by Julie Gordon – Reuters – Published: September 9, 2010

Rare earth elements are essential components in everything from iPhones to wind turbines, yet the average investor has never heard of them.

That may soon change. The buzz around this obscure group of 17 metals is growing as green technology fuels demand at the same time as supplies are shrinking. China, which produces over 90 percent of the world’s supply, is chopping exports by almost half this year.

A looming global shortage has pushed numerous Canadian miners into the spotlight, all of them eager to chase down the Holy Grail of a massive rare earth deposit.

But like the legendary Grail, a viable rare earth mine outside of China may be difficult to find. Processing costs are huge, making it difficult to compete with Chinese producers even as promising new deposits are identified.

“We’re going to run into shortages of rare earths within the next year or two,” said Byron Capital Market analyst Jon Hykawy, adding that the heavy rare earths, used in electric vehicles, will likely run out first.

“But simply identifying a potential mine is not a reason to celebrate victory,” he said. “I would say it is very tough to make a go of producing rare earths without at least separation and purification as a part of the model.”

In the end, analysts say, it will take a deposit with the right mix of rare earth elements to make a non-Chinese mine into a profitable operation.

This means Canadian rare earth companies like Avalon, Great Western Minerals and Quest Rare Minerals face a daunting challenge breaking into a market dominated by the Chinese.

Cheap labor and lax environmental policies allowed China to undercut other global producers in the 1990s, leading to rare earth mine shutdowns around the world. Then, China reduced export quotas to build up its refining, processing and alloy production industry.

Currently, there are only a few non-Chinese companies that produce the rare earth powders and metal alloys needed for green technologies, military use and consumer electronics.

One of these companies is Great Western, a Saskatoon, Saskatchewan-based outfit that buys concentrates from China and makes alloys to sell to most major magnet manufacturers.

With China tightening its rare earth exports, Great Western has secured the rights to the Steenkampslraal mine in South Africa, which has high concentrates of rare earth oxide.

By 2013, Great Western plans to take rare earths through the entire process from mining to finished product, putting it in direct competition with the Chinese.

“Because of our full integration, we are unique in the industry,” said Chief Executive Jim Engdahl. “We already have clients that are magnet manufacturers around the world.”

The key to Great Western’s potential is its mine-to-market model, said Hykawy, adding that vertically integrated miners are best placed to benefit from rapidly rising metal prices.

Cerium oxide, the lowest value rare earth, has jumped 930 percent since 2007 to over $35 per kilo, while the more valuable dysprosium has jumped 220 percent to $286 per kilo.

“The math is easy,” Hykawy said.

HEAVY VERSUS LIGHT

But is vertical integration enough to ensure rare earth success? Independent commodities commentator and strategic metals expert Jack Lifton isn’t so sure.

He puts more emphasis on mineral concentrations, favoring the heavy rare earths.

All rare earth deposits contain the 17 elements in varying concentration. The heavy rare earths are in far shorter supply, and as such, are more valuable.

“The Chinese have such enormous reserves of light rare earths that I find it very, very improbable that there could be a profitable light rare earth company developed outside of China,” he said.

To get at the heavy elements, miners must also process the less valuable light ones. This could spell disaster for companies whose deposits are low in heavies, said Lifton.

“If I make 9,600 white Chevrolets, and 400 black ones, and only the black sell, please don’t tell me that’s good economics,” he said. “Making something is not what counts, it’s selling something that’s important.”

Avalon Rare Metals is one company that will have a lot of heavy rare earths to sell, if it can raise the money it needs to bring its Nechalacho mine into production.

The mine, located in northern Canada, has a low total concentration, but is rich in valuable dysprosium and terbium.

“That greater enrichment in heavy rare earths makes for a more valuable ore in the ground,” said Avalon Chief Executive Don Bubar. “And much bigger potential profit margin on production.”

Avalon’s goal is to further increase profit margin by including a mill and a hydrometallurgical plant on site.

But because of the remote location and heavy infrastructure needs, the project will cost an estimated C$844 million ($792.6 million) to bring into production, which analysts see as a tough pill for investors to swallow.

“If Avalon came online it would solve the world’s problems, but it wouldn’t solve Avalon’s problem,” said Lifton. “Their problem is how do you raise that kind of money?”

One idea is to approach the Chinese for funding. While China has over half the global deposits of rare earths, its heavy resources are almost depleted, said Hykawy.

“If the ‘heavy’ deposits were to approach the Chinese for certain guarantees, it might make their financing approaches much simpler,” he said. “Right now, we believe they are going to have a tough time.”

(Reporting by Julie Gordon; Editing by Frank McGurty)

I’m in Shanghai today; I was in Beijing yesterday, I will be in Tokyo tomorrow and Hong Kong next week. I am teaching a course on rare metals that I put together for CLSA, Asia’s pre-eminent brokerage form. CLSA’s 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; however, I do explain the details of the new asset class of rare, technology, and minor metals, in which they have an interest. I also explain 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 investors. 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. 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 do, still mired in recession due to the credit bubble. 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. It is being given access, under the new supervising management – of which I have already written – to all the capital it needs for a rational restructuring. This is in preparation for a great leap forward to a domestic productive capacity, which will enable the industry to meet the goals set in this and the next five-year plan, for raw materials for alternative 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 over-emphasize the importance of the non-Chinese heavy rare earth supply industry to China’s and then the world’s green alternative 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 which 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 Rare Metals and Rare Element Resources. The needs of China, Japan, 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 Rare Metals or Quest Rare Minerals, and the southern African operations of Frontier Rare Earths and Tantalus Rare Earths.

It’s 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 Ucore Rare Metals, Rare Element Resources, Great Western Minerals Group, Quest Rare Minerals & Tantalus Rare Earths.

Late last week the US Department of Energy [DoE] awarded $9.6 million in grants for six Advanced Research Projects Agency – Energy [ARPA-E] projects as a means to “accelerate innovation in clean energy technologies, increase America’s competitiveness and create jobs”.

Notable among the grants was a $2.25 million grant to GE Global Research, of Niskayuna, NY, for a project titled ‘Transformational Nanostructured Permanent Magnets”.

According to the write up from the DoE, GE will

“develop next-generation permanent magnets that include lower content of critical rare-earth materials. GE will develop bulk nanostructured magnetic materials, resulting in a dramatic increase in performance over state-of-the-art magnets. The impact of these new magnets will be to increase the efficiency and power density of electric machines while reducing dependence on globally critical rare-earth minerals.”

GE claims that the production of such magnets will lead to growth in the hybrid vehicle and wind turbine generator markets. It is no secret that GE is involved in the latter industry, having recently acquired a business unit that produces permanent-magnet-based, direct-drive wind turbines.

According to GE’s project proposal, their project will focus on a goal of obtaining new magnet materials with a maximum energy product of at least 80 MGOe and with an 80% reduction in rare earth content. To achieve this aim, the research will focus on the development of nanostructured magnet materials, in order to “demonstrate for the first time a bulk exchange-spring nanocomposite permanent magnet”.

The maximum energy product of a magnetic material is a figure of merit used to compare the performance of one magnetic material to another. Currently, the highest such value for a commercially available permanent magnet hovers at around 55-57 MGOe, for magnets based on alloys of Nd-Fe-B. The maximum theoretical energy product for Nd-Fe-B magnet materials is 64 MGOe and so the GE research project, if successful, would be a real breakthrough. So-called exchange-spring magnets rely on finely tuned microstructures that contain special nano-sized grain mixtures of materials such as Nd-Fe-B and Fe.

What makes this award pretty interesting is that it is the first time in quite a while that GE has been publicly associated with research into permanent magnet materials. There is no mention in the news release from the DoE of any collaborating entities on the project, which raises the question of just how GE will staff and execute the project, in order to move the state of the art along, without formally collaborating with leading academic and research groups in the field.

This announcement follows on from the award earlier this year by ARPA-E, of $4.5 million to a consortium led by the University of Delaware, for a project titled, “High Energy Permanent Magnets for Hybrid Vehicles and Alternative Energy“. In addition to the similar goal of successfully producing nano-composite-based permanent magnets, the Delaware project will also look at completely new magnetic material compositions.

Unlike the apparent structure of the GE project, Delaware will be collaborating with a number of other groups including those at the University of Nebraska, Ames Lab / Iowa State University, Northeastern University, Virginia Commonwealth University and Electron Energy Corporation.

by Lara Crigger – Hard Asset Investor – Published: September 3, 2010

Is the rare earths metals hype overblown? Yes, says Jack Lifton, co-founder of Technology Metals Research, who adds that although the panic over Chinese “hoarding” is misplaced, the U.S.’ dissolution of its domestic rare earth metals production has been equally “foolish.”

Jack Lifton is one of the world’s foremost experts on rare earth metals, and is a highly sought-after author, consultant and lecturer in the industry. With over 48 years’ experience in the metals business, Lifton continues to advise institutional investors and high-tech OEM companies worldwide on the complexities of the natural resource sector.

At the recent 21st Rare Earth Permanent Magnet Workshop in Bled, Slovenia, Lifton presented a paper outlining the steps the U.S. would need to take to reestablish a presence in the rare earths industry.

Editor Lara Crigger caught up with Lifton right before he began a two-week rare earth investing “road show” that would take him to Beijing, Shanghai and beyond. He shared with HAI some thoughts on the rare earth metals industry, including why the current rare earth panic is overblown, how China has managed to dominate the market and what the U.S. needs to do to make an REE comeback.

Crigger: Is the panic over securing our rare earth metals supply overblown? Do we need to worry about China “hoarding” rare earth elements [REEs]?

Lifton: Yes. China doesn’t consider itself to be hoarding anything. They figure that they’re using their own materials for their own needs. They question why we insist on using words like “control” and “hoard,” because they ask, “If you needed the material, why shut your factories?”

So it’s as simple as that. We really are foolish in America. We’ve shut down an industry that’s strategic and critical, and all in the name of low cost. Now we’re surprised that the consequences that are obvious in doing this have now come back to bite us. I’m not surprised, and neither is anybody else in China.

Crigger: The materials are still there, though.

Lifton: The utilities are still there. But we haven’t been doing this for awhile, and people don’t just sit around waiting for work. You have to reconstruct the intellectual basis of the industry, as well as the physical basis, and that’s the problem.

Crigger: Are the people in this industry generally heading over to places like China, where the importance of REEs is better acknowledged?

Lifton: Well, they die. They get other jobs. If you’re a chemical engineer specializing in separating rare earths, where do you think you’re going to get employment in the U.S.? There’s nobody doing it here. So if you’re deciding what to do in grad school, you get a different specialty. Or if you were already doing this, you have to retrain yourself, or find something in the home cleaning or Slurpee-mixing fields, because what you were doing is gone.

I don’t know what possesses politicians to think that they can simply invent intellectual capital. You can’t. It takes time. And once you fall behind in your specialty, you are behind. You have to catch up. It’s not a matter of reading the latest papers; you also have to go back to what happened between the latest papers, and when you knew how to do it.

So I find the politicians and financial minds in America seem to have no knowledge whatsoever of manufacturing or mining. They just think that money solves all problems.

Crigger: So what do we need to do to keep those knowledgeable people around?

Lifton: The first step would be to go ahead and fund the RESTART Act [a bill to reestablish domestic rare earth minerals production in the U.S.]. I didn’t say enact it. That doesn’t mean anything. They need to actually put some money in it. And they need to get it done while we still have a core of people at the point in their working lives where we could get this done, because that is a diminishing resource. If this doesn’t get done in the next decade, it will never get done, because we’ll have lost any ability to do it.

Crigger: How else do we need to adapt the way that we think about rare earth metals in this country?

Lifton: We have to decide that rare earth metals are as important as, say, bridges with no intended anchor point. And the only ones who can do that are the people in Congress, who hold the purse strings. But Congresspeople have notoriously short attention spans. When you have a television camera there, they say, “Whatever it is you support, so do I,” and the moment the camera switches off, they walk away.

This is sort of beside the point, but I think America needs national goals. Let’s say that, for argument’s sake, we’d like to restore our standard of living to what it was in 2008. To do that, we better start creating wealth and creating high-tech items that we can not only use ourselves, but sell to the rest of the world. For example, if you mine rare earths in California, you could actually mine a lot more than the U.S. needs, and have the rest for export material to make a profit.

So perhaps someone in Washington should go back and study basic economics, because they don’t seem to understand anything about wealth creation. There’s an anti-resource bias in Washington that’s palpable. Do we really think that energy creates itself, or metals just drop out of the sky?

Crigger: At least on the financial side, we see investors say, “Well, we don’t know what REEs are, but hey, let’s learn.”

Lifton: Exactly, and if the politicians had that much interest, we wouldn’t have that problem. My personal business is that I do due diligence for institutional investors looking into metal opportunities, and I can tell you that I have seen more interest among bankers and fund managers than I’ve ever seen in Washington. They’re the ones asking, “What are rare earths? How do they fit into the economy?” And they’re honest: They admit, “We don’t know what you’re talking about, so just start at the beginning.” Of course, that can be a problem in other ways.

Crigger: How so?

Lifton: Well, the problem for junior miners – exploration companies, I mean, not production companies – is that the institutional investors have an unfortunate requirement: They need to make a profit. They do not make investments that don’t return something.

But there’s a huge distinction between stock market plays and actual company operation. When the institutional investors that I have as clients take a look at a mining operation, they say, “When will $1 become $1.50, and is that a faster rate than if we put our money in gold or some solid paper?” The answer at the present time is, “No.”

And it’s true. The concentrates mine is just not profitable. Really, don’t believe anything about rare earth prices rocketing up. They may be rocketing up in pure metals, but not for ore concentrates, because the value is added after that. So your mine needs to be on a combined balance sheet.

Two or three of the junior miners in rare earths have adopted this strategy, and they’re the ones that are getting the most attention. Because if you just admit that you don’t make money mining rare earths, that you make money in producing products from rare earths, well, then you can get somewhere.

Crigger: How does this compare to what China has done?

Lifton: Well, the problem is the mining companies are small. They’re not big enough to buy a mine and finance a refinery, so you need the real end-user – the car company, the jet engine company – to come in and help.

In the case of China, the Chinese have simply put all the rare earths under the control of their large base metal companies. Those companies are now responsible for delivering high-purity rare earth metals, after they’ve restructured the industry over the next five years.

A few weeks ago, China announced that Baosteel, Jiangxi Copper and Chalco have now been given the assignment of geographically restructuring the rare earth production in their geographic regions. Today, there’s 129 official recognized rare earth miners in China – and god knows how many flying under the radar – and 79 refiners. That’s 208 companies. By the end of 2015, you will see three companies: Baosteel, Jiangxi Copper and Chalco. As far as they’re concerned, bigger – and more consolidated – is better.

Crigger: It’s all part of that same machine, that same philosophy, that’s driven the staggering growth we’ve seen in China over the past two or three decades.

Lifton: Well, 20 years ago, China was producing less than 50 million tons of steel a year. Today, they’re producing 650 million tons of steel. That’s 6.5 times as much as the U.S., 5 times as much as Europe, and more than all the rest of the world put together.

China has done more growth in metals production in a generation than the entire world put together. Rare earths are the tip of the iceberg. Frankly, you shouldn’t bother looking at them as much as you should steel, iron, copper, aluminum, tungsten, antimony – these are all metals where China is both the dominant demand in the world, and the dominant producer.

Investors say, “We’re not going to invest in mining, because you know what happens: The $3 price of copper becomes $.70, and we lose our money.” Well, if China’s demand continues, we will never see a commodity bust again.

Crigger: Of course, eventually we wouldn’t be able to keep up.

Lifton: Right, their demand is so high that the world is already straining. You know, we used to laugh about the Soviets and their five-year plans. “We’re producing more steel than anybody else!” they said. Of course, that steel was stockpiled, and they weren’t using it, and it was killing their economy. People say China’s doing the same thing. It isn’t. The Chinese are using these materials, and they’re producing like crazy. At this point in time, China’s producing some 53-56 percent of all the metals of all kinds in the world, and yes, they export some, but everything they export is value-added in China. They are creating jobs, wealth, industries.

The rare earths are a real issue, because China doesn’t think it has enough. That is, they think they have enough reserves, but not production. And their demand is outpacing their production at the moment. So there’s a window here for Western mining to supply China with goods it needs.

But the danger is that what happened before will happen again: China will then ramp up its production and come roaring back, and kill everyone else in price. They did this in the ’90s, and they killed the non-Chinese rare earth industry—by 2002, it was shut down.

Crigger: So then is it even worth it for any non-Chinese company to jump into this fray again?

Lifton: Well in the short term at least, absolutely there’s value. And for the heavy rare earths, the ones China doesn’t believe it has enough reserves of. That’s a good business to be in.

But you can’t produce one type of rare earth without producing all of them. So the big issue is, who’s going to be the lowest-cost producer of terbium, europium and dysprosium? Because those are the three materials China thinks it needs outside sources of.

An astute businessman might say to China, “Look, I have a deposit in Alaska or South Africa of material, and it’s got heavy rare earths in it, but here’s the problem – we’re going to produce lanthanum, cerium, neodymium, and all sorts of things you already have enough of. So I can’t sell you the heavies unless you buy the lights. You have to buy the entire cow; I’m not selling the milk.” The Chinese used to say no, but now they say, “Let’s talk about it.”

The Chinese are realizing they have to change the dynamic. Instead of saying, “We must control it,” they’re saying, “Can we invest enough money to develop something and then we can buy the output?” Because in a capitalist society, the risk is that somebody will out bid you. That’s not a problem for the Chinese. They need the material, they will not be outbid.

by Leo Lewis – The Times – Published: August 27, 2010

The world will belong to the countries who control the resources, such as rare earth metals, which power the 21st century.

In the magnificent banqueting room of Seoul’s presidential Blue House, Evo Morales suspended his rabid socialism last night to enjoy South Korean capitalist hospitality at its most bountiful.

In the Bolivian President’s briefcase were two documents: a wildly generous memorandum of understanding from one of Asia’s foremost powers and an honorary doctorate from one of its best universities. Not a bad day’s work for a former llama shepherd who never finished school.

For 45 years, South Korea has ignored dirt-poor Bolivia, and certainly not entertained its leader at lavish expense. Mr Morales’s nation, however, has lots of lithium – and Seoul wants Samsung, Hyundai, LG and its other industrial giants to remain in business.

Not an ounce of the stuff has yet left Bolivia’s Salar de Uyuni, but the great salt lake holds enough lithium, according to some projections, to give whoever gains access to it future dominion over batteries for electric cars, laptops and mobile phones.

Mr Morales has also spotted sooner than most that the world has fundamentally changed: resource geopolitics has lurched far beyond oil. The impending clashes will concern almost-unknown minerals and the world’s consumer nations are realising this with some alarm. A series of recent reports warn that industries may no longer be viable even at the national level, forcing abrupt re-evaluations.

Countries like Japan, South Korea, Germany and other technology powerhouses may struggle to retain their positions. “We are at economic war,” Jack Lifton, an authority on rare minerals, told The Times.

“The world where you could get everything for a price is history. And the West has been sound asleep on this. The level of ignorance about the upstream of mineral supply … is just out of this world.”

Even in Asia, where growth is more visibly dependent on the minerals, the sense of dismay is recent. The South Korean government declared last week that it would draw cash from the national pension and sovereign funds to secure rare metals. It was coupled with a proposal that future aid should be focused on countries with rare metals.

The courting of Mr Morales is not an isolated incident: China, Japan, Russia and France have all tried similar ruses to win his heart. This is, however, just the start. Other land grabs in the “New Great Game”, warned a recent EU report, could erupt over the molybdenum used for cardiograms, cobalt for mobile phones, palladium for desalination plants, fluorspar, which is essential to chemical production, or the magnesium oxide vital to every oil refinery, cement factory and steel mill on Earth.

The EU lists 14 raw materials as “critical”.

The US Department of Defence will next month publish a report on how much its military relies on materials that, currently, can only be obtained from China.

In May, Britain’s Department for Transport and Department for Business received a report on rare earth resources which said it was likely that China would, by 2015, ban all exports of the metals – substances that underpin the digital revolution and without which most “green” technology cannot function.

Gal Luft, a director of the Washington-based Institute for the Analysis of Global Security, pointed to China’s 95 per cent control of global production of rare earth metals, predicting that foreign policies around the world would be shaped by the need for dysprosium, cobalt and platinum in the same way that oil defined geopolitics in the 20th century.

China’s ever-tightening restrictions on rare earth exports quotas will be slashed by 72 per cent by the end of this year – reflect a pattern that may soon be seen in other commodities. “When it comes to resources, there is no free market,” Mr Luft said. “The lesson for governments that want to stay in business is that you can’t source things you want from one place.”

Jaakko Kooroshy, a policy analyst at The Hague Centre for Strategic Studies, told The Times that the situation had exposed spectacular complacency among Western governments. “The West has woken up late to the idea that these metals have a strategic importance. In the supposed boom of the 1990s … mining was a non-issue and everyone wanted to diversify away from something seen as dirty and old. Suddenly it matters again.”

The mineral issues do not end with technology, with attention focused also on fundamental minerals. Control of world potash supply for crop fertiliser may become increasingly tormented by trade restrictions and politicised resource control.

Academics in the US and Australia have warned that phosphorus, the other mineral behind the 1960s “green revolution” in food, may be approaching physical limits, ushering in “the gravest natural resource shortage you’ve never heard of”.

Just as this resource vulnerability has not been lost on President Lee of South Korea, Japan’s leadership is at least unified on the need for panic. Supplies of lithium, tantalum, germanium, indium and the 17 rare earth metals are fundamental to things that Japan does best – consumer electronics, hybrid vehicles and precision technology.

The dominance of China in the supply of many of these has become a source of concern. Katsuya Okada, the Japanese Foreign Minister, has spent this year in a typhoon of trips. London, Paris, Berlin and even Beijing have not featured – instead it is South Africa, Vietnam, Tanzania, Mongolia, Kazakhstan and Australia that have featured.

The country is urgently talking to mineral-producing heads of state – before China and South Korea get their feet in the door.

“Until recently, the government took the attitude that this was something best left to market forces … but the world has changed dramatically and the Government cannot just sit back any more,” Mr Okada said.

China is by far the world’s largest end user of copper, from which is constructed the nerve system of our civilization, the electric power distribution grid, as well as all of the devices that generate electricity and transform it into motive power or heat for individual or industrial end use.

China’s domestic mining produced just short of one million tons of new copper in 2009, a year in which the total global production of copper was 16 million tons. Yet China used in 2009 just short of 6 million tons of copper, nearly 40% of 2009’s total world supply of that metal. This amount used in China, 6 million tons, is one and one-half times the total annual copper production of copper by all Chilean sources. Chile is the world’s largest producer of copper at 4 million tons a year, which is 25% of global production.

China imports its copper mostly as a standard form of crude (impure) metal and then purifies it and fabricates it into forms for drawing wire and producing sheet and bar stock for manufacturing purposes. The crude – in the sense of too impure for electrical use – copper has usually already been processed at the originating mine, to remove most of its non-metallic impurities, but still very much carried in the ‘crude’ copper, as it goes into final electro-refining, are molybdenum, gold, silver, platinum, palladium, selenium, tellurium and rhenium. Some copper ores are even very significant sources of gold, but most are not. What is significant about China’s inflow and the processing to ‘purify’ it is the sheer volume of it. Even ‘impurities’ in the copper that are present only as traces, can be produced in relatively substantial quantities when the flow through produces 6 million tons of copper.

China, through this final purification step, is gifted with the world’s largest reliable supplies of the above named rare technology metals, some of which are critical to the green revolution in sustainable  alternate energy technology.

Take the example of tellurium, which in addition to being recovered from the vast volumes of copper processed in China, is also able to be recovered from the vast volumes of lead, zinc, bismuth, and antimony produced or refined in China. In addition to the low grade sources ( ie. the ‘traces’ in the base and more common other metals), a Chinese company operates the only mine in the world the primary product of which is tellurium. The mine’s avaerage grade of tellurium is an astounding 1.17%.

That company, Apollo Solar Engineering in Chengdu, Sichuan, which is listed in the USA, (ASOE.OB)  is the world’s largest producer of ultra-high purity tellurium, which it produces primarily from its mine, at a rate of 3-4 tons a month. The company is also the destination point for much of the crude tellurium recovered in China, from the refining of the ores, domestic and imported, of copper, lead, gold, silver, antimony, and bismuth.

There can be no cadmium telluride thin-film photovoltaic solar cells made without ultrahigh purity tellurium, ultrahigh purity cadmium telluride, and ultrahigh purity cadmium sulfide. The pre-eminent American producer of thin film photovoltaic solar cells, First Solar (FSLR), is already Apollo’s largest customer for its production of all of these items.

There is an International ‘New Energy’ Fair in Chengdu during September 28-30, 2010. ‘New Energy’ is the most common translation into Chinese of the term ‘Alternate Energy.’  I have been invited to speak on the future and the importance of the production of rare technology metals such as tellurium, selenium, indium, gallium, as well as of the ‘common’ technology metal, copper, to the thin-film photovoltaic solar cell industry both in China and in the world.

China is already the world’s largest producer or the largest end user or both of ALL of those metals! Those who want to invest in green technologies need to take note.  China now dominates the production and use of the specialized technology metals critical for solar. China should be the first place that anyone who wishes to invest in the future of thin film photovoltaic solar cell production looks.

Keep in mind that China is rapidly going green, even as the rest of the world just talks about it, and that if we in the West wait any longer it will be of no avail to us, because the critical raw materials production is already centered in China.

Disclosure: I am a business development consultant to Apollo Solar Engineering.

DUSSELDORF, Germany — August 25, 2010 – Tantalus Rare Earths AG of Düsseldorf, Germany, with its 300 km² Rare Earth project in Northern Madagascar, announces today the appointment three new members to its supervisory board, namely Mr. Jack Lifton, Mr. Benoit M. Violette and Mr. Ben Paton. The new members will join the existing board members and will add comprehensive experience in their respective fields to the company.

Mr. Jack Lifton is one of the leading experts on technology metals, including rare earths, lithium and rare metals in general. Mr. Lifton is a renowned consultant, lecturer and author of many leading articles in this field. With his background as a physical chemist, specializing in high temperature metallurgy, he started out as researcher before moving to marketing and manufacturing executive positions. Mr. Lifton has been involved in the industry for over 48 years and is now utilizing his experience by consulting to global OEMs and institutional investors. He also frequently appears as an invited guest speaker at leading industry conferences worldwide.

Mr. Benoit M. Violette will join the board in his capacity as a professional geologist with extensive experience in generating, financing and managing exploration projects for a wide range of mineral commodities worldwide, including projects in Africa and Canada. Mr. Violette is a member of the Ordre des Géologues du Québec and holds a BSc. honours degree in Geology from the University of Ottawa.

Mr. Ben Paton is a fund manager specializing in European and Emerging Market Smaller companies. He was the lead fund manager for Fidelity’s International Small Cap Fund which grew to total funds under management of approximately USD $3bn in 2008. Mr Paton brings broad experience of investing in the resources sector and early stage projects. He is a London Business School MBA graduate and a qualified Chartered Accountant. His financial background as a successful fund manager and his experience in deal structuring and coordinating financings will be of great value to the company in the future.

“The company is excited to have attracted such excellent talent to its supervisory board. The board with its extensive experience will provide immeasurable guidance to our management and direction of the company”, states Stephen Forman, CEO of Tantalus Rare Earths AG.

In other developments, the company’s 40,000 m diamond core drilling program has started in July. The present drill rate is approximately 200 m per week; two more drill rigs are presently awaiting customs clearance. They are expected on site by mid- September. The first phase of the drilling program concentrates on the main vein hosted rare earth mineralization along the coast plus its southern and north-western extensions. The initial drill grid is 100 m by 400 m, in its final phase the mineralization will be drilled on 50 m centers.

The first line of 10 drill holes is nearing its completion, with vertical holes ranging from 60 to 80 m depth and inclined holes (-45°) ranging from 60 to 120 m in length. The drill cores have confirmed our geological model: Multiple, late stage, rare earth, tantalum, niobium and zirconium bearing sills and dikes of Tertiary alkaline granites have intruded into flat lying Jurassic sediments and caused skarnification along the contact zones. These skarns are also mineralized.

With encountered drilled widths of up to 5 m, the mineralized veins seem to be wider than originally anticipated by earlier explorers, such as the Soviet Geological Mission of the late 1980s. So far, five drill holes have returned multiple intersections which are presumably mineralized with rare earths, tantalum, niobium and zirconium. On this drill line, the zone in which mineralized veins may occur is apparently more than 250m wide. The Soviets were speaking of a maximum width of 200m.

The drill core samples are currently being crushed and homogenized at the company’s sample preparation facility in Ambanja. A first batch of samples will be submitted to ALS Chemex Johannesburg and Vancouver in the coming week for lithium borate fusion followed by ICP-MS (ALS code: ME-MS81). The first results are expected in 4 to 6 weeks from sample submission.

“We are most pleased with the progress of our drilling program. The zone in which mineralized veins occur seems to be wider than anticipated and the encountered widths of mineralized veins are also wider than expected” states Wolfgang Hampel, COO of Tantalus Rare Earth AG.

About Tantalus Rare Earths AG

The mission of Tantalus Rare Earths AG is the identification and development of rare earth exploration and mining projects outside from China, mainly focusing on Africa. Administratively, Tantalus Rare Earths AG is located in Düsseldorf, Germany. Currently, the investment portfolio consists of 100 % of the Tantalus Rare Earths Project in Madagascar.

Later this week I’ll be flying out to Europe, ahead of the 21st International Workshop on Rare Earth Permanent Magnets and their Applications – also known as REPM’10 or simply “The Workshop” within the magnet industry.

This Workshop will be held on the shores of the picturesque Lake Bled in Slovenia, and is the latest in a long series of similar events stretching back to the 1970s. Karl Strnat, the co-discoverer of the first generation of permanent magnets based on rare earths, organized the first Workshop at the University of Dayton, Ohio in 1974. Dr. Strnat worked at the US Air Force Research Laboratory, part of the Wright-Patterson Air Force Base in Ohio, and it was there that he, Alden Ray and others undertook the research that led to the discovery the first RE-Cobalt magnetic compounds.

I’ve had the privilege and the pleasure of attending three prior Workshops, which are held every two years. I say without hesitation that the Workshop is the most important meeting for the permanent magnet community on the calendar. The attendees are a unique blend of folks from industry and academia, technical and non-technical, and drawn from all around the world. This year’s event is being hosted by the magnetics research group at the Josef Stefan Institute in Ljubljana, Slovenia’s capital, a group with a distinguished track record of research and development in magnetic materials.

As a slowly developing postgraduate research student in magnetic materials at the University of Birmingham, I had the somewhat dubious honor of working as part of the security detail at the Workshop held at that University in 1994. I was also part of a musical “ensemble” during that meeting that passed into Workshop legend too, but that’s about all I’ll say on that.

What I will mention though, is that it was my attendance and participation at that Workshop in Birmingham in 1994, that led to my being introduced to the leading players of the industrial and academic sectors of the rare earth magnets industry. I made contact with one particular individual at that meeting, who would eventually go on to introduce me to my first employer after graduating in 1997.

At the Workshop in Slovenia next week, I will present an invited paper titled ‘Recent Developments in the North American Permanent Magnet Industry and its Supply Chain‘. It was not without a considerable sense of satisfaction at being able to “close the circle”, that I discovered that the Chair of the session in which I’ll be presenting this paper, was none other than the gentleman I first met in 1994, who helped propel me into the commercial world of permanent magnets – Mr Reinhold Strnat, a distinguished member of the magnetics community in his own right, and a now long time friend and colleague.

The ability for young, wet-behind-the-ears postgraduate research students to present their work to crusty old professors and captains of industry alike, in a non-threatening, non-pretentious setting is a near-unique aspect of the Workshop series, and was certainly an essential part of my growth in the discipline. It is from meetings and interactions like these, that the future researchers, developers, engineers and scientists in the field of rare earths, permanent magnets and allied arts will be drawn. I am pleased to note that the attendance at the Workshop in Slovenia will be as high as ever – perhaps 150 attendees, representing all the research groups, companies and other organizations of importance to the rare earth permanent magnet industry.

Interestingly, this year will see a number of presentations from folks within the broader rare earths industry, including TMR’s very own Jack Lifton, Gary Billingsley of Great Western Minerals, and others. I’m hoping to snag some interviews and Q & As with the various leading rare earth magnet researchers while in Bled. I look forward to being able to share that info and perhaps a few photos, on my return.

‘Pricing at the margin’ is a phrase heard in the marketplace to indicate that a recorded price is not representative of the totality of transactions for that commodity, but instead was the result of perhaps as little as one transaction occurring at the margin (the edge) of the range of transactions. Pricing at the margin is not representative of market pricing.

Recent actions by Chinese governmental regulators, have caused some confusion in the rare earths market with regard to pricing, production, and inventory levels.

First, the Chinese government reduced the allocation of Chinese rare earth production in the form of individual rare earth raw materials for the export market for the rest of the year. There was no differentiation among the individual rare earths covered by this allocation reduction, so immediately the 28 officially licensed Chinese trading companies with ‘allocations’ moved to export only the highest priced of the rare earths, such as terbium, dysprosium, and europium that they had in stock, so as to maximize their transactional revenue.

These actions, of course, reduced the normal outflow of the more common rare earths such as cerium, lanthanum, neodymium and praseodymium.

After just a few transactions occurred at the margin of the market and a whispering campaign was started about China ‘cutting off exports’, the prices for all rare earths rose. Those familiar with Economics 101 concepts such as supply and demand, knew that a price increase of 500% for the most common of the rare earth metals, cerium, which is in oversupply now as it has been for decades, was an aberration caused by some glass polisher caught short of inventory at a critical moment.

In the same way the sharp increase noted in a few transactions for the most important of the rare earth metals, neodymium, was also an aberration probably caused by a panicked Japanese magnet producer or his trading company procurement department.

Chinese businessmen in Beijing during this period of price rises, said to me that non-Chinese buyers had not seemed to notice that there were no export reductions on rare earths contained in finished goods or components. Of course, when I relayed this to some junior mining executives, they responded that this also was a part of a larger ‘conspiracy’ to drive manufacturing jobs to China. In the West at least, when I was a corporate executive we called this a business model, not a conspiracy, as we demanded tariffs (import restrictions) against our foreign competitors along with anti-dumping legislation and lawsuits.

I was also told that non-Chinese alarmists also did not seem to have noticed that the previous quotas had not even been used up, so that there was in fact material available. I think the alarmists knew this all along.

In any case, I think that investors should be very wary of junior miners that immediately repriced their business models using the ‘new higher rare earth prices.’ First of all, those prices were not at all meant to pertain to the low valued, undifferentiated concentrates that junior miners’ pricing models  seem to think have the same value as 99.9% individual metals. Second of all, the prices will come down as soon as pricing at the margin is subsumed into realistic multi-transactional market pricing.

This is a very brief summary of the my analysis of recent Chinese domestic activity intended to consolidate the Chinese rare earth metals production industry. This consolidation is a prelude, I believe, to the restructuring of the entire global metals production industry, so as to insure for China its security of supply of all metals for its domestic economy.

As I have said before, this marks the end of both Western-owned or -operated metals production hegemony, and of Western metals supply hegemony.

China has taken recent action to consolidate production of all of its domestic metallic and mineral natural resources, under the aegis of its largest producers of base metals, with each one of the three chosen allocated a geographic and political, not a geological, region. In analyzing this, I noticed a pattern that, in of itself, explains these actions as a process to ensure Chinese security of supply of its domestic demand for metals in general and of the technology metals in particular, at least as far as China’s domestically produced natural resources are concerned.

The successful failure of the Western business model, to provide long term security of supply of technology metals for the American industrial manufacturing economy, at any level, seems imminent. I mean that America has been successful through the operation of market capitalism in securing supplies of critically needed technology metals for the mass manufacturing of technology-based consumer products, at the lowest cost for the American domestic market. But the very movements required to accomplish this short term goal, have now resulted in both the production of the technology metals and the mass production of the products critically dependent upon them, moving out of the United States and into a region where the domestic consumer economy is growing so rapidly, that it has become economically impossible to return to the status quo ever again.

America, in order to achieve the lowest prices for consumer goods, has simply been priced out of both the natural resources production and supply economy, and the consumer products production economy, of the Southeast Asian market. It seems to me to be only a matter of time, before the American consumer products market is subjected to pricing pressures that will end its built-in obsolescence (otherwise known as waste) model once and for all.

For Southeast Asian manufacturers to give priority to export markets in the future, it will be necessary for those markets to be much larger revenue generators than they are today. Thus rising prices for imported goods in, for example, the USA, will now be the norm. This includes the components for green technologies. Such components can no longer be made in the USA without imported technology metals, and those imports are becoming increasingly harder to acquire, as China gathers to itself the ownership and control of the majority of the world’s natural resources, of not only technology metals but of all metals.

For China, this means the ascendancy of its version of capitalism in one country, as the foundation for its growth into the world’s pre-eminent industrial manufacturing economy by, at the latest, another generation.

China’s cornering of the supply chain for those technology metals known as the rare earths over the last 25 years, has been, in my opinion, an introduction to the world metals production and demand economy of 2035.

By that year, at the very latest, global corporations, most likely Chinese-owned and -operated, will be focused on producing the useful forms of those metals in the specific places where they can be used most economically. China’s long term planners intend that place to be the manufacturing centers of the PRC. That is the explanation for all of their planning in the short term.