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  • Japan Gets Desperate, Attempts Damage Control On REM Supply Constraints 0 comments
    Jul 4, 2011 2:01 PM | about stocks: IQ, NUSMF, GWMGF

    A recent discovery in the Pacific could solve the world’s REM supply problem that has been centered by the export-slashing that the Chinese have done over the last couple of years. Japanese researchers say that they have enough REM in newly found deposits in the Pacific to satisfy 1/5 of the world’s demand in just one square kilometer of the deposits.


    “The deposits have a heavy concentration of rare earths. Just one square kilometre (0.4 square mile) of deposits will be able to provide one-fifth of the current global annual consumption,” said Yasuhiro Kato, an associate professor of earth science at the University of Tokyo.

    The discovery was made by a team led by Kato and including researchers from the Japan Agency for Marine-Earth Science and Technology.

    They found the minerals in sea mud extracted from depths of 3,500 to 6,000 metres (11,500-20,000 ft) below the ocean surface at 78 locations. One-third of the sites yielded rich contents of rare earths and the metal yttrium, Kato said in a telephone interview.

    The deposits are in international waters in an area stretching east and west of Hawaii, as well as east of Tahiti in French Polynesia, he said.

    He estimated rare earths contained in the deposits amounted to 80 to 100 billion tonnes, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States.

    Details of the discovery were published on Monday in the online version of British journal Nature Geoscience.

    The level of uranium and thorium — radioactive ingredients that are usually contained in such deposits that can pose environmental hazards — was found to be one-fifth of those in deposits on land, Kato said.

    “Using diluted acid, the process is fast, and within a few hours we can extract 80-90 percent of rare earths from the mud.”

    See, everything is okay? Well, let’s consider the source. Japan is the country that is effected most by the tightened supply as the demand for hybrid cars and cutting edge consumer technology is becoming more and more dependent on REO’s and REM’s. Japan’s economy is dependant on being able to export these goods to other countries and the recent supply constraint has made heavy dents in their export trade. They have begun projects that involve R&D of REE deposits in countries with a high geo-political risk such as Mongolia which is a sign of how truly desperate they are.

    But let’s take a look at these findings which Gareth Hatch of Technology Metals Research, LLC has already done for us.


    There were a number of reports over the weekend, about a group of Japanese researchers who say that they have found significant quantities of rare-earth elements (REEs) at multiple sites on the seabed of the Pacific Ocean. In a paper published in Nature Geoscience on July 3, 2011, lead author Yasushiro Kato and his colleagues shared the extensive work that was undertaken, to obtain and to analyze 2,037 samples from 78 different sites across the Pacific Ocean.

    Reuters, the BBC, Nikkei and others reported that there is an estimated 100 billion tonnes of rare earths in these deposits. Which is rather interesting, because the scientists themselves made no such claim in their paper…

    What they do report, are two regions of the sea bed with so-called REE-rich muds:
    ■one in the eastern South Pacific containing 0.1-0.22% total REEs (including 0.02-0.04% heavy REEs), in layers 10 to 40 meters thick;
    ■one in the central North Pacific, containing 0.04-0.1% total REEs (including 0.007-0.02% heavy REEs), in layers 30 to greater than 70 meters thick.

    The authors compare these muds to the ion-absorption-type clays found in China, which are presently the world’s primary source of heavy REEs. They comment that the mud in the eastern South Pacific has heavy REE content that is “nearly twice as abundant as in the Chinese deposits“. Of course, those Chinese deposits are not sitting under “great water depths (mostly 4,000-5,000 meters)” and below the surface of the sea floor. It is because they are readily accessible and processable, that the Chinese ion-absorption deposits are exploited, despite their very low concentrations of REEs (heavy or otherwise).

    Doing a couple of rough calculations, the authors estimate that a 10 meter-thick bed of mud in the eastern South Pacific, with an area of 1 square kilometer, could yield approximately 9,000 tonnes of rare earths. They also estimate that a 70 meter-thick bed of mud in the central North Pacific, with an area of 1 square kilometer, could yield approximately 25,000 tonnes of rare earths. These numbers are not too shabby (if we again forget about the 2.5-3 miles of water sat above them, and their remote location from any significant land masses). As I’ve said elsewhere, I can’t see these deposits ever being commercially exploited, but the empirical work done by the Japanese researchers which is presented in this paper, is impressive.

    What the authors do NOT estimate, is a size of the total mineral resource, and wisely so. While they mention that the thick distributions of mud at numerous sites might mean that the REEs on the sea floor “could exceed the world’s current land reserves of [110 million tonnes]“, they acknowledge the considerable challenges and significant variability present on the seafloor, and thus state that “resource estimates for large regions cannot be made until more detailed data are available for areas lacking cores.”

    Perhaps the lead author later just threw out a wild-ass, ridiculous guess at the size of the deposits, in response to a reporter’s question. But if he did not, and if the scientists themselves are not making the claim that there are “an estimated 100 billion tonnes of rare-earth deposits”, as reported by Reuters, Nikkei, and the BBC – just who IS making this claim? Who has inserted these comments into this story, and fed them to the mainstream media, and why might they have done that? Can we find clues in the current pricing turmoil, worries about supply from China, and the increasing politicization of the rare-earths story?

    So while the “estimates” are impressive, they might not even be close to the numbers stated in the Reuters article above. Additionally most of the deposits that were discovered are in locations that are largely inaccessible, at least within the near future anyway.

    Let’s go back to the original article-

    The team found that sites close to Hawaii and Tahiti were especially rich in rare earths, he said.

    He gave no estimate of when extraction of the materials from the seabed might start.

    Really? Maybe that’s because a project that size will take a minimum of 5 years to commence, and that is assuming that the government somehow rams through all permits and provides tens of millions in grants.

    Realistically, this project will not commence for another 7 years. Some rare earth skeptics have said in the past that rare earths are not all that rare, citing the vast deposits in China, Africa, and Russia. However, this argument has been defeated many times over as the physical supply has never been the issue. It is beyond well known that there are deposits rich with HREE and thorium, but the accessibility and production timelines are not satisfactory enough to commence by the time supply will really be an issue, which by some estimates will be as soon as late 2012. Two companies outside of China will be into production by early 2013, they are Molycorp (MCP) and Great Western Minerals (OTCPK:GWMGF).

    Regarding this particular deposit in the Pacific, one person in the comments section of the Gareth Hatch response, brought up the best counter to this discovery,

    “Not wanting to answer for Gareth, but take a look at Nautilus Minerals (TSX, AIM: NUS) As far as I am aware this company is the furthest along when it comes to development of deep-sea mining, and they still have a long way to go yet”.

    Nautilus submitted a mining lease to the government of New Guinea in Q3 2008, and received approval for the lease just five months ago (January 17th, 2011). They are still in the process of getting the build program approved by their BOD and by conservative estimates, the project will not be producing until 30 months after approval. In other words Nautilus, which is the farthest ahead in deepwater REM mining, won’t even be into production until early 2014 assuming that their build program is approved tomorrow, when in actuality it could take months or even years for that to happen.

    Additionally, I would be skeptical of any Japanese company that gains the rights to begin exploration and development of this project, or I should say I’m skeptical of any Japanese company having success at anything given their country’s stagnantly declining labor force and staggering debt to GDP which now exceeds 230%. It is also now politically unpopular for Japanese politicians to be in favor of anything nuclear, and naturally, thorium is found at REM deposits and according to the Reuters article, this deposit contains a significant amount.. Though thorium is many times safer than uranium, this fact is misunderstood by politicians and the public and as a result of Fukushima, there will be an increasing amount of pressure to further regulate nuclear power which will create regulatory hurdles that will result in massive headaches for anyone looking to produce in the sector.

    Now, will there still be a knee-jerk reaction to this story? Most likely. But the important points to remember are that this deposit’s resources, while potentially impressive in nature, are not going to be online anywhere close to the time that supplies of REM’s will have dried up. The bottom line is that this story smells a lot like damage control from a cornered and desperate government that is trying to keep their heads above water.

    Stocks: IQ, NUSMF, GWMGF
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