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.

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.

The television commentator and former Jesuit, John McLaughlin, used to make me laugh when he would tell a panelist of an opposing political view: “Once again you’ve stumbled upon the truth, even though you don’t know how you got there.”

The New York Times recently reported the facts of a story entitled, “China to Invest Billions in Electric and Hybrid Cars,” but failed to stumble upon the truth. So let me do that for the Times and for your benefit, dear readers:

China, as part of its national plan, a goal centrally set by those in overall charge of its economy, announced yesterday that its motor vehicle industry will be required to build one million electric and hybrid motor vehicles in the next few years. I believe that this means that the industry will be required to reach a production rate of one million electrifed motor vehicles, the size of passenger cars, per year.

This is part of an overall plan to marshal and deploy China’s natural resources and its resources of intellectual property for the benefit of its own people, first. How much more logical can it get than that as a reason to conserve precious natural resources such as the rare earths?

The New York Times points out in the above story:

“The announcement, analysts say, is another example of how China seeks to marshal resources and tackle industries and new markets. The plan also underlines what China describes as its growing commitment to combating pollution and reducing carbon emissions.”

When I was in Beijing in the first week of August, three weeks ago, one of the other (I was a speaker at the plenary session) speakers at the Chinese Society for Rare Earths 6th Annual Rare Earths’ Summit, stated that a goal of the next two five-year plans, to be completed in 2020, was to have 330 GW of wind-turbine-generated electricity installed by that time. The speaker pointed out that this would take 59,000 metric tonnes of neodymium, calculated as 28% of the rare earth permanent magnet alloy, neodymium-iron-boron, since each 1.5 MW wind turbine generator will require one tonne of rare earth permanent magnet alloy.

The same speaker who was from the Chinese rare earth permanent magnet manufacturing industry didn’t mention how much of the heavy rare earths would be required for the project. I will estimate that at most it would be one thousand tons of terbium and three thousand tons of dysprosium.

In any case the total requirements for these new (not replacement) uses for neodymium, would be the total production for three years at the most recently achieved high production rate of neodymium, and as much as five years of terbium and two to three years of dysprosium.

If the neodymium demand is to be met, and this means that China, AS THE SPEAKER SAID, decides to use only rare earth permanent magnets for its wind turbine electric generator program, then it would require that three years’ production of the contained neodymium, at the rate it was mined in China in 2008, among all the rare earths mines there, be reserved for Chinese domestic magnet and wind equipment manufacturers and be targeted for the Chinese domestic market!

I think that it is crystal clear, that China is not reducing the production of rare earths on a long term basis and is not reducing their export on a short term basis. It is in fact pausing to:

• physically clean up the rare earth mining sector;
• eliminate illegal mining and smuggling of this precious green resource;
• consolidate the rare earth mining industry under the largest state-owned base metal producers of iron, copper, and aluminum, to prepare to ramp up the Chinese domestic production of rare earths both to meet and to guarantee the success of its long-term green strategy.

This is called long term strategic planning for those in Washington and on Wall Street who don’t understand why the Chinese are ‘depriving us’ of this vital resource. This process is also called ‘conservation of domestic resources’, by the way.

As to electric and hybrid cars, they require neodymium, dysprosium, and terbium for the magnets in the rare earth permanent magnet electric motors – both that drive them and that power their accessories. Some or all may also use lanthanum in nickel metal hydride batteries, as all hybrids made today currently do. A. In any case, whether or not the Chinese electrified cars use NiMH batteries, they are being designed to use rare earth permanent magnet electric motors. A million such vehicles will probably require just one million kg (1,000 metric tonnes) a year. Oh, did I mention that they will need also 10-20 tonnes of terbium and up to 50 tonnes of dysprosium. All of this new demand will be added demand not replacement demand, by the way.

I have no doubt that China will remain the world’s largest producer of the rare earths indefinitely. In the near term, perhaps over the next 5-10 years, China will need to import the ‘light’ rare earths lanthanum and neodymium, to make up any shortfalls created by its proposed quantum leap in demand in the face of the temporary reduction of production, for environmental and reorganization reasons. If the non-Chinese light rare earth miners get their acts together in time so that they can produce light rare earths at a lower cost than their Chinese competitors are able to do, then both Molycorp and Lynas have a good chance of success even in the long term.

The real issue for the future of rare earth utilization and therefore of mining, is the continued growth of the use and need for the heavy rare earths, terbium and dysprosium.

These ‘heavy rare earths’ are believed by the Chinese to be in short supply domestically. China today is the world’s only producer of heavy rare earths, mostly from southern Chinese deposits known as ‘ionic clays’, although significant quantities are also produced from the Bayanobo region (even though they report in Bayanobo only in small quantities) due to the overall massive amounts of rare earths mined there. Nonetheless, China believes that its own domestic supply of the heavy rare earths has between 5 and 30 years remaining at present levels of use.

This means that the real supply opportunity in the non-Chinese rare earth mining sector, is for those deposits that have above average proportions of heavy rare earths, to be brought into production as quickly as possible.

It is a horse race among those non-Chinese juniors with commercially (i.e. economically) recoverable heavy rare earths.

They are:

Canada

1. Great Western Minerals Group
2. Avalon Rare Metals
3. Quest Rare Minerals

(Note: some of my colleagues have urged me to add other Canadian juniors to this list, such as Matamec Exploration, but I know little about that company and will reserve my judgement on them for a future time, when I have had time to study Matamec Exploration and to visit its site.)

USA

1. Ucore Rare Metals
2. Rare Element Resources (a light rare earth deposit but with significant europium only)

Republic of South Africa

1. Rareco (in conjunction with Great Western Minerals Group)
2. Frontier Rare Earths (private at this time)

The success or failure of any of the above, will depend on the quality of their deposits, the efficiency of their extractive metallurgy, the ability of the global rare earth refining industry to service them, and the growth of the Chinese, Japanese, Korean, and Indian domestic markets.

Disclosure: I own shares in Great Western Minerals Group, and I am a paid consultant in business development to Ucore Rare Metals and to Frontier Rare Earths.

On July 15, 2010 I visited Rare Element Resource’s (TSX.V:RES) proposed mining site in Wyoming. When I got back to Detroit, I had to start preparing for the trip to China that I took at the end of July, so I am just now getting to write a report for you, of my observations on the state of the Bear Lodge development.

My tour of the Bear Lodge property, which is a short drive on a main highway from Rapid City, SD, was conducted by the CEO of Rare Element Resources (RER), Don Ranta, who is a PhD geologist and, unusually for a rare earth miner, an American – born in Minnesota and now living near Denver. RER is a Canadian-owned company, and the company’s CFO, Mark Brown, was there during my visit also. The company’s VP for Exploration, the well-known and respected Dr. Jim Clark was also there. Jim works professionally with Dr. Anthony Mariano, the ‘dean’ of global rare earths geology.

My friend, the irascible Dr. Dave Trueman, a consulting geologist of renown in the rare metals field, was original scheduled to join us, but Dave was in the Nevada desert looking at undeveloped lithium brines and couldn’t join us on the trip. Via Skype, he told me that Don Ranta was an unusual rare earths company CEO in that “he actually knows what he’s talking about, when it comes to rare earth geology.”

I think Dave is right, and I want to add that RER is managed by competent businessmen, some of whom are geologists. Mr. Brown is a Chartered Accountant in Vancouver  (the Canadian equivalent of a US CPA), and I found him very well-grounded in the supply and value chain issues that need to be considered and incorporated into a business model, to create a commercially successful rare earth venture.

In summary, the managers of RER are unusually impressive for a junior mining venture and would be equally so in any venture, I am sure.

Now, as to the deposit which they hope to make into an ore body. My colleague Gareth recently prepared a chart from the data published by RER, which you can see by clicking on the image below:

[if the above doesn't open properly, click here instead. ]

RER is completing its current drilling program so as to be able to publish a preliminary economic assessment during this quarter, and move forward in compliance with Canada’s 43-101 protocol (in my opinion the best verification program for mining ventures in the world.)

The data in Gareth’s chart, plus my own knowledge of the ‘business’ of separating and refining of the rare earths, tell me that there is a high probability of Bear Lodge being the USA’s lowest-cost production site for separated purified materials made up of light rare earths, and commercial quantities of europium, which reports in the Bear Lodge ores at five times the concentration grade of europium in the ores at Mountain Pass.  The form of the Bear Lodge ore may also be a big advantage, if it proves out to be composed of as much weathered material as is predicted, and hoped for, based on the material they have recovered so far.

In rare earth mining small is beautiful. Mines can sometimes be too big to succeed, but Bear Lodge is not likely to be one of those.

Check out these photos from the trip, courtesy of the folks at RER – click on them to see the enlarged versions:

In other news, I recently just returned from the Bokan Mountain project in Alaska, owned by Ucore Rare Metals (TSX.V:UCU).  If I had both the capital and the stamina I would buy Bear Lodge and Bokan Mountain and produce from them the entire range of rare earth elements (‘lights’ and ‘heavies’) in amounts that would satisfy US demand in total. With the surplus I would export to Asia the heavy rare earths that the Chinese, Japanese, and the Koreans need today and increasingly will need in the future. I would construct two separation plants, one at each location, and one refining plant to serve both.

The USA would then be independent of the need for foreign sources of all of the rare earth metals, and its rare earth permanent magnet industry could be restarted.

In the near future I will tell you about my trip last week to Bokan Mountain, and my discussions there with Jim Barker and Tony Mariano, on the sites of some of the richest samples of heavy rare earths in the USA. The extent of those minerals and an appropriate metallurgy is to be determined, but I think that Ucore’s deposits, when fully explored later this year, could make the USA independent of the rest of the world for its heavy rare earths.

It’s exciting to see developments such as Rare Element Resources and Ucore Rare Metals in the USA.

By the way, I congratulate Rare Element Resources on its listing yesterday on the NYSE Amex exchange. That’s a brilliant business move.

It has now been reported in the Wall Street Journal that China is in the process of creating a unform governmental policy to export chemical engineering processing technologies so that the non-Chinese production of vital raw materials can be done economically by enabling foreign (to China) owned and located mining ventures to move up the supply and value chains far enough so that they can be profitable.

The Chinese rare earth processing industry, for example, is working with several foreign rare earth juniors to make their business models economical. In return the Chinese processors will get access to rare earth metals produced overseas, and hopes that once foreign local demands are satisfied there will be ample surplus material to be sold into the Chinese home market as needed.

The production of the heavy rare earths, it is hoped in China, will be enabled by chemical engineering technology exports of this type.

Apocalyptic predictions on the future of US military security and its civilian economy, if China cuts off the export of the rare earth elements (in which it currently has a production monopoly) are masking an even more important dilemma. What will happen to China, if it cannot produce or obtain sufficient rare earth elements to maintain its rate of domestic growth?

The rare earth supply ‘crisis’ can and will be solved when there is sufficient production of heavy rare earths outside of China, to resolve the impending shortage that the Chinese perceive as a serious threat to the massive growth that they have planned, primarily for their domestic green technology industry, among others.

The recent hubbub about reduced Chinese export quotas for the rare earth elements, seems to not address the point that the quotas may in fact only affect  the export of raw materials, and not the rare earth elements contained in finished or semi-finished goods. If it is just the raw materials forms (separated and purified chemical compounds) the export of which are being reduced, then it may not matter so much at all, because China has been reducing its export of ALL such raw materials since the beginning of the 21st century when it openly decided to require that Chinese raw materials not be exported unless as much value as possible had been added in China first. This was a program to create jobs in China, and to bring new technologies and manufacturers to China in search of secure supplies of raw materials. It worked and seems to have simply become state policy.

I have been saying for some time that the rare earth elements supply issue is just the tip of a rare metals supply issue, that will grow to monumental proportions in this decade if China’s domestic economy continues to grow as a consumption-driven economy. China is already far and away the all time largest producer in history of steel; it today produces some 50% of the world’s raw steel. This has resolved the issue of supplying the necessary structural metal to advance China to a world class industrial power.

Now it is the time for China to begin producing or acquiring all of the technology metals, such as the rare earths, so all of those buildings can be electrified, the roads can be filled with high tech vehicles, and the people can have cell phones, flat screen television, and personal computers.

To the one billion of us in the Americas, Europe, and Japan who already live in the Age of Technology, we must now try to add one and a third billion additional Chinese, and to do this, apparently, in just another generation. Even assuming that non-Chinese technology utilization grows at only a small rate, if at all, from where are we going to get the resources of minerals, energy, and water to more than double the production of technology metals?  The answer is that we will not be able to do it. The world will now move towards higher and higher prices for technology metals. This and the geographic and geological distribution of metals, minerals, energy, and water may well lead to a world of have and have not nations. It may well be that geology becomes destiny, and those that do not produce their domestic resources, may wind up ultimately only being financially able to be suppliers to the others. I am not talking only of African nations. I am speaking also of the United States.

Without ad hominem attacks on me or on my patriotism, tell me please how we avoid America’s economic decline without now and immediately producing and conserving our own resources, and without going out into the world to find resources to sustain our standard of living and quality of life?

Japan and Korea have already begun to do just that in order to survive as industrial nations. Have we decided not to continue as one?