Metal Pages obtained an interesting brokers report by Byron Capital Markets regarding the prospects for Germany-based Tantalus Rare Earths, which has a project in Madagascar. Some of the characteristics of the Tantalus project highlight a couple of interesting trends in the development of rare earth supplies outside China. The project could be in production by 2014.

At first glance the project does not look that exciting and could be passed off as yet another victim of fashionable rare earths, but in Tantalus’ case that could be a mistake. Tantalus has an inferred resource of 130 million tonnes of rare earth clay, but with an average grade of barely 0.08%, which is extremely low and tempting to write off. Indeed, many non-Chinese rare earth deposits have grades of well over 1%.

But that’s only part of the story as Byron’s research report explains: “While this grade looks exceedingly low, if the material is shown to be amenable to simple recovery of the REEs, without additional crushing, grinding or costly hydrometallurgy, then it is of a grade and composition consistent with the Chinese ionic clays.” Commenting on recent test analysis from the prospect Byron Capital’s analysts think the Madagascar deposit compares favourably with clays mined in the Guangdong and Jiangxi provinces in China. “Should this deposit be confirmed to contain clays that easily leach rare earths, Tantalus would be the first so-called ionic clay deposit identified outside China,” the report’s authors wrote.

Byron Capital goes on to state that those Chinese clays in China very profitably produce most of the world’s heavy rare earths and speculates that Tantalus could quickly take its place within the rare earth industry as an important source of HREEs outside of China. It is that very same Chinese cost base that drove most of the world out of rare earth production over a decade ago. And Tantalus’ management is currently in JV discussions with China Non-Ferrous Metals Company Limited, who are no doubt in a position to truly appreciate the value of ionic clay deposits.

The broker goes on to highlight another interesting dynamic that could take shape among the non-Chinese rare earth producers: “Those companies touting expensive, large hard rock-based HREE projects are now under fire from small, potentially quick-to develop ionic clay projects. We know, potentially, of four such clay deposits, and it seems likely that more will emerge.” The broker further notes that there will be plenty of cerium and lanthanum in coming years, but many of the heavy rare earth elements could remain in tight supply.

At a recent technology summit in Toronto Constantine Karayannopoulos, president and CEO of Neo Material Technologies identified dysprosium, terbium, europium and neodymium (a light/ medium rare earth) as having plenty of potential. At the same conference rare earth market analyst Dudley Kingsnorth cited europium, dysprosium, terbium and yttrium as being likely to remain firm between 2012 and 2020.

Tantalus won’t enjoy the first mover advantage gained by Molycorp and Lynas, the former is already producing the latter should do so around H2 2012, but if Byron’s prognosis is on the money then it should be a low cost producer as it won’t need to process expensive ores to extract rare earths. Byron estimates that the capital costs for an ionic clay-based project is likely to be well under $250 million, making them cheaper than a typical hard rock-based HREE projects. It should also have a good focus on the heavier elements if the analysis of samples taken from the site proves to be an accurate indicator for the whole deposit.

As rare earth markets become increasingly swamped with cerium and lanthanum (usually the main constituents of a rare earth deposit) in the run-up to 2020 working low cost deposits skewered towards heavier rare earths elements could make the difference between survival and abandonment.

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