The Supplying Of Canadian Rare Metal Resources To The USA: Washington’s Perspective

by Jack Lifton on March 13, 2010 · 10 comments

in Canada, Legislation, Metals & Minerals

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Elected politicians in Washington, D.C. have historically and traditionally given very little thought to Canada, except when they were forced to give Canadians a voice in a decision, either because of American politics or a foreign war or the threat of war. One of the very few times for example, that Canada was mentioned in the American 2008 presidential campaign, was early on when a clueless primary candidate said that she would reopen NAFTA if chosen by her party and elected. The candidate even frightened her own supporters with her ignorance of modern North American trade dynamics, and she was saved from this gaffe only when her handlers managed to spin the story to be about a Canadian diplomat who had apparently commented after hearing the remark that Canada could easily find other buyers for its resources if the US wished to terminate the NAFTA agreement. The story incredibly became “those Canadians are threatening us with a trade war.”

American environmentalists who have disproportionate power to their numbers, due to selective investments in elected politicians, regularly whine about the evils of extracting oil from shale (USA) or from tar sands (Canada), but this never prevents them from driving their Canadian-fueled and often -manufactured vehicles to rallies against such production.

My uncle Yale died on the beach at Anzio while disarming a German mine, so that Canadian and US forces could land. He and his brother were transported to the Anzio beach along with their fellow Canadian Rangers in a landing vessel made in the USA and under cover of US Naval aviators and US battleship artillery. But that was then. I have heard since that day that Canadians can always be counted upon to do the right thing – i.e., to do whatever is best for the USA.

Today however, with regard to the rare metals that form the brain and nerves of our technological civilization, Canada is perhaps ready to negotiate with Washington as a more than equal trading partner. America’s version of a permanent civil service, the hired employees of the various cabinet offices, which are, in particular, Defense, Interior, and Commerce, tell me that they are aware of the critical importance of Canada’s natural resources to the American way of life, and that they have always been aware. Unfortunately, as I am told over and over again, the politicians are in charge but on natural resource supply issues, other than oil, they are clueless.

Last year, there began to be a sea change in Washington with regard to at least one category of non-oil resources, the rare earth metals. Bureaucrats first at the US Department of Defense, and then at the Departments of Commerce and Interior, began to study the market fundamentals and both the military an industrial uses of the rare earth metals. I was asked to participate in roundtable discussions about rare earth metals at the Pentagon, and I was able to invite and get acceptances from Washington officials to speak at conferences, of which I was an organizer.

In late 2009, I was asked  to comment on legislative additions to the US National Defense Appropriations Act for Fiscal Year 2010 (FY210 NDAA), which required the Secretary of Defense to initiate a study of the rare earths market to be made and delivered to Congress by April 1, 2010. Warp speed for such a study in Washington time. The mandate for the study became law when President Obama signed the FY2010 NDAA. It is underway at the Government Accountability Office (GAO) with data collection being supervised by the Department of the Interior, which is in charge of both actual mining and resource data collection in the USA. I have also participated in the drafting of an Act known as RESTART that would fund the restarting of the rare earth supply chain into the USA. This is the most rare earth metals activity I have ever seen by the US Federal Government, but it still has a long way to go before it is enacted or funded. But it is actually underway.

The rare earth supply “crisis” that came to public attention last year when China hinted it might further restrict the export of rare earths and even stop completely the export of the higher atomic numbered, “heavy,” rare earths, brought Canada onto the radar screen in Washington. Canada has two rare earth mining ventures well on the way to production, Great Western Minerals Group (GWMG) and Avalon Rare Metals, as well as a myriad of others in process, all financed in Toronto or Vancouver. Canada also now has the first funded ETF venture for rare metals, including the rare earths, which will create in part an essentially private strategic stockpiling venture. I told a conference that I chaired in Washington, D.C., last October, that America’s future is dominated by the two “Cs,” China and Canada. I said that unless the US immediately recognizes that its resource base must be North American not just American, then Canada and China would become larger and larger natural trading partners in natural resources.

I believe more than ever, that unless Washington and Wall Street recognize the critical importance of developing natural resource production in Canada, there will sooner or later be a reckoning. The reckoning will be that the American standard of living declines from one generation to the next for the first time, even as that of Canada and China grows.

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1 Ian McNeil March 14, 2010 at 7:03 am

Hello Jack,I have just come back from a vacation in Northern Chile , ie the Atacama desert,which is home to 40% of the world`s lithium( the other 60% is in Bolivia), and vast copper reserves.We visited one of the largest salt lakes and were told that the mines are in the south as the water enters from the north.Because of its mineral wealth,Chile has benefited enormously and is the richest of the South american countries (though the recent earthquake has set it back),which underlines your point about Canada.However , significantly , we were told that China does have mineral rights in the area and is actively mining lithium.

2 geoff alford March 14, 2010 at 8:49 am

Rare Earth Elements
http://www.cdnintlminerals.com/s/RareEarth.asp
This is from Canadian International Minerals.
What I find very disturbing is the cheap prices at what REEs are being sold compared to their end-use value in the supply chain.
Remember if you have not got a particular REE, you simply cannot participate in or manufacture a new technology, which requires that REE. It is as simple as that.
Or you are forced to enter a JV with China. The Chinese take a strategic view and are buying up REEs – why erode your own REE reserves when naïve companies will sell them cheaply to you?
Prices as of Spring 2009
Element Oxide 4-Yr Av. US$/kg Note
Yttrium Y2O3 $8.74 1
Lanthanum La2O3 $3.57
Cerium Ce2O3 $2.43
Praesodymium Pr2O3 $19.45
Neodymium Nd2O3 $20.19
Samarium Sm2O3 $3.33
Europium Eu2O3 $321.52
Gadolinium Gd2O3 $10.29 1
Terbium Tb2O3 $507.42
Dysprosium Dy2O3 $76.33
Holmium Ho2O3 $25.50 2
Erbium Er2O3 $55.00 2
Thulium Tm2O3 $90.00 2
Ytterbium Yb2O3 $25.00 2
Lutetium Lu2O3 $500.00 2
1. For Gd2O3, only 3 years of data was available from Metal-Pages, and consequently the 3 year average was used.
2. For Ho2O3, Er2O3, Tm2O3, Yb2O3 and Lu2O3, no data was available from Metal-Pages and the prices were sourced directly from commercial sources within REE markets.

3 geoff alford March 14, 2010 at 9:04 am

Dear Jack,

The paucity of comments on your reports is a sad reflection on the few commentators who understand what you are taking about.
For example, we have a green movement, happy to shout slogans, which has no idea what materials are required to to build a wind turbine or solar cell for clean energy.

It may be worth your writing a provocative article “What would you do without potable water? So, why don’t you ask what the world will be like in 10 years time if we don’t have REEs in the supply chain?”

4 Jim March 14, 2010 at 10:11 am

Jack,
Don’t forget about our friends in Australia. Lynas Corp will most likely be the first to supply rare earths outside of China. Nick Curtis of Lynas will be more than happy to send the US all the rare earths it needs.
Ian, I had the pleasure of visiting San Pedro in the Atacama desert (stayed at Awasi.) What a magical place to explore. Lets hope with the further demand of lithium, the desert remains pristine & well preserved.

5 Jack Lifton March 14, 2010 at 11:10 am

Geof,

For a history of rare earth element prices in the USA you can go to the commodity mineral surveys of the USGS at http://www.usgs.gov. You will find there an entry for historical pricing, which takes many metals back as far as 1900. Rare earth prices, calculated I think as an avaerage of all of the ones sold or available in any one given year are there. A glance at the data shows just how “cheap” rare earths have been. Do not let “experts” tell you that the exact yearly prices are often wrong in this compilation, becasue you are looking for trends and relative data, and it’s there to see. I’ll be publshing some comparative graphs of rare earth pricing and base metal pricing next week as it happens.

As to your suggestion for a type of alternate world story about a world-at least a western world-without access to rare earths. Please look around you. We have already embarked on the path to living in that world.

Jack

6 Jack Lifton March 14, 2010 at 11:15 am

Ian,

I worked on a project to introduce Chile’s SQM, the world’s largest producer of lithium, to Detroit’s GM three years ago. I became aware at that time of the immense resources of the Atacama and Chile’s lithium wealth. I have been following copper for a very long time, and I have been aware of Chile’s dominant role in that commodity most of my working life.

However I do think that Canada’s range of resources as well as their accessible deposits makes Canada today perhaps America’s most important trading partner.

There is a lot of talk about the re-industrializing of America through green technologies. I think it is far more likely that this will occur in Canada.

Jack

7 Mustaque Ahmed March 14, 2010 at 2:47 pm

Since you followed copper for a long time, what is your oinion on global demand for and supply of copper in the short and long term? A lot of people are bearish on copper these days because China seems to be the only buyer but good mines with good grading are hard to find (outside Congo).

Thanks.

8 Jack Lifton March 14, 2010 at 3:05 pm

Mustaque,

I think that the issue for copper production is sustainability. In 2008 copper production was the highest it had ever been in history; there were more than 15,000,000 metric tons of new copper produced in 2008.

I don’t see how a figure like that can be maintained, much less increased, for much longer. Recycling is not the answer, since copper recycling has been for a very long time a very large business. A few societies are “base metal mature.” The USA is one of them; we can probably just makeup with new production what we use and/or lose (for example I believe we export too much of our copper scrap to China and then buy only some of it back and then only as high vealue added products). But the BRIC economies are just beginning to use copper, and I do not think there is enough production possible at current prices to susatin this growth.

In the long term I would buy copper as an investment; at the very least it will help you keep pace with what I am now coming to believe is the coming commodity price inflation.

Jack

9 WahJai604 March 15, 2010 at 2:48 am

So what is the name of the Canadian ETF that you mentioned in your article, and if I am an investor, what are your thoughts about investing in that Rare Earth ETF now or any other ones in the future?

10 Dennis Carlton Rossi March 19, 2010 at 3:22 am

Dear Mr. Lifton:

I would like to comment on the topic of revaluation of the Chinese yuan.

Many years ago, I was trying to catch a train at a Chinese train station. It was during Spring Festival or the busiest time of the year for travel. There was construction at the main entrance to the station. So the authorities blocked it off. Hundreds of policemen and soldiers channeled people through a series of improvised gates for the safety of the passengers. Basically, they were trying to channel people through pens. The lines narrowed as they got closer to the ticket booths (for those people who wanted to catch a train) until it was just a single line. In terms of time, it meant that I would have to wait in line for about an hour.

It also meant that I would have to roll one bag in front of me and one bag behind me. I naturally was concerned about pick pockets at the train station, too, and I would have both hands occupied with bags while everyone surrounded me at the start of the line. The policemen and soldiers would be of little help if someone decided to pick my pocket.

However, at the side of the building was an up and down staircase. The staircase was very crowded with people who had arrived from the trains. In other words, everyone was coming down this staircase. I realized that it would take much less time to enter the building on this staircase. And there were no policemen or soldiers at this staircase. As a passenger, I had the right to go up this staircase.

It was tough going up the staircase. But when I started I noticed that there were others who were following me. By the time I reached the top of the staircase, there were as many people going up the staircase as there were going down. I reached the ticket booths in five minutes.

It seems to me that there is an analogy with the issue of revaluation of the Chinese yuan. It may take a long time to wait for the Chinese to revalue the yuan even if it is in the interests of the world economy and even if it is in the interests of the Chinese economy. In other words, the United States is like a passenger who is trying to reach the train, but finds itself hemmed in by artificial barriers. We may have our pockets picked if we continue to stand in this line. The economic safety of all passengers is threatened if there is a choke point at the entrance because either they will have their pockets picked or they will not reach their destination and be able to return to their jobs.

Currently, the Chinese yuan is linked to the US dollar. There is no indication that it will be delinked or revalued. I would propose therefore that the US dollar be linked to a basket of world currencies (including the Chinese yuan) and a basket of commodities. This list of commodities should include REEs which are now basically valued in terms of Chinese yuan.

This should allow the US dollar to fall gradually as opposed to a devastating devaluation against the yuan. It allows the US to gain control of its own economic future. It also protects Chinese investments in US treasuries and bonds from a large currency loss.

It places the dollar on firmer ground because half of its value would be based on real commodities. It would recognize the reality that commodities are beginning to be valued in terms of Chinese yuan and that this trend will accelerate into the future. By valuing the dollar on a basket of commodities means de facto that the Chinese yuan is based on a basket of commodities and that it will also be linked to currencies other than the US dollar.

Yours,

Dennis Carlton Rossi

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