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

Resource Nationalism

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.

Afterword

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
Source: http://www.hardassetsinvestor.com/features/3339-rare-earths-and-strategic-metals-a-lateral-look-at-2011.html