Seeking Alpha

Jack Lifton's  Instablog

Jack Lifton
Send Message
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
My company:
Technology Metals Research
My blog:
The Jack Lifton Report
  • The Rare Earth Security of Supply Crisis in Simplified Form 31 comments
    Sep 2, 2009 9:52 PM
    I was on CNBC-TV today, Sep. 2, 2009, for a sound and image "bite' about the impact of the supposed Chinese "decision" to cut off exports of HREEs and to reduce exports of LREEs.

    Of course the Chinese have been reducing their export allocations of all REEs for the last 5 years and will simply continue this process in the next 5 years. Export allocations of REEs are already below the demand just of Japan, so the crisis of security of supply isn't coming; it's here now.

    It is said that China has said that it may completely eliminate the export altogether of the HREEs, dysprosium and terbium. This would be a disaster for the high performance and military users of REE based permanent magnets, because dysprosium and terbium are necessary and cannot be substituted as additives for REE based permanent magnets that raise the curie point of those magnets. This means that REE based permanent magnets without dysprosium and terbium will not operate at high temperatures. Thus the use of such magnets in high temperature environments would require an expensive weighty cooling system. This subtracts range from hybrid cars, performance from wind turbines, and payload from exploration and military rockets.

    i was surprised when commentator Erin stopped putting me on camera after I told her that her tagline of "China hoarding" REEs was wrong. China is merely saying that it is giving priority to domestic uses of its own resouces. I had pointed out to Erin that free market capitalism and globalism requires that any and everything be available for a price, but that is not the Chinese way of thinking. Chinese bureaucrats believe that the health, safety, and well being of the Chinese people come before that of foreigners and that Chinese resources should be used first to improve Chinese daily life. Just substitute the word "American" for Chinese in the sentences above and tell me then that you don't beleive in that and that you don't wish that American bureaucrats thought the same way!

    Here's the Rare Earth story in compact form as I forwarded it to the CNBC producer who requested some talking points and then ignored them.

                                                 The Rare Earth Story
     
     
    1. The forces of nature placed rich resources of the light rare earth elements, LREEs, in, among other places,  Inner Mongolia and of heavy rare earth elements, HREEs, in Szechwan, People's Republic of China.
     
    2. Economic forces in the last 25 years caused lower priced REEs from China to eliminate profitable production anywhere else in the world, including the huge rich resource for LREEs at Mountain Pass, California,
     
    3. The age of technology metals began in the second half of the twentieth century,
     
    4. American innovation  just with the rare earth technology metals gave us nickel-metal-hydride ( where metal =rare earth) batteries, the highest strength permanent magnets ever developed, the neodymium laser, the PC with its small yet efficient and high storage rare earth magnet dependent "hard drive,", fluid cracking catalysts, based on lanthanum (the name metal of the lanthanides, i.e., the rare earths) for transforming heavy petroleum products to useful lighter ones.
     
    5. Manufacturing of all of the above technologies, except fluid cracking catalysts for oil, has now moved to China where there are sources of the raw materials and an industry to produce them  in their necessary metallic and alloy forms for further fabricating!
    6. Now China wants to insure that its high tech employment, which manufactures the end-use, high value added, components which depend on rare earth metals, continues and grows domestically in China both to increase high tech employment in china and to justify the investments made and to be made.
     
    7. In China Socialism drives the need for full employment and a state sponsored type of capitalism drives the development of resources and manufacturing capabilities.
     
    8. If America does not wake up and drive, from the top,  the production of our own resources of REEs then all the employment and wealth creation from the REEs and their end uses will simply, by default, accrue to China.

    10. There are huge privately owned resources of LREEs in California (MolyCorp), Idaho, and Montana(Thorium Energy, Inc.), and there are perhaps the world's largest untapped reserves of HREEs in Canada (Avalon Rare Metals (AVL.TO) and Great Western Minerals Group (GWG.V).

    11. The technology to separate REEs from ores exists in North America and is in operation at Mountain Pass, California, the largest such vertically integrated operation in the world outside of China.

    12. The technology to reduce compounds of REEs to produce metallic and alloy forms of REEs exists in the USA and in the United Kingdom in both of which places it is owned by a Canadian company (GWG.V)

    12. The technology to fabricate REE based permanent magnets exists and is dormant in the USA due to a lack of assured REE supply.
     
    13. Ironically therefore the way is there in North America but not the will.

    The de-emphasis in America on wealth creation by the devlopment of natural resources and the domestic manufacturing of their end products has now reached a crisis in the case of the rare earths. If we don't stop the erosion of this method of wealth creation a trickle of lost jobs and opportunities will become a flood. Our security is now threatened. We need to wake up immedately or just replace China s the world's sleeping giant.
     
Back To Jack Lifton's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (31)
Track new comments
  • Wisdom vs. Information
    , contributor
    Comments (449) | Send Message
     
    jack, i read a well-written article last night that said the rare-earth cut-off was a proposal from some bureaucrats on the interior, not an actual policy. thoughts? i hope you can get the word out on mining, all this angst about importing oil while not allowing mining is hypocritical to the point of being ridiculous. thanks for your work!
    2 Sep 2009, 10:02 PM Reply Like
  • Jack Lifton
    , contributor
    Comments (411) | Send Message
     
    Author’s reply » The article you read was correct, and the idea of a cut-ff of HREEs has been bruited about since at least April in Chinese REE circles. The real problem for non Chinese end users is that the production of HREEs is so small that it may not leave China anyway and all that we actually "get' may be contained in products made in China. It is easy in China's centyarlized system to simply end the allocation of a domestic resource to a company that is manufacturing for export. Thus the cut-off may have already occurred, but even if not Chinese prodcuers for export are now on notice. These policies are not set for the benefit or harm of foreigners they are for the benefit (as perceived by bureaucrats) of China!

     

    On Sep 02 10:02 PM Wisdom vs. Information wrote:

     

    > jack, i read a well-written article last night that said the rare-earth
    > cut-off was a proposal from some bureaucrats on the interior, not
    > an actual policy. thoughts? i hope you can get the word out on mining,
    > all this angst about importing oil while not allowing mining is hypocritical
    > to the point of being ridiculous. thanks for your work!
    2 Sep 2009, 10:28 PM Reply Like
  • optionsgirl
    , contributor
    Comments (5057) | Send Message
     
    Great explanation, as usual.
    Those nimrods are too stupid to step aside and allow their guests to talk. You were just the latest to be on the receiving end of another rude and inept "interview".
    2 Sep 2009, 10:38 PM Reply Like
  • Gareth Hatch
    , contributor
    Comments (134) | Send Message
     
    Jack,

     

    "Nice job" by both you and Tracy during the interview, despite the lack of time allotted to get into more depth on the subject.

     

    While they are certainly much more expensive than neodymium-based [Nd-Fe-B] permanent magnet materials, the older family of samarium-based [Sm-Co] permanent magnet materials do not rely on heavy rare earth element additives for their high temperature properties. In fact, depending on the material grade, at elevated temperatures Sm-Co magnets are far superior to Nd-Fe-B magnets, and are the only material of choice for some applications, such as NMR components in logging-while-drilling and measurement-while-dril... tools used during well drilling for oil and gas exploration.

     

    There is one Sm-Co producer in the USA; however, that's only one producer short of having no producers at all. While they make great product, this is of little comfort when a) we consider the very significant cost of Sm-Co when compared to Nd-Fe-B, and b) when we consider the fragility of the North American rare earth permanent magnet material supply chain as a whole.
    2 Sep 2009, 11:17 PM Reply Like
  • Anthony Alfidi
    , contributor
    Comments (598) | Send Message
     
    What would it take to get the attention of private equity investors who focus on defense and resources? They've got deep pockets and the ability to connect the dots. I'm thinking specifically of the Carlyle Group and some folks at Goldman Sachs. You'd think that they'd salivate at the prospect of monopoly profits in a domestic industry.
    3 Sep 2009, 07:18 AM Reply Like
  • Mayascribe
    , contributor
    Comments (9641) | Send Message
     
    Jack: Congratulations about being on CNBC yesterday!
    3 Sep 2009, 08:05 AM Reply Like
  • doubleguns
    , contributor
    Comments (7939) | Send Message
     
    Jack, if the Chinese are going to make the same products that we make with these REE's for resale, they will simply put our producers of these products our of business by being the lowball supplier.

     

    First they put the ore REE miners out of business, now they are moving up the food chain to the next level. We are going to run into the very same problem at this level of the food chain as we did at the lower level.

     

    I would say they have found a niche that they are exploiting to create high tech jobs for their country.

     

    They are playing a smart game and doing very well at it. We must think in the time lines that the Chinese think. Not short term.

     

    Anthony Alfidi: Goldman is one of the investors already at MolyCorp in Ca. Yes they are already onto the monopoly!
    3 Sep 2009, 08:22 AM Reply Like
  • yellowhoard
    , contributor
    Comments (1507) | Send Message
     
    Damn, I missed it.

     

    Let me guess though, Mark Haines talked over you whenever you were getting to a critical point.

     

    I've seen it happen so many times. It's very frustrating when someone interesting, such as yourself, appears on the business network of the oligarchy.

     

    Your message needs to get out Jack. Maybe Fox would be a better interview and a larger audience.
    3 Sep 2009, 08:24 AM Reply Like
  • optionsgirl
    , contributor
    Comments (5057) | Send Message
     
    Jack's got some commentary on youtube (older stuff)that's worth looking up
    3 Sep 2009, 08:49 AM Reply Like
  • Gareth Hatch
    , contributor
    Comments (134) | Send Message
     
    @ doubleguns: conventional wisdom is that within a few years, the vast majority of the REEs produced by China will be used in products and components that will also be consumed in China. In such a case, non-Chinese producers of REEs and associated products would not be so susceptible to Chinese pricing of similar materials as in the past, and could become viable going concerns. But there's no time to be wasting for these other plays to get up and running.

     

    @ yellowhoard: you can catch the the interview online at cnbc.com/id/15840232?v... .
    3 Sep 2009, 09:37 AM Reply Like
  • yellowhoard
    , contributor
    Comments (1507) | Send Message
     
    I stand corrected Gareth.

     

    A good interview given the alloted time.
    3 Sep 2009, 09:58 AM Reply Like
  • yellowhoard
    , contributor
    Comments (1507) | Send Message
     
    Actually, John Stossel at ABC would be a good venue for this type of story.
    3 Sep 2009, 10:00 AM Reply Like
  • Jack Lifton
    , contributor
    Comments (411) | Send Message
     
    Author’s reply » Ladies and gentlemen,

     

    I thank you for your support. I am a one-man shop, and I have no publicist or PR firm to support me. If anyone knows someone at Fox Business News or knows John Stossel, I would be much obliged for the contact.

     

    I have been invited, for the second time, to give a talk at the Annual General Meeting of Great Western Mineral Group in Saskatoon next week, and the CBC may cover it, as they did my trip to Avalon Rare Metals Thor Lake, Northwest Territories, development. My topic at the GWMG AGM is going to be a continuation and expansion of the above theme with a focus on what exactly can we do, and must we do, right now to make North America independent and self-sufficent in all of the rare earth metals (including Yttrium, by the way).

     

    I don't own, nor have I ever owned, stock in any Canadain company, nor, other than travel expenses, have I ever been compensated by them. I only report on companies that I like and that I think can perform. If I don't mention a company it means that either I don't know anything about them or that I do not like them-usually the first.

     

    It takes time and effort to value the potential of a company or a technology. Please don't fall for sound or video bites, because it takes time to explain the results of a study of a company also.
    3 Sep 2009, 10:57 AM Reply Like
  • doubleguns
    , contributor
    Comments (7939) | Send Message
     
    Jack if I knew them I'd call them. Sorry my phone is still on the cradle.
    3 Sep 2009, 11:21 AM Reply Like
  • Tracy Weslosky
    , contributor
    Comment (1) | Send Message
     
    Morning Jack and great job! Are you in Beijing right now? I know the producers were anticipating that you would be taking a stronger line and assumed that you would be in agreement on the China hoarding angle. The point I wanted to make that I did not get a chance to make was that we do NOT want to see an investment bubble in the rare earths similar to what happened in the uranium industry sector a few years back...we would love to see your writing on raremetalblog.com and look forward to seeing you in DC if not sooner...many regards and btw,
    Link to interview on Rare Earth Elements (REE) on CNBC -- China: The Mineral Hoarder?www.cnbc.com/id/158402...
    3 Sep 2009, 11:26 AM Reply Like
  • Sarcastic Processor
    , contributor
    Comments (201) | Send Message
     
    Well, with benefit of hindsight, you did not want to see an investment bubble in the rare earths, but you sure got one, alright.
    16 Aug 2013, 05:45 PM Reply Like
  • Alan Young
    , contributor
    Comments (2360) | Send Message
     
    LOL -- no wonder they cut you off. What would CNBC do without buying panics and bubbles?

     

    Thanks for getting this on record, anyway.

     

    On Sep 03 11:26 AM Tracy Weslosky wrote:

     

    > The point I wanted to make that I did not get a chance to
    > make was that we do NOT want to see an investment bubble in the rare
    > earths similar to what happened in the uranium industry sector a
    > few years back...
    3 Sep 2009, 11:55 AM Reply Like
  • User 475875
    , contributor
    Comment (1) | Send Message
     
    Jack,

     

    Great article. The only point I disagree on is that China is in fact trying to corner the world supply. They tried to buy the California mine but failed. And they took huge stakes -- over 50% -- in two Australian outfits pending government approval. If China can't buy the competition, they certainly have the power to flood the market and make it unprofitable for private concerns to remain viable, though I doubt they'd take this approach here.
    4 Sep 2009, 12:50 PM Reply Like
  • Robert R. Odle
    , contributor
    Comment (1) | Send Message
     
    It sounds like if we, the extractive metallurgists, can just live long enough, our day is coming (again).

     

    Old Metallurgist
    Robert R. Odle, Ph.D.
    4 Sep 2009, 01:33 PM Reply Like
  • ARC
    , contributor
    Comments (9) | Send Message
     
    so, what you recommned to be the best purchases in ree...................... ...should be good sine i think the ausses will take the mowny so needed ....................will that make the priice go up considerably and hopefully the aussies will maintain control.................. Canada better and will molycorp go public soon???

     

    lotsa questions from an amateur
    4 Sep 2009, 02:54 PM Reply Like
  • Jack Lifton
    , contributor
    Comments (411) | Send Message
     
    Author’s reply » I'm not a financial advisor, but if I were buying shares in publicly traded REE based resource companies I would buy Avalon Rare Metals (AVL.TO) and Great Western Minerals Group (GWG.V), because they are going to be successful producers of rare earths (and other rare metals) within less than 5 years.

     

    I don't know when MolyCorp will go public, but I know that it will unless it is bought outright by a Fortune 500 company, or a consortium of them, for security of supply purposes. If there is such a purchase I suspect it would then involve the Canadian producers also in a mass consolidation. This consolidation by a major end-user makes so much sense that I wonder if it isn't inevitable.

     

    I do not own shares in any public or private REE producing or using company. I prefer this situation, because I am an independent consultant. As I have said before I have received travel expenses from all of the companies named above, and I am being paid as a consulatnt on business development by a private REE resource developer not associated with any of the above companies.

     

    On Sep 04 02:54 PM ARC wrote:

     

    > so, what you recommned to be the best purchases in ree......................
    > ...should be good sine i think the ausses will take the mowny so
    > needed ....................will that make the priice go up considerably
    > and hopefully the aussies will maintain control..................
    > Canada better and will molycorp go public soon???
    >
    > lotsa questions from an amateur
    4 Sep 2009, 09:42 PM Reply Like
  • calvo
    , contributor
    Comments (3) | Send Message
     
    Jack, wouldn't you think that two Australian players (Lynas and Arafura) may be worthwhile investments too? Lynas seems to be the publicly-traded non-Chinese company that's closest to production..
    5 Sep 2009, 11:52 AM Reply Like
  • Jack Lifton
    , contributor
    Comments (411) | Send Message
     
    Author’s reply » I think that Lynas is caught up in the political conflict between China and Australia, and I cannot see the Australian Foreign Investment Review Board allowing the Chinese to take control of Lynas. If I'm right then Lynas will not have the money to go forward. If the Chinese do get the opportunity to make an investment in Lynas but it is not for control I don't think they will do it. I do think such an offer will be made by the Australian government, and it will simply push the the further progress of Lynas into an indeterminate future time.

     

    As for Arafura I don't think it has completed its "metallurgy," so it is also a future delivery system.

     

    I really hope I'm wrong on both counts, but I do not have confidence in the near term progress of either of them right now.

     

    We need MolyCorp, Thorium Energy, Avalon Rare Metals, and Great Western Minerals Group more than ever for North American green technology independence and self-sufficiency.

     

    On Sep 05 11:52 AM calvo wrote:

     

    > Jack, wouldn't you think that two Australian players (Lynas and Arafura)
    > may be worthwhile investments too? Lynas seems to be the publicly-traded
    > non-Chinese company that's closest to production..
    5 Sep 2009, 09:42 PM Reply Like
  • Wisdom vs. Information
    , contributor
    Comments (449) | Send Message
     
    i think this is terrible, but the crystal worshippers in northern n mexico not only want molycorp out of town, they want them to leave a big check on their way out of the state (not the ones who actually work there, mind you). mining in california? like, gross, i just barfed. of course, if anyone can manipulate (coordinate with..?) those people, it would be GS. finding out just now GS is involved sparked many dark thoughts. note the organized effort on the federal level to destroy the US mining industry the last 20 years; if those people suddenly become silent when GS starts opening new mines... time out, gotta go drink some koolaid
    5 Sep 2009, 10:36 PM Reply Like
  • Wisdom vs. Information
    , contributor
    Comments (449) | Send Message
     
    on scottrade you can find great western at (GWMGF) and avalon as (AVARF)
    5 Sep 2009, 10:41 PM Reply Like
  • Carlos Lam
    , contributor
    Comments (1306) | Send Message
     
    While the US government has sadly tried to kill the US mining industry, Canada seems to be very hospitable to it. I have been pleasantly surprised when looking into the operating environments of the rare earth producers and silver miners. It seems like the Canadian government understands that extraction of natural resources is a productive, wealth-enhancing activity. Well done, Canada.
    6 Sep 2009, 07:08 AM Reply Like
  • jimp
    , contributor
    Comments (672) | Send Message
     
    Regarding Lynas Corp, the potential chinese buyer CNMC, will finance them to phase 1 whether or not the deal is approved by the Australian govt. That was part of the "deal" with CNMC. That gives Lynas Corp funding to phase 1 while looking for alternative (non CNMC) sources of funding.

     

    I still don't understand if Rare earths are so important, why hasn't a "western" bank, Australian billionaire,etc.. stepped forward to finance Lynas Corp.?
    6 Sep 2009, 08:29 AM Reply Like
  • Jack Lifton
    , contributor
    Comments (411) | Send Message
     
    Author’s reply » jimp,

     

    I don't understand either. Why doesn't Goldman-Sachs simply write a check from petty cash or use the interest on their Chairman's net worth (in G-S stock and options) to finance this? There must be an explanation, but it may involve money and profit trumping the interests of the United States from the point of view of the globalized G-S. I hope I'm wrong, But I don't have any other explanation. Perhaps though the Lynas deal was just a lousy deal for G-S. If so why don't they just say it?

     

    Please tell me what is "Phase 1?"

     

    Thanks,

     

    Jack Lifton

     

    On Sep 06 08:29 AM jimp wrote:

     

    > Regarding Lynas Corp, the potential chinese buyer CNMC, will finance
    > them to phase 1 whether or not the deal is approved by the Australian
    > govt. That was part of the "deal" with CNMC. That gives Lynas Corp
    > funding to phase 1 while looking for alternative (non CNMC) sources
    > of funding.
    >
    > I still don't understand if Rare earths are so important, why hasn't
    > a "western" bank, Australian billionaire,etc.. stepped forward to
    > finance Lynas Corp.?
    6 Sep 2009, 05:54 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5853) | Send Message
     
    Perhaps Goldman pulled out of the Lynas deal in order to remain in "good books" with the Chinese.
    6 Sep 2009, 06:23 PM Reply Like
  • jimp
    , contributor
    Comments (672) | Send Message
     
    Jack Lifton,
    For ease, I lifted this from Jim Kingsdale's - Energy Investment Strategies, who is also a contributor to SA.

     

    "The company line was that the new Chinese investors (CNMC) want to fund the company’s existing business plan and management without any changes. They understand the strategic value of REEs and wish to maximize the company’s value just as any investor would. Two good features of the deal are, first, that the new funds are believed to be sufficient to get the company past its Phase 2 goal of producing 20.5K tonnes of REE, and, second, that if the deal is not approved by shareholders and/or government authorities the deal provides for a breakup fee to the company sufficient to fund it through a period of further fund raising."

     

    The above was taken from one of Lynas Corps conference calls (1st Quarter.) I hope that helps explain what I'm stating in my post.
    6 Sep 2009, 09:33 PM Reply Like
  • Tekton
    , contributor
    Comments (29) | Send Message
     
    Now the Lynas deal is kaputt. Probably the same will happen to ARAF as happened to another small miner: quashed for security/defense reasons. GWMGF (scottrade) is still trading in the low thirties, and probably a steal. QSURF (Quest Uranium) around 2.80 and UCORE in the .80's. Jack's list of REE miners is very helpful and I'd suggest you list them all on your "watch" list. Also, these miners are looking for processing facilities and whoever has the technology to build these plants is going to boom right along with them for the next couple years.
    By the way Jack, who is most likely to fill the role of North American Process Facility owners/contractors?
    25 Sep 2009, 07:55 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • The US Congress uses the trick of saying that the rate of growth of its spending is declining to announce "positive news." $MCP "loses less"
    Mar 4, 2014
  • Fuel Cell Vehicles And Critical Metals: Supply And Demand http://seekingalpha.com/a/188y7
    Mar 3, 2014
More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.