Silmet sold to rare earth giant

TALLINN - U.S. company Molycorp announced on April 4 that it bought 90.023 percent of Estonian rare earth company Silmet for around 62 million euros, reports news agency LETA. One of the major owners of Silmet, Tiit Vahi, said that Silmet did not have its own raw material and, therefore, its future was unclear. Molycorp is the largest rare earth miner in the world outside China.

“There is no raw material in Estonia and we have worked on the basis of Russian raw material all the time,” said Vahi. According to the plans, two thirds of Silmet’s raw material will come from Molycorp and a third from Russia.
With the purchase, Molycorp will get its first production base in Europe and will double the company’s rare earth annual production capacity, from 3,000 to 6,000 tons. Silmet will immediately start using the material from Molycorp’s California mining and production unit and is thus the first rare earth and oxide producer in Europe that is independent of Chinese raw material.

The revenues from selling Silmet will enable the development of the Sillamae port into a major port and create hundreds of new jobs in the town, said Vahi. He said in an interview with ETV that the majority of the revenues from selling the shares will be invested in other projects in Sillamae, mainly in the local port and heating and energy production. Vahi added that the development of the Sillamae port will be very positive. “We will certainly become, in the near future, in 3-5 years, the big port of the region, where practically all groups of goods are represented and most likely ferry and passenger transport too,” he said.
Silmet, one of Europe’s largest refineries, looks ahead to higher profits as China slashes its output of rare earth metals. These products are crucial in the manufacture of semiconductors, and, in turn, consumer electronics, reported Deutsche Welle. In December 2010, the Chinese government announced 35 percent cuts in the export of its rare earth elements - a crucial manufacturing component in nearly all consumer electronics, and other devices like wind turbines, light bulbs, and even missiles.

These cuts, which the government did as part of an effort to protect the environment and its resources, came after an even higher slash in rare earth exports earlier in 2010. China is the undisputed king of the rare earth industry, controlling 97 percent of the global market. Many manufacturers of gadgets are worried that a decreased supply will lead to higher prices on consumer goods, and will thus cut into their profit margins.

Because of China’s recent supply cut, the price for cerium, for instance, has gone up twentyfold - from 2.50 euros a kilogram in 2010 to 50 euros a kilogram currently. Cerium ore is one of four rare earth elements that are refined by Silment, which is located in the small town of Sillamae, in northeastern Estonia near the Russian border.

Other rare earths, including praseodymium and neodymium, are used in the making of iPods and hybrid electric vehicles. Cerium is used as part of the glass in nearly all LCD televisions, and car windsheilds. “Your UV (ultraviolet light) cut glass windshield, which keeps you from getting sunburn while you drive, has cerium added to it which cuts down on the UV which comes through the windshield,” explained David O’Brock, Silmet’s CEO, in an interview with Deutsche Welle.
To get to the pure elements, Silmet buys raw loparite ore, which is mined outside of the Russian town of Murmansk, which is the largest city north of the Arctic Circle (population: 300,000) and sits about 1,500 kilometers north of Tallinn. Then, the ore is sent away for “cracking” at another facility near the Ural Mountains, after which the resulting carbonates are sent by rail to Estonia, where the separation process can begin.

“We have stainless steel, what we call ‘cameras,’ and in there is the dissolved solution of rare earths, light rare earths,” O’Brock said. “And each camera takes a little bit, and a little bit, and a little bit more, out of the mixture until you get a pure element for each of the elements.”

The extraction units operate continuously throughout the day and night because the units have to be in equilibrium all the time, which keeps the elements from mixing with each other.
In addition to rare earths, Silmet also refines two non-rare earth metals - niobium and tantalum. O’Brock added that these metals, which are also crucial in semiconductor manufacture, have kept the company from going bankrupt each time the rare earth production has fallen, and helped the refinery to survive the recent financial crisis.

At 3,000 metric tons of rare earth elements per year, or two percent of the global market, by global standards, Silmet is still a tiny company. For now, it only serves 15 long-term customers in the car, glass, ceramic and fuel catalyst industries. New inquiries about cooperation are coming from around the globe, but the refinery is forced to turn them down. “Unfortunately for us, our bottleneck has always been raw material,” says O’Brock. “We get our raw material from Russia and today we are not able to get enough raw materials to process what the market needs.”

High-tech companies across the globe are on a roller coaster because the demand and the price for the rare earths aren’t dropping anytime soon, which is why other new refineries are coming online in other parts of the world. “Even if some Australian or U.S. names, or other names start their production next year, it will take time until they reach a commercial scale of production,” said Daniel Briesemann, a commodities industry analyst with Commerzbank, in an interview with Deutsche Welle.

He added that it’s unlikely that this tight supply and demand situation will ease over the next two, three or even four years. “The market expects a supply deficit of almost 30,000 tons in 2014,” Briesmann said.
Molycorp acquired 80 percent of Silmet from Silmet Grupp, which will keep a stake of 9.977 percent of the company and 10.023 percent it bought from Treibacher Industrie AG. Fifty-one percent of Silmet Grupp belongs to Valga Group, the major owner of which is Estonia’s ex-prime minister Tiit Vahi.

Silmet, which employs 550 people, will be called Molycorp-Silmet. Vahi said that the Silmet plant will be preserved and new jobs, in addition to the current 500, will be created.
Silmet Grupp includes also Sillamae heating and power plant, OkoSil, Silmet Real Estate and Sillamae Port.