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
  • Reporting From Beijing/Shanghai: Chinese Institutional Investors Look at Rare Metals Overseas 2 comments
    Sep 7, 2010 8:47 PM

    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

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 (2)
Track new comments
  • prescient11
    , contributor
    Comments (250) | Send Message


    You've bought a lot of stock recently, eh? This is a great article and thanks again for your knowledge of the state of the industry in mainland China. You provide a great window on this fact and it is a reason I always recommend you to anyone needing an education on the REE space.


    One question I have, which I also posed to you on your website with Gareth, is, if China has an inexhaustible supply of LREEs, then why was China seeking a stake in Lynas and also looking to take out MCP (via its Unocal bid)? This puzzles me greatly. Were they looking for a near term supply as they engaged in this consolidation/remediat...


    My main two investments are QRM and RES (greatly appreciated your report from Bear Lodge, the power lines tell it all imho from your pictures). Regardless of what happens, I am curious as to your thoughts of when a government/end user (individual or conglomerate) is simply going to reach upstream and secure these necessary resources for themselves. I really do fail to understand why "strategic logic" has not overcome "economic logic" as to this issue. Why should any company bend over to the whims of China when they simply could secure the supply for a small fraction of their existing cash. Yes, we all know REE production is very difficult, but it could be done and many of the tech companies are well positioned to secure this issue, not to mention certain governments.


    And btw, MCP shows that the potential demand of REEs is astronomical, MCP, according to its own disclosures, will not even be able to supply its own requirements for Cerium, thus I disagree with your statement that MCP will be able to supply the N. American market for LREEs in the near future.


    Thanks again for your work in this area, without your writings we simply wouldn't know what the Chinese are thinking, which obviously is the most important perspective in this arena.
    8 Sep 2010, 12:46 AM Reply Like
  • bobodolen
    , contributor
    Comment (1) | Send Message
    as usual a great report,i have followed you since 2007,my question is what has happened to US RARE EARTHS INC,there has been little mention since your report in 2/28/2008,with their high grade and vast quantity are they not a major player or is the thorium an issue,do they lack funding,is an ipo possible,or is it that they are presently private so their is little discussion, if they go into production they could hurt many juniors
    12 Sep 2010, 04:29 PM Reply Like
Full index of posts »
Latest Followers


  • The US Congress uses the trick of saying that the rate of growth of its spending is declining to announce "positive news." $MCPIQ "loses less"
    Mar 4, 2014
  • Fuel Cell Vehicles And Critical Metals: Supply And Demand http://seekingalpha.com/a/188y7
    Mar 3, 2014
More »
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.