The Rare strategic metals are a group of metals that have garnered attention in the last few years. The metals are primarily mined as by-products of minor metals like copper, zinc, tin and iron mining. There is a company that offers these metals as a vehicle within a portfolio. Swiss Metal Assets was formed in 2010 to meet the demand of investors for an option to enter the strategic metals market. These metals are used in mobile devices, hybrid vehicles, solar panels, computers and the one that has the US government nervous national defense. Each of the metals has a very different path to the market. Some of the strategic metals are produced in large amounts while others are produced in very small amounts. Here are all the strategic metals that are offered by Swiss Metal Assets.
Bismuth (Bi): This metal is used in pharmaceuticals like Pepto Bismol, alloys, nuclear reactors as a substitute for lead and cosmetics. Bismuth is mined as a by-product of lead and other base metals. This metal is available in the, “Key Industries” basket of metals. Supply is approximately 8500t.
Chromium (Cr): This metal is used as plating, in tanning, as a refractory material, stainless steel, dye and pigment and as a catalyst. Chromium is mined as chromite ore which is then converted to ferro-chrome. This metal is available in the, “Construction” basket of metals. Supply is approximately 22,000t.
Cobalt (Co): This metal is used in pigments, super-alloys, batteries, catalysts and of great importance to military applications. Cobalt is mined as a by-product of nickel and copper mining. This metal is available in the, “Construction” basket of metals. Supply is approximately 98,000t.
Gallium (Ga): This metal is used in the solar cells, defense, LED´s and semiconductors. Gallium is mined as a by-product of aluminum and zinc mining. This metal is available in the, “Energy”, “Key Industries” and “Defense” basket of metals. Supply is approximately 216t.
Hafnium (Hf): This metal is used in microprocessors, nuclear control rods and alloys. Hafnium is mined as a by-product of zirconium. This metal is available in the, ”Key Industries” basket of metals. Supply is approximately 70t.
Indium (In): This metal is used in mobile phone touch screens, LCD´s, LED´s and solar cells. Indium is mined as a by-product of base metals. This metal is available in the, “Key Industries”, “Energy” and “Defense” basket of metals. Supply is approximately 640t.
Molybdenum (Mo): This metal is used in Alloys which account for 86% of all usage, compounds, fertilizer and vitamins. Molybdenum is mined as Molybdenite ore. This metal is available in the, “Construction and Engineering” basket of metals. Supply is approximately is 234,000t.
Rhenium (Re): This metal is used in rocket and jet engines as a superalloy. Rhenium is mined as a by-product of molybdenum mining. This metal is available in the, “Defense” basket of metals. Supply is approximately 49t.
Tantalum (Ta): This metal is used in capacitors in electronics and in alloys. Tantalum is mined as Tantalite ore. This metal is available in the, “Key Industries”, “Construction” and “Defense” basket of metals. Supply is approximately 790t.
Tellurium (Te): This metal is used in solar cells, electronics and alloys. Tellurium is mined as a by-product of copper mining. This metal is available in the, “Key Industries” basket of metals. Supply is approximately 115t.
Tungsten or Wolfram(W): This metal is used in defense, superalloys, tungsten carbide for machining and electronics. Tungsten is mined from wolframite and scheelite ore. This metal is available in the, “Construction” and “Defense” baskets of metals. Supply is approximately 72,000t.
Zirconium (Zr): This metal is used in nuclear, space vehicle parts, jewelry as cubic zirconia and compounds. Zirconium is mined as a by-product of titanium and tin mining. This metal is available in the, “Constuction” basket of metals. Supply is approximately 1,190t.
The Financial Crisis Began Five Years Ago
The Scale of intervention in the world markets since 2007 have been beyond extraordinary. The US Federal Reserve and the European Central Bank have made moves to stabilize the economies. The balance sheets of both the Fed and the ECB have ballooned in these short five years. The mortgage crisis was just the beginning.
Here is a list of US Fed and ECB Intervention:
- September 2007 US interest rates were cut from 5.25%-.25%
- March 2008 The Bear Stearns deal $30 Billion
- September 2008 $400 Billion for Fannie/Freddie
- September 2008 $85 Billion to purchase AIG
- September 2008 $25 Billion to save automakers GM and Chrysler
- October 2008 TARP $700 Billion
- October 2008 $540 Billion to secure money market funds
- October 2008 $280 Billion to secure CitiGroup liabilities
- November 2008 $40 Billion for AIG
- January 2009 $140 Billion to secure Bank of America liabilities
- January 2009 $787 Billion Stimulus
- July 2009 $3 Billion for Cash for Clunkers car program
- March 2009 QE1 $1.25 Trillion in Treasuries and Mortgage Debt purchased
- August 2010 $200-$300 Billion in Treasuries purchased
- November 2011 Operation Twist Exact Cost is not known
- November 2011 ECB LTRO 1 €490 Billion to loan to Banks
- March 2012 ECB LTRO 2 €530 Billion to loan to Banks
The central banks of the world have decided to put patches on the financial crisis. When will we once again have a major financial crisis? How are you protecting your future?
An easy way to protect your future is to diversify your portfolio with hard assets such as gold, silver and strategic metals. A safe secure means of implementing this strategy is utilizing a self-directed IRA. Through a self-directed plan, you control your own financial destiny and have the flexibility to choose exactly what you include in your portfolio. The great thing about hard assets is that you physically own them such as strategic metals which can be stockpiled for you with a view to returning them to the industrial market for a premium when supplies are further diminished.
The central banks of the world have only shown us that they are still willing to provide stimulus to their economies which is essentially putting a band aid on more medium to long term problems. Is QE3 around the corner?
For those holding fiat currency, such as the US Dollar or the Euro, the future looks uncertain
Republic of China
China to Cut 20% of Rare Earth and Strategic Metal Production
For the past three years China´s influence has increasingly put pressure on the mining and refining industries throughout the world. China controls 90% of worldwide production of rare earth metals and 95% of rare strategic metals like tungsten. The Ministry Of Industry and Information Technology has announced that it will be cleaning up the countries metals mining industry.
The new standard says that individual Chinese rare earth mining companies must now produce a minimum of 20,000t of ore per year. Extracting and smelting companies will have to produce a minimum of 2000t or more per year of refined product. This puts 23 mining companies within China on the closure list and 100 smelting and extraction companies. This jeopardizes over 20% of Chinese production. The goal is consolidation of the mining industry within China. It will allow the Chinese central authorities to fix prices. The other benefit is that Beijing will be able to have more control of the flow of the metals. For years China has had a notorious black market in the rare earths. The number of companies that will be allowed to export these metals will also be reduced.
In March Japan, EU and USA filed a World Trade Organization complaint against China. The governments accused China of violating its free trade agreements. China believes that the decisions will help protect the environment and its technology industries. It appears that China would like the world to bring its production of cars, electronics and equipment manufacturing to its shores. One way of doing this is to keep the prices via export quotas and taxes of these critical metals elevated so that it makes economic sense to produce the goods in China.
The metals subject to the new guidelines are the rare earth metals or lanthanides and rare strategic metals like tungsten, molybdenum and gallium. These metals are critical to our lifestyles. The solar, automobile, mobile phone, television, wind energy, computer and national defense industries are at the mercy of these metals.
Recently we saw some of the fallout that can happen when Chinese companies have access to foreign company technologies. VW recently complained that FAW, a Chinese production company, stole its engine technologies and have started building their own version of the motor and selling cars with the motor in Russia alongside VW and Skoda´s own models. This is the risk you take when building your products in China. Companies have a choice to either build in China with cheap metals or build in their own countries where the metals are twice the price after export taxes and XWorks costs.
One customer that must be nervous is the US Defense Department. These metals are absolutely critical for production of aircraft, armaments and armor. Many of these products rely on materials like tungsten that are not found in great supply domestically. In 2011 the British Geological Survey ranked tungsten 8.5 out of 10 on its critical metals list. There are mines throughout the world that countries and companies are rushing to get on line, but it could be years before they are viable. Until then it looks like these metals may be a great place to invest.
Swiss Metal Assets have recently began offering its, “Defense” basket of rare strategic metals with an end utility targeting the defense industry. The basket price has responded to this news by increasing in price by 2.3% since its launch on May 1st 2012.
The computers we use on a daily basis are an intricate piece of machinery. So I guess it just stands to reason that there are a plethora of materials that is necessary with making them operate. In terms of metals alones, most computers contain fractions of minor metals, precious metals, rare earths and rare strategic metals. Some of these materials are extremely rare and most are quite expensive. Here, we are going to take a short journey through your computer to see what metals make it work.
The hard disk is made from either a metal or glass. The metal versions are made with a combination of aluminum and magnesium. The layers on the disk can be made up of many different materials. The outer coating is generally NiP which is a nickel phosphorous alloy that can be brought to a high polish while underneath the polished layer you can find the magnetic layer which consists of cobalt, iron and nickel. Beneath this layer we find the recording layer which contains metals like platinum, chromium and cobalt.
For years, memory and processors have been composed mainly of silicon. However, over the last few years a rare strategic metal called hafnium has been added to improve the performance of the chips. Hafnium is a critical metal that is quite rare. The other highly valuable metal used in the processors is gold. If you look closely at a processor all the pins are coated with gold.
The disk drive consists of powerful magnets. The magnets themselves consist of neodymium which is a rare earth metal. Neodymium is mixed with iron and boron to form a magnet that can lift up to 1000X its own weight.
The capacitors and resistors on the motherboard are a combination of many different metals. Resistors are mainly composed of aluminum oxide but at each end you may find palladium, platinum and silver electrodes. The most common capacitors today utilize another rare strategic metal called tantalum. It is this material that has made it possible to reduce the size of many of our current personal electronics.
The metals that connect all of these components together are copper for the wiring and a silver, tin and copper alloy in the solder.
Over fifty metals are used to bring us the computers that we use on a daily basis. According to both the United States & British Geological Survey’s, many of these metals are in critical supply. Governments in the West have shown a lack of tolerance towards the opening of new mines that would clearly assist in fulfilling the demand of the growing ‘personal electronics market’. Growing demand and dwindling supplies mean there is an obvious opportunity for future profit!
Today out of Frankfurt was news that VW is accusing Chinese group FAW of industrial espionage. The allegations are that FAW, a VW partner in China copied one of the engines VW is using in its vehicles. FAW is planning to sell a vehicle that competes directly with VW and Skoda in the Russian marketplace. In 2011 VW sold 2.26 million cars in China. China is VW´s largest export market.
China has laws that require foreign automakers to partner with Chinese companies where the Chinese partner has the majority stake. China does not allow foreign automakers to produce the cars in China, but they do produce parts.
Sure there are ethical issues here, but that is not what I want to discuss. What I find amazing is how the Western news agencies approach this information. For years Western companies have been shifting production to the cost effective Eastern countries. The labor costs, production costs and materials to produce the items are cheaper. We constantly hear about the lower labor and production costs, but the one that is not talked about very often is the minerals and metals that go into these products.
In 2011 the British Geological Survey put together a list of the most critical metals in the world. Many of these metals are used in the production of your car, mobile phone, computer and almost everything you come into contact with on a daily basis. Some of the metals are tungsten, tantalum and bismuth. What many people do not know is that China controls the mining and refining of over 95% of the metals. While Western countries were closing their mines in the 80´s, China subsidized the industry and in just a few years had a near monopoly on strategic metals and rare earth metals. Now China is in firm control of the raw materials while Western nations try to play catch up.
This puts the West at a severe disadvantage. China has decided that if you want access to these metals at a cheap price you have to produce your products within China. Western companies like VW have no choice but to accept the agreements in order to stay competitive.
Recently China has decided to restrict the export of these strategic metals even further and have begun to close some mines. This will make the problem for the West even more difficult. Recently the West and Japan went to the WTO (World Trade Organization) claiming unfair trade practices. China claims that it is restricting exports of the metals in order to clamp down on illegal mining.
Within a few years it is expected that China´s growing economy will require it to import great amounts of raw materials. This will have a great impact on both the supply and prices of these metals. The end result is that in order to be competitive companies will have to do business in China. If they choose not to this could have dire consequences for both shareholders and the companies themselves.
The last few months have been rather dull in the metal markets. Prices have been trading sideways like they did before this commodity bull market began. Most metals investors that I come in contact with on a daily basis are long term investors who do not worry too much about the fluctuations and volatility of the metals markets. Whether you own gold, silver or strategic metals, all have good reasons to be included in your portfolio.
Why do we own gold and silver? The governments of the world are not showing restraint. It seems every week a different country is in need of a bailout. After 2008 the world expected that the banking system would pay for its transgressions against the people of the world. This has failed to materialize. Very little has changed since 2008. The same mistakes that were made before are being repeated on a larger scale. National deficits around the world are increasing at a rapid pace. The only action politicians and bankers take is to inflate the money supply to continue growth. There is a good chance gold will once again be considered a tier 1 asset by the banking system. This means that instead of having a 50% weighting as a bank asset, it will have a 100% weighting. This is very bullish for gold and by proxy silver. The US Dollar may be strong now, but when the world stabilizes what will happen once investors return their assets to other currencies or countries? What will happen to all this excess liquidity that the US Federal Reserve has created? The word that comes to mind is inflation. It will not be a good time to hold Dollars.
Why do we own strategic metals like indium, gallium and tantalum? These metals are the backbone of the smartphone, solar systems, electric vehicles, computers and the defense industry. Almost every technology product you come in contact with on a daily basis has strategic metal components. These metals are 95% controlled by China. This has put China in the driver seat as far as production, refining and exporting of these metals. China is closing mines and limiting exports. This is bullish for the strategic metals. The use of technology in the world is rapidly growing. Where will we source more metals to keep up with the demand? These metals are mined as by-products of minor metals like copper and zinc. Expanding the supply of the strategic metals is not possible.
Precious metals are an integral part of any long term investment portfolio. We hear all sorts of percentages of how much precious metals you should own. The answer is whatever makes you feel comfortable. Strategic metals are a great option for people who want to expand beyond precious metals. The metals markets might currently be trading sideways, but for how much longer?
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