Afghan Lithium And Other Mineral Nonsense

by Jack Lifton on June 14, 2010 · 10 comments

in Lithium, Metals & Minerals, News Analysis

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Set your stop (common sense) watches!

I’ll bet that there is an Afghan Minerals, Inc (or Ltd) or an Afghan Minerals Fund (or ‘Trust’) by the end of the week, if not sooner, listed on an American secondary exchange and surely in Toronto, Vancouver, Sydney, and Frankfurt…

The New York Times has today, June 14, 2010 (Flag Day here in the USA) delivered a pieces of first-class political theater.

We are supposed to believe that one of the most primitive societies in the world – the cash crop of which is opium, and the actual government of which is tribal, fragmented, religiously fundamentalist, and hostile to Western values in general – is going to suddenly realize that the very little value its people get by being at the bottom of both the supply and value chain for narcotics, is going to be now supplanted by the very little value they will get from being at the very bottom of the supply and value chains for minerals needed by every other culture but the Afghan. Even the warlords (read ‘local officials’) would get less from mining companies than they get today from illegal drug distributors, so they’ll sign on, of course.

The New York Times is either acting as the agent of the US Department of State or just as the agent of the absurd.

Afghanistan is not the Saudi Arabia of lithium; it is the Saudi Arabia of ladies’ fashion. Afghans know as much about the one as the Saudis know about the other.

The development of natural resources requires that there is in place:

  1. Logistics, i.e., roads, vehicles, vehicle fueling and repair stations, railroads, railroad fueling, repair, and maintenance services, etc.;
  2. Huge quantities of flowing or pumpable water and systems to clean it, before returning it to any other use or even to the aquifer, and
  3. Enormous quantities of reliable electricity

Mining ventures in remote places usually fail, no matter how good their resource, due to the fact that they cannot afford to have the above necessary and critical resources put in place. In developed countries they can share the resources of logistics, water, and energy already in place, the costs for which are distributed among the population (i.e., government) and local industries of a similar type.

China’s national government recognizes this full well; the US Government, for one, does not.

China will ‘gift’ the Afghan people with roads, railroads (coincidentally just a part of a larger network for which China happens to be trying to get the right of way), power plants, and water resource development. Then, and only then, will a Chinese miner begin to develop an Afghan resource, the ore concentrates from which, dug most likely by contract workers from China, will go by Chinese-built trains to Chinese smelters in (you guessed it!) China.

The US Government wishes to slap Bolivia’s socialist ruler, Evo Morales, in the face, so just coincidentally there is a story in its current house organ, the New York Times, about the fact that some day no one will even need Bolivia for any lithium.

The US Government wishes its people to have a reason for losing American lives in Afghanistan other than protecting the poppy growers, so it invents Afghanistan as a mineral treasure trove (for the 22nd Century?).

North America probably has tens of trillions of dollars of undeveloped natural resources, and it has the world’s premier developed infrastructure, flowing water resources, and produces 25% of the world’s electricity. Environmentalists however will not allow the development of North American resources.

So, of course, these same environmentalists will simply roll over and pant for the destruction of the Afghan way of life so that their Blackberrys, lights, TVs and cars can keep running and keep coming off of the assembly lines on the backs of injured, disabled, and dead Afghans working in primitive conditions for low wages.

I wondered when the rare earth playlet of the current political theater was going to end. Now I know. It is now. The Times is onto natural resources, Act II, ‘The Quest for Lithium’, starring a heroic Hollywood hunk as either an evil American ‘developer’ of natural resources or, in makeup, as a noble Afghan warlord with a heart of lithium only wanting the best for his exploited people. This role seems made for Kevin Costner, doesn’t it?

By the way did you know that if a material is produced so that its supply exceeds its demand, then the price falls? So, if the minerals in Afghanistan were all in production now their net value would be in the low hundreds of millions at best, not a trillion or more.

Do any of the economic pundits at the New York Times (or in Washington) care that such development would cost a trillion dollars – but, of course they don’t, because they don’t know that or anything else about real world costs.

There is no present demand for lithium that cannot be met by present supply and then some, and no foreseeable demand that cannot be met by increasing the production of lithium from existing, already capitalized, sources such as those in Chile, the USA, China, and Argentina. Such increases would be the most economical way to deploy capital. That is how the free market will do it.

I’m already bored by this ‘play.’ Is Act III worth waiting for? I don’t know, but I’ll bet it’s going to be copper…

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1 John Petersen June 14, 2010 at 2:45 pm

One of the big problems of our day is the conviction that if Steve Jobs can introduce an Ipad in January and book a couple billion in first year sales, then every industry can achieve comparable results.

The one great shock of the cleantech revolution will be that it takes decades to convert known resources in remote locations into producing mineral properties.

The shocks will be pretty unpleasant, but sooner or later folks will once again come to understand that mining and heavy manufacturing take an immense amount of time and money.

2 Aat Oskam June 14, 2010 at 3:27 pm

Is doubleU still president?! Or is Dicky playing tricks? No Yammy Times anymore for the Aussies? Get Alive!

3 Chris June 14, 2010 at 5:50 pm

I agree that the lithium “discovery” is hardly new and hardly worth they hype. Why didn’t the NYT release an article about the natural gas, diamonds and rubies locked up those mountains, or about the immense potential in tourism and skiing? If those Afghans ever get their stuff straight, they’ll have better slopes than the Swiss!

4 Thaidiamond June 14, 2010 at 10:52 pm

The NYT article didn’t imply all this mineral production was going to come on stream tomorrow—or even in ten or twenty years. It simply stated that there is potential to develop a viable economic resource over multiple decades.

You might want to get up to speed on the history of Chilean copper production and how valuable it’s has been to its economy. That too didn’t happen overnight. Or even a couple of decades.

Copper was the country’s top industry and export commodity through 2002, and, in 2000, copper accounted for 40.5% of export earnings, which, in turn, accounted for 25% of GDP.

The expansion of the copper sector and copper exports played a key role in Chile’s economic development.

Re-read the first part of your diatriabe Jack. Where you detail the “logistics” that the development of natural resources requires. First off, “infrastructure” is the appropriate term.

Then factor in that much of Chile’s copper comes from its Atacama desert region—the driest desert in the world. How dry? Average rainfall is 1 millimeter (0.04 in) per year.

Factor in its high altitude and the fact than none of the labor at some of the world’s biggest copper mines lived anywhere near such inhospitable regions. And just like mines, people too need infrastructure to live.

None of this existed in the Atacama.

Yes, it wasn’t done overnight. But it was accomplished and over time provided the support for Chile’s economic diversification.

And it was accomplished when demand was much lower. Not during an era when the single most important economic event in our life time will be the emerge of an Asian middle class—measure in billions, not millions as what the western world experience.

Will there be enough supply? Teck’s CEO Don Lindsay recently noted: “We think that over the next ten-year period if copper demand grows even at a moderate rate, that the mining industry will not be able to keep up.”

Perhaps that’s why the Chinese already building a copper mine in Afghanistan—in a place where they first have to develop almost of the requisite infrastructure.

They certainly don’t subscribe to your “mining ventures in remote places usually fail” mantra.

Indeed anyone with a sense of history can see how patently absurd that is. Just look at the American West. What infrastructure existed in 19th century Nevada, Utah and the second largest copper producing region on the planet—Arizona.

And today’s Afghanistan may have access to technology, new processes—and capital—the Earp brothers could only dream of.

5 Jack Lifton June 14, 2010 at 11:13 pm

Thaidiamond,

Re-read your sentence below:

“Re-read the first part of your diatriabe Jack. Where you detail the “logistics” that the development of natural resources requires. First off, “infrastructure” is the appropriate term.”

I am detailing the infrastructure by individual components, logistics, water, and power. I left out the need for skilled labor.

I work in China with Chinese companies in mining and refining, and I can tell you that the “infrastructure’ necessary for the Afghan copper project will be an extension of China’s infrastructure and will be of minimal use to the Afghanistan of today.

Investing in Afghan mining ventures created by western promoters is foolish in the extreme. The natural market for Afghan resources is China and India. China with its common border with Afghanistan is the natural and logical source for any Afghan resource development.

i don’t care if you believe me or not. Institutional investors have little or no interest in such far out high risk ventures unless a deep pockets end user with an agenda beyond profit such as a Chinese miner, refiner, or fabricator is involved. i am telling small investors to avoid the promotional hype sure to be following on this story.

6 QuarterChoke June 15, 2010 at 12:04 am

And the Chinese development work will come at no direct cost to them. The U.S. will finance the whole deal, ad nauseum, with a half trillion dollars per year in interest payments on money we borrowed from them. Can’t you just feel the stimulus?

7 Tek June 15, 2010 at 12:29 pm

Jack, your third paragraph about drugs, war lords, and the completely regressive history of anything Western being incorporated into Afghanistan is exactly what I posted at RMB, just before reading this article.

8 Jim Bond June 18, 2010 at 10:49 am

Good article I wondered when some one would raise the points of infrastructure and operating cost deductions from gross value in the ground. The times writer is a mouth piece for somebody in Washington for sure, both parties seem very ignorant about mining reality; time and capital requirements. Note the Afgan government has now started to beat the drums in London and Toronto. I am sure that the promoters will jump all over the story: the US government has validated the fantastic opportunity I am making available to you Mr naive investor

I have now bookmarked this site; I got here via resource Investor link.

9 Brian Penn June 20, 2010 at 6:25 pm

You have the right idea. Obviously, infrastructure is critical. Rule of thumb for mining is 10. It takes $10 billion dollars and at least 10 years (if everything goes right) before you see the first shovel of ore for processing. This Afghanistan announcement was a PR stunt; nothing more.

10 Darron April 19, 2011 at 4:48 pm

Hello Jack,

What about the latest we have read about companies, such as Lithium Exploration Group, developing lithium from groundwaters in South America and Alberta for a fraction of the cost of mining?

In other words, should we expect to see a Non-US lithium ETF anytime soon:)? Is this real? Does the world really need more lithium?

Thanks for any input from others as well.

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