietnam is actually much better than anything coming out of China. I don’t know why that is the case.
JL: The Japanese also make much better metal than the Chinese, but even the Japanese have started making a lot of their alloy in China because of the economics. The Japanese have resisted doing that because they don’t want the Chinese to learn their proprietary craft, but they are giving in now.
PB: Interesting.
JL: Japan has been considered a good source of material, but that may change as people become worried about who knows what is going where. There is some opportunity for a company like Ucore with people who say: "If you supply us raw material, then we will give you a providence". That allows you to develop the supply outside of China, which ties into the so-called “Trump effect”. A great many industrial companies, particularly mining companies, now believe that it is appropriate to produce things domestically in the USA. There is a great deal of legislation being written, again, after a hiatus of many years to that effect.
PB: Hmm.
JL: The Japanese, really, codeveloped this technology with the United States. It wasn’t the Chinese. Some of the Japanese metal alloy makers have been around since day 1. They make very good stuff and really don’t like Chinese quality because it doesn’t exist!
JL: Some junior miner may say "We have a sample that's 98% Terbium", but that's nonsense. Do you really think somebody who is going exploring for oil has not thought about where it is going? The problems the rare earth juniors encountered were not really a symptom of their stupidity – their business model is just to find the stuff, determine if it's economic to mine it, and then turn it over to someone who has access to the rest of the supply chain. They just didn’t realize that the large miners weren't interested in this stuff.
PB: Well, we can hope that the surviving juniors learned the lesson and change their approach.
JL: I was recently in China, giving a talk, and asked some influential people: "How many billion yuan did you spend on that plant in Baotou?" They said "Who knows -- 10 Billion?" Then I asked them: "What happens in China if you make a mistake?" They said, "You only make a mistake once and then we don’t hear about you anymore." That explained it for me!
JL: These guys have just gotten into capitalism, in a way. Nobody is going to say "We should build a pilot plant for new technologies." They will tell you that they do that all the time, but they don’t. What they are trying to do is fine-tune what works. They have spent the money and the Government of China has no problem supporting that. They are not very interested in new ideas. Quite frankly, there are no new REE mines in China.
JL: In the REE boom, everybody figured that the Chinese knew how to do it and they should just do it the same way the Chinese did. Molycorp did that, Lynas did that. At the time, I was saying "Have you ever thought there might be a better way to do this?" Everyone said: "No, we've got all our credentialed experts and they know there is nothing better." I told them about a bunch of guys out in Utah, but nobody wanted to hear about it.
JL: Of all the systems I have seen for separating rare earths, my opinion is that MRT is far and away the most efficient, lowest cost, and fastest. Fast means money.
JL: It takes 6 weeks from the time you load a solvent extraction to the time you get the neodymium out. It takes about, in my opinion, 6 minutes in an MRT system. I admit that you have to be careful and it might take a day, but it is a tiny fraction of the time and time is money. On a single pass, an MRT produces a purer material than an SX system. And if you simply return that separated material to an MRT system that is set up for it, then it keeps getting purer. There are diminishing returns, but it doesn’t take too many passes to make four-9s everything.
JL: The people at IBC Advanced Technologies have duplicated the purification technology that took Alain Leveque at Solvay 10 years in one shot. And now Ucore is setting about commercializing broadly. They're doing it!
JL: Are you familiar with the DOE project on rare earth from coal material?
PB: No, only the coal ash that I've heard about from the Ucore team.
JL: OK. The coal miners have had a couple accidents in the American east where tailing dams, so to speak, collapsed into navigable waters. They could contaminate drinking water and cause environmental problems. The coal companies are obligated to maintain these enormous mountains of residue and analyze them to make sure everything is OK.
JL: A year or two ago, a private coal company gave a project to Pennsylvania State University where they said "we have a few million tonnes of this material derived from coal mining, not burning, and we need to know what it is in it, in case any of it gets into the groundwater." They had done their own analysis, but the government wanted third-party study and Penn State is a very prominent material sciences school.
JL: I heard about it from a fellow who called and said "Confidentially," which meant I was the umpteenth person to get this news, "We have found ionic rare earths in the coal ash." I said, "No, there aren't. Thanks a lot, goodbye." Then, I got a call from a wise old fool that I know who said he would take a look into it. He found it was the overburden, not the ash -- the clay above the coal.
PB: That sounds like a surprise.
JL: Yes, I think it was. The coal is close enough to the surface that the whole thing is called strip mining. They moved this clay around and, now, that is what they are worried about. The Penn State guys analyzed it with their expensive, taxpayer-paid equipment and found significant rare earths. One of the things that shocked them is that they could process it using a simple ammonium sulfate solution -- water-soluble fertilizer, so to speak -- which is similar to how the illegal mines in China operate. They build catch-basins at the bottom of a hill, dig channels, then flood the top of the hill with ammonium sulfate. After it settles, they put oxalic acid in it and you precipitate the rare earths that were solubilized. Then, they pump the ammonium sulfate back to the top of the hill and keep doing that until they get no more precipitate. Of course, this destroys the vegetation and any possible use of the land since oxalic is a deadly poison.
JL: The people at Penn State tried the ammonium sulfate processing with the American clay, because it's just one of the things you do, and it worked! I was told they were shocked they were getting 90%+ recovery rates.
PB: Sounds like a case of trying old things in new places.
JL: Sure does. I love that line.
JL: Now, I've been involved in projects that identified where the ionic clays are located around the world. The ionic clays are in a line, starting in China in the Szechuan Province and going down to the Indonesian Archipeligo. You've got a lot of ionic clays in all those places, including Indonesia and Malaysia, because they are rainforests where it has been raising for about 200,000 centuries.
JL: I was in a presentation in Malaysia where the Japanese Ministry of Mines reported that they had surveyed the entire world for ionic clays and they found them in that region, some in East Africa, and none in North America. So much for that!
JL: It is shocking that the clay overburden in Pennsylvania-West Virginia, which is a very large area, has a higher grade of rare earths than the Chinese ionic clays. I've seen analyses and they were in the hundreds of parts per million total rare earths and skewed from Neodymium north, which are the magnet metals. This is not unusual as the heavy rare earths in China tend to be in ionic clay deposits.
JL: For whatever reason, these materials in Pennsylvania-West Virginia leached into the clay and did not bond chemically, which means they are ionic. You would think that, over a few million years, they would pretty much be washed out by rain but they are not. The clays are located over a layer of impervious carbon -- solid coal – and the materials have become even more concentrated by running downhill.
JL: The DOE was so impressed that they did a research project to see if this can be developed as a commercial source of rare earths. This should become an inexpensive source of rare earth concentrates, but it would not be inexpensive to build a solvent extraction plant to separate them. Allow me to remind you of the Leveque hypothesis: even if they build a perfect SX plant, it will take a perfect decade to learn how to run it! That's a problem.
JL: This clay in Pennsylvania-West Virginia could be a great place for Ucore and IBC Advanced Technologies. It doesn’t take a lot of money to build tanks for leaching, or front-end loaders to dump clay into the tanks. In the Chinese system, you would precipitate the stuff as oxilate, then redissolve it later. With the MRT system you could just use the solution directly and produce separated rare earths.
JL: On top of that, there is a new/old American company that has revived the only commercial rare earth metal and alloy plant built in the United States in the last 50 years! They don’t have any feedstock yet and the magnet makers in America won't undertake to do anything without feedstock, but Ucore/IBC may become provide some feedstock for the plant. I am not privy to any details of these details through my involvement at Ucore, for the record.
MM: I can speak to it briefly, Jack. This is where integration into the supply chain takes place.
MM: Regardless of the fact that we have clean, efficient technology to make oxides or carbonates, we need to inject them into a supply line. We have limited expertise in alloys, but we have had discussions with alloy and magnet manufacturers who do have the connections, the customers, and have been vetted. What they need is pure oxides and carbonates that fit their requirements. It could save us two or three years of testing by end users if we can provide better material than they can get from China that allows them to make better metals.
JL: Almost all of the rare earth magnets are some kind of mixture of dysprosium and neodymium. One of the reasons for that is that it's too expensive to separate the two and it isn't necessary. Although praesodymium is much more expensive, separating it out just adds to the cost and isn't necessary. The average magnet works just fine with a blend. The blends are not the same -- they depend on which mine concentrate the material comes from.
JL: The bonded magnets, where they take the powder and disperse it in a resin and then form that into a shape, require pure neodymium. That is easy to achieve with MRT. And that is a breakthrough, quite frankly. The leading company in the world for the use of that material is Neo Materials, formerly part of Molycorp. They have two SX plants in China. They buy rare earth concentrates and produce their own mixes in metals and alloys. They would be an ideal customer for Ucore/IBC here, but they have to know about it. They are the only customer that I know of, globally, for pure neodymium powder for bonded magnets. I think the capability for Ucore/IBC to produce pure neodymium powder will be quite a surprise to them.
PB: There's a lot of talk around Molycorp and lessons learned, or not learned. What you are saying about Neo Materials being a former subsidiary of Molycorp and being in a niche area with final products intrigues me a great deal because it could provide a silver lining on the cloud that is the failure of Molycorp. It also gets into that question of new products -- to what degree will the ability of Ucore/IBC to produce high purity materials allow new product development? Do you see the potential for new types of magnets, say, as we are able to separate these things out to higher purities?
JL: Well, we don’t know, do we? When you do research, you always start with the highest purity. You start with the purest material that you can get because you don’t want to find out later that everything was happening because it had 1% of something else in it. Commercial stuff is generally much less expensive. The exception is electronics, where ultra-high purity materials are required.
JL: We haven't had any production of separated rare earths in the US for about 13 years and that has limited the growth of the entire industry. What we did have were light rare earths produced in questionable quality at Mountain Pass. To me, the new plant from Ucore will be the first commercial production of heavy rare earths in America from domestic material ever.
JL: Keep in mind that the first commercial production of dysprosium was in 1960. It was commercial in that you could buy a few grams, but it had no uses! The last metal to find a commercial use because of process engineering was rhenium in 1947. I actually met the man who discovered the process to purify rhenium. I remember talking with him ten years ago in Spain. He said "I'm the guy who produced the last metal -- the periodic table is now closed for business."
JL: Early versions of the Germans’ fighter jets had about a 2 minute service life in combat because the nickel alloys melted since they didn’t have rhenium. They knew it was there, but it was a laboratory curiosity. This fellow came up with a way to produce it en-masse and they developed the alloys that made the modern jet and rocket engines possible. Today, world production of rhenium is about 60 tonnes.
JL: That breakthrough came about because the US Government would give "cost-plus contracts". They would say, "We need a pound of this for a study." You would come back to them and say: "It will cost us $10M to make this!" And they would said "OK, send us a bill for $10M plus 10% profit." When I got my first jobs in industry, that was the case.
JL: I never heard a word about how much something cost until I was in my 30s. That has gone away now, but I am going to make a prediction: it's coming back.
JL: The problem is that industry has lost interest in pure R&D. Unless there is an immediate profit, they won't do it. I think you're going to see a revolution here, I really do. It's not about Trump -- it's about survival.
JL: If you ask someone "Why don’t you recycle scrap?" They say "It's too expensive -- I can buy it new cheaper". That's providing that the seller will actually sell it. The fantasy in New York and Washington is that supply will always be available at some price, but that is not always true.
JL: The Chinese have a different way of looking at things: if it's good for China, then that's the most important thing. You can tell them that they are violating WTO or anything, but they don’t care. Why would they? They are building a domestic consumer product industry and they are going to use an awful lot of magnets.
JL: In case you haven't noticed the bellwether of all this, it's Apple. This year, for the first time, the Chinese cell phone companies have outsold Apple in China. Apple is losing share daily in it's biggest market. The Chinese have a booming economy and a tremendous amount of unfilled consumer demand.
JL: It's amazing to me how Western people take for granted that every home has a washer, drier, and vacuum cleaner. The Chinese want to take it for granted, too, but they are going to need an awful lot of rare earth permanent magnets to make those machines. Every time you dry your hands with one of those fans in the washroom -- how do you think that works?
JL: The Chinese don’t want to buy rare earths from us, but they want us to buy whatever they've got to sell. We have to be independent in the West. The Europeans recognize this, but they don’t know what to do. They don’t have any great deposits and they are looking at Africa. North America has got a lot of deposits. We've got an enormous store of scrap: The US industry uses about 7,500 tonnes of magnets every year. Where are they? We've been using that amount for at least 20 years. The Chinese buy a lot of our scrap material, but there is quite a bit left.
JL: When people tell me that it's not economical to recover a gram of dysprosium from magnet scrap for $200, say, because they can buy it from China for $199, those numbers are not correct by the way, they are overlooking the value of security of supply. What happens if you can't buy any of it all? Are you out of business? The economics of most analysis continues to be one-dimensional.
PB: Well, I don't think there are any good ways to even include these risks in the models.
JL: When there's a war, an old fashioned war with firearms, all that goes out the window. I was overseas years ago, this is apocryphal for me now, and a Chinese guy asked me "What are the Americans really up to? We know they are not that stupid, why are they ignoring this?" I told him, “Yes, we are actually that stupid.” He said that he didn’t believe it, but I’m afraid that is where we are.
PB: Well, we are looking at things through the lens of market economics.
JL: That's right -- free market capitalism, the great destroyer. You can't even say industrial policy in the US these days: Government deciding what we are going to produce. That's how the Chinese operate and it's working quite nicely for them.
PB: Giving contracts at cost-plus...
JL: God forbid! That would be a scandal!
PB: With these niche materials, there is potential growth on the demand side in China, but it is hard for the supply side to beat those entrenched producers at their game. It's all about trying to find better ways to do it.
JL: I agree. That is exactly why I think that MRT is so important. It works on so many different things.
JL: I think we are going to see an awakening. People are asking: Why don’t we produce these things? If the answer is that "we can buy them cheaper from people who may become our enemies in the future", then that is not good enough. We've gotten completely taken in by the money machine. The financialization in our economy is profound and we've already got the result: Trump. People figure that if business runs the world, then we should have a businessman running the world.
JL: He doesn’t seem to be worried much about being diplomatic. It seems to me that the US Government has been doing open-ended-cost contracts for some time, but Trump is changing the way people look at things and I hope it is for the better.
PB: Great! Thanks very much for your time, Jack. I suspect that I might have learned a thing or two.
JL: (Laughs) Good to hear, Peter. My pleasure.
PB: And thanks for organizing this, Mark.
MM: You’re welcome, Peter.
