INSIGHT

JANUARY 2024

Rare earths: 5 things to look for

in 2024
Rare earths: 5 things to look for in 2024

The rare earths industry continues to evolve under the energy transition. Decarbonisation of key sectors such as transport and
increasing renewable energy generation is driving demand for rare earth permanent magnets. Global supply also remains
strong with diversification high on the agenda for governments around the world. Prices for neodymium-praseodymium oxide
were comparatively low for much of 2023. This was caused by adequate supply and sustained market uncertainty caused by
challenging economic conditions, particularly within China. As we move into 2024, short term prices remain under pressure,
though we expect market sentiment to improve.

Some key areas we will be watching closely in 2024 are:

• Growth in IAC exploration and development activity in SE Asia;

• Diversification of heavy rare earth supply;

• Development strategies for ROW projects to combat costs;

• Greater interest in sourcing monazite mineral sands as rare earth feedstock;

• Challenges facing offshore wind.

Growth in IAC exploration and development activity in SE Asia

Exploration and development activity in the region has accelerated as demand for rare earth permanent magnets grows. This
has altered the sourcing arrangements for key elements such as dysprosium and terbium, which poses a number of risks and
opportunities for industry participants. Ionic adsorption clays (IAC) are an important source of heavy rare earths, though their
extraction is commonly associated with ESG concerns. Historically, China was the largest producer of heavy rare earths from
IAC deposits, often from illegal and unregulated mining operations. However, since 2016, a state-led crackdown on these
operations significantly lowered China’s production. The geological domains hosting IAC deposits in southern China extend
across much of southeast Asia and production has since migrated across the border to neighbouring countries such as
Myanmar, Vietnam, Laos and Malaysia. From January to November 2023, China imported an average of 8,521 tonnes a month
of rare earth compounds from Myanmar, Malaysia, Vietnam and Laos. This represents an increase of 147% in comparison to
the same period in 2020 prior to disruptions attributed to the global pandemic.

However, the role of rare earths in the energy transition and global decarbonisation is an attractive opportunity for producing
nations and recent developments could derail future expansions. Production in Myanmar is heavily associated with
environmental and social concerns, while Laos and Malaysia have announced plans to ban the export of rare earth mineral
concentrates to help expand domestic production. The details of the proposed legislative changes remain unclear, though these
announcements highlight the intent from governments to increase their exposure to the rare earths industry.

Ultimately, a lack of downstream capacity and challenges associated with project development, cost competitiveness and
technological understanding mean establishing an integrated supply chain outside of China is very difficult. We expect
production capabilities in the region to expand in 2024, but unprocessed or semi-processed materials will continue to be
exported to China.

Diversification of heavy rare earth supply

As outlined above, the current sourcing arrangements for heavy rare earths in southeast Asia poses a potential challenge to
China due to ESG concerns and possible legislative changes. This could encourage the launch of new domestic production of
heavy rare earths from IAC deposits in China. The mining production quota for ionic clay deposits has remained unchanged
since 2018, with 19,150 tonnes a year allocated across industry participants. However, recent developments indicate additional
quota could be allocated over the coming year. China Rare Earth Group (GREG) discovered the Ma’andi IAC deposit in Yunnan
province, a previously underexplored region for IAC deposits. CREG also completed its consolidation with Guangdong Rare

Page 2 of 5
Rare earths: 5 things to look for in 2024

Earth, one of three state-owned enterprises that was allocated mining quota for IAC production. This improves CREGs access
to mineral resources and could lead to greater production.

Outside of southeast Asia, the race to diversify heavy rare earth supply away from Myanmar has also intensified. Brazil hosts a
number of developing projects. The most advanced is Serra Verde’s Pela Ema project in Goias, Brazil which is expected to start
production in 2024. Rare earth developer, Aclara Resources has also announced the discovery of the Carina project in Goias as
it looks to bolster its portfolio in Latin America. Australia and parts of Africa have also experienced exploration, though many
projects remain at early stages of development. We expect development activities to continue in 2024 as companies look to
offer alternative sources of material with improved environmental credentials.

ROW developers to continue revising strategies to combat costs

Uncertain global macroeconomics and challenging market conditions have encouraged some ROW developers to revise their
strategies to continue advancing towards production. This trend will continue into 2024, but at what cost? Last year, Hastings
Technology Metals, Pensana, Peak Rare Earths and Rare X all announced staged development plans. These included
deferring the construction of hydrometallurgical facilities and focussing on the construction of mine and beneficiation plant
infrastructure to produce a saleable mineral concentrate. The primary aim was to lower the upfront capital expenditure for their
respective projects, reducing project execution risk and providing a faster pathway to cash flow. However, concerns exist around
the ability to carry out the latter stages of the revised plans, as price volatility and inflationary pressures may restrict
development.

Refined production of rare earths and subsequent downstream processing capacity to produce rare earth permanent magnets is
heavily centred in China. This raises geopolitical concerns for governments around the world as China would likely be a primary
customer for mineral concentrate products. New supply is required to keep pace with rising demand and altering development
plans could ensure additional material is brought online; however, this could restrict diversification of downstream stages of the
supply chain. We expect this trend of staged development to continue in 2024, unless financial and legislative support for
developing projects improve.

Greater interest in sourcing monazite mineral sands as rare earth feedstock

Most mined supply is derived from a handful of mineralogies, namely bastnaesite, primary monazite, ionic adsorption clays,
xenotime and loparite. However, alternative sources are becoming increasingly important to help meet future supply constraints.

Monazite is commonly mined as a by-product from heavy mineral sand (HMS) operations and production has grown significantly
in recent years, where material is mainly processed in China as a by-product from titanium mineral sand. Monazite typically
contains a more favourable distribution of desirable magnet rare earths such as neodymium, praseodymium, dysprosium and
terbium, when compared to bastnaesite-type deposits. There are also multiple projects globally, reducing the risk of
monopolisation. Finally, mineral sands producers have traditionally expelled monazite as a waste product when targeting
flagship products like zircon and rutile. Therefore, stockpiles of monazite may already exist, such as Iluka’s Eneabba stockpile in
Western Australia, or producers can install additional infrastructure to begin capturing monazite.

Major mineral sands producer, Tronox recently announced plans to stockpile monazite at its Cooljarloo project in Western
Australia and to establish a rare earths refining facility near Perth. The company also suggested it could import monazite
concentrate from i’s South African operations to bolster supply. It is unclear if Tronox plans to produce a mixed precipitate
product or rare earth oxides, but this announcement highlights the intent from mineral sands players to enter the rare earths
space.

Wood Mackenzie expects rare earth mined supply from heavy mineral sand operations to increase by almost 50% by 2026,
reaching 32.6 kt REO. However, a lack of development projects in the current pipeline restricts supply growth forecasts for the
longer term. Given the advantages outlined above, we anticipate further developments to be announced over the coming years.

Page 3 of 5
Rare earths: 5 things to look for in 2024

Challenges on the horizon for offshore wind

Offshore wind energy generation is an important contributor to rare earth demand; however, the sector has endured a
challenging period that looks set to continue in 2024. Unfavourable project economics due to cost escalations and supply chain
pressures has lowered projected returns causing some developers in the US and UK to halt development and even pay contract
termination fees for early exit. Furthermore, Wood Mackenzie estimates US$27 billion of investment is required by 2026 to meet
our base case of annual installations by 2030 and, within this, infrastructure for installing turbines and foundations has the
largest investment gap. Currently, half of the existing global fleet of installation vessels is set to be retired due to inability to cope
with increasing turbine weight and dimensions and to date, installers have committed less than half of the required investment to
build the 20 new vessels required.

Demand from wind energy is determined by the turbine drivetrain and gearbox configuration. Intensity of use varies significantly
between technologies and OEM preference and is a key factor in the decision-making process. In Europe, SGRE and GE
account for around 60% of the offshore market and have adopted direct drive technology whereas, in China, there are multiple
dominant OEMs which have a range of preferences. China is also favouring mid-speed geared drive rather than direct drive
drivetrains primarily due to cost advantages, and these models have a significantly lower rare earth intensity of use in
comparison to direct drive. In 2024, 16,691 MW of offshore wind capacity using synchronous permanent magnet generators is
forecast to be commissioned; however, only a third is expected to use direct drive. China will account for 64% of total capacity
addition, though 90% of turbine installations will use mid-speed geared drive. Despite the efficiency and maintenance
advantages of direct drive technologies, high cost remains a significant limiting factor, thus encouraging the uptake of mid-speed
geared drive. Rare earth demand from wind energy generation remains strong, though the changing outlook for technology
choice within wind OEMs could restrict future growth.

Page 4 of 5
These materials, including any updates to them, are published by and remain subject to the copyright of the Wood
Mackenzie group ("Wood Mackenzie"), and are made available to clients of Wood Mackenzie under terms agreed between
Wood Mackenzie and those clients. The use of these materials is governed by the terms and conditions of the agreement
under which they were provided. The content and conclusions contained are confidential and may not be disclosed to any
other person without Wood Mackenzie's prior written permission. Wood Mackenzie makes no warranty or representation
about the accuracy or completeness of the information and data contained in these materials, which are provided 'as is'.
The opinions expressed in these materials are those of Wood Mackenzie, and nothing contained in them constitutes an
offer to buy or to sell securities, or investment advice. Wood Mackenzie's products do not provide a comprehensive analysis
of the financial position or prospects of any company or entity and nothing in any such product should be taken as
comment regarding the value of the securities of any entity. Wood Mackenzie does not warrant or represent that these
materials are appropriate or sufficient for your purposes. If, notwithstanding the foregoing, you or any other person relies
upon these materials in any way, Wood Mackenzie does not accept, and hereby disclaims to the extent permitted by law, all
liability for any loss and damage suffered arising in connection with such reliance. Please also note that the laws of certain
jurisdictions may prohibit or regulate the dissemination of certain types of information contained in these materials, such
as maps, and accordingly it is your responsibility to ensure that any dissemination of such information across national
boundaries within your organisation is permitted under the laws of the relevant jurisdiction.

Copyright © 2024, Wood Mackenzie Limited. All rights reserved.