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This week has been absolutely amazing in the financial markets! Gold, Silver, Bonds, Stocks, Junior Mining, Central Banks, Employment Numbers, Interest rates and Bernanke speaks. If you are like me you are a little burned out from all the information. There is one market that has been remarkably stable. That is the rare strategic metals.
The rare strategic metals consists of elements used in everything from your mobile phone, lap top, Flat Screen TV, hybrid and conventional automobiles, solar, defense and 85% of everything you use day to day. That iPhone or Android in your pocket has strategic metals like indium, gallium, tantalum, silver and even gold inside.
There is a very important difference between the minor metals like copper and the strategic metals. The minor metals are affected greatly by a slowdown in the world economy. The strategic metals are not because the world as a whole is using more and more of the metals as third world nations adopt the use of wireless devices, computers and other technologies. If you have not heard about the BRICS Cable that will deliver Broadband access to the whole of Africa by 2014, please check out the link. Can you imagine what the market for Smart Phones will be?
Having a global perspective is needed during these difficult financial times. There is so much information available to us online, that we really do not need to listen to what is reported in mainstream media. Looking to the future and seeing the trends will assure you of a prosperous future. Rare strategic metals are one of those opportunities that an investor can look to the future and know that they will be vital to the future of our global digital economy.
Nationalism, the search for substitutes and deals to address short supplies consumed the spotlight in 2011 for rare earth elements.
In addition to the skyrocketing of rare earth elements’ prices (and their subsequent fall to Earth), and constant speculation as to which junior rare earth exploration companies are going to survive, the calendars of both the rare earths and strategic metals have been quite full in 2011.
While some of the events filling their calendars have received often considerable coverage in the press, others have not drawn so much attention. As 2011 has come to a close, it is perhaps worth looking to see if any themes have emerged.
I have singled out three themes, not all of which have received the spotlight, but that I consider to be of interest as well as importance:
- Resource nationalism
- The search for substitutes
- Deals to address dearth
If nothing else, the intense interest in rare earths over the past several years has coincided with countries focusing on several issues, e.g., their own access to strategic minerals (and not just rare earths) and the value of the mineral resources they already own.
With the example of China aside, the focus on these has coincided with proposed and actual government policy developments among various mining nations, in the areas of resource protection as well as the further realization and “distribution” of the value of those resources.
Back in November, the lower house of the Australian parliament approved the new Mineral Resource Rent Tax (MRRT). Aimed at further tapping the earnings of the country’s resources sector, the tax currently targets only coal and iron ore. However, only time will tell if the targets remain solely those resources.
On the other hand, events in two African countries have not received as much press. In South Africa, the future of the country’s natural resources sector (and the fate of its mining companies) is soon to be squarely in the limelight. On Jan. 30, the ANC’s national executive committee will consider just how, and how much, the state should be involved in the sector.
While what the Australians are doing appears to be attractive to some, of the 13 different country models that have been studied, it seems that Chile’s mixed private/public example in the mining sector is a favorite. On the other hand, nationalization cannot yet be fully ruled out.
For example, in Namibia, at the end of March, again in a move to try to ensure that its people share in its natural resource wealth, the country’s cabinet backed a proposal that only the state-owned mining company — Epangelo — should be issued mineral exploration and mining permits.
Unfortunately, the government’s announcement was not accompanied by an explanation as to how those foreign mining companies already on the ground were to be treated, leading to significant consternation and confusion among such companies and prospective investors in the mining sector in Namibia.
Then, in the middle of May, the country’s minister for mines and energy minister, Isak Katali, announced that the government was seeking to introduce a minerals-windfall tax. This was followed in July by the announcement of proposed Draconian taxes on the mining sector by the country’s finance minister, Saara Kuugongelwa-Amadhila. However, so adverse was the fallout of the announcement, especially amongst investors, that on Aug. 17, the government was forced to back-pedal, with Calle Schlettwein, the deputy finance minister, announcing a scaled-down tax plan, not least in an effort to allay investors’ fears.
These are just two examples among many. In its report, Business Risks Facing Mining & Metals 2011-2012, published in August 2011, Ernst & Young reported that, over the prior 12-18 months, at least 25 countries had announced their “intentions to increase their government take of the mining industry’s profits via taxes or royalties.”
The Search For Substitutes
The search for substitutes, both for members of the rare earths elements (REE) clan and other strategic metals, continued apace this year. And it was particularly busy vis-a-vis REEs. The search, however, has not just been for effective substitutes, or reduced usage, within certain applications, but also for substitute technologies that may not necessarily include the metal(s) at all.
In the area of catalysts for oil refining, W.R. Grace & Co. started to sell equally efficient catalysts, but containing considerably less lanthanum than before. The German firm Cofermin Chemicals GmbH & Co. KG of Essen developed its product Coferpol UG, a substitute for cerium oxide used in the polishing of glass.
In the world of permanent magnet electric motors, the likes of Toyota Motor Corp. General Motors and GE are looking at using magnets with less REE content than before, or just smaller magnets. And some companies are even exploring the use of ferrite magnets as suitable substitutes.
What has also become apparent is that, in certain instances, the use of REEs has been perhaps somewhat profligate, so much so that their use now, in reduced volumes, has not made a significant difference in performance.
Earlier in 2011, as part of its policy of encouraging (and funding) renewable energy projects, the Advanced Research Projects Agency – Energy (ARPA-E), made up to $30 million available for its REACT (Rare Earth Alternatives in Critical Technologies) project that will look at either reducing or eliminating, through the development of substitutes, a dependence on rare earth materials in both wind generators and electric vehicle motors.
In terms of substitute technologies, perhaps the most ironic has been the espousal, not least by the likes of Toyota and General Motors, of the induction motor, which does not use any rare earths metals. Such a motor is already used in the Tesla Roadster and BMW’s Mini-E.
The A/C induction motor has been around for a long time, having been patented back in 1888 by the American inventor and, some would say, eccentric Nikola Tesla. In addition to being both durable and simple, such motors have the considerable added advantage of being able to operate efficiently over a wide range of temperatures. They also comport themselves very respectably on the torque front!
Were he around to see what they are being used for now, Tesla would likely be spinning asynchronously in his grave — with amusement!
Away from the realm of REEs, other interesting areas of substitution include the increasing use of gallium nitride, as a more energy-efficient alternative, in the likes of the high-voltages switches associated with the grid. Such switches, and efficient switching, will become especially important as wind and solar energy increasingly needs to be “fed in” to the grid.
ARPA-E is also making some $30 million available for research in this area through its GENI (Green Electricity Network Integration) project and, in Europe, in November, the Ferdinand-Braun-Institute in Berlin announced the launch of the EU project HiPoSwitch, which will receive significant funding from the European community and will focus on “novel gallium nitride-based transistors” as “key switching devices” in power conversion and high-voltage environments.
Finally, also on the substitute technologies front, around the middle of November, a few quite interesting news items mentioned the use of that staple in steel production, vanadium, in a different context — electric batteries. While such batteries have been around since at least the ’80s, the technology has not yet been developed commercially with any degree of success.
With the advent of and interest in electric vehicles, this may all change. There’s still a long way to go, but vanadium batteries do offer some interesting (and, potentially, very important) advantages, not least their longevity (decades) and the fact they can be charged in a jiffy.
Deals To Address Dearth
This past year saw a number of deals, including strategic alliances, out of which various countries have secured much needed supplies of critical minerals. Among those that have either been consummated, or are still in the works, the following, going forward, will be worth remembering:
- Three Chinese companies — Taiyuan Iron and Steel (Group) Co. Ltd., CITIC Group and Baoshan Iron and Steel Group (Baosteel) — purchased 15 percent of CBMM of Brazil, the world’s largest supplier of niobium. (China is the world’s largest consumer of niobium.)
- Continuing negotiations between Namibia’s Epangelo and China’s CGNPC Uranium Resources Co. over a strategic ownership stake in the Husab uranium project.
- Japan’s agreements with both India (end-October) and Vietnam (Nov. 1) to help each develop its rare earth deposits, with Japan, thereby seeking to secure supplies for itself.
- The agreement reached in early October by Germany with Mongolia (a first such deal for the Germany government), to secure REEs at a fair price for Germany.
- The signature by Kazakhstan’s Kazatomprom of a rare earths joint venture agreement with Toshiba (end-September). (The state-owned company had already signed one with Sumitomo back in March 2010.)
On the other hand, one deal to have fallen significantly apart this year was between China and Zimbabwe over chrome. Unfortunately for Zimbabwe, it failed to beat China at its own game, the “value added” game.
Hoping to add value by having a group of seven Chinese chrome mining companies set up a smelter in the country, and despite two reprieves, the Chinese never came up with the smelter. They just continued to export the raw material before the government imposed a ban on chrome exports in April. Hauled up in front of the Parliamentary Portfolio Committee on Mines and Energy at the end of September, it appears that representatives of the companies had the temerity to request “a grace period of five more years to mobilize resources to establish the plant through exporting the mineral.” Quite understandably, “Their request caused an uproar among members of the committee, who felt that if they were allowed to export, the chrome resources would be finished in five years before any plant was set up.”
Finally, at a corporate level, two particular deals caught my eye.
The first was the closing, on May 26, of the deal in which the Canadian company Stans Energy Corp. acquired 100 percent ownership of the Kyrgyz Chemical Metallurgical Plant (KCMP) Rare Earth Processing Complex and Private Rail Terminal. For some three decades, the plant, in Stans’ words “produced 80 percent of the former Soviet Union’s RE products.” Since May, the company has continued further to consolidate its position in Kyrgyzstan.
The second deal, about which not much was seen in the press, was the announcement of the formation in June of a 50/50 joint venture between France’s ERAMET (with a market cap at the time of around €5.8 billion and currently employing around 15,000 people in 20 countries) and Australia’s Mineral Deposits (with a market cap of considerably less and employing just 90 at the end of June) to “combine Mineral Deposit’s 90 percent interest in the Grande Cote Mineral Sands Project (“Grande Cote”) [in Senegal] and Eramet’s Tyssedal titanium slag and iron plant in Norway.” The deal was finally closed on Oct. 25.
If nothing else, during 2011 there has developed, albeit slowly, a realization that REEs alone are not the name of the game. And that countries and corporations alike need to look across the spectrum of the materials — particularly minerals — they use to determine which are critical, which are not and how to secure the relevant supply chains.
While some larger concerns — for example GE — have been doing this for some time now, as a continuing and constantly evolving process, it is something that all organizations using REEs and/or other strategic metals need to undertake. It is perhaps salutary that even now, the U.S. Department of Defense has, as far as I am aware, yet to report on REE use in its weapon and technology systems, although they were asked to do so some time ago.
Henceforth, there will be no plausible excuse of “We didn’t realize how important they were!”
By: Ton Vulcan
FRANKFURT, GERMANY - Despite shrinking demand, the situation of tungsten prices and availability is still tense. Tungsten is the main constituent of hard metals, which are one of the key materials for the production of cutting edges for tools used in several operations and machining processes in the wood and furniture industry.
In October, the price of the most popular tungsten-based commercial product (ammonium paratungstate, APT) was around 450 dollars per metric ton (mtu). At mid 2010, such price was in the range of 250 dollars. The current cooling of global economy has granted a short rest to tools manufacturers, with stable prices for a few months now. “However, this positive signal should not reduce our level of attention to the difficult situation of raw material markets,” said Paul Oertli, president of Eumabois Toolgroup. “As a result of reduced export by Chinese suppliers, prices are still at critical levels despite a slight reduction of demand from many tools manufacturers,” Oertli added.
In October, the “British Geological Survey” placed tungsten at number one in the list of elements ranked by unreliability of supplies in 2011.
“In 2012, we expect a still difficult market scenario. Chinese suppliers dominating the sector will focus on tungsten as strategic metal also in the future. Other raw material sources will not help relieve tension in the short and medium term,” said Dr. Andreas Bock, president of Wolfram Bergbau und Hütten AG, Austria, one of the few European suppliers of tungsten and related carbides.
Editor’s Note: Prices for many precious and base metals hit record highs in 2010, as economic uncertainty rattled around the globe. What does 2011 hold for gold, silver, platinum, palladium, copper and other metals? Kitco News reporters have prepared a series of stories which examine what is in store for 2011, not only for metals but for currencies, stocks and the overall economy. These stories will be posted on Kitco.com during the holiday period and also will be featured in a special section. Stay tuned for video highlights as well.
(Kitco News) - China’s dominance of global rare earths output will continue in 2011, yet at the same time other nations are starting to make preparations to pull more metal from the ground and reduce China’s stranglehold on the market in future years.
Until the last few months, the mention of rare earth metals likely would elicit a blank stare unless the conversation involved someone in a specific sector that uses the elements.
Rare earth metals, known as REEs, burst into the mainstream media limelight during the past several months, with articles in The New York Times, The Wall Street Journal, the Financial Times, on major wire services and televised segments on CNBC. The big exposure came with a flap that developed when China, which controls 95% to 97% of the current REE global output, stopped exporting to the Japanese.
Fears continue over the supply of rare earth metals, which consist of 17 elements used in creating a variety of consumer, environmental and industrial-driven technological products. Despite some movement expected in 2011 and beyond to develop greater supply from other global sources, the Chinese still hold the shovel.
“They have the ability to dictate the market if they want to,” said Charl Malan, senior metals and mining analyst at Van Eck Global. The company offers a number of metals-related investments and this fall started the first U.S.-listed exchange-traded fund for equities of companies involved with producing, refining and recycling rare earth/strategic metals.
“With rare earths growth in the next five years about 225,000 tons, that’s about 9% (year-on-year) growth number,” Malan said. “Currently, supply is about 125,000 tons, out of which China produces about 120,000 tons.”
Major importers have come to depend on China due to its ability to manufacture REEs at a reasonable cost. The embargo China placed on exports to Japan has been devastating to the Japanese and shows the strength of the REE demand China commands. Japan was the leading importer of REEs.
“News out of China is a big part of it,” said The Mercenary Geologist Mickey Fulp. “It is a purely speculative sector. As news comes out of China about export quotas, relaxing export quotas or news of any kind on that regard supply and demand fundamentals of the rare earth elements sector is going to affect prices.”
Fulp said China controls well over 90% of the current supply. The dominance is mainly because the Chinese have developed the ability to manufacture these minerals in such a way that the rest of the world could be falling behind quickly, not because rare earth metals are really that rare.
“For me, if I look at the bigger picture for rare earths, this is what’s essential,” Malan of Van Eck said. “There’s an abundance of rare earths around the world. It’s not so much the mining, it’s the fact we don’t have the manufacturing capacity and we don’t have the skill sets or the equipment. That’s my biggest concern.”
Malan believes that China has invested its resources in such a way that it is now properly positioned for the future in terms of manufacturing capacity, but more importantly, well placed from a knowledge standpoint.
“To have the refined product really work, you obviously need very highly educated, highly skilled people specifically within an industry,” Malan said. “There’s something like 800 people with Ph.D.s specifically linked to rare earths. They don’t just focus on the equipment, the processing and the manufacturing side of it but also the manpower and the knowledge base behind it.”
A half century ago China was not among the leading producers of REEs. Between 1950 and 1980, the U.S., India, South Africa and Brazil were considered to be the front-runners in production. During the 1980s, China began underselling competitors, leading to consumers purchasing cheap supply from the Chinese.
This had a negative effect on REE mines in several countries, leading to most being shut down. Molycorp Minerals mine in California was once the largest REE producer in the world but was forced to close in 2002. The mine is set to reopen in 2011 and should begin contributing production by 2012.
“In 2012, there will be additional supply from Molycorp which will be 20,000 (metric) tons,” said Marino G. Pieterse, publisher and editor of Gold Letter International, Uranium Letter International and Rare Earths Elements International.
Molycorp is not the only rare earths company beginning REE production in the next few years.
“In 2013 you’ll have three other companies that will begin producing REEs,” Pieterse said. “Frontier Rare Earths will produce 10-20,000 (metric) tons, Greenland Minerals and Earths LTD will have 40,000 (metric) tons and then there’s Rare Elements Resources LTD, which will have 20,000 (metric) tons.”
Lynas Corporation in Australia is also slated to begin REE production, with tonnage reaching over 20,000.
Analysts said that the move towards wider production could mean there will be an over-supply of REEs by 2014-2015, which will bring stability to prices.
Despite the title of being rare, REEs are in abundance. With countries other than China developing the means to manufacture these metals coupled with the need to introduce and maintain greener technologies, REEs are expected to perform well in the coming years.
“I see bigger and better things for the entire sector,” Fulp said.
Aluminum alloy: aerospace
Phosphors, ceramics, lasers
Batteries, catalysts, glass polishing
Magnets, glass colorant
Magnets, lasers, glass
Magnets, lasers, lighting
TV color phosphors: red
Phosphors: green, fluorescent lights
Lasers, vanadium steel
X-ray source, ceramics
Infrared lasers, high reactive glass
Catalyst, PET scanners