Baotou Rare Earth Group Plans to Build 10 Strategic Reserves

On Feb. 11, the Baotou Rare Earth Group,China’s largest rare earth company, announced that on Feb. 9, the People’s Government of the Inner Mongolia Autonomous Region approved its international trading company to carry out Baotou rare earth material and product strategic reserve plan.

It is the first time a rare earth company has carried out a strategic rare earth reserve plan. The project will mostly be self-financed by the company. The strategic reserve plan will receive joint support by Inner Mongolia Autonomous Region, Baotou City, and the Baogang Group (parent company of Baotou Rare Earth Group) in the form of discount interest, of which Inner Mongolia Autonomous Region and Baotou city will pay the interest of RMB 10 million each, with the remaining interest to be paid by the Baogang Group.

“Unlike other rare earth companies, Baiyunebo Iron Ore Mine produces more than 10 million tons of iron ore annually. Rare earth picking processes start after the selection of iron ores.Previously, only about 10% of these rare earth ores were utilized and the remaining 90% were simply ditched in a gangue dam, wasting the resources”. Professor Wang Guozhen of China’s General Research Institute for Nonferrous Metals told China Business News.

Wang Guozhen disclosed that Baotou Rare Earth Group plans to build 10 reserve warehouses. The Baogang Group will build 5, and Baiyunebo Iron Ore Mine will build 5, which will store more than 200,000 tons of concentrates, with 50% rare earth oxides.

Rare earth ores come from the Baogang Group’s mill run process. Since there is little demand for rare earth, some rare earth ores have been ditched in gangue dams. Considering the promise of the future rare earth market, the company decided to build rare earth concentrate reserves in order to avoid wastage and increase resource utilization efficiency, according to Zhang Fang, analyst at TX Investment Consulting.

On 26 August 2008, Baotou Rare Earth Group announced that it would invest RMB675 million to build rare earth reserves in its smelting factory, the rare earth selection factory and the Baiyunboyu branch. Following the project, the company will have a rare earth concentrate reserve capacity of 300,000 tons.

“Except for the Baotou Rare Earth Group,there are currently no other domestic rare earth companies that own rare earth reserves,” Wang Guozhen said. The “2009-2015 Rare Earth Industry Development Plan” to be issued soon does not mention strategic reserves of rare earth.

After completion of the reserves, the company’s total annual output of rare earth concentrates will surely increase, causing the recovery rate of resources that enter the process of rare earth selection to rise from the current 25% to about 50%, with the overall recovery rate of rare earth resources increasing by 10%. Therefore, the development and utilization of Baiyunebo’s rare earth resources will be increasingly rationalized to prevent secondary pollution of rare earth resources, depletion and waste of resources.

The current state monopoly operating mode for purchasing and marketing the Baotou Rare Earth Group International Trading Company is actually company-level storage in disguised form. Since the middle of 2009, the international trading company has changed its marketing model from consigned processing and the bartering trade to selling rare earth, i.e., the purchasing rare earth to unified market prices,selling to specific targets. In fact, the current state monopoly operating mode for purchasing and marketing is a type of disguise. The company has previously planned to store rare earth products to a total value of RMB3.2 billion in 2010. Once downstream demand recovers, the company will profit by nearly 50% on the rare earth oxides it controls, further consolidating its position at the core of the market.

Since 2009, the continuous rebound of domestic rare earth prices has been supported to a great extent by active sales control and reserves of rare earth products of the international trading company. Stocks in the company saw significant increases from 799 million at the end of 2008 to 1478 million at the end of the third quarter of 2009. As an overall trend, the price of rare earth will rise continuously.

The implementation of the strategic reserve plan will significantly reduce the financial burden of the company. Along with the rebound in rare earth prices, the international trading company’s profit has seen marked improvement,and the state monopoly purchasing and marketing operating mode has been running smoothly.In addition, interest discount support will also significantly relieve the financial burden of the company, and suggests the company structure has been noted with interest by the local government, and on a national level, China is increasingly attaching great importance to the rare earth industry. Concerted government ownership and the company themselves has contributed to accelerated growth within the rare earth industry. The company’s structure will further influence the rare earth industry,and impact the development of the rare earth industry in northern China.