Nick Curtis, chairman and chief executive officer of Lynas Corp.
Nick Curtis made a $5 million contrarian bet in 2002 to develop an Australian rare earth mine, aiming to challenge China’s control of global supply of the metals. His company, Lynas, now has a market value of $3.5 billion.
Curtis, 53, saw his gamble start to pay off last year when China slashed rare earth exports, causing prices to surge as much as 13-fold and setting off a scramble to lock in alternative sources of the metals used in missile guidance systems, iPods and hybrid cars.
With China controlling more than 95 per cent of the world’s rare earths, Lynas’s stock jumped almost fourfold since June 30 as investors sought more secure future supply.
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Mt.Weld in Western Australia, the richest known deposit of rare earths in the world. Source: Bloomberg
“The dominance of China in rare earths was unsustainable,” Curtis, chief executive of Lynas, said in an interview.
“I’d pictured the need for order in the industry, that these were important metals that would ultimately need a stable, secure non-China supply chain,” said Curtis, who graduated with a bachelor’s degree in fine arts from the University of Sydney.
His decision to invest in rare earths was informed by experience with China’s aluminum industry, where mushrooming construction of smelters led to power shortages followed by a government clampdown and industry regulation.
“The reform process in China in the metals sector goes through a period of unfettered competition leading to chaos followed by which the state tries to get control of things again,” Curtis said.
New supply
Sydney-based Lynas, the second-best performer on the benchmark S&P/ASX200 index last year, is set to become the first new source of supply outside China in at least two decades with the start up this year of the $535 million Mt Weld project, the world’s richest deposit of rare earths according to Lynas.
Ore production will begin this month at the mine about 1000 kilometers north-east of Perth. Lynas shares ended the day flat at $2.10.
Rare earths are 17 chemically similar elements used by companies such as Toyota, Apple and Raytheon. They include neodymium, cerium and lanthanum used in sonar systems, flat-screen TVs and computers.
The price of lanthanum oxide, used in hybrid batteries, has surged more than 13-fold since the second quarter to $US92 a kilogram, according to Lynas’s website. Vehicles such as the Toyota Prius hybrid contain about 10 kilograms of rare earths, used to make lightweight batteries and motors.
Working in China
Curtis developed an interest in rare earths working with Madame Bai Jie, a former head of raw materials at China’s state planning commission. He worked for six years from 1994 at a unit of China National Nonferrous Metals Industry Corp, which controlled all of China’s non-steel-related metals until 2000.
Curtis bought Mt Weld from Anaconda Nickel, part-owned by Glencore International.
Anaconda’s CEO was Andrew Forrest, today Australia’s richest man, with a fortune of $6.9 billion, according to Forbes Asia. Forrest went on to start Fortescue Metals, the fourth-biggest supplier of iron ore to China.
Forrest “epitomises going long where China is short, which was the right move,” Curtis said. “I went long where China is ultra-long, which was the wrong move for the particular time” about 2002.
Mining priority
China made rare earths production a priority in the early 1990s under Deng Xiaoping, dominating the market, pushing down prices and rendering mines elsewhere uneconomical. The government introduced its export quota system in 1999.
Rare earth shortages followed the government’s directive in 2006 to create larger domestic companies while curbing output and exports.
About 50 per cent of global rare earth demand comes from customers outside China and they are looking elsewhere for supplies, Deutsche Bank said in a report last year.
Global demand for rare earths is forecast to rise to $US11.2 billion by 2014 from $US7.8 billion last year, Lynas said in a presentation last month.
“Nick’s always been an entrepreneur,” said Warwick Grigor, an equity analyst at BGF Equity in Sydney, who’s tracked the “exceptional” Mt Weld deposit since the mid-1980s. “He saw an opportunity there. It’s probably an understanding of the market he’s picked up from dealing with the Chinese.”
Future prices?
To be sure, prices of some rare earths, including lanthanum, may start to drop by 2013 as additional production creates a “vast oversupply,” Western Minerals Group, a Canadian exploration company, forecast last month.
Curtis, a former executive director of Macquarie Group and head of its commodity trading desk in Sydney, founded Sino Gold Mining, the owner of China’s second-largest gold mine whose shares began trading on the Australian stock exchange in 2002. The company was bought by Eldorado Gold in 2009 for about $C2 billion.
“We were insiders when no one else could penetrate China,” said Jake Klein, the former CEO of Sino Gold and now the chairman of Conquest Mining and board director of Lynas.
The financial crisis forced Curtis to suspend work on Mt Weld in February 2009 after failing to lock up funding. He raised capital in the equity market in September that year after the Australian government blocked China Non-Ferrous Metal Mining Group Co from buying a majority stake.
“This being a strategic resource with existing supplies controlled by China, sophisticated investors got the story in a nanosecond and the deal built its own momentum,” said Alan Young, head of natural resources & infrastructure in Sydney for JPMorgan Chase, which managed and underwrote the $450 million share sale.
China Non-ferrous Metal offered to pay $252 million for a 51.6 per cent stake in Lynas. The company has a market value today of $3.5 billion.
“I’d be really disappointed today if I had gotten off the bus somewhere along the way looking at the speed it’s moving today,” Curtis said.
Bloomberg News
Sourced & published by Henry Sapiecha
