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Jack Lifton
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Jack Lifton is an Independent consultant and commentator, focusing on the market fundamentals and future end use trends of the rare metals. He specializes in the sourcing of nonferrous strategic metals and on due diligence studies of businesses in that space. His work includes exploration,... More
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Technology Metals Research
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  • Mining the Gullible for Their Gold and Silver in Exchange for Fantasy Rare Earths from Under the Sea
    Today's New York Times, Tuesday, November 9th, has in its section mistakenly labeled "Science Times" a fable entitled "Mining the Seafloor for Rare-Earth Minerals." It leads with the following lovely photograph that could send a rock-hounds heart to arrhythmia.
     

    Please read the article,linked above, before going on with this review.

    Ok. Have you read it?

    Good, let's continue.

    In the 1970s the CIA, the central Intelligence Agency, had the private enterprise and Defense contractor, Tenneco, construct 2 very specialized ships, the Glomar Challenger and the Glomar Explorer. These ships were ostensibly built by private industry for exploration and development of techniques to recover "manganese" modules from the deep ocean floor as a source of manganese, nickel, and cobalt, as I recall-its been nearly 40 years so there may have been some other "valuable' metals mentioned, but I honestly don't remember. I do know that rare earths could not have been sought after at the time, because they then had no valuable uses at all.

    The true purpose of the two Glomars, it was later revealed,  was the recovery of a sunken Soviet nuclear submarine for the purpose of investigating its propulsion, electronics, and weaponry. They, the Glomars, were exotic ships and the first of their types. Once reaching their destinations in the sea they could literally flip from horizontal to vertical operation so as to provide ocean "drilling" platforms fact as it later was revealed they were intended to grapple the sunken submarine and pull it straight up into the ship's hull at which point it could be carefully returned to horizontal operation and could then bring home the recovered submarine, or in the worst case it could remain vertical while brave sailors and spies entered and explored the sub.

    I think the results are still classified but I seem to remember that the story was put about that one ship got at least half of the Russian nuclear boat-it seems that the sub broke in half or was already broken in half when raised. I'm sure that if anyone in the Moscow VFW is reading this story they may well ask what our intrepid spies did with or about the remains of the Soviet submariners who sacrificed their lives to Soviet under and over-engineering.

    In any case when I was in Alaska last week as a speaker and short-course instructor on  rare earths at the Alaska Mining Association annual meeting I had a great conversation with the world's senior and most respected rare earth field geologist, Dr. Anthony Mariano, and coincidentally we touched on the Glomars. He and I were discussing mining the seabed for manganese modules as it happened, and "Tony" pointed out to me that these nodules as he had discovered in the 1970s were very low in rare earths content and that the seabed mining idea seems to have just died in the 1970s due to the crushing economics of the infrastructure for such physical recovery plus the fact that a "metallurgy," which is mining speak for the extraction, separation, and purification of the desired metals had never been satisfactorily worked out. Although we agreed that the metallurgy was do-able, at least to recover the base metals we also concluded that there was no practical reason, just academic reasons, to even continue to look at "manganese" nodules even as "just" a resource for manganese, nickel, or cobalt much less for the rare earths, since all of these metals are available in substantial amounts in accessible locations on dry land..

    Those of you who think that I am a wet blanket-excuse the pun-about vacuuming the sea floor for metal mineral rich nodules are free to invest in the stock-market scams and promotions that an article in the "newspaper of record' will soon generate or revive in the Toronto, Vancouver, and Perth venture exchanges. The rest of you should be looking to invest only in those rare earth mining ventures, outside of China, which can produce a profit at the point in the supply chain at which they offer their product for sale.

    This dead story about sea-floor "mining" apparently got its 'legs' from the perceived rare earths connection. I think that the Times is too economically challenged to have seen the real story. The real story is China and Japan fighting over the oil and gas that lie beneath the ocean floor. That is the real reason that the Chinese and Japanese are contesting sovereignty on and below the islands in the China sea.



    Disclosure: No position
    Nov 09 1:07 PM | Link | 1 Comment
  • Several Non-Chinese Rare Earth Mining Ventures Become members of a Billion Dollar Club. Is too much investment required for too little of a market?
    Today's (September 30) announcement by Arafura Resources, Ltd.,(ARU.AX) , the Australian owned and Australia based rare earth mining venture that it is in funding talks to raise A$1 billion, (US)$964 Million to develop its rare earth mine served notice upon the world of natural resources' supply that yet another non-Chinese rare earth project would need a great deal of money to bring its product(s) to the market.

    By my count Arafura Resources, Ltd., is the fifth rare earth mining venture to ring the "above US$500 million" bell in just the last two years. The first such was Greenland Minerals, (Other OTC: GDLNF.PK), which has said it will need (US$) 2.3 billion. Next was Lynas, Corp. Ltd., (ASX: LYC.AX), another Australian venture, which has raised or spent more than 2/3 of a US$ billion so far on its way to production The newest big spenders are America's Molycorp Inc., NYSE:MCP, which recently raised US$ 400 million in an IPO, but said it would need more than US$500 million, and, most recently of all, Canada's Avalon Rare Metals (AVL.TO), which filed required Canadian Securities Commission disclosures documentation stating that it may need as much as C$900 million for its Northwest Territories project.

    These ventures all have one thing in common, which is that all or most of the money required by all of them is admittedly just to produce ore concentrates. The problem with this goal is that as for most mines in general but for rare earth mines in particular the ore concentrate stage is the lowest point in the value chain.

    The Australian rare earth expert commentator, Dudley Kingsnorth, stated at the 6th Annual Chinese Society for Rare Earths Summit on August 3, 2010, that he estimated the total value of all of the rare earth ore concentrates produced in the last calendar year was south of US$1 billion. Let me point out here that it does not matter what the selling price of high purity rare earth metals may be, or may jump to, when you are valuing the ore concentrates from which they are produced. The value of the ore concentrates will rise much less than the price of the high purity individual metals, because it is post ore concentration where most of the added costs arise. 

    If you believe as I do that the total demand for rare earths will no more than double in the next decade then it is obvious that we are faced with a mining industry expansion which has probably too many new entrants competing to recover their cost of investment from a relatively small total revenue pool. This means that there are already too many new entrants and that if all of them raise the necessary capital they believe they need then some strategic investors will never see any profit. 

    Besides the problem of too many competitors chasing too small a pool of money there is the problem that not all rare earths are as desirable as the others. 

    The most valuable rare earth in terms of total demand and total revenue is the metal, neodymium, the basis of 90% of the world's rare earth permanent magnets. Its price as a high purity metal has been climbing lately and almost all of the projected balance sheets and income statements of the rare earth mining ventures are based on its, neodymium's, current high price. But common economic sense and the basic law of supply and demand tell us that if neodymium is overproduced its price at every point in the value chain will fall. If this happens many of the business models of the members of the billion dollar cost club will fail to show a profit no matter where in the value chain they are calculated.

    The other economic curiosity among rare earth mining ventures is the belief by many of the miners that if they produce large quantities of the currently highest priced rare earths with commercial uses, the so-called heavy rare earths, dysprosium and terbium, then the prices of those metals will stay high no matter what the excess of supply over demand. This is plain silly and misleading.

    I have come to the conclusion that in rare earth mining, outside of China, small is beautiful and the higher proportion of heavy rare earths to total rare earths the better for any venture.

    There is no way that a non-Chinese rare earth mine will be able to outproduce the Chinese mines in Inner Mongolia in total production of either neodymium or lanthanum, the two most widely used of all of the rare earth metals, but even the Chinese believe that they, the Chinese, will not be able to meet the demand for dysprosium and terbium beyond this decade.

    If that demand, the demand for dysprosium and terbium, doubles then there will be a major shortage of dysprosium and terbium beginning by 2015. I am betting that Chinese, Japanese, and Korean investors will focus on neodymium and, perhaps, lanthanum only in the short term but on dysprosium and terbium for the long term.

    There are six rare earth mining projects being developed outside of China by Japanese companies, such as Toyota, Sumitomo, and Mitsui at the present time. I think that Japanese companies issuing letters of intent to rare earth mining ventures in Australia and the USA are simply using the no-cost letters of intent as insurance policies which they will allow to expire if and when their own mining ventures bear fruit. If the letters of intent are from Korean or Indian companies i would value them higher. I understand why the issuers of such letters want their identities kept secret-for competitive advantage-but I would fell that the letters were more valuable if I knew they were from Korean, Indian, or European stockpile agencies or industries.

    This weekend I'll publish on the professional informational web site, www.techmetalsresearch.com, my thesis on "right-sizing' rare earth mining ventures. I hope you'll go there to look at that.

     


    Disclosure: None
    Tags: MCP, rare earths
    Sep 30 11:17 PM | Link | 4 Comments
  • Reporting From Beijing/Shanghai: Chinese Institutional Investors Look at Rare Metals Overseas
    I'm in Shanghai today; I was in Beijing yesterday; and I will be in Tokyo tomorrow and Hong Kong next week. I am teaching a course that I designed called "Rare Metals" for CLSA, Asia's pre-eminent brokerage. CLSA' Clients are my students. I do not presume to give investment advice to the likes of China Asset Management, China Investment Corporation, Manulife TEDA Fund Management Co.,Ltd, or Harvest Fund Management co., Ltd, but I do explain to them what the new asset class, rare, technology, and minor metals, in which they have an interest, is and how the rare metals market fundamentals and future use trends are related to, and different from, those of the older and obsolescent categories of base and precious metals.

    There is no doubt that Chinas's growth rate cannot be sustained by its domestic production of natural resources.This is painfully obvious to Chinese corporate procurement officers. It is only now becoming apparent to Chinese domestic institutional investment. As just one outstanding example I note that China consumed 6 million tons of copper last year out of the world total production of around 16 million tons. Importing 5 million tons of copper cost the Chinese economy some 40 billion dollars. Thank goodness, Chinese bankers tell me, for the export market for finished goods and services.

    I emphasize in my "course' that if China's growth rate were to continue at 8% then its demand for all metals, current at 53-56% of all metals produced in the world could shortly rise to a level where the existing productive capacity of the world's metals economy cannot increase any further due to capital, equipment, and skilled personnel limitations of availability and when this point is reached the first result will be an intense commodity price inflation the likes of which the world has never seen. This would of course in the long run be demand destructive and prices would ultimately crash in a world commodities price led recession, but the economic and political danger of such a series of events is sobering and a little frightening,

    China recognizes this possibility much better than western economies, still mired in recession due to the credit bubble, do. China fears most of all a commodity price inflation and a renminbi appreciation either or both of which could damage its economy or slow or even stop its growth.

    China's rare earth production industry, the world's largest by far, is now being downsized in management and given access, under the new supervising management-of which I have already written-to all the capital it needs for a rational restructuring in preparation for a great leap forward to a domestic productive capacity that will enable the industry to meet the goals set in this and the next five-year plan for raw materials for the alternate energy production and use. 

    In the meantime, over the next 10 years, a window of opportunity has arisen for non Chinese producers of rare earths, if they can move fast enough, to supply the Chinese, Japanese, Korean, and (soon) Indian manufacturing industries with rare earth raw materials and metals,

    China has enough light rare earth resources to supply itself indefinitely. What China worries about is its supply, current the only one in production, of heavy rare earths. I cannot overemphasize the importance of the non-Chinese heavy rare earth supply industry to China's and then the world's green alternate energy industries.

    In summary: There is room right now for some supply of light rare earths outside of China. There is also a demand for the heavy rare earths beyond China's productive capacity and this demand may be permanent.

    The economics of rare earth mining are difficult and challenging if the goal of a mining company is just to produce unseparated concentrates it will most likely fail as a freestanding economic enterprise unless its overheads are distributed in the balance sheet of a larger independently funded entity. This is how BaoTou functions in China, for example. The rare earth entity has the advantage of the parent iron mining company's distributed overheads. I believe that no where else in the world could such a large rare earth production point be successful without the financial support of the larger company's absorption of overheads.

    I am preaching to the Chinese rare earth and rare metals supply industries that they must now seek out natural resources everywhere and that it isn't necessary to own them outright. Producing rare earths for example in South Africa with Chinese investment short of ownership creates a supply for there is no local domestic demand. Thus it is an exportable supply. This means that deals can be struck where initial investments of money and technology for refining are repaid in kind, in metals that can be exported to the investor's home markets.

    Governments that wake up to foreign investments that create wealth will rebuild their economies in part on this basis.

    America's needs for light rare earths will be oversupplied by Molycorp as will Australia's by Lynas in a massive way. For the heavy rare earths America's needs can be meet and exceeded  by Ucore and Rare Element Resources. The needs of China and Japan and Korea and India for heavy rare earths can be met by the Canadian and African operations of Great Western Minerals Group, The Canadian operations of Avalon or Quest, and the southern African operations of Frontier Rare Earths and Tantalus.

    Its time to circle the wagons and switch to fast forward in non Chinese rare earth production. The window for light rare earths will close by the mid to late teens. The window for heavy rare earths is now open and unlikely to close.

    I'll be in Tokyo for the next two days and will report from there on Japan's needs and plans for rare earth security of supply.

    Disclosure: I own stock in all of the companies mentioned in this report other than Molycorp and Lynas
    Sep 07 8:47 PM | Link | 2 Comments
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