Mining doesn’t work that way
Ramaco Resources (NASDAQ:METC) (METCB) is well in the news right now. They have discovered rare earths in their coal mine. How exciting. Well, except for a number of things. Quite a few things actually.
This piece is not about metallurgical coal, coal mining or the market for it. This is simply about those claims for many, many very valuable rare earths in that coal mine. As announced and as it has pushed Ramaco’s share price from $11.70 to $17.70 or more at the time of my writing.
The Wall Street Journal the coverage says: “$2 million coal mine that could hold $37 billion in treasure” and then goes on to make a number of less surprising claims. This is then being repeated in the media – NY Post: “That is why a $2 million coal mine in Wyoming could be worth $37 billion”
Aaaand, no. Tosh actually.
The first issue is that they are counting wrong. Collect the entire value of all rare earths out there – from those rare earths were processed, allocated and made available for sale at current market prices. OK, that might be $37 billion. Willing to concede that at least for the point of argument.
OK, how much does it cost to get them out? Then cleaning them?
The value of a mine is not the value of the metals in it. It is the value of the metals in it minus the costs of extracting those metals. For example, it is a standard mining industry claim that the North Sea (the wet part between Britain and Germany) contains $5 trillion in gold. It would also take $20 trillion to get it out. Thus, the value of the North Sea as a gold mine is negative $15 trillion (don’t trust those actual figures too much, the idea stands).
So no, that $37 billion is dead in the water. Because yes, they are calculating the sale value of the purified oxides as that estimate, not including any of the extraction or purification costs. As we mentioned before, when we talk about Energy Fuels, the allocation of rare earths is where the big costs come. It’s not just those costs either. It is that there is a great loss in cerium and lanthanum, a gain in neodymium and praseodymium. It is the income from the mix, when shared, that must cover the costs.
Now, in one sense, Ramaco is safe here. Their claim is for an ionic clay deposit (we’ll get to that) and that is normally high in the magnetic metals (Nd, Pr, Dy, Tb) that have the value.
In fact, we can prove it:
Those levels Dy and Tb are ionic clays. That’s just the way it works. They are also the reason why China has such an advantage in these two metals. We used to think that ionic clays were specific to South China. Now we know that’s not true – I have a small list of a dozen companies claiming deposits from the Australian stock market alone over the last 10 months or so. We also looked rare earth ionic clays here.
OK, coal and rare earths, right?
Well, no, that’s not what Ramaco is actually claiming. From theirs own report:
Most REE deposits outside of China are associated with “conventional” mining and are found in hard igneous ore deposits, which makes them difficult and expensive to mine and process. In contrast, the REE from the Brook Mine are characterized as “unconventional” because they occur primarily in softer clay layers overlying and underlying the coal seams themselves. It is expected that they can be mined using normal surface mining techniques and possibly deeper in-situ forms of mining, and processed in a more economical and environmentally friendly manner than conventional REE mining.
I have no reason to doubt that. They have ionic clays above and below their charcoal.
Ah, but how rare are ionic clays around coal?
Here we come to the next level of the problem with estimation. Ionic clay around coal are not rare.
From the literature, the average amount of REE in coal worldwide is about 69 ppm. However, some coal deposits have recorded values exceeding 300 ppm (Seredin and Dai, 2012, Zhang et al., 2015) compared to the 1000 and 5000 ppm that can be obtained in traditional mining scenarios. Mastalerz etc. (2020), recently reported REY concentrations of 200 ppm to more than 3000 ppm (ash basis) in Pennsylvania coal and shales.
The basic geological idea is that the ionic clays around a coal deposit are quite regular, even normal. Now, true, we didn’t know that. I remember that in the Trump years there was a certain push to find valuable minerals in coal. Very specific too – grants for finding anything, just about anything, in coal, or related to coal mining. The only one you couldn’t get a grant for was getting germanium from fly ash, since everyone already knew how to do that – 50% of the world’s germanium comes from that route (OK, it depends on the exact year, but approx. ).
A certain push to please the base by spending some federal money was my opinion, others may think it is a proper use of tax money to defeat the Chinese threat. We can have this discussion elsewhere.
But the point to take from this section is that this idea of rare earths and coal is not new at all. What would be exciting is finding a much higher than normal concentration somewhere. Or, alternatively, a new extraction method.
So is it a high concentration?
We are told that there are huge tonnages of those rare earths out there. No doubt – except when you think like a miner. Tens of millions of tons of coal, which adds many minerals and trace elements. But it’s the focus that counts – again the north sea. At what point we are told:
They constitute c. 35% of China’s total REE production and approximately 80% of global HREE supplies, despite being low grade (0.05-0.2 wt% total RE2O3, including Y2O3)
Well, yes, but 0.05% to 0.2% is 500 ppm to 2000 ppm. So this Ramaco ionic clay is already one-tenth of what we generally describe as a low grade rare earth mineral.
No, we cannot recover it with the volume.
Our N Sea story for gold again. The cost of extraction increases – often rapidly – with lower concentration. This is the difference between being a mineral and something being impurity. Of course, everything – the N Sea – contains gold, but it is not a mineral. The hour is when the value extracted is greater than the costs of extraction.
That’s what’s not clear about Ramaco’s claims.
So sorry for the length of setup here.
From the above, you should be able to figure out my decision tree here. But to make it clear.
Does Ramaco Resources have rare earths? Of course, so does my back garden. Are there too many Ramacos? Of course, it’s bigger than my back garden.
And to be less fantastic, of course, rare earths and coal. Levels of 100 to 300 ppm are quite normal. It is an interesting – but not particularly new – discovery that there is little leaching in the ionic clays above and or below the coal bed.
So is it worth any money? I dont think. Notice, now, that we have passed from what I can prove, as above, to what I think, which is what follows.
Ionic clays containing rare earths around a coal bed? Sure, why not?
Q1) What is the extraction cost? Well, when we look at other ionic clays like Aclara, we look for RE content about 10 times higher. Only because the extraction method uses solvents (ammonium sulfate quite often, which is cheap, but costs increase with lower concentrations). So, well it doesn’t do well there.
Q2) Are there rare earths out there? Of course, happy to agree with that. A lot of them too. But look at Q1. Is this dirt or mineral?
Q3) OK, but what if they have a new extraction method? Of course, willing to believe it. But two answers. First, a new new extraction method would be advertised as a new new extraction method. Second, if we all agree (and we should because it’s true, as above) that these low-grade RE ionic clays are fairly common around coal beds, then this particular deposit isn’t worth spitting about. Because America has no shortage of coal beds, we know that. So if the technology can be applied to this, then to all those others, and while the technology may be worth money, this coal deposit is not.
Notice something about Q3. The claim here is of decades-old rare earth in this single coal deposit. Which, in fact, is not particularly large or impressive. So if there are many deposits that can be used, then the value of each deposit is low.
I end up thinking that the high value claims here don’t quite add up. As I say I am perfectly willing to believe that there are rare earths out there. But the concentrations they claim just don’t seem economical to me. And if they have a new extraction technology that makes them economical, then there is no value in the lack of deposit. Because if you can get out of this at a profit, then you can beat any coal bed by a long shot.
I just can’t navigate my way through the information here for a real and substantial value for those rare earths.
So why could I be wrong?
Well, given the current fuss about China and rare earths, I might be. As with the funding of those rare earth investigations in coal. Politics can direct money to this. If there is such a river, then shareholders can make money.
Now, I’m old enough to have been wrong enough times to accept that I can be again. But I regard this submission to Ramaco Resources as evidence of claims that may not turn out to be wholly and entirely substantial. I’m very willing to agree that there are rare earths out there, but I’m really disillusioned with the idea that they have any economic value. If there is a new mining method, then that would be it, but then this specific mine wouldn’t be for the same reason. I think the current price increase is the result of some newspaper articles not taking into account the details.
No, I wouldn’t recommend a short one mainly because I never do. I would suggest being somewhere else, doing something else.
Rare earths in coal? Of course. Economic rare earths in coal – unlikely. But if it is true because of a new extraction method, then no coal mine gains economic value from rare earths in coal mines.