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INDABA 2010: On The Green Road: Cape Town Capers – A Field Report On The Rare Metals Mania Of 2010: Part I

I wrote this upon my arrival in Cape Town, South Africa, on January 30, 2010, and I posted it on my web site, www.jackliftonreport.com, I will publish my report on rare earths in South Africa later today, February 9, 2010.

It’s just about midnight, local time on Saturday, January 30, 2010, and I’m about to land in Cape Town in the Republic of South Africa. I’ve been traveling for 24 hours from my home base in Detroit. On Monday I will be speaking in Cape Town at Mining Indaba 2010, Africa’s annual mining congress and probably the world’s largest such gathering.

I was asked by the organizers of the meeting, Summit Business Media, to talk on “Pan-African Rare Metals.”  I’m not going to try and identify where in Africa the rare metals are, or even talk about who the Pan-African players are; instead, I will define for the attendees, which of all of the metals are the rare metals and which of them are the technology metals upon which the world’s green future, if there is to be one, depends. As you know, I don’t think that there is much if any distinction between the two categories any longer.

2010 is already shaping up as the year of rare metals. The interest among investors, individual and institutional, that has put and held the rare earth metals on the front pages of the mainstream media is still very high, as it should be, but now investors have become intrigued and I think more than a bit confused by the adjective “rare,” because many of them think that any rare metal is a rare earth. This genuinely ignorant opinion is even held by some junior miners who are offering themselves as “rare earth plays.” I urge you to discard any prospectus that includes as a rare earth, any metal other than those that have an atomic number of 57-71, inclusive, or which is yttrium or scandium. My personal favorites for metals most often cited as rare earth metals, but that aren’t, are tantalum, niobium, and germanium. My friend and colleague in punditry, Dr. Gareth Hatch, has recently discussed this subject in an article at the RareMetalBlog titled “Credibility 101 – Or What The Rare Earth Elements Are NOT.”

There are too many rare earth juniors now competing for financing, but those who believe that the earth’s natural resources are infinite will say smugly that the dynamic functioning of the free market to correct supply/demand imbalances is shown to work, by the fact that more than 100 junior miners have announced over 150 different rare earth mining plays in the last year or so alone! These are just the private ventures that have gone public as IPOs, or have changed the direction of their existing listed entity, to take into account rare earth “discoveries” or acquisitions.

The market theorists are wrong. Demand has not increased supply. In mining, the best that you can say about such a mushrooming of specialized ventures, is that the possibility of additional supply has increased, and if any new production comes on line before existing production declines then the supply will increase. The probability of an actual supply increase is dependent on at least a dozen major variables, none of which have to do with the share price of the junior miner being analyzed.

On April 7, 2010, in Los Angeles, California, I will be examining how the probability of commercial success of a mining venture should be evaluated. I will have a workshop that day as the first session of the Rare Metals Summit, a conference produced by Infocast, on the global supply chain for rare metals. I will work from a proposed metric for evaluating the probability of commercial success of a mining venture, which I have devised along with Dr. Hatch, who will also be present. After introducing the proposed metric, a panel of experts will then critique it.

Rare earth metals are critical technology metals, but the growing number of conferences isn’t adding to our knowledge of rare earth properties and end uses. Instead, they mostly serve as a network location for wannabe rare earth juniors to meet institutional and individual investors, who the wannabes hope will soon be parted from their money to cover office, travel, and, most of all, conference expenses. The supply of rare earths during the next decade, can only be maintained and increased by those who are already producing rare earths, or those who have produced them before and can reactivate their mines, or those who have been developing good properties for many years already.

The main obstacle to increasing the supply of rare earths outside of China will be today’s almost complete lack of rare earth refining, alloying, and fabricating capacity outside of China. This is a supply and value chain issue, and investors must be made to understand it before it can be addressed.

The endless announcements of the discovery or rediscovery of ore bodies of the rare earths are not important at the moment. Private capital and government need to define the problem of rare earth supply deficit, and to understand and address all of the issues necessary to ameliorate the problem.

As I said last year, the rare earth supply crisis of 2009 was just the tip of the iceberg for those who want to expand the benefits of technology to the whole world. Mining opportunities, the starting point, always, of our global supply chain for rare metals, are the result of the operations of nature that occurred hundreds of millions and even billions of years ago. The earth’s supply of concentrations of all metals, but most urgently the rare technology metals, that are accessible by our infrastructure and technology is finite. Time is a-wasting, and one of these days it could run out as we talk, rather than act, on the rare metal supply issue.

The Mining Indaba conference starts tomorrow – actually later today to be accurate – so please check back for more Cape Town capers as I see them out here On the Green Road.



Disclosure: I do not own shares in any companies mentioned.