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Critical Reading for Rare Earth Metals Investors

A quick search of media stories from the month of December, 2009 shows 24 clips including references to the 15 lanthanides and their related elements scandium and yttrium. By contrast, one day in December, 2011 produced 56 stories on the same resources. Even the tone of REE coverage has transformed over the years. Two years ago, an analyst piece from veteran metals consultant Jack Lifton titled “Underpriced Rare Earth Metals from China Have Created a Supply Crisis ” was a common headline as the world discovered that cheap supplies had left manufacturers vulnerable to a monopoly with an agenda. That supply fear made REE the investment de jour and sent almost all of the rare earth prices through the roof. In December of 2010, the headlines in big outlets like The Motley Fool announced that the “Spot Price of Rare Earth Elements Soar as much as 750% since Jan. 2010.”

Reality soon set in as investors realized that this was not a simple supply and demand industry. First, demand was still vague, subject to change and very specific about the type and purity of the product being delivered. Second, the ramp-up period for companies exploring, getting approval for development, mining, processing efficiently and delivering to an end-user was very, very long. Some became discouraged. That is why this year, the consumer finance site, The Daily Markets ran an article with the headline: “Why You Shouldn’t Give Up on the Rare Earth Element Minerals” by Gold Stock Trades Newsletter Writer Jeb Handwerger.

Through it all, Streetwise Reports has focused on cutting through the hype to explain what is really driving demand, how the economy and geopolitics shape supplies going forward and which few of the hundreds of companies adding REE to their company descriptions actually had a chance of making a profit.

Back in June of 2009, in an interview titled “The Race to Rare Earths,” we ran an interview with Kaiser Research Online Editor John Kaiser that concluded “China’s export-based economy, once dependent on American greed, is now but a fading memory. While the U.S. was busy printing and preening, the Chinese were long-range planning. But America wasn’t the only country caught off guard by China’s strategic, if surreptitious, supply procurement.” Even while other analysts were panicking, Kaiser was pointing out how investors could be part of the solution–and make a profit in the process.

“For the juniors, the opportunity right now is to source these projects. They get title to them, and when these end users want to develop them, they’re going to have to pay a premium to have these projects developed,” Kaiser said. “So it will not be economic logic that results in these companies getting bought out and having their deposits developed. It’ll be a strategic logic linked to long-term security-of-supply and redundancy concerns. And we’re seeing that sort of psychology at work in this market. It’s a bit of a niche in this market. Not as big as gold, but it is an interesting one because of the long-term real economy link implications.”

After years of covering the space by interviewing the growing chorus of analysts and newsletter writers singing the praises of rare earth elements, in June of 2011, we launched The Critical Metals Report to give exclusive coverage to the entire space, including rare earth elements, strategic metals and specialty metals. One of the first experts interviewed was Emerging Trends Report Managing Editor Richard Karn in an article called “50 Specialty Metals under Supply Threat.” He warned that investing in the space is not as simple as some other mining operations. “The market is just starting to become aware of the difficulty involved with processing these metals, which, in many cases, more closely resemble sophisticated industrial chemistry than traditional onsite brute processing. Putting flow sheets together that process these metals and elements economically is no mean feat.”

In this early article, Karn busted the myth that manufacturers would find substitutions, engineer out or use recycled supplies for hard-to-access materials. “The advances we have seen especially in consumer electronics over the last decade and a half have not been driven by lone inventors or college kids tinkering in their parents’ garages, but rather by very large, well-equipped and well-staffed research arms of powerful corporations. The stakes are high and if a certain metal is critical in an application, they will buy it regardless of the price,” he said.

Similarly, a July 2011 article for The Critical Metals Report featured Energy and Scarcity Editor Byron King sharing “The Real REE Demand Opportunity” driven by the automobile industry and beyond. He was one of the first to point out that not all rare earths are the same with Heavy Rare Earth Elements demanding big premiums.

“Going forward, the serious money will be in HREEs, which have a lot of uses other than EVs,” King said. “For example, yttrium is used in high-temperature refractory products. There’s no substitute for yttrium. Without it, you can’t make the refractory molds needed to make jet-engine turbine blades. If you can’t make jet-engine turbine blades, you don’t have jet engines or power turbines. The price points for these HREEs will reflect true scarcity and unalterable demand. People will bite the bullet and pay what they have to in order to get the yttrium.”

House Mountain Partners Founder Chris Berry also addressed the impact of electric vehicle demand on vanadium, a popular steel alloy strengthener now being used in lithium-ion batteries in the interview “Can Electric Vehicles Drive Vanadium Demand? “

“The use of vanadium in LIBs for EVs is not significant yet, but could eventually become important as the transportation sector electrifies. One of the real challenges surrounding LIBs is settling on the most effective battery chemistry. In other words, what battery chemistry allows for the greatest number of charge recycles, depletes its charge the slowest and allows us to recharge the fastest? Today, based on my research, lithium-vanadium-phosphate batteries appear to offer the highest charge and the fastest recharge cycle. It seems that the lithium-vanadium-phosphate battery holds a great deal of promise, offering a blend of substantial power and reliability. I am watching for advances in battery chemistry here with great interest,” Berry said.

In September, Technology Metals Research Founding Principal Jack Lifton shared his insights on why some junior REE companies are prospering while others wither and die. In the article, “Profit from Really Critical Rare Earth Elements,” he said: “Rare earth junior miners are now being culled by their inability to raise enough capital to carry their projects forward to a place where either the product produced directly or the value to be gained from the company’s development to that point by a buyer can be more profitable than a less risky investment. The majority of the rare earth junior miners do not understand the supply chain through which the critical rare earth metals become industrial or consumer products. Additionally, they do not seem to recognize the value chain issue, which can be stated as ‘How far downstream in the supply chain do I need to take my rare earths in order to be able to sell them at a profit?’”

Then Lifton made this important point for Critical Metals Report readers. “It is very important for the small investor to understand that the share market does not directly benefit the listed company unless the company either sells more of its ownership or pledges future production for present, almost always sharply discounted, revenue.” As always, Lifton encouraged investors to follow the money to a specific end rather than the general market demand often envisioned by investors accustomed to the more defined gold market.

In October, JF Zhang Associates’ Principal Consultant and Chief China Strategist J. Peter Zhang shared his insights on “U.S. Manganese Supply as a Strategic Necessity.”

Manganese is now largely used largely in the production of low quality stainless steel, but is being incorporated into lithium-ion batteries. That increased demand is focusing attention on the limited supply outside China. “There really is no electrolytic manganese metals production in the U.S. or anywhere outside China except for a small percentage from South Africa. We don’t produce even a single ounce in North America. Relying on other countries to supply essential commodities (like oil for instance) is always a problem. If China suddenly decided to reduce production, or in the likely event that its domestic demand increases, the world would be out of options. Policymakers need to understand this risk and Congress needs to take action to minimize the potential impacts,” he said. “From the end of 2008 to 2009, China tied things up. Since then, the price has doubled, tripled and quadrupled. That should be a wakeup call. North America needs to either establish a strategic reserve system for critical metals or build production capacity to mitigate supply risk. I think there is some sense of urgency right now, but a lot more needs to be done.”

Picking the right junior is the trick. In the November article “Navigating the Rare Earth Metals Landscape” Technology Metals Research Founding Principal Gareth Hatch outlined the odds. “TMR is tracking well over 390 different rare earth projects at present; I can’t see more than 8-10 coming onstream in the next 5-7 years. Projects already well past exploration and into the development and engineering stage, and beyond, clearly have first-mover advantage.”

Just this month, in an interview entitled, “The Age of Rare Earth Metals” Jacob Securities Analyst Luisa Moreno compared the impact REEs will have on our daily lives with the transformation in the Bronze Age.

“There is an economic war over the rare earths, with China on one side and other industrialized nations on the other—Japan, the United States and the E.U. China is probably winning. It has decreased exports in the last few years and increased protection. It has attracted a great deal of the downstream business and it is positioning itself well. At this point, it produces most of the world’s rare earths, and prices are at record highs. Japan and the other countries have been left with few options, and those options are more expensive, such as substitution, recycling and adapting production lines to use less efficient materials.” Moreno then pointed to the seven companies that could come to the world’s rescue and usher in a miraculous new world of smaller, stronger, more powerful gadgets based on a steady supply of REE materials from reliable sources.

By: The Gold Report
Source: http://jutiagroup.com/20111227-critical-reading-for-rare-earth-metals-investors/

The Age of Rare Earth Metals: Luisa Moreno

The Critical Metals Report: Luisa, in a recent interview, you called the rare earth space “the modern Bronze Age played in the capital markets.” Could you expand on that?

Luisa Moreno: The Bronze Age was the first period of human civilization in which metal was used. This rare earth period is similar in that investors are learning about new elements and their applications, which are fairly critical for our modern lifestyle. At the same time, investors have the opportunity to create profits in the space. The analogy is an exaggeration, but we are discovering these new elements.

TCMR: You published a report called “Rare Earths Economic War.” Is there really a war in the rare earth space? If so, who’s winning?

LM: There is an economic war over the rare earths, with China on one side and other industrialized nations on the other—Japan, the United States and the E.U. China is probably winning. It has decreased exports in the last few years and increased protection. It has attracted a great deal of the downstream business and it is positioning itself well. At this point, it produces most of the world’s rare earths, and prices are at record highs. Japan and the other countries have been left with few options, and those options are more expensive, such as substitution, recycling and adapting production lines to use less efficient materials.

However, the capital and equity markets have been depressed for various global economic reasons. If the global economy recovers, stocks should go up—and hopefully investors will gain from that as well, because rare earths are still needed and we need to develop these projects.

TCMR: You have said that China may gradually phase out rare earth elements (REE) exportation and keep them for itself, to attract businesses and because mining them is a toxic business. So why doesn’t China get behind some REE projects, to get one into production and get the world off its back?

LM: China is concerned with its own demand, and my forecast indicates it will likely become a net importer. But to answer your question, China tried to buy Molycorp Inc.’s (MCP:NYSE) Mountain Pass project as well as the Lynas Corp. (LYC:ASX) project. It wasn’t able to, due to lack of support from local governments. China (and by China, I mean some individual companies and perhaps its government) would like to control most of the REEs and be able to supply the rest of the world, but the rest of the world is not ready to be dependent on the nation for such critical elements.

TCMR: A post on raremetalblog.com talks about China’s growing relationship with Wal-Mart, the world’s biggest retail company, and how it is trying to get Wal-Mart suppliers to be more sustainable. Another post talks about growing demand for LED light bulbs. They are expensive, but they more than pay for themselves in the long run. These items mean a greatly increased demand for REEs —so are we underestimating future demand?

LM: We may be. Chinese demand is better defined because China has the REEs and it can produce and consume them internally. It is different, however, in Japan, which has to decide now if it is going to develop and build production lines that are dependent on REEs. If it doesn’t feel comfortable with that, it might decide to use different elements instead of making products using these elements; it might choose to produce hybrid cars with fewer REEs.

At this point, there is great potential for REEs —but at the same time, if the supply is uncertain, some industrial nations might come up with a plan B. Assuming the global economy does well, there is great potential usage and demand growth, not just in China, but also in other nations’ energy strategies. So many risks are attached to supply that it is hard to accurately predict what the real demand will be.

TCMR: Does Japan have any leverage with China that can stabilize the flow of rare earths to its manufacturers?

LM: Japan might have some leverage, but not enough to change Chinese policies. You might remember the fishing dispute a few months ago; China stopped exporting to Japan until it felt comfortable the dispute was resolved. You could say Japan has almost no leverage—and that is true of the U.S. and EU as well. Japan has been talking to China for a long time, and the World Trade Organization is aware of the struggles, but no one has been able to persuade China to change its policies.

TCMR: China has attempted to curb illegal and small-scale rare earths mining. Are the Japanese sourcing the REEs through these kinds of means now? Do you think Japan will resort to the gray market?

LM: That is not something its government would disclose or announce, but I think Japan is trying to purchase the REEs through other nations— and it is possible that Vietnam, Thailand and neighboring countries are buying illegal rare earths. But based on its culture and what I have been told by Japanese traders and businessmen, Japan will avoid buying illegal rare earths directly from China. It would rather do business with the surrounding nations.

TCMR: Your report says the biggest obstacle to developing deposits is metallurgy, or the ability to recover and process the REEs. Is it true that no two REE deposits are identical, and therefore there is no standard process for extracting and refining REE-bearing minerals?

LM: Yes; no two deposits are identical, so the process will differ from project to project. The refining process of each element is performed using solvent extraction or ion exchange processes that are well known, but the balance of chemicals used and the design of the processes depend on the composition of the feedstock REE concentrates. It is definitely not one size fits all, so companies have to determine how to economically extract their REEs, which is complicated and expensive. My understanding is that solvent extraction is commonly used for the lights, while companies with high percentages of heavies may have to use the ion exchange process as well, and that tends to be equally expensive. So it is an expensive endeavor for a company that wants to extract anywhere from six to 10 elements. That is a lot of elements.

TCMR: We should also consider production of concentrates versus oxides. It is easier to produce concentrates, but concentrates reap only about 20% of the value oxides offer, correct?

LM: Potentially, yes. It depends on the percentage of the most expensive elements. For example, if the REE distribution in a company’s concentrate has high percentages of dysprosium and terbium and other expensive elements, then that could be a motivation for them to separate and refine the elements and realize the individual values. Those with more of the lights will realize less value for the individual refined elements. Some concentrates have more of the high-priced elements than others, but I’m not sure if a company can realize that price; the market for the concentrate is not very well known outside of China.

TCMR: Many companies are talking about producing oxides instead of concentrates, in hopes the market will attribute greater value to their projects, share prices having dropped from where they were in summer. Do you have any comments on that

LM: Either way, companies will always realize less of a price if they sell it as a concentrate instead of as individual elements. And yet, from concentrate to the individual elements, a lot of capex is needed—in some cases, it is justified, depending on the prices, but in others, it might not be. Meanwhile, time will tell where the prices of these elements will end up, and that will give a much better picture of these projects’ economics.

TCMR: What are the top four or five projects that are most advanced in terms of being able to economically recover and process the REEs and their respective deposits?

LM: Molycorp is well positioned. Another one is Rare Element Resources Ltd. (RES:TSX; REE:NYSE.A). Some say it is similar to Molycorp because it has high percentages of bastnaesite minerals, but the deposit is somewhat different. Again, no two deposits are identical. I had a chance to visit the lab that is performing its pilot study, and it seems Rare Elements Resources is the most advanced project at Hazen Research Labs. It’s the one that is in pilot scale, so it may be fair to say that is closer to production.

Another project making significant progress is Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX ), which is working with SGS Canada on its Kipawa deposit, and in the last few months the company has disclosed detailed information about the metallurgy. It is very confident about the results, and a pilot study should happen next year. Matamec should be disclosing details of its PEA in the next couple of days; relatively speaking, it has made significant progress in communicating its project advancement to the market. Hopefully the PEA will show some positive economics.

TCMR: That is primarily because of eudialyte, the mineralization hosting the REEs?

LM: Correct.

TCMR: Is that easier to process?

LM: Not historically. Eudialyte has always been problematic because silica gel formation was an issue in the processing and recovery of REEs. But working with SGS and other private consultants, Matamec has solved that problem, according to what the company has disclosed.

TCMR: Is there news regarding a possible offtake agreement there?

LM: It has not officially been disclosed, but Matamec has attended different conferences and it appears that Japanese and other Asian interest parties have approached the company numerous times. So, my perception is that there is significant interest in the Kipawa deposit, and that could materialize in an offtake or a memorandum of understanding or something like that.

TCMR: And you have a Speculative Buy rating on Matamec with a 12-month target of $1.50? It’s currently trading at about $0.26.

LM: Correct.

TCMR: Do you expect that will go lower before it goes higher?

LM: It depends on how the overall market performs. I wouldn’t expect it to go much further down, especially when the company is just days away from a PEA. Between that and the potential for an offtake agreement, things look positive for the stock.

TCMR: Another company you have a spec buy on is Frontier Rare Earths Ltd. (FRO:TSX). You had a 12-month target of $9.83 in July, but now that is down to $5.90. Why the 40% drop?

LM: Right after I did my first forecast, I was surprised to see the prices growing in increments of 300% and higher, and then it all collapsed. I did not predict that behavior at all, so I had to go back and adjust. I was also expecting to hear more details about the metallurgy, but I didn’t have access to those. At the same time, I continually try to understand the mineralogy and its potential challenges. All this led me to lower the recovery rates and prices, which reflected that decline.

TCMR: How does Frontier Rare Earths Ltd., with 532 thousand tons (Kt) of contained total rare earth oxides (TREO) in the indicated category and 415 Kt contained TREO in the inferred category, compare to other deposits in the space.

LM: Compared to other light deposits, it is a good size. Frontier plans to produce 20 Kt per year, and just based on the indicated resource of 22.9 million tons (Mt), it should be able to do that for 20 years. According to the company, it also has the potential to extend it further.

TCMR: The prospecting rights for Zandkopsdrift, Frontier’s main project in South Africa, are held by a subsidiary called Sedex Minerals. Frontier owns 74% of that project, and a black empowerment group owns the other 26%, according to the South African ownership laws. Does that hurt Frontier, not owning the project outright?

LM: A few investors are not comfortable with that, and those are investors who just don’t invest in South Africa because of that policy —they don’t know what the South African government’s next move will be. Thus, it may hurt Frontier a little. But since that is South Africa’s law, it also affects other companies operating there. For example, most platinum comes from South Africa and Russia, and there are still good investment opportunities there. So, it doesn’t make a project less relevant or important. I have met James Kenny, Frontier’s president and CEO. He is competent, very passionate about the project and very active. He is working hard to bring value to the project and bring partners to the table—and he has managed to bring Korea Resources Corp. (KORES) and a consortium of Korean companies in. He has been successful so far.

TCMR: Last time you spoke with The Critical Metals Report, you introduced our readers to Montero Mining and Exploration Ltd. (MON:TSX.V). Any updates on it?

LM: Montero has an established resource for the rare earths of about 5 Mt, and the company is working on expanding that. But Montero tells me that bastnaesite is the main mineral in the deposit, which is similar to the Molycorp deposit, Mountain Pass. Montero has been able to produce a mineral concentrate, and it has been really aggressive in terms of being able to get to the market first. There is hope that, by the end of next year, it will be able to sell either a concentrate or even individual oxides. That is very positive.

TCMR: Montero also increased its interest in Wigu Hill, its REEs project in Tanzania, by 10%, to 70%. Do you think the company will eventually buy it outright?

LM: If it becomes successful. That is probably the company’s plan.

TCMR: One other major issue right now is financing. Investors are becoming increasingly skeptical about companies’ abilities to produce returns. What companies have enough money to continue with their development plans for at least a year, and that don’t need further dilution any time soon?

LM: Molycorp has been very successful in raising money. Frontier has about $50 million (M), and it only needs about $20M to finish its feasibility study by next year. Rare Element Resources is also in a very good cash position. It has about $74M in cash, and it needs a fraction of that to complete its feasibility study by the end of next year as well; it can even extend it. Hypothetically, even if there were a recession for the next two years, I think these companies would have enough cash to complete their studies. Other companies that probably have sufficient cash for a year: Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.A; TASXF:OTCPK; T61:FSE), Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) and even Matamec. More than 12 months would probably not be possible for those three, however.

TCMR: What about the opposite? What are some companies that are looking to finance in a market that’s hostile to small-cap REE companies?

LM: I did hear that Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX) just raised $15M recently. The company has plans to build a concentration facility and is trying to produce as early as 2013. It will need more money as it moves from exploration into construction and to production of oxides and metals. It will be interesting to know how far the $15M will take the company and when it will need to come back to the market.

TCMR: In your report you write, “The Swedish government has declared Tasman Metals’ Norra Karr deposit as a strategic resource of national interest, and a consortium of rare earth end-users in Europe are closely monitoring the progress of the project. The project has the potential to generate significant volumes of all the key major rare earths.” With some of those key European players behind Norra Karr, is there any way that project can be fast-tracked?

LM: Only if there is a significant direct interest from the local government and perhaps even the Swedish government. The Europeans are generally conservative in terms of their mining policies, so they will want to ensure all the environmental studies are in place and that a mine development in the region will be done properly. So, while Sweden is eager to have the project going forward, they will probably stay cautious, avoiding extreme fast tracking because of the risk of pollution or other troubles. I hear that the European Union is interested in seeing this project develop, but I don’t think the European Union has enough influence over Sweden’s local government; those governments still operate independently. I think Sweden will take its time and make sure the work is done properly.

TCMR: Is metallurgy the main hurdle for fast tracking project development?

LM: Yes. Environmental studies are important and they take time, but not usually five years. The metallurgy is very important, making sure all the tests are done—and many of the tests are done by the same labs, which are testing or analyzing multiple deposits from multiple companies, and that causes delays. So metallurgy is definitely an important aspect in the timing to market.

TCMR: Any advice for investors in this space?

LM: Examine the same factors you would for any mining company: the exploration, the potential success, potential resource growth, infrastructure and exploration results—pay attention to the project’s minerals, and any radioactive elements. They might have bastnaesites or monazites, or some other minerals that have been processed commercially. Understanding different minerals, the metallurgy and how they are processed is key. Management and the team are also important: experience, delivery, starting and finishing projects. These are all important aspects for consideration.

TCMR: Thank you, Luisa. It’s been a pleasure.

Luisa Moreno is a senior mining and metals analyst at Jacob Securities Inc. in Toronto. She covers industry metals with a major focus on electric and energy metal companies. She has been a guest speaker on television and at international conferences. Moreno has published reports on rare earths and other critical metals and has been quoted in newspapers and industry blogs. She holds a bachelor’s and master’s in physics engineering as well as a Ph.D. in materials and mechanics from Imperial College, London.

Want to read more exclusive Critical Metals Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators and learn more about critical metals companies, visit our Critical Metals Report page.

DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Ucore Rare Metals Inc., Tasman Metals Ltd., Rare Element Resources Ltd., Matamec Explorations Inc., Frontier Rare Earths Ltd. and Montero Mining and Exploration Inc.
3) Luisa Moreno: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None.

Source: http://www.businessinsider.com/the-age-of-rare-earth-metals-luisa-moreno-2011-12

 

Silver Set To Reach New Highs

Silver Bullion

So what is the story with silver – did the bubble burst? Is it headed for $50 an ounce or more? What about the gold/silver ratio: Is it headed towards new lows or new highs and what does it really mean? What is the real supply and demand picture for silver?

Silver remains a precious metal despite years of being the “bastard stepchild” to gold. An attempt to corner the silver market drove prices to historical highs in 1980 and more recently towards $50 an ounce based on several proven and unproven factors including short covering of a reportable massive JP Morgan (JPM) short position inherited from the takeover of Bear Stearns, global economic concerns resulting from sovereign debt defaults to currency devaluations to political unrest.

Technically, I have a strong case that silver has been tracing a corrective pattern off of the 2011 highs which may be complete with the larger bull market advance in full force again. Fundamentally, the same story presents itself over and over again – silver is set to advance reaching new highs that will surprise and astound many.

HISTORY

Historically, silver has been an indispensable metal for over 5000 years. Evidence can be found in Anatolia (modern day Turkey) of the first major source of mined silver dates which back to 4000 BC and served craftsman throughout Asia Minor, the Near East, Crete and Greece. More sophisticated processing of silver was developed in about 2500 BC in what is now Armenia.

Fast forward eighteen hundred years to the Greek civilization where historical writings and physical evidence suggest the Laurium mines near Athens were producing about 1 million troy ounces a year. In fact, through the 1st century AD, the Laurium mines were the largest individual source of world silver production.

After the Greek domination in mining silver spread to Spain, the Punic Wars brought in Roman rule and the expansion of exploiting Spanish silver extended to other areas of Europe. Spanish mines provided for the domestic silver needs of the Roman Empire. Historical records though, suggest the actual production levels did not rise significantly even though mine production in Spain dominated the first 1000 years AD. Expansion in production took place in the 500 year period from 1000 – 1500 AD as mining locations increased and mining technology began to improve.

During the next 375 years silver mining and production was dominated by the Spanish as colonies were established in South America (Bolivia and Peru) and in Mexico. Eighty five percent of world production was attributable to Bolivia, Peru and Mexico. After 1850 production increased substantially as the United States and several other countries began mining and world production jumped from around 40 to 80 million troy ounces a year by the 1870’s.

The 20th Century ushered in an explosion of technologies that enabled world production to jump again to about 190 million troy ounces a year. Major mines were established in the United States, Canada, Australia, Central America and Europe. Technology introduced steam-assisted drilling, mining, mine dewatering, and improved haulage enhancing the ability to handle ore and increasing the exploitation of ores that contained silver.

As the 20th century progressed improvements in electrorefining techniques ushered in easier separation of silver from other base metals which increased the sources of silver. Ultimately the increase in output of silver-bearing residue led to refined silver production.

HOW SILVER IS USED TODAY

The demand for silver can be broken down into three main areas: Traditional, Industrial, and New Technologies.

  • Traditional
  • Coinage
  • Photography
  • Silver Jewelry
  • Silverware
  • Industrial
  • Batteries
  • Bearings
  • Soldering
  • Catalysts
  • Electronics
  • New Technologies
  • Medical Applications
  • Solar Energy
  • Water Purification

The latest annual figures reveal that in 2010 over 487 million ounces of silver were used for industrial applications, 167 million ounces were used by the jewelry market, over 50 million ounces producing silverware and over 10 million ounces in minting coins and producing medals.

Industry continues to rely on silver’s unique properties such as its strength, malleability and ductility. As well as its electrical and thermal conductivity, its high reflectance of light and the ability to handle extreme temperature ranges.

GOLD/SILVER RATIO

Under the direction and guidance of Alexander Hamilton as Secretary of the Treasury the U.S. Government set the first formal gold/silver ratio under the “American Act for Establishing a Mint” in 1792 at 15 ounces of silver for every one ounce of gold or 15:1 The act was put in place to facilitate at what ratio they would coin gold and silver. Based on the relative value that was present in Europe the gold/silver ratio was used to reflect the commercial value of each metal. While this may have been the case in Europe it did not extend further east where in India, parts of Africa and East Asia the gold/silver ratios were reported as low as 1:1.

Beginning in the 19th century gold increased in popularity in Europe and the U.S. as a more stable monetary asset. By the end of the 19th century the demonetization of silver was well underway and picked up speed in the 20th century as most countries discontinued their silver from currency circulation and began dumping their silver stockpiles driving the monetary demand even further into the abyss.

The early 20th century saw the gold/silver ratio drop to 100 ounces of silver to one ounce of gold. It should be noted that at that time the mine production of silver was not 100 times that of gold nor was the abundance of silver money 100 times that of gold. The prejudice of governments and mints during this time predicated or perhaps manipulated the gold/silver ratio from 15:1 to 35:1 and as high as 100:1 as government dumping of silver took place. Records indicate that between 1965 and 2000 government(s) sold 3 billion ounces of silver versus 150 million ounces of gold. Currently, it is reported that governments hold only 60 million ounces of silver versus 1 billion ounces of gold. It would appear that silver is now more rare than gold.

Gold Silver Ration as of October 2011

Source: thechartstore.com

Today, the gold/silver ratio is still used by many to determine which metal is undervalued or overvalued, which in essence doesn’t make sense since the gold standard as a monetary system was abandoned and replaced by fiat currency systems around the globe. There are additional ratios between the precious metals such as:

Approximately nine times as much silver as gold is pulled from the earth each year. The majority of this silver is used by industry.

According to the United States Geological Service (USGS) the general belief amongst mining companies is that there is only about six times as much silver in the ground that is mineable, although there are published reports claiming there is 15 or 20 times more silver in the earth, (this ratio is the natural occurrence ratio and not the reserve base ratio.)

  • Over the past 10 years, approximately 40 times more silver was NOT earmarked for coins and bullion and this is what the price ratio of gold to silver tends to reflect.
  • 9:1 is the silver to gold annual mine production ratio
  • 6:1 is the USGS estimated gold to silver in the ground ratio
  • 1:1 is the year to date investment dollar demand ratio
  • 1:3 (more silver than gold) is the physical ratio of gold and silver coins/bullion

THE MID & LONG TERM PICTURE FOR SILVER

Supply and Demand

Undoubtedly supply and demand for any product will ultimately rule its price. That said the demand side for silver over the past year or so propelled prices to astounding levels. Investor interest and fabrication demand spurred by the industrial segment recovery easily offset the increase in supply.

Total silver supply rose by 15% in 2010 primarily on the return of producer hedging (61 million ounces), government sales (net sales increased with Russia being a major seller) and recycling where the decline in photographic scrap was balanced by a strong rise in industrial, silverware, and jewelry recycling. Mine production saw a very modest expansion of 2.5%.

Demand for silver was robust in 2010 as well. Industrial demand rebounded 21% and was the largest contributor to the 13% increase (879 million ounces) in fabrication (see inset for detail), which includes jewelry and coinage. Together the net increases in demand offset the continued losses in photography and silverware.

Net investment jumped by 47% to an all-time high of 178 million ounces (most of which took place within the last four months of 2010.) ETFs and physical bars ruled last year with the Comex seeing less of a commanding role via silver futures.

Pent up demand remains in the market as investors seek out “safe havens” when quantitative easing in the United States remains in the near term picture and European sovereign debt problems remain unresolved. The economic outlook thus far continues to support silver’s safe haven status as monetary policies are unlikely to be significantly tightened anytime soon and the sovereign debt crisis grows.

Silver’s Fabrication Uses

Industry: Silver is the best electrical and thermal conductor of all metals and so is used in many electrical applications. The most significant uses of silver in electronics are in the preparation of thick-film pastes, in multi layer ceramic capacitors, membrane switches, and silvered film in electrically heated auto windshields. Silver is used in the fabrication of photo voltaic cells, coating material for compact discs and DVDs, mirrors, and batteries. Jewelry and Silverware: Silver possesses working qualities similar to gold, enjoys greater reflectivity and can achieve the most brilliant polish of any metal. Photography: the age of digital photography has diminished silver’s usefulness within this sector. Radiography, graphic arts and consumer photography though continue to use film manufactured with a very high purity silver. Coins: Historically, silver was more widely used in coinage than gold, being in greater supply and of less value, thus being practical for everyday payments. During the latter 19th century silver was phased out in favor of gold. Investors though remain buyers of coin and bullion especially in the U.S., Australia, Canada, Mexico and Austria. Source: GFMS Ltd. World Silver Survey 2011

Silver (Physical)

After a stellar rally to nearly $50 ounce silver put in a needed correction. The correction itself consisted of two steep and at times precipitous declines separated by a three month upward biased sideways move. The correction did fit the profile and it appears that off of the 26.15 (September intraday low) silver has resumed the larger advance. However, without strong upward momentum it leaves open the possibility for an additional down leg taking place before prices head higher on a more sustained basis.

Technically, the long term charts continue to support and suggest additional downside remains in the picture for now. The stochastic oscillator is pointing lower and is currently in neutral territory. The MACD is beginning to register oversold and the MFI oscillator continues to show money is stronger on the buy side rather than sell side.

Silver Spot Price

The chart below (courtesy of thechartstore.com) reveals silver’s upside potential when prices have been adjusted for inflation (PPI) and suggests silver will reach $100+ levels over the longer term.

Silver Prices

iShares Silver Trust (SLV)

In contrast the weekly chart for SLV reveals a more convincing picture that the larger advance may indeed be back in force. The stochastic and RSI oscillators support the advance continuing over the midterm with MFI oscillator being the caveat; pointing lower indicating money is exiting rather than moving into SLV.

iShares Silver Trust

Silver Mining Companies

Some have argued that silver mining companies have lost their appeal (luster) and a check on the table below does show some dismal year-to-date returns. However, when compared to the outstanding and incredible returns on a two and three year basis the picture becomes much clearer. As in the physical metal itself, silver mining companies have been in the process of tracing out corrective patterns. The longer term supply and demand picture continues to support higher prices for mining companies as well. The companies included in the table below are focused (earn 50% or more of revenue) in silver mining and exploration with a market cap of $1 billion or more.

Coeur d’Alene Mines Corporation (CDE)

Coeur d’Alene Mines Corporation is the largest U.S.-based primary silver producer and a growing gold producer. The Company has three new, large precious metals mines that continue generating significantly higher production, sales and cash flow. In 2011, Coeur will realize the first full year of production and cash flow from all three of its new, 100%-owned mines:

  • San Bartolomé in Bolivia;
  • Palmarejo silver/gold mine in Mexico,
  • Kensington Gold Mine in Alaska.

In addition, the Company is expecting new production from its long-time flagship Rochester mine in Nevada. The Company also owns non-operating interest a low-cost mine in Australia, and conducts ongoing exploration activities near its operations in Argentina, Mexico and Alaska.

Coeur d’Alene Mines Corporation

Pan American Silver Corp (PAAS)

Pan American Silver Corp. was founded in 1994 with the mission to be the world’s largest low-cost primary silver mining company. Achieving this by constantly increasing its low-cost silver production and silver reserves. Pan American owns and operates seven silver mines in Mexico, Peru, Argentina and Bolivia. In 2010, Pan American produced a record 24.3 million ounces of silver. In 2011, the Company expects to produce 23 to 24 million ounces of silver and 76,000 to 78,000 ounces of gold. Pan American operates the La Preciosa silver project, located in Durango, Mexico. Pan American also owns the Navidad silver project, one of the largest undeveloped silver deposits in the world, located in Chubut, Argentina.

Pan American Silver Corp (PAAS)

Silver Wheaton Corp. (SLW)

Established in 2004, Silver Wheaton has quickly positioned itself as the largest silver streaming company in the world. Silver Wheaton has entered into a number of agreements where, in exchange for an upfront payment, it has the right to purchase, at a low fixed cost, all or a portion of the silver production from strategically selected high-quality mines. The company currently has silver streaming agreements covering 16 operating mines and three development stage projects around the world. Silver Wheaton’s portfolio includes silver streams on Goldcorp’s Peñasquito mine in Mexico and Barrick’s Pascua-Lama project straddling the border of Chile and Argentina. With low fixed cash costs and unhedged silver sales creates significant shareholder value by providing considerable leverage to increases in the silver price while reducing many of the risks faced by traditional mining companies.

Silver Wheaton Corp. (SLW)

CONCLUSION

Silver may indeed still be in a correction with an additional down leg on its way, but the longer term picture continues to favor the trend remaining up. Due diligence remains important for each investor to perform in accessing whether silver is appropriate in diversifying portfolios. Should additional price weakness drop prices below $30 (basis silver futures or SLV) a long term buying opportunity would exist. Silver mining stocks are an additional way to add silver to one’s portfolio. Here again due diligence is recommended in choosing which company is appropriate.

Both gold and silver remain important investment choices in protecting against the ongoing global economic calamity. Long term planning and portfolio diversifying should include the addition of both.

Again, I am drawn to quote an old Mercedes advertisement where the announcer states

“Perception is not always reality.”

This quote continues to rule the day as speculators flood in and out of the markets taking their turns at controlling the price, albeit short term, since there is much more paper silver than physical metal to cover the commitments. The price of silver has dropped (within the context of a correction) as the fundamental picture favors higher prices. It can then be said that misconceptions weigh heavily as traders (speculators) move in and out of positions.

By: Michael Filighera
Source: http://seekingalpha.com/article/306118-silver-set-to-reach-new-highs

Gold Tops $1,800 in N.Y. as Europe Crisis Spurs Investor Demand

Nov. 8 (Bloomberg) — Gold futures topped $1,800 an ounce for the first time in almost seven weeks on concern that European leaders will be unable to contain the region’s debt crisis, fueling demand for the precious metal as a haven.

Italian Prime Minister Silvio Berlusconi failed to muster an absolute majority on a routine parliamentary ballot today, fueling more calls for his resignation. Federal Reserve Chairman Ben S. Bernanke signaled more monetary stimulus may be needed to cut unemployment, while the European Central Bank last week unexpectedly lowered interest rates. Gold has rallied more than 11 percent since the end of September.

“The turmoil in Europe has brought the fear trade back to gold,” Lance Roberts, the chief executive officer of Houston- based Streettalk Advisors, said in a telephone interview. “Also, a renewed wave of policy easing by central banks is helping gold.”

Gold futures for December delivery rose 0.5 percent to close at $1,799.20 an ounce at 1:47 p.m. on the Comex in New York, after touching $1,804.40, the highest since Sept. 21. Prices fell to $1,785.70 in after-hours trading.

Earnings growth in Europe will stagnate in 2012 as governments rein in spending and banks shrink their balance sheets, according to Gary Baker, the London-based head of European equity strategy at Bank of America Corp.

“Fundamentals are stronger than before, with the EU crisis more complicated than before,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. “Retracements and corrections are possible as we climb above $1,800, but stay invested.”

Extended Rally

Berlusconi offered to resign as soon as Parliament approves austerity measures in a vote next week, Italian President Giorgio Napolitano said tonight in an e-mailed statement after meeting Berlusconi in Rome.

Bullion is in the 11th year of a bull market, and futures reached a record $1,923.70 in New York on Sept. 6 as investors sought to diversify away from equities and some currencies. The precious metal has gained 27 percent this year.

Silver futures for December delivery advanced 0.9 percent to close at $35.153 an ounce on the Comex, rising for the second straight day.

On the New York Mercantile Exchange, platinum futures for January delivery rose 0.9 percent to $1,673.10 an ounce. Palladium futures for December delivery climbed 2.3 percent to $677.25 an ounce.

-With assistance from Phoebe Sedgman in Melbourne, Adam Haigh and Nicholas Larkin in London. Editors: Steve Stroth, Daniel Enoch

To contact the reporter for this story: Debarati Roy in New York at droy5@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

By Debarati Roy
Source: http://www.businessweek.com/

Recent sell-off sets up next gold rally

The following is a guest post by Lawrence Carrel, author of “ETFs for the Long Run” and “Dividend Stocks for Dummies.” The opinions expressed are his own.  Full disclosure: The author has had 7 percent of his personal retirement account in a gold ETF for the past four years.

When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.

“I can tell investors don’t sell off your gold,” says Martin Murenbeeld, the chief economist at DundeeWealth. “We’re at a crossroads here.”

During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.

Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving average’s support level of $1,527. While most gold watchers expect the metal to experience turbulence during the next few months, the world hasn’t changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.

“Have the countries around the world solved the debt crisis?” asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. “Have the bailouts ended? Have their currencies stopped tanking?“ With the world already worried about Greece’s fiscal problems, gold summer’s rally was sparked by fears that the U.S. might default on its debt.

After Standard & Poor’s downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.

Still many analysts think the gold market isn’t in a bubble and that the run-up is far from over. Analysts say a bubble is when an asset goes up exponentially 15 to 20 times.

Gold is up seven times during the last decade. Since its low on Sept.26, 2011, gold has jumped 9 percent. Most analysts expect the price to retest September’s low during the next few months. If it bounces again that would be the buy signal.

Ed Carlson, Chief Market Technician at Seattle Technical Advisors.com says gold could fall as far at $1,460. But even Carlson predicts a new sustained advance will begin after Thanksgiving.

The fundamental factors for being bullish are also compelling. Low interest rates are very good for gold. In August, the Federal Reserve promised to keep rates low for the next two years. Additionally, most analysts expect the European Central Bank (ECB) to stem the European debt crisis with a flood of new money.

“The relationship between gold and world liquidity is very direct,” says Murenbeeld. “If countries print money gold goes up.” Murenbeeld says there is a high probability that the ECB and the European System of Financial Supervisors (ESFS) will insert a significant amount of money into the system, anywhere from 1 trillion euros to 2 trillion euros.

“This liquidity will stabilize the banking sector so that it can withstand a default from Greece and speculation of default from other countries. All that plays into the hands of gold.” Murenbeeld recommends investors use a dollar cost averaging strategy here. “When they do the bailout that will dilute the currency, “ says Barisheff.

“The governments will be forced to print more money because politically that’s the least painful thing to do. And as they do the price of gold goes up.”

However, Barisheff warns that it’s easy for governments to lose control of their currency, which can send a country into hyperinflation. He says gold will stop rising when governments institute sustainable economic policies, but if inflation isn’t controlled, gold could rise as high as $10,000 in five years. “And there is no appetite to do anything sustainable.”

Chromium, are Nations Hoarding Natural Resources?

Chromium is a topic that you rarely hear about, but in today´s environment of uncertainty and the, ¨Great Worldwide Resource Grab¨, chromium gets more attention. Recently we have the EU and USA going into Libya (oil, lithium), Iraq (oil), Afghanistan (oil pipeline, rare earths), West Africa (cobalt, tungsten, oil, gold, timber and many more). Let us not forget China and the contracts that they are signing all over the world for their natural resource needs. This all makes for some very interesting times for nations and investors alike. Rare industrial metals are no different. Chromium has been in the news so it is time to explain its uses and background.

Chromium was discovered by Louis Vauqelin in 1797. Chromium is a blue-white metal with great corrosion resistance. It has the symbol Cr with an atomic number of 24. Chromium can be polished to form a very shiny surface and is used to plate other metals to form a protective layer.

The main use of chromium is in the production of steel where it is used as a hardener, corrosion resister and helps fight decolorization. Iron and chromium form Stainless Steel which is strong and has a high resistance to heat and decomposition. The two form one of the most versatile and durable metals known in the world. Stainless steel contains approximately 10% chromium. Chromium is also used in paints, coloring in glass, and as a plating agent.

According to the USGS the top producers are South Africa, Kazakhstan and India. South Africa produces almost 50% of all chrome ore. The three countries account for 80% of all chrome ore mined. Approximately 95% of all known reserves are located in Kazakhstan and the southern tip of Africa to include Zimbabwe and South Africa.

The background of chromium is interesting, but today we have a hot topic. India is thinking about a ban on exportation of chrome ore. This is after news out of South Africa that the, ¨National Union of Mineworkers¨, called for restrictions of chrome ore exports to China. It has been speculated that China has been stockpiling chrome ore in order to control future prices. Does this sound familiar? We currently have to deal with the manipulation of the rare earths and rare industrial metals by China. As of October 2011 India and South Africa have not followed through with the plans. The next few weeks and months will be quite interesting, we are seeing an increase in the need for chromium, with a possible decrease in available supply.

Today our world is full of uncertainty. Every day brings us news of something amazing. Governments are under pressure, people are suffering, companies are folding, wonderful inventions, worldwide internet connectivity, and resources are becoming scarce. I have learned that in times like this you can either complain or build a grand future. Many fortunes were made during the US Great Depression. We are living through a worldwide recession, when we come out on the other side natural resources will be needed like never before. Where are you putting your money and future?

By: Randy Hilarski - The Rare Metals Guy

Asset protection with special metals - not just rare earths are in demand!

Translated from the original German Article that can be found here:

http://www.foonds.com/article/16165//fullstory

Due to the distrust of paper money system escape investors more and more into real assets. Besides real estate , precious metals and commodity exchanges traded commodities , however, there are other commodities which are increasing the interest of investors. Namely Special Metals Exchange Express spoke with the manager of the venerable German metal dealer Haines Maassen (www.hain-maassen.com) Mr. Gunther Maassen.

BE: Mr. Maassen, you will see an increased interest from investors, including you offer specialty metals investing?

For about four years recorded Haines and Maassen an increasing demand from investors for specialty metals such as indium, gallium and hafnium.

BE: Why do you advertise on a site for commodity investors? Should this be expanded in a targeted area?

Haines & Maassen has over 60 years and active trading in the metal during this period was continuously expanded the offering plate. This particular segment is not promoted specifically, but we have adapted to the needs of this industry and adapted our offerings accordingly. We see our role as a family but in the metal trade, and not as a financial investment advisor.

BE: Is it worth an investment at all in special metals? If an investor wants to sell the purchased metals again, how great the loss is due to the trading range?

Since we are not investment advisors, we want to leave the decision up to our customers. The fundamentals of supply and demand shall, however, seems to indicate that the sustained demand for many of these elements exceed the bid. When individual elements are signs of a significant shortage. Leading research institutions around the world, for example, predict a significant shortage of indium in the next 10-20 years. Include items such as tantalum, hafnium, and tellurium show depletion trends. The trading range in the metal trade the usual manner 10 to 20% higher.

BE: Is it for your company at all interesting to supply retail customers or are you collaborating with distributors for small deliveries to private homes?

Even as larger trading company, we look forward to every customer and ensure a competent, based on years of service experience. Each customer, whether he now buys 1 kg or 100 kg of indium, tantalum is just treated as an industrial consumer. For several years we have worked successfully with companies that have created the special baskets for consumers. Leading role in this market is the Schweizerische Metallhandels AG / Switzerland, which brought the first company to a sustainable system for investors in the market. This trained and experienced intermediaries has developed standardized solutions to investors to provide with smaller sums, the opportunity to participate in the development of strategic special metals.

BE: Is there or are you planning it, the metals are VAT-free to keep investors in a bonded warehouse ?

No, this service leaves Haines & Maassen companies like the Swiss metal trading SMH AG, which take on a pioneering role in this field. We see our task in the expert advice and supplies to customers. This has meant that our company has occupied in the commercial sector is not more than 70% of jobs with academics. Chemists, economists, certified interpreter and aspiring metallurgist to join our team. . This allows us a targeted advice at a high level.

BE: Which of you offer metals were the highest price increases in recent years?

There are a number of metals such as rare earths (neodymium, cerium, lanthanum, …) and tellurium, tantalum, indium, gallium, hafnium, and that have experienced including price developments of more than 100%. Appears much more important to us, however, that the price developments of several of these elements in the long term exceed the inflation rate and thus suitable as a value assurance.

BE: Which you can see because of the supply situation and the future demand (particularly by new technologies), the highest price appreciation potential?

This would I got the book “Strategic Metals for investors,” by Michael and me Vaupel point, which is launched in early November. Here it is precisely this question at the center. Of promising innovations will be closed to the required raw materials, which then permits a conclusion on price trends. We specifically do not want to move a single metal in the foreground, but on the contrary believe that a healthy mixture of different metals, the better alternative. BE: Which metals has China as the rare-earth quasi-supply monopoly , China has some metals offer a market share exceeding 50%. about 90% antimony, bismuth, germanium, about 67% about 67%, 60% indium, about 67% silicon and tungsten over 80%. These are just the elements in which China holds more than 50%. There is also a long list of substances for which the People’s Republic plays a significant role.

BE: Some metals are toxic or dangerous now. Is not that problematic when investors rush to such materials and store them at home? Or. even allowed all metals to be delivered?

Yes, clearly this is problematic and it is forbidden even in a single well. The delivery of some metals to individuals such as arsenic, selenium and tellurium are not only forbidden, but also jeopardize the customer. The transport is subject to restrictions. Here it is important that it is made ​​clear in the consultation, where the boundaries of a private storage are located.

BE: What are the traded you metals for investors at all in question and which are ruled out?

This question is very complex and I would again like to the book “Special Metal for Strategic Investors” link. There are plenty of metals that can store private (indium, tantalum, etc.), and there are metals that can be stored without problems by specialist companies (gallium, tellurium, etc.). When no sense can be considered elements that can fail either due to technical reasons (explosive, very toxic ..) or claim due to a relatively low price, very substantial storage space would be (lithium, manganese …).

BE: Why are entirely at your rare earths?

Excluded from the program they are not, if a customer wants to purchase rare earths we can offer him.

BE: Which of the traded you metals are traded on commodity exchanges?

To reach Western markets, these are only molybdenum and cobalt in the form of oxides. In China, there are over 200 raw evil, but they are for the West not accessible or meaningful.

BE: Do you think the interest in physical metal investment for temporary or if the stay a permanent plant-fixed point?

I am personally of the opinion that the trend towards be physical forms of investment is long term and sustainable. Haines & Maassen has set himself definitely on this development and the capacity significantly. For about six months, we have another large warehouse, which predominantly serves the industry as a reloading and packaging facility.

BE: How serious is the market for metals from the perspective of potential investors?

Romp around many charlatans of the matter actually have no idea (push-columns, rushing into this, what’s currently on the market)? Unfortunately, there are black sheep in every industry. It certainly makes sense to find out exactly and above all, the costs can be expected for an investment of over 10 years. It is often cheaper to pay a few percent at the beginning to press for more and ongoing costs. Especially when storage costs are frightening models that cause within 5 years, considerable cost.

BE: Mr. Maassen, thank you for your time!

Source: http://www.foonds.com

How to Invest in Rare Earths

Exchange-traded funds are jumping on the bandwagon to invest in rare earths and other strategic metals, mainly by investing in companies that mine and use the materials. There are risks for ETF investors to weigh.

Oil, Gold…Rare Earths?
As ETFs focus on some less-known materials, there are risks to weigh

The raw-materials rally that has driven investors to load up on gold, crude and wheat is also sparking interest in funds tied to relatively obscure commodities such as lithium, uranium and rare earths.

Investors have poured hundreds of millions of dollars into a handful of exchange-traded funds linked to those materials over the past year or so. But betting on these kinds of industrial building blocks presents some unusual challenges and risks.

Trying to replicate the price swings in underlying materials through an ETF is challenging because there are typically no futures markets for these substances, as there are for more commonplace materials. Holding the physical goods is often impractical as well. As a result, many funds instead concentrate rare-earth and other exotic-metals plays on related stocks, which can rise or fall independently of the commodities.

The fortunes of some of these materials—and the companies that work with them—can change suddenly. After Japan’s nuclear disaster in March, two ETFs that hold uranium-related stocks plunged amid a clouded outlook for nuclear energy and haven’t recovered to date. In addition, uncertainty about the global economy has caused prices of some rare earths to fall by double-digits in percentage terms in recent months, according to market participants.

Investors who accept the risks are generally buying into a thesis that’s been applied to a broad range of commodities in recent years—that rapid economic growth in emerging markets is pushing up demand and suppliers are struggling to keep up. Indeed, some basic commodities have leaped in price, but some of the biggest increases are related to lesser-known materials.

While oil costs a little more than twice what it did at the low point in 2009, for instance, the price of neodymium—one of a group of rare-earth elements used in high-tech products and advanced weaponry—was recently up 23-fold over a similar period, according to American Elements, a Los Angeles manufacturer that uses rare earths.

A Step Removed

Van Eck Global last year launched Market Vectors Rare Earth/Strategic Metals. What qualifies as a “strategic” metal is “a little subjective,” says marketing director Edward Lopez. But instead of buying the metals, the fund buys shares in companies that get at least half their revenues—or have that potential—from rare earths or materials such as titanium and tungsten.

Despite their name, rare earths are common in the Earth’s crust. But about 90% of rare-earth supplies currently comes from China, which has started to limit exports, saying it needs the materials at home. Likewise, foreign investors face restrictions on holding shares of major Chinese rare-earth producers, Mr. Lopez says.

Mining companies in the U.S. and elsewhere are trying to ramp up production to replace lost supplies. Investing in such companies carries distinct risks, Mr. Lopez says, including the hurdles of moving from planning to production and the possibility that the market for the materials may shift in the meantime. But the Van Eck fund includes among its top holdings Molycorp Inc., in Greenwood Village, Colo., and Australia-based Lynas Corp., companies that are developing rare-earth mines in the U.S. and Australia, respectively.

Shares of the Van Eck fund are down 21% since it was launched last October, and down 36% this year through Sept. 30. The fund at the end of August had $346 million in assets, according to National Stock Exchange, a data provider and stock exchange.

Liking Lithium

Lithium is another metal that has attracted widespread interest, because of the vital role it plays in powering a proliferating array of consumer electronics, including cellphones and laptops. But, as with other such elements, it’s impractical to invest in lithium directly. It’s an often volatile material and insuring a large stock could “take so much away from the return that it wouldn’t be practical,” says Bruno del Ama, chief executive of Global X, an ETF provider.

The company’s Global X Lithium, launched in July 2010, invests in shares of companies that mine lithium and in makers of products that use lithium, such as lithium-ion batteries.

The fund’s largest single holding is Sociedad Quimica & Minera de Chile SA, a Chilean company that produces plant nutrients and iodine as well as lithium. Shares in the company made up 23% of the fund’s holdings as of Sept. 30.

The fund had $128 million in assets at the end of August, including inflows this year of $24 million, according to National Stock Exchange.

Mr. del Ama says buying stocks can give investors a boost because miners can make money even if prices for the material stay flat. “If on top of that, the price of the commodity goes up…you get a leveraged impact on the return,” he says.

Shares in the lithium fund have fallen 16.2% since the 2010 launch, and are down 41% this year through Sept. 30. Average lithium prices in 2011 through July were 2% below average prices last year, according to TRU Group Inc., a consultancy that specializes in lithium.

Uranium Plays

The recent fate of two uranium-linked funds—Global X Uranium and Market Vectors Uranium+Nuclear Energy—shows that the “leveraged play works both ways,” as Mr. del Ama puts it.

After the March 11 earthquake and tsunami in Japan crippled the Fukushima Daiichi nuclear plant, uranium prices plunged amid concern the incident would undercut support for nuclear power. In early September, weekly prices for the thinly traded fuel were 23% lower than they were on March 7, before the disaster, according to Ux Consulting Co. LLC.

But shares in Global X’s uranium fund, which focuses on uranium mining, have fallen even harder, losing more than half their value since March 10, the day before the Japanese disaster. The Market Vectors fund, which invests in both miners and other firms that work on nuclear energy, has fared somewhat better over that same period, falling 33% through Sept. 30.

By LIAM PLEVEN
Mr. Pleven is a reporter for The Wall Street Journal in New York. Email him at liam.pleven@wsj.com

Why isn’t the Gold price going through $2,000 now?

Precious Metal Gold

The gold price went over $1,900 and looked as though it was going to mount $2,000, but since then has fallen back to $1,600 and is in the process of consolidating around the lower $1,600 area. It was expected that it would have moved a lot higher faster, but that hasn’t happened, yet.

In the face of Italy’s downgrade to A2 by the ratings Agency, Moody’s summary that, “There has been a profound loss of confidence in certain European sovereign debt markets, and Moody’s considers that this extremely weak market sentiment will likely persist. It is no longer a temporary problem that might be addressed through liquidity support, and several euro-area governments are increasingly affected by the loss of confidence.” The downgrading was expected, as are further downgrades for the different Eurozone members, shouldn’t the gold price be on its way through $2,000 to much higher levels?

The ‘downturn’

The news over the last few weeks has sent global financial markets down very heavily as a slow recovery morphed into a downturn and at best a flat economic future in the developed world. These falls have been accompanied by tremendous worries that there could be a major banking crisis that will cripple the Eurozone economy as a whole, not just the debt-distressed nations. In France growth is now at zero, in Greece it is somewhere south of a 5% dip in growth well into recession. Greater austerity simply adds to the fall in government revenues defeating their purpose of reducing their deficit. All of this implies an ongoing shrinkage of the Eurozone economy. This hurts investor capacities in all financial markets and wealth throughout the Eurozone. Cash becomes ‘king’ as investors flees markets to a holding position waiting for much cheaper prices before re-entering markets at lower levels.

The path to deflation is then made. Deflation in its early stages causes tremendous de-leveraging. That is the selling of positions to pay off loans taken to increase positions. It may come about because of investor prudence, banks calling in loans, stop-loss triggers and margin calls [where the level of debt against positions becomes too high and forces sales]. This often and particularly in the case of precious metals has nothing to do with the fundamentals of the market. It is simply the position of investors. This happened in the precious metal markets as well. This is why gold and silver prices fell.

De-leveraging

As was the case in 2008 and often through history, the process of de-leveraging is a short-lived one, even when it is savage. Once and investor has sold the positions he feels he needs to that downward pressure on prices disappears. Leveraged positions are the most vulnerable of investor held positions and can make up the froth or ‘surf’ in the markets, which cause the volatility levels to increase when dramas strike. In 2008 these positions were huge because there had been two and a half decades of burgeoning markets that encouraged greater risk taking. Since then, while leveraging has taken place it has been less and rapidly removed when dramas hit.

In 2008 we saw a similar drop in prices from $1,200 to $1,000 [20%], which equates to the fall from $1,910 to $1,590 [16.9%]. In 2008 the precious metal prices then slowly rose as buyers started to come in from all over the world. It took over a year for prices to recover back to $1,200.

Change in market structure

Today the shape of the precious metal markets is quite different, particularly that of gold. In 2008 central banks were sellers, today they are buyers. In 2008 the Chinese gold markets were small. Since then they have grown to such an extent that they are soon to overtake India. These are two dynamic features that give demand a totally different shape to 2008. More than that, the impact of the developed world long-term has diminished quite considerably. It now represents less than 21% of jewelry, bar and coin demand. The emerging world as a whole represents over 70% of such demand now.

The bulk of the world’s physical gold that comes to the market is dealt at the London twice daily Fixings. The balance that is traded outside the Fixings is the most short-term price influential amounts, producing the swings that resemble the waves on the seashore. It is these traders and speculators that often persuade long-term buyers to stand back and wait for the prices to swing to the point that persuades them to enter the market. The drop from $1,900 had this effect on investors. Now that the fall has happened we see a surge in demand from the emerging world to pick up the slack in the market. We have no doubt that central banks are buying the dips as well.

So once the selling from the developed world has stopped [emerging market demand waits for this before buying, allowing the fall to extend further] in come the buyers happy that they are entering the market at a good time. Because of this change in market shape we fully expect the market to take far less time to find its balance and allow demand to dominate.

2012 recession and the battle against it

The I.M.F. has just warned that the developed world will enter a recession in 2012. Will that be a negative for the gold market? We do not believe that it will. The world has seen the recovery peter out, has seen the sovereign debt crisis arrive and now sees the I.M.F. recommend that the Eurozone banks be recapitalized. What does this mean for precious metals?

Cast you minds back to the recapitalization of U.S. banks under the TARP measures whereby the Fed bought the ‘toxic’ debt investments of the banks against fresh money. When we say fresh we mean just that, newly created money in the trillions. This did lower the perceived value of the dollar inside and outside the U.S. The effect on gold was palpable as it rose back through $1,200 and onto new highs.

Already we are hearing rumors of an E.U. government minister’s plan to walk the same or similar road. With the recent past in mind, we are certain that that will lower the perceived value of the euro and see euro investors seek places to cling onto the value the euro still has. This time round we fully expect markets to discount these actions in the same way. The downturn will therefore be fought with new money creation in the same way the U.S. did it from 2008 on.

Second time round

There is a significant difference between 2008 and now. In 2008 the credit crunch was new to investors and shocked the markets into overreactions. In 2011 we are not shock but expectant of what lies ahead. In 2008 the developed world economy had considerably more resilience than it does now, so the situation is more serious and less likely to be believed as the panacea for the developed world’s economic crisis. Because the gold and silver prices rose so strongly after that time and in the face of those ‘solutions’ the same will be expected now. In 2008 confidence in the financial system as well as in the monetary system appeared unassailable, not this time. While the developed world, outside of the gold ETF’s in the U.S., has not been the main driver of rising gold prices, this time we would not be surprised to see their resilient confidence in their world snap and a frantic search for safe-havens follow.

Yes, if we see a repeat of the 2008 breakdowns in the near future they will slaughter remaining confidence in the monetary system and the ability of its governments to set matters straight. What then for gold and silver?

By Julian Phillips
Source: www.ibtimes.com

China’s Rare Earths Monopoly - Peril or Opportunity?

September 30, 2011 (Source: Market Oracle) — The prosperity of China’s “authoritarian capitalism” is increasingly rewriting the ground-rules worldwide on the capitalist principles that have dominated the West’s economy for nearly two centuries.

Nowhere is this shadow war more between the two systems more pronounced than in the global arena of production of rare earths elements (REEs), where China currently holds a de facto monopoly, raising concerns from Washington through London to Tokyo about what China might do with its hand across the throat of high-end western technology.

In the capitalist West, as so convincingly dissected by Karl Marx, such a commanding position is a supreme and unique opportunity to squeeze the markets to maximize profits.

Except China apparently has a different agenda, poking yet another hole in Marx’s ironclad dictums about capitalism and monopolies, further refined by Lenin’s screeds after his Bolsheviks inadvertently acceded to power in 1917 in the debacle of Russia’s disastrous involvement in World War One. Far from squeezing its degenerate capitalist customers for maximum profit (and it’s relevant here to call Lenin’s dictum that if you want to hang a capitalist, he’ll sell you the rope to do it), Beijing has apparently adopted a “soft landing” approach on rare earths production, gradually constricting supplies whilst inveigling Western (and particularly Japanese) high tech companies to relocate production lines to China to ensure continued access to the essential commodities.

REEs are found in everyday products, from laptops to iPods to flat screen televisions and hybrid cars, which use more than 20 pounds of REEs per car. Other RRE uses include phosphors in television displays, PDAs, lasers, green engine technology, fiber optics, magnets, catalytic converters, fluorescent lamps, rechargeable batteries, magnetic refrigeration, wind turbines, and, of most interest to the Pentagon, strategic military weaponry, including cruise missiles.

Technology transfer is the essential overlooked component in China’s economic rise, and Beijing played Western greed on the subject like a Stradivarius, promising future access to China’s massive market in return, an opium dream that rarely occurred for most companies. You want unimpeded access to Chinese RREs? Fine – relocate a portion on your production lines here, or…

Which brings us back to today’s topic.

Rare earths and investment – where to go?

China is riding a profitable wave, which depending on what figures you read, produces 95-97 percent of current global supply, and unprocessed raw earth earths ores are currently going for more than $100,000 a ton, or $50 a pound, which some of the exotica fetching far more (niobium prices has increase an astounding 1,000 percent over the last year). Rare earth elements like dysprosium, terbium and europium come mainly from southern China.

According to a United States Energy Department report, dysprosium, crucial for clean energy products rose to $132 a pound in 2010 from $6.50 a pound in 2003.

The soaring prices however have also invigorated many countries and producers to begin looking in their own back yards, for both new deposits and former mining sites that were shuttered when production cost made them uneconomic before prices went through the ceiling.

However, a number of unknown factors play into developing alternative sources to current Chinese RRE production. These include first prospecting possible sites, secondly, their purity and third, initial production costs, where modest Chinese labor costs are a clear factor.

The 17 RRE elements on the Periodic Table are actually not rare, with the two least abundant of the group 200 times more abundant than gold. They are, however, hard to find in large enough concentrations to support costs of extraction, and are frequently found in conjunction with radioactive thorium, leading to significant waste problems.

At hearings last week before U.S. House of Representatives Committee on Foreign Affairs Subcommittee on Asia and the Pacific, Molycorp, Inc. President and Chief Executive Officer Mark A. Smith stated that his company was positioned to fulfill American rare earth needs, currently estimated at 15,000-18,000 tons per year, by the end of 2012 if it can ramp up production at its Mountain Pass, California facility.

Which brings us back to foreign producers. A year ago Molycorp announced that it was reopening its former RRE mine in Mountain Pass, Calif., which years ago used to be the world’s main mine for rare earth elements, filing with the SEC for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine. Low prices caused by Chinese competition caused the Mountain Pass mine to be shuttered in 2002.

Mountain Pass was discovered in 1949 by uranium prospectors who noticed radioactivity and its output dominated rare earth element production through the 1980s; Mountain Pass Europium made the world’s first color televisions possible.

Molycorp plans to increase its capacity to mine and refine neodymium for rare earth magnets, which are extremely lightweight and are used in many high-tech applications and intends to resume production of lower-value rare earth elements like cerium, used in industrial processes like polishing glass and water filtration.

In one of those historic economic ironies, China was able to increase its RRE production in the 1980s by initially hiring American advisers who formerly worked at Mountain Pass.

The record-high REE prices are also underwriting exploration activities worldwide by more than six dozen other companies in the United States, Canada, South Africa, Malaysia and Central Asia to open new RRE mines, but with each start-up typically raising $10 million to $30 million, not all will succeed. That said, the future is bright, as almost two-thirds of the world’s supply of REEs exists outside of China and accordingly, China’s current monopoly of REE production will not last.

So where do investors look to cash in on the RRE boom?

First, do your homework.

Exhibit A is Moylcorp, which would seem to be in unassailable position as regards U.S. production, but which nevertheless on 20 September after JPMorgan Chase & Co. lowered its rating of the company, citing declines in rare-earth prices, causing its stock to plummet 22 percent in New York Stock Exchange composite trading, despite being the best-performing U.S. IPO in 2010 after beginning trading in July, more than tripling after rare-earth prices soared as China cut export quotas.

Is there money to be made in RREs?

Undoubtedly – but the homework for the canny investor needs to extend beyond spreadsheets to geopolitics, mining lore, chemistry and Wall Street puffery. That said, it seems likely that whatever U.S.-based company can cover the Pentagon’s RRE requirements is likely to see more than a minor boost in its bottom line.

Gentlemen, place your bets – but do your homework first.

Gold and Silver Imports in India Surge 222% Amid Worry Over Currency Devaluation

Gold was marginally higher in most currencies Tuesday and on the verge of making new nominal highs in dollars, euros and pounds.

It is holding near record highs as there is no quick end in sight to economic turmoil in Europe after Greece was told to approve brutal new austerity measures to avoid defaulting on its debt. This would threaten the solvency of many western banks and the European Central Bank’s Fernandez Ordonez (member of the ECB’s governing council) warned Tuesday morning that the Greek crisis could have “€˜transcendent consequences€™”.

Further evidence of continuing very significant and robust demand from Asia and from China and India in particular was seen in massive Indian gold and silver imports. The figures released overnight showed a huge surge of 222% in May 2011, compared with May 2010.

Cross Currency Rates

Imports of gold and silver were a staggering $8.96 billion in May, a growth of 500% over the previous month and 222% over last year.

Official inflation rates in India have surged to 8.65% and people on the Indian sub continent are concerned about the devaluation of the rupee and the erosion of the purchasing power of their savings.

While the rupee has maintained its value against the beleaguered U.S. dollar it has fallen sharply against gold and silver and against oil and the other food and energy commodities.

Gold has always been seen as a store of value against currency debasement, inflation and hyperinflation in Asia. This is especially the case in India and we appear to be witnessing an acceleration in the recent trend of Indians opting to buy gold and silver bullion in order to protect their savings.

India’s central bank, the Reserve Bank of India, bought 200 tonnes of gold from the IMF in the months preceding an announcement in November 2009. Given its huge dollar reserves it is likely that it is continuing to diversify foreign exchange holdings and further announcements of increased gold reserves are likely in the coming months.

Despite the increase in reserves its gold holdings remain paltry when compared with the U.S. and European gold reserves.

Most creditor nation central banks in the world are now diversifying out of the major currencies, the dollar and the euro, and into gold. These include the People’s Bank of China, the Russian central bank and central banks in Sri Lanka, Bangladesh, Mauritius, Mexico, Iran and Saudi Arabia.

News came Monday that Russia’€™s central bank again increased its gold holdings to 26.7 million troy ounces last month, from 26.5 million at the end April. The Bank of Rossii said its gold reserves were valued at $41 billion as of June 1, compared with $40.7 billion a month earlier.

It is interesting that the Reserve Bank of India has granted licenses to seven more banks to import gold and silver bullion and this is indicative of the favorable view of gold and silver in India – both amongst the public and at the official level.

Indian banks are thus likely contributing to the massive increase in demand for gold and silver. Chinese banks are also catering to the increased demand of Chinese people for gold bullion for investment and savings purposes.

This is in marked contrast to their western banking counterparts, the vast majority of which, do not offer gold or silver investments at all.

As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. New additions to the list were Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore.

Since the start of 2011, India’s benchmark stock index, the Bombay Stock Exchange Sensitive Index, is down by more than 14% while gold in rupee terms is up 9%. The Sensex is essentially flat in the last year and the last 3 years despite soaring inflation.

The increased demand from India and wider Asia is sustainable and one of the fundamental reasons that gold and silver’€™s bull market remain very much intact.

Importantly, China was expected to surpass India as the world’€™s largest gold importer this year. After the most recent Indian import figures this is now not certain.

Chinese investors more than doubled their purchases of gold during the first quarter in 2011, compared with the same period last year. China invested $4.1 billion into gold bars and coins during this first quarter of 2011.

China’s investment demand increased to 90.0 metric tonnes (40.7 tonnes in the year prior), compared with India’s 85.6 tonnes.

Gold in Australian Dollars Breaking Out?

In a report Tuesday, the Australian Bureau of Agricultural and Resource Economics and Sciences conservatively estimated that bullion may average $1,500 an ounce this year. The metal has averaged $1,445 so far in 2011.

“€œUncertainty about the ability of many developed economies to stimulate economic growth and control growing budget deficits is expected to encourage investment demand for gold as a lower risk, or safe haven, asset,”, the Canberra-based agency said.

Despite some calling the Australian dollar a “€œsafe haven”€ currency, the Australian dollar has been sold recently and gold appears to be in the early stages of breaking out in terms of Australian dollars.

This is another indication of the global nature of gold’€™s bull market and the fact that all fiat currencies are now vulnerable to currency debasement and devaluation. Focusing on gold solely in U.S. dollar terms remains simplistic and misleading.

Gold’s consolidation in recent months in all currencies and gradual gains since late January suggest that we may be on the verge of a break out in all currencies and a powerful move upward in the next leg of the precious metal bull markets.

The Rarest Rare Earth on Earth

Short seller Jim Chanos is well known for his negative assessments of China, especially Chinese real estate. One of his more colorful expressions about China’s economy is “the Chinese are on a treadmill to Hell.” We’re sure the Chinese don’t mind criticism from Chanos, or anyone else,€“ as long as it convinces as many non-Chinese as possible that China has massive problems and represents no threat. From that point of view, kudos to Chanos.

Unfortunately, that expression really applies to the West, and to the U.S. in particular. Step back and look at the amount of money we continue to pump into our economy. Look at the national debt as it surpasses $14 trillion,€“ with a t. Look at the multibillion-dollar deficits that we now battle to bring under control.

Billions of dollars continue to flood into our economy, courtesy of the Fed’s program of quantitative easing, but look at the results. Last month an additional 50,000 were newly employed, a number not significantly different than zero. If anyone actually got a job,  great. Yet with current expectations of economic growth now around 2%, the unemployed continue to hold a very short straw. With productivity gains averaging about 2%, that means the economy can achieve the current growth rate without adding any jobs, never mind the increases in the population which in time will add to the unemployment rate.

The employment data weren’t the only worrisome figures. There’s an array of troubling statistics, ranging from manufacturing to consumer sentiment to housing. In fact, consumer sentiment is the most “fuzzy” of all the data sets, but it really does set the tone. Consumer spending represents 70% of our economy, and until that segment improves, it’s difficult to make a case for a stronger economy.

We don’t want to get too carried away with our bearish rant,€“ but when you look at the employment figures and other data, they don’t make for cheerful historical parallels. After all, it was in the early 1930s that Hoover decided that the way to prosperity was balancing the budget. Need we say more?

Look at the chart again. First, note that this chart, dismal as it seems, does have a positive connotation,€“ or at least at first blush a positive connotation. It certainly suggests a deeply depressed dollar, which explains a paradox of the current U.S. stock market. Those U.S. companies doing business abroad have done fairly well. That’s because all those profits are converted back into dollars from other, rising currencies. That means a tremendous boosts to profits, which translates into a stronger market. But how long can that continue?

That question actually doesn’t revolve around monetary policy, because how much choice does the U.S. government have if all the money in the world just keeps us marching in place? Or, to be more precise, if it just keeps us from sliding further downward. Since the beginning of the century, the average real household income of Americans has declined about 10%. Yet the printing presses continue to work overtime.

But all the paper money in the world cannot make more oil or more copper or more titanium – though it will make all commodities more expensive. And that is why our average real income continues to fall despite all this money.

So the real reason why the S&P (and virtually everything else American) is depressed compared to the Australian dollar and other resource currencies and countries is because we simply don’t have the resources. And without those resources, our standard of living has to go down.

When you’re in an economy in which a $35,000 household income is considered well above the poverty line, but it takes $100 a week at the pump to transport the family, you have problems. (In addition to the “oil tax,” copper, silver and other necessity metals have gone up dramatically, despite weakened demand in this country.)

Of all commodities, Americans focus on oil,€“ and for good reason: It’s the commodity we consume the most of, and we’re heavily dependent on foreign oil sources. But in the resource field, the chain is only as strong as its weakest link. Ultimately, we have to focus on what is scarcest.

And we have to change the way we think about scarcity. There’s too much emphasis on analyzing individual resources rather than considering related packages of resources. “Scarce” means whatever resource takes the most other resources to obtain. In any closed system (and the Earth as a whole is the ultimate closed system) any critical resource becoming ever more scarce is enough to sink the system, or at least to dramatically change the system into one in which material wellbeing sinks or population shrinks.

In short, the scarcity of oil is connected to the scarcity of silver, copper, rare earths - even the transition metal zirconium. And the more research we do into metal scarcity, the more concerned we become. Lately we have been ever more concerned about rare earths,€“ not because they are so scarce, but because they are so difficult to produce and because there are so few concentrated deposits in the world. And those that do exist seem to be getting very short shrift.

The two most significant non-Chinese deposits of heavy rare earths,€“ which are the ones that really count because they are needed for magnets that are used in everything from wind turbines to defense equipment,€“ are in Canada. One is Avalon Rare Metals (AVL); the other is Quest Rare Minerals (QRM). These are small companies, with a combined market value of about $800 million, which means most mutual funds can’t even look at them. They’re also unabashedly speculative investments.

But as sources of rare earths, they may be critical. Avalon controls the Nechalacho Rare Earth Element Deposit in Canada’s Northwest Territories. This strike is believed to contain not just REEs, but the heavy rare earths (HREEs) like dysprosium that are vital in the creation of ultra-strong industrial magnets. Quest has five REE sites in Eastern Canada, including Strange Lake, Misery Lake and Plaster Rock.

The bad news: in our opinion, it would take an industrial effort on the level of the Manhattan Project to make these exciting finds truly productive before the REE crunch hits us for good. Finding rare earths are only a small part of the process of turning the ore into usable materials. Separation, refining, fabricating all take huge capital investments. And we haven’€™t even mentioned the human capital,€“ the engineers and miners - of whom there is a deadly dearth in the American labor force.

As a result, absent massive government intervention, these heavy rare earths are unlikely to find their way into products for another decade or so. In the meantime, we must rely on the Chinese, who do have the necessary skills and equipment. You just can’€™t make this stuff up.

The Australian Iluka Resources (ILKAF.PK) is another industrial miner, but focused on zirconium and titanium instead of rare earths. The calculus around zirconium is very similar to that of rare earths. And with zirconium prices rising from $340 a metric ton in 2003 to $2000 in 2011, Iluka is poised to meet an enormous, growing, and unmet demand.

 In the end, we feel investors should choose resources over currency (except for gold and silver which remain the first-choice currencies). Monetary policy can’t solve every problem, and U.S. monetary policy is far more constrained than it was a decade ago. The dollar cannot decrease forever. At some point, the declining dollar will raise bond yields, and then the treadmill will really begin to accelerate and tilt even further south.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours

Author: Dr. Stephen Leeb
SeekingAlpha.com Article June 10, 2011

About the Author:
Dr. Stephen Leeb is a recognized authority on the stock market, macroeconomic trends and commodities, especially oil and precious metals.

Why China’s Rare Earth Metals Matter

For several months, I have alerted readers to the potential supply crisis of critical rare earths (REMX), which are used in our most vital defense technologies (ITA) and high tech industries (QQQQ). The recent volatility in the equity markets have caused many investors to flee rare earth mining stocks in search of safe havens in gold (GLD) and long term treasuries (TLT). This trend should be transitory in nature. We may see a strong rebound in many of these rare earth stocks once the uncertainty regarding the ending of QE2 winds down.

The latest Chinese data indicate that rare earth exports are continuing to drop by more than half compared with last year’€™s output. In April, China exported only 1,819 tons of rare earths, a shortfall of 53% from the previous year.

High tech manufacturers outside of China must look elsewhere to satisfy their rare earth needs. Rare earth prices are soaring, but the rare earth mining stocks are not reflecting the elevated prices yet. This phenomenon will not last long as institutions will begin catching on to the divergence between rare oxide prices and undervalued rare earth miners. Prices are soaring, rising almost ten times in the past year, forcing manufacturers in Japan, South Korea, the United States and Europe to search for future supply for their survival. This should be a bonanza for rare earth developers down the road, once manufacturers dip their toe into the water and acquire some of these vital assets. Once one does, we may see a domino effect of consolidation. It’s within the realm of possibility that cash-rich manufacturers will be compelled to enter agreements and alliances with global sources of supply and potential miners.

It’s time for the affected industrialized nations to do their own heavy lifting in providing these vital elements so necessary for the very survival of their manufacturing base. We are talking here of an emergency process, which will take time to develop from mining to manufacturing. Advanced nations must think of urgent measures such as developmental fast tracking, financing and legislative expediting to bring these projects to fruition.

Noises are being made about taking China to court, namely through the World Trade Organization. It is questioned whether such a resort to complicated and lengthy legal procedures can be successful. Time is truly of the essence. Whether the proposed case has merit or not, modern industrialized nations must seize the high ground and move rare earth mining forward.

Development of the rare earth initiative is long past due. The Department of Defense requires it and the high tech industry demands it. The West has the expertise and the capability of recapturing the base that was once ours and was co-opted by the Chinese.

June 7, 2011 By Jeb Handwerger

German Newspaper Talks About Industrial Metals

Translation from an article in the German Financial Times:

Most people are not aware of the demand and value of rare metals. For more information regarding these metals, their uses, and their values, Haines and Maassen, one of just a few traders, will be able to provide you with any needed information.

Scandium, Lanthanum, Ytterbium. These words are foreign to most people but amongst people in the know, they are words which cause a lot of excitement today. These are metals rare and otherwise which are starting to become scarce. These scarcities are a real threat to many industrial countries, because these metals are used for important current and future technologies such as batteries for electric cars, aircraft turbines, solar panels or TV and PC screens

Many rare metals are currently produced in countries with complicated political environments. Countries like Russia, Brazil, Congo and China. China produces over 90% of the rare metals in the world today. The problem is that China covets these metals as much as any one and is currently drastically reducing their export levels to other industrial countries in need of these metals. At this particular time, because of scarity, there are 14 metals that are considered rare.

An Established Network

Even before China’s export restrictions it was not easy to get these commodities. Although there is a stock exchange in Shanghai, foreigners are not allowed to buy rare metals there. In a village close to Bonn, Germany, is an inconspicuous looking warehouse of a family-owned business called Haines & Maassen. In this warehouse many coveted commodities can be found. The five-meter-high shelves accommodate approximately 850 different metals in boxes, barrels, glass containers or bags. In one of the lower compartments are eleven barrels, 50 inches high and wide containing the metal, Hafnium.

According to the owners, “Gunther Maassen stores about 5 percent of the annual global production of Hafnium in their warehouse.”

Long-standing relationships benefit the company

For the last 40 years, the 77 year old father and patriarch of the family-owned buisness visits the London Metal Exchange every year even when there are no coveted and rare earth metals being traded. His sons regularly travel the world in order to maintain contacts and establish new ones. The family has a particularly good relationship with the Chinese, from which the company gets a little more than half of its stock of raw materials. The Maassens are currently benefitting from long-standing well-established, nurtured buisness relationship

The warehouse is not large but contains a fortune in metals.

More than 60 years ago the father of this family started in the metal business, and today both of his sons help run the company. Their specialty is the niche product of rare metals. “The important factor is that we built an established network, that allows us to bring the few producers and consumers together,” said Maassen. In the case of Hafnium there only three large manufacturers in the world and one of those is currently not in production.

Long-standing relationships benefit the company

For the last 40 years, the 77 year old father and patriarch of the family-owned buisness visits the London Metal Exchange every year even when there are no coveted and rare earth metals being traded. His sons regularly travel the world in order to maintain contacts and establish new ones. The family has a particularly good relationship with the Chinese, from which the company gets a little more than half of its stock of raw materials. The Maassens are currently benefitting from long-standing well-established, nurtured buisness relationships.

Deliverys are made to research institutions, industry and investors.

Bildunterschrift:
Thanks to their good name, they are also praised by foreign companies which wish to sell their metals. And even if someone is looking for a very specific commodity, it is Maassen’s pleasure to help. “We have a gentleman sitting in China, acting as a scout who recieves directions from us,” said Maassen. “He is highly-effective and instrumental in providing us with new clients and new contacts. “

Rare earth metals as an investment

Special requests come mostly from research institutes. As a matter of fact, eighty percent of the Haines and Maassen contracts, are with research institutes. But the family business sells the bulk of their metals to industry as research institutes only require small quantities.

Most recently, buisnesses and individuals outside of industry are beginning to buy substantial quantities of rare metals as a tangible asset used to combat the negative effects of inflation and the devaluing of currency.

It was because of this increasing scarcity within the commodity markets that the Maassen’s decided to bring the investors and the industry together, “In four or five years at the peak of the shortage if reached, the investors will be able to provide those materials to the industry. In return, the industry could contribute to the storage costs and receive advance rights for those rare metals.” , said Maassen.

A family that appreciates minerals

Apart from all his business activities Gunther Maassen is also a big fan of metals and rare products. He has collected large blocks of different materials, which are worth a fortune as they come directly from the the mines. If you visit Maassen it is not unusual to get a piece of a meteor placed in your hands to be surprised with its heavy weight. “We also have a deep-sea manganese nodule. That is the material which is in small chunks at three to four thousand meters depth on the ocean floor,” according to Gunther.

This enthusiasm for rare metals has spread to his sons who subsequently joined the company. The Maassen’s would never sell these particular pieces but they do lend them for exhibitions on occasions. These are family treasures to be passed down from generation to generation in the years to come.

Author: Insa Wrede
Editor: Rolf Wenkel

Silver still one of the best performing assets this decade

Prices of the metal likely to be supported around current levels as it moves back toward its 50 day moving average but further upside potential remains

Author: David Levenstein
Posted: Thursday , 13 Jan 2011

JOHANNESBURG -

Silver had a truly spectacular year, in 2010. The price increased from $15 an ounce to just over $31 an ounce, an increase of a whopping 106% in US dollars. And, no matter what currency you look at the price of silver increased anywhere from 60% to as much as 266% (Venezuela Bolivas). Since the bull market in silver began in 2003, the price has increased by as much as 775%. If we use the same example I used to illustrate the gains in gold, then an investment of $100,000 in silver would now be worth around $700,000! By comparison, over a ten year period, an investment of $100,000 in gold would now be worth $560,000 and an investment in bonds yielding say 8% per annum over a ten year period would be worth approximately $216,000. You don’t have to be rocket scientist to see which investment has been the best performer.

Even though I have continually urged investors to allocate some of their funds to silver since the price was trading just above $6 an ounce in 2004, many of these individuals, have preferred to remain in equities, funds, money market and bonds. But, when the price of silver broke above $30 an ounce, many of these same individuals asked if it is now too late to enter the market. While I cannot explain the psychological imprint of these investors, I have seen this behavior many times over the last 30 years or so. These types of investors invariably seem to need the validation of their bankers, stock brokers, accountants etc., before making a decision. Yet, their advisers usually have no knowledge about these markets and are therefore not really qualified to render any advice on their potential or lack thereof. Then, by the time these investors realize that they have missed out on some major gains, and decide to enter the market, they deliberate waiting for a pull-back that never seems to come. And then, out of pure frustration, they finally enter the market, but only when it is close to peaking. My point is very simple. Don’t make this mistake regarding silver. Despite the massive gains we have seen in the last ten years, this market is still far from peaking and still offers investors huge potential.

As I have already mentioned many investors, who have already missed out on some stellar returns, are now asking if they should enter the market at the current levels. And, as I have alluded to many times in the past, it depends on whether you are a trader who takes a short-term view or an investor who has a long-term time horizon. If you are a trader, I cannot predict the short-term moves, but if you are an investor I believe that the current pull-back in prices will not last very long and offers a wonderful opportunity to buy some silver. In the long run if you buy now and even if the market pulls back say another $3 an ounce, this is not going to have a major impact on your investment if the price goes to as high as $125 an ounce in a few years’ time.

I believe that we will see the price of silver trade at $45 an ounce before the end of the year. On this basis, if you are able to buy at current levels of say around $29 an ounce and my analysis is correct, a return of 55% in 12 months’ time is nothing to be laughed at. But, over the next coming years, I sincerely believe that we are going to see prices trade at several multiples of the current price.

TECHNICAL ANALYSIS

As the price of silver pulls back towards the medium-term 50 day MA, I believe that we will see prices supported at this level. That being the case, these dips offer more buying opportunities.