Categorie: Grondstoffen

Het nieuws komt van een Iraanse website, waardoor enige voorzichtigheid geboden is het met trekken van conclusies. Iran heeft er natuurlijk belang bij om de oliemarkt een beetje op te hitsen, in de hoop dat de Europeanen met hun olie-embargo tegen Iran toch een beetje spijt krijgen van hun actie. Door het embargo kunnen Europese landen voorlopig geen olie meer afnemen uit Iran, waardoor ze op zoek moesten naar andere leveranciers. De eerste die daarvoor in aanmerking komt is Saoedi-Arabië, een land dat veel olie produceert en naar eigen zeggen over voldoende reservecapaciteit beschikt om de extra vraag uit Europa op te vangen.

Het bericht van de Iraanse website is uitermate summier en niet voorzien van beeldmateriaal over getuigenverklaringen die de berichtgeving kunnen onderbouwen. De explosie zou zich hebben voorgedaan nabij de stad Al-Awamiyah, gelegen in het olierijke oosten van Saoedi-Arabië. Op de website van The Arab Digest lezen we een veel uitgebreider verhaal over deze vermeende explosie bij een belangrijke oliepijpleiding. Ook heeft de site beeldmateriaal van het 'plaats delict' vrijgegeven. Het zou gaan om de pijleiding tussen Al-Awamiya en Safwa, die door niet nader gespecificeerde 'activisten' zou zijn aangevallen. Het gaat om agrarisch gebied, waarvan vele hectares door de koninklijke familie van Saoedi-Arabië gestolen zouden zijn.

Volgens de correspondent van The Arab Diges, die snel ter plaatse was om verslag te doen, is deze aanslag “een boodschap aan de Amerikaanse regering om de regering van Saoedi-Arabië ervan te overtuigen serieus te hervormen.” De schermutselingen hebben als doel aandacht te trekken van Amerika, het land waarmee Saoedi-Arabië een bondgenootschap heeft.

In de stad Awamiya, gelegen in het oosten van het land, hebben veiligheidstroepen twee demonstranten gedood. Daaaast zijn ze begonnen met een reeks aan huiszoekingen en invallen, waarbij mogelijk ook arrestaties worden verricht. Een columnist van een staatskrant bedreigde de demonstranten met 'etnische zuivering'. De rest van het verhaal leest u op The Arab Digest.

Saoedi-Arabië ontkent aanslag op de pijleiding

Bij Zero Hedge zitten ze er ook bovenop, want via het perscentrum van Dow Jones kwam het bericht binnen dat de berichtgeving over de aanslag op de pijleiding onjuist is. Er is dus iemand aan het liegen in deze kwestie. Op het moment van schrijven reageren de markten door de olieprijs voor een vat Brent olie op te stuwen tot $126. De WTI olie reageert minder sterk, maar staat ook alweer bijna op $109.

Foto's van de brand na de explosie bij de pijpleiding

Demonstraties in Safwa van gisteravond

 

Via Washington's Blog en met behulp van Google Translate:

Redenen om Iran aan te vallen

Door de vooraanstaande anti-oorlogsactivist David Swanson, schrijver van “Day Break” en “War is a lie”, en beheerder van de websites DavidSwanson.org en WarIsACrime.org (voorheen AfterDowningStreet.org).

1. Iran heeft gedreigd om terug te vechten als zij wordt aangevallen, en dat is een oorlogsmisdaad. Oorlogsmisdaden moeten worden gestraft.

2. Mijn televisie zegt dat Iran kewapens heeft. Ik ben er zeker van dat het deze keer waar is. Net als met Noord-Korea. Ik weet zeker dat zij de volgende zijn. We bombarderen alleen landen die echt kewapens bezitten en onderdeel zijn van de “As van het Kwaad”. Met uitzondering van Irak, dat was anders.

3. Irak ging niet zo slecht. Als je ziet hoe slecht hun regering is, is het land beter af met zo veel mensen die vertrokken zijn of zijn overleden. Echt; het had niet beter kunnen zijn als we het beter gepland hadden.

4. Als wij dreigen Iran af ​​te snijden van olie-export, dan dreigt Iran om Iraanse olie af te snijden, en dat is absoluut onaanvaardbaar. Wat zouden we doen zonder die olie? En wat is het punt om het te kopen als zij het willen verkopen?

5. Iran zat in het geheim achter 9/11. Ik las het online. En als dit niet zo was, dan is dat erger. Iran heeft in eeuwen geen ander land aangevallen, en dat betekent dat de volgende aanval gegarandeerd zeer snel zal komen.

6. Iraniërs zijn religieuze idioten, in tegenstelling tot Israëli's en Amerikanen. De meeste Israëli's willen niet dat Iran aangevallen wordt, maar de Heilige Israëlische regering wil dat. Om je tegen die beslissing te verzetten is als zondigen tegen God.

7. Iraniërs zijn zo dom dat als we hun wetenschappers vermoorden, zij een ​​auto-dealer in Texas inhuren zodat die een ​​drugsbende in Mexico kan inhuren om een ​​Saoedische ambassadeur in Washington te vermoorden, en dan doen zij dit niet, alleen maar om ons slecht te laten lijken dat we hen erop betrapt hebben.

7. b. Oh, en domme mensen moeten worden gebombardeerd. Ze zijn niet beschaafd.

8. Oorlog is goed voor de Amerikaanse economie, en ook voor de Iraanse economie. Troepen in Iran zouden dingen kopen. En vrouwen die de oorlog overleefd hebben, krijgen meer rechten. Zoals in Virginia. We zijn het aan de Iraniërs verplicht na dat kleine incident in 1953.

9. Dit is de enige manier om de regio te verenigen. Of we bombarderen Iran en zweert haar eeuwige liefde aan ons. Of, indien nodig, bezetten we Iran om het te bevrijden net als haar buren. Dit zal niet lang duren. Kijk eens hoe goed het in Afghanistan gaat.

10. Ze geven onze drone niet terug. Dat zegt genoeg.

Reuters schrijft dat verschillende Europese landen die afhankelijk waren van Iraanse olie in de afgelopen maanden al naar alteatieve leveranciers hebben gezocht. Zo deed Frankrijk al geen zaken meer met Iran voor haar oliebehoefte en hebben ook landen als Italië en Griekenland, die via de Middellandse Zee veel olie uit Iran aangevoerd kregen hun afhankelijkheid voorafgaand aan de aankondiging van het olie-embargo tot een minimum beperkt. Daarmee hebben ze voorgesorteerd op het embargo, dat de import van olie uit Iran per ingang van 1 juli volledig verbiedt.

De Iraanse minister van olie ontkende eerdere berichten dat de olie-export aan zes Europese landen, waaronder ook Nederland, was afgesloten. Maar de handelsblokkade tegenover Frankrijk en Groot-Brittannië zijn nu wel bevestigd, waarbij de Iraanse minister in een toelichting duidelijk maakte dat het 'nieuwe klanten' heeft gevonden voor haar olie. In 2011 gingen er nog 700.000 vaten ruwe olie per dag van Iran naar Europa (inclusief Turkije), inmiddels zijn dat er ongeveer 300.000 minder per dag. Voorafgaand aan de officiële verklaring van het olie-embargo was de vraag naar olie al met 50.000 vaten per dag gezakt tot in totaal 650.000 vaten per dag.

Saoedi-Arabië heeft kenbaar gemaakt haar productie te zullen verhogen om de Europese vraag naar olie op te vangen, door bestaande contracten uit te breiden en rechtstreeks olie te verkopen tegen de spotprijzen (die van dag tot dag verschillen). Of Saoedi-Arabië daadwerkelijk in staat is om aan de extra vraag te kunnen voldoen is nog maar de vraag. Beleggers wereldwijd houden rekening met een toenemende onzekerheid, want de prijs van een vat Brent olie steeg met meer dan $1 en staat op het moment van schrijven op $119,67. De onrust rondom Iran heeft ook zijn weerslag op Amerikaanse WTI olie, want daarvoor rekent men op zondagavond een prijs van $104,06.

Hoge brandstofprijzen in Europa

De hoge prijzen zorgen, gecombineerd met een verzwakte EUR/USD wisselkoers, voor recordprijzen aan de pomp. Een liter benzine bereikte deze week een piek van €1,80 en zal mogelijk nog verder stijgen. De Europese Commissie heeft kenbaar gemaakt dat Europa haar olie-embargo op Iran nog lang vol kan houden, ook als andere olieproducerende landen de vraag niet volledig kunnen opvangen met extra productie. In Europa zouden namelijk nog voldoende voorraden olie aanwezig zijn om het 120 dagen zonder nieuwe aanvoer vol te houden.

De Iraanse economie leunt zwaar op de olie-export en het embargo van Europa en Amerika was er dan ook met name op gericht om Iran economische schade toe te brengen. Het isoleren van Iran heeft zijn uitwerking niet gemist, want de Iraanse valuta verloor in een paar maanden tijd de helft van haar waarde ten opzichte van de Amerikaanse dollar. Vooral producten die Iran invoert worden door de zwakke valuta erg duur, waardoor de kosten van levensonderhoud voor de Iraanse bevolking snel gestegen zijn.

Olie-embargo nog niet succesvol?

Het effect van het olie-embargo lijkt minder sterk, omdat Iran haar olie nog steeds kwijt kan aan klanten in Azië. Landen als China, India, Japan en Zuid-Korea nemen ook veel olie af en zouden niet van plan zijn om zich achter de Amerikaanse strategie te scharen. India sloot onlangs al in het geheim een verdrag met Iran om olie af te nemen tegen een betaling in goud, terwijl er nog steeds geen bewijzen zijn dat China daadwerkelijk haar import van Iraanse olie gaat terugschroeven. China probeert, net als Amerika, haar toekomstige behoefte aan energie en grondstoffen veilig te stellen. Amerika kiest daarbij een aanpak van harde confrontatie in het Midden-Oosten, terwijl de Chinezen juist hun intee voorraden aan grondstoffen (en zeldzame aardmetalen) aan het uitbreiden zijn en hun reserves aanspreken om natuurlijke bronnen in het buitenland weg te kopen. Vooral in Afrika is China erg actief met de winning van grondstoffen.

Europa lijkt, als bondgenoot van Amerika, nog de minste garen te spinnen bij de oorlogspropaganda tegen Iran. Europa is veel meer dan Amerika afhankelijk van anderen voor haar energiebehoefte en betaalt daar nu al een hogere prijs voor. Rusland spint ondertussen garen bij de hoge olieprijs, want ook dit land heeft grote reserves die het ook naar Europa exporteert.

Iran sluit olietoevoer naar Frankrijk en Groot-Brittannië af

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation

Terence van der Hout

Feb 5 – 11, 2012 Gold&Discovery Fund

South Africa to nationalize platinum?
Despite the market sentiment mirroring a fatal crash to fathomless bottoms, the margins of precious metal producers were at record levels in 2011. You wouldn’t tell from their valuations on the stock markets, but some companies were eaing $1,000 per ounce of gold produced, filling their coffers with cash that may be used for expanding their reserves through exploration or take-overs.

The profitability of mining in this age of resource scarcity has not gone unnoticed. Countries that host mining operations are resorting to grabbing an ever larger share of the pie. Taxes on revenues have risen in some countries, and windfall profit taxes have been adopted in others (notably Ecuador). The most extreme form has been the nationalization of the gold mining industry, in Venezuela, a thought the more radical wing of South Africa’s ruling party ANC has also been flirting with.

This week, the ANC published details of a highly politicized report that is intended to spell out South Africa’s strategy towards minerals and their ownership. The bottom line is that nationalization is not an option, as it would be totally unaffordable, and this may be a relief for those who had been watching things getting progressively worse in South Africa. However, the report does come up with a number of pretty hefty proposals. For one, the sale of mine rights will be heavily taxed in order to prevent the practice of squatting (the formation of a company and application for mineral rights even though they have no intention of mining. After getting the licence, they sell the rights for big money). Govement’s stake in ownership would rise substantially, and a windfall tax of 50% on profits is suggested.

There was one exception to the non-nationalization principle. Given its strategic character, the ANC is set to consider the nationalization of platinum, a so-called targeted mineral. South Africa produced 75% of the world’s platinum (and holds around 95% of the world’s reserves), and is seen as a crucial input for the development of certain technologies, particularly in fuel cells. The report specifically stated that “between us and Zimbabwe, we can control the world’s platinum.”

There are contradicting views on the status of the report. Some indicate it is very likely to be adopted at a national executive committee meeting next Saturday, given that it was pushed by President Zuma himself. Others, however, see the document as a guidance which might not necessarily be implemented. The level of politicization surrounding the report ensures that it will at least get a serious consideration, and even a watered-down version has serious consequences for mining in South Africa. Should the nationalization of platinum be implemented, we can be sure this will change the landscape for platinum miners.

Platinum is used primarily in the automobile industry in catalytic converters, and has precious metal value in its use as jewelry. Markets were in deficit over 2010, but tued positive in 2011. A small surplus is expected in 2012, but the South African policy could change the supply/ demand rationale.

There are no primary platinum producers, as platinum is always found in conjunction with the platinum group metals (PGM) palladium and rhodium. Also, the PGMs are associated with nickel and copper, and platinum is often a small part of any deposit. Outside of South Africa and Russia, there are really only two producers that mine the PGMs as a primary focus. One is active in Canada, and is called North American Palladium (PDL). The name is a give-away in that the deposit’s platinum/ palladium ration is so heavily skewed towards palladium that platinum production isn’t reported separately. The second is US-based Stillwater Mining (SWC), whose ratio is somewhat better. It produces roughly 120,000 oz. platinum a year, on top of a further 180,000 oz. that it recycles, so it has a more direct exposure to platinum. However, its operations are fairly stable, and there is little upside from a resource expansion point of view.

There is one junior miner that has a more or less primary PGM deposit that is rather nicely skewed towards platinum. Prophecy Platinum (NKL.V) holds a resource of 5 mil oz. of decent grade (>0.5 g/t) platinum, on top of roughly 4 mil in palladium, and 2.3 mil oz. of gold. The project is situated in south west Yukon, and is still in  fairly early stage of development. A preliminary economic assessment (PEA), is due this quarter, so they have a long way before production. However, the company is still drilling off the deposit, and junior miners have a tendency to become increasingly fairly valued the closer they get to production. Should South Africa coer the platinum market by ‘targeted’ nationalization, we may expect this to be one of the companies to shine.
 
Twitter: @GoldDiscFund
www.gdfund.com

 
Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

Copyright: The information in this bulletin can be forwarded, cited or used otherwise, but only within the context as intended by the author, and with complete reference to the source.

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation

Terence van der Hout                    

Jan 22 – 28, 2012 Gold&Discovery Fund

This week’s bulletin looks back on the performance of REE prices and the REE juniors, in 2011.

Number crunching 2011
Needless to say, 2011 was a dramatic year for all metals. Throughout the spring, summer and fall, fear of a repeat of the 2008 crash crept into the market in force. The financial troubles of both the US and Europe were major triggers for fear, helped by a slowdown in China propagated by weste media as a hard landing. The Fukushima black swan event pushed sentiment further off the cliff, and investors fled the risky mining markets, opting to hoard cash or accumulate perceived safe govement bonds. Even the precious metal miners with record margins and profits, were seen as risk plays, and subsequently ditched.

The full force of this fear was reflected in base metal prices, as demand for commodities is the first to suffer in an economic downtu. Base metals were -20% on average, during 2011, as we can see in the right column of the table, courtesy of Haywood Securities. In fact, except for a slightly positive performance of antimony, gold was the only metal that shone in 2011, gaining a solid 11%. A true out-performance.
However, despite gold’s good run validating the continuity of a decade-long bull market, the senior gold producers index (HUI) was -13.1% for the year, and the junior HUI was -32.5%. Clearly there was no appetite for equity, what with the -80% to -90% losses that investors had experienced during 2008.

And what of the rare earths? After a jubilant start following on from the run in 2010, the Fukushima disaster made everyone aware of where the real demand for rare earths is. Japan’s industrial activity crashed, and the demand vacuum quickly forced prices of the REE to fall. The drop was helped further by downstream manufacturers protesting against the high prices and threatening to engineer REE out of the manufacturing process and laying out plans to start recycling. The off-loading of Chinese speculators also didn’t do much good, and finally the seabed and moon-mining phantasies helped create a sentiment indicating that fears of a REE supply crunch were unfounded, that the metals weren’t so rare, and that companies developing REE deposits weren’t worth a dime.

Against this back drop, surprisingly, we saw export prices (FOB) rising 400% for the heavy rare earths (HREE), and almost 60% for the light REE (LREE), in 2011. The gains were, of course all made before the summer (note the time lag between the Fukushima disaster and when demand lapse kicks in in August), but annual performance is stellar nonetheless. And although prices have been declining since, after an initial strong correction this has flattened out considerably.

Looking back towards the end of 2009, when REE prices reflected a ten year period of Chinese monopoly and a rest of the world that didn’t care, we can appreciated the tremendous price gains that have been made by the various REE during the two-year bull run. Surprisingly, it is the LREE that have made the most gains, averaging more than +1,100% over the period.  

 
Tuing back to 2011, the juniors in the REE sector have not benefitted at all from the underlying REE prices. Taking a peer group of both the most advanced LREE and HREE companies, 2011 has generally been a dismal year, with valuations ending more than 50% lower than when 2011 started. The disconnect is visualized in the graph above (which is indexed). Where the HREE juniors at first rose, this uplift later dissipated, ending at about the same indexed valuation as the LREE. In effect, REE juniors have been hit even harder than the gold juniors.

 
I would have expected a partial reason for this disconnect to lie in the fact that most REE juniors have a long road to production ahead of them, if they get there at all. Thus, all predominantly HREE juniors and most of the LREE juniors should receive a more than average lower valuation to discount this added risk. Alteatively, we would expect the most advanced REE companies with imminent production (Molycorp and Lynas), to have fared better. They both aim to start production from mining operations later this year, and most hurdles have by now been taken or addressed. However, this thesis is not supported by their share price development, Molycorp dropping -55% and Lynas -47% in 2011, mirroring the rest of the sector. In fact, the only REE junior to have escaped this scenario is Australian Alkane, which is seeking to produce yttrium (a Heavy REE) as a by-product of their zirconium and niobium operations in 2014. The by-product nature of the REE probably explains their -11% performance over 2011.

In effect, very little has changed. The sector is still not well understood, even after a two-year bull run. China’s monopoly is clearly not helping anyone predict what the market will look like once a number of non-Chinese juniors get to production. And identifying a good project from a mediocre one is, given the market caps of some juniors, still a gamble to most investors. There are so many variables at play that it is hard to determine which projects will actually become good enough to make money. And since speculation has left the market, we are left with a deflated REE junior mining sector in need of a trigger that may differ from the one that will light the more mature precious metal junior mining sector.

Twitter: @GoldDiscFund
www.gdfund.com

 
Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

Copyright: The information in this bulletin can be forwarded, cited or used otherwise, but only within the context as intended by the author, and with complete reference to the source.

Het investeringsfonds van Eric Sprott gaat een nieuw exchange-traded fund (ETF) lanceren dat volledig gedekt zal worden met fysiek platina en palladium. Er zullen 11,5 miljoen aandelen van $10 worden uitgegeven, waardoor het investeringsfonds $115 miljoen binnenhaalt om fysiek platina en palladium mee te kopen. Het nieuwe ETF zal op dezelfde manier gestructureerd worden als het bestaande PSLV, het zilverfonds dat Eric Sprott eind 2010 opzette en dat ook een volledige dekking met het edelmetaal kent.

Het nieuwe ETF voor platina en palladium is gericht op beleggingsfondsen en institutionele beleggers en moet het voor hen makkelijker maken om blootstelling te krijgen aan de prijsontwikkeling van deze metalen. Via het nieuwe ETF van Eric Sprott zitten beleggers immers wel dicht op het metaal, maar hebben ze geen omkijken naar de bezorging en opslag ervan. De aandelen van het nieuwe platina en palladium ETF zijn immers vrij verhandelbaar, waardoor ze in principe net zo liquide zijn als aandelen.

Het fonds focust zich op de lange termijn en zal dus niet laten leiden door prijsontwikkelingen op de korte termijn, dat maakte het beleggingsfonds van Eric Sprott immers bekend aan de US Securities and Exchange Commission. De prijs van platina is op moment van schrijven $1523, terwijl palladium voor $666 per troy ounce verhandeld wordt. Ten opzichte van tien jaar geleden staat platina drie keer zo hoog, terwijl palladium is verdubbeld in prijs. De twee edelmetalen zijn minder bekend dan goud en zilver, omdat ze geen monetaire functie hebben (gehad). In plaats daarvan kennen beide metalen veel industriële toepassingen, waardoor de koers ervan meer beweegt zoals die van een andere industrieel metaal zoals koper. Echter zijn palladium en platina zeer schaars, waardoor ze ook voor beleggers erg interessant kunnen zijn.

Door de uitgifte van 11,5 miljoen aandelen in het nieuwe ETF kan Eric Sprott in totaal $115 miljoen aan platina en palladium van de markt halen. Met de huidige dagkoers is $115 miljoen goed voor ruim 75.000 troy ounce aan platina of ruim 172.000 troy ounce aan palladium. Volgens data van Johnson Matthey staat 10.000 troy ounce aan palladium en platina gelijk aan respectievelijk 0,13 en 0,11 procent van het totale aanbod in beide edelmetalen over heel 2010. Daardoor zal het nieuwe ETF van Eric Sprott maar een marginale invloed hebben op de prijs van het metaal op de termijnmarkt.

Beleggers die aandelen kopen in het nieuwe platina en palladium ETF kunnen, mits ze minimaal 25.000 aandelen in bezit hebben, ook elke maand fysiek metaal opvragen uit de kluizen van Sprott Asset Management. De koers van het ETF zal meebewegen met de onderliggende waarde van het edelmetaal en met de wet van vraag en aanbod, waardoor alle aandelen uit het ETF samen meer waard kunnen zijn dan de onderliggende waarde op zichzelf (in dit geval de baren van platina en palladium in de kluis). Het PSLV zilverfonds van Eric Sprott wordt momenteel ook al voor 30% boven de onderliggende waarde verhandeld, waarmee beleggers aangeven een meerprijs te willen betalen om een positie in het ETF van Eric Sprott te krijgen.

Platina en palladium reageren door hun industriële toepassing sterker op de toestand van de economie dan goud en zilver, de edelmetalen die ook een monetaire functie hebben (gehad). Begin 2008 bereikte platina nog een hoogtepunt van $2252 per troy ounce, maar toen de crisis eind 2008 en begin 2009 in de meest kritieke fase zat daalde de prijs van dit edelmetaal tot slechts $800. Beleggers die in een ETF voor platina en palladium stappen moeten dus voorbereid zijn op de grote volatiliteit van de koersen.

Het platina en palladium ETF kent een managementvergoeding van 0,5 procent en er zullen ook kosten in rekening worden gebracht als een investeerder besluit aandelen van het ETF in te ruilen voor fysiek metaal. Dat zijn trouwens baren die voldoen aan de ‘Good Delivery Standard’ van de Londen Platinum and Palladium Market. Het edelmetaal zal worden opgeslagen bij de Royal Canadian Mint, een logische keus gezien het feit dat Canada het belangrijkste handelspunt is voor grondstoffen en daarvan afgeleide beleggingsinstrumenten. Morgan Stanley en RBC Capital Markets zullen de aandelen uitbrengen op de Amerikaanse beurs, terwijl Morgan Stanley met RBC Dominion Securities zal samenwerken om de aandelen van het ETF op de Canadese markt uit te geven.

Helaas is momenteel nog niet duidelijk wanneer dit nieuwe fonds daadwerkelijk opgestart zal worden. Gezien de details die nu al bekend zijn zal dit waarschijnlijk niet lang meer duren.

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation
 

Terence van der Hout

Jan 8 – 16, 2012 Gold&Discovery Fund

This week’s bulletin discusses the recently released Chinese REE export quotas, sees demand for REE in South Korea drying up, briefly looks at a Russo-Chinese lithium joint venture, and summarizes a PwC survey on scarce natural resources.

China quotas
In what I find to be a somewhat surprising move, China has revealed their 2012 export quotas, and for the first time since REE have become important commodities, China will not lower the amount of exports leaving the country this year compared with the previous one.

For the number cruncher amongst us, the H1 quota has been set at 10,546 tonnes (somewhat lower than this time last year), but the full year quota is  cited to be ‘basically level’ with that of 2011, with Bloomberg even calculating a slight rise from last year’s level.

The surprise to me is the fact that quotas are not down significantly, despite clear signals from China in the form of production stops, limited export licenses, a new invoice system, additional taxes and a broadening of the goods subject to the export quota regime. All these measures were, in my opinion, aimed at keeping the prices of FOB prices high allowing the Chinese to capture downstream REE technology for a more value added and permanent advantage in the sector. Perhaps the Chinese have taken the WTO allegations to heart, and have opted to concede, favouring a lower inteational profile in a year of China’s leadership changes.

Well, I believe the devil is in the details, as officials also unveiled a new system that would split the quota into light (LREE), and medium-to-heavy (MHREE) categories. The lights are more abundant, cheaper, and less rare, whilst the MHREE are more valuable, scarcer and much more critical. Under the new system, the export of 9,095 tons of light minerals is permitted in 2012, leaving a mere 1,451 tons for the medium-to-heavy category.

Until now, the absence of this segregation has meant that Chinese traders weighted their exports towards the HREE, solely because their vastly higher prices meant more revenues. This meant that traders would seek to first offload all of their HREE, until demand for them was satisfied, before tuing to the LREE. This is now being curtailed, in favour of a system that will attempt to keep more of the elements for which China sees looming shortages in the upcoming years, within the country. So although China’s case at the WTO appears to be saved, the new system will leave the rest of the world with less of the rare earths that are truly in demand, whilst flushing us with the type of REE that Molycorp and Lynas have said they will be producing 26,000 additional tons of this year (satisfying two-thirds of global demand currently supplied by China).
In all, these changes in quota policies will eventually lead to a mere trickle of REE exports from China, keeping virtually all of the valuables within the country for the further development of their industries. There will be no demand for nine-tenths of China’s REE exports. The measures must therefore be considered a further step in China’s desire to become the centre of green-tech and high-technology innovation, and not one accommodative to the true demand of everyone else.

South Korea’s REE imports from China drop 48.3%
As we know, rare earth elements are important and often irreplaceable inputs to hybrid and electric vehicles, wind turbines, liquid crystal displays and other day-to-day high-tech equipment. Despite this importance, South Korea, one of the largest end-users of REE, has seen a marked reduction of REE imports from China, last month. This comes not as a consequence of lack of availability in China, nor because of any other supply constraints that we have been reading and writing about during the last year. Rather, the suppressed global economic environment has muted demand for luxury goods in general, affecting the many products containing REE. In South Korea, companies were apparently able to secure enough supplies on the price drawbacks over the summer.

Although demand for REE has shown annual growth rates averaging 8-10% over the last decade, the 2008 credit crunch caused a massive break in the uptrend. This lasted just a year, but the current lower demand is a clear indication that we are in similar straits. In fact, by November, only about half the quota had been shipped out to buyers outside of China, as demand has slumped considerably. Clearly we are delaying our purchases of new automobiles, laptops and plasma TV sets as we wait for Eurozone and US financial woes to dissipate, and the BRIC countries to retu to their growing ways.

Russia and China open largest lithium battery factory in the world
The world’s largest lithium battery manufacturing plant opened in Russia, just before Christmas. The factory is a joint venture between China and Russia, and is focused on providing batteries for urban bus (and truck) transportation in the two countries. Where subsidization of clean energy programs in both the US and Europe are being suspended because of funds redirection or austerity measures, it is the BRICs that have taken up the gauntlet of curbing their environmental degradation caused by the growing energy consumption of a wealthier population.
China is rolling out the mass production and usage of electric busses as part of their 5 year plan ending in 2015, and is aiming to build quick battery exchange stations rather than developing recharging technologies. Liotech, the producer of the batteries, claims they are capable of operating within a large range of temperatures, -45°C to +65°C which ought to suit both the Russian and Chinese weather conditions, and the range is estimated to be about 200 miles.

PwC surveys scarcity of metals
PricewaterhouseCoopers have reported results of a global survey on conces in industry about shortages in supplies of natural resources. Scarcity is a very real and current issue, and is caused by the growing demand for materials, and political issues.

Executives in the automotive, chemicals and energy industries perceive themselves to likely be hit hardest by scarcity of metals and minerals, in the next five years. The renewable energy, automotive, energy and utilities sectors are already facing supply instability, while those in the aviation, high-tech and infrastructure sectors expect increasing disruption of supply by 2016. Chemical and high-tech companies were least prepared for a supply disruption, mirroring to some extent the level of criticality (and lack of alteatives) in these industries.

There is also a geographical divide. European companies are more conceed than their Asian or American colleagues, and govements are much more aware of the issue in Europe than elsewhere. This reflects the almost complete absence of natural resources on the European continent, which, after millennia of natural resource exploitation, has become almost completely dependent on imports from other parts of the globe.

Finally, firms said the problem is currently focused upstream. Suppliers were very much conceed about scarcity of inputs, whilst customers generally saw much less of an issue. This is exactly the crux of the problem for the rare earths. Clearly, with the current economic downtu, end-users are not yet feeling enough of the pain to force them to move upstream to secure supplies. Should various forms of quantitative easing retu to fashion and economic activity be subsequently revived, the supply issue may retu with a vengeance.

Twitter: @GoldDiscFund
www.gdfund.com

Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

Copyright: The information in this bulletin can be forwarded, cited or used otherwise, but only within the context as intended by the author, and with complete reference to the source.

 

Via de Twitter van Willem Middelkoop de volgende 'must see' documentaire uit 2009. Deze documentaire is het verhaal van Percy Schmeiser, een Canadese boer die aangeklaagd werd door het Amerikaanse Monsanto vanwege het schenden van Monsanto's patenten. In de documentaire komen tal van ethische bezwaren tegen aanpassingen van de genetische bouwstenen van voedselgewassen die moeder natuur heeft voortgebracht aan bod, maar bij uitstek gaat deze documentaire in op de wijze waarmee het eigendomsrecht van de één kruist met het eigendomsrecht van de ander.

Via de website van Percy Schmeiser:

Stelt u zich voor dat een storm over uw tuin raast – en dat er, zonder uw medeweten en zonder uw toestemming, buitenlandse en genetisch-gemanipuleerde zaden in uw moestuin terechtkomen terwijl u die moestuin voor vele jaren hebt gevoed en hebt onderhouden. Een paar dagen later komen vertegenwoordigers van een multi-nationale ondeeming u een bezoek brengen en eisen dat u uw groenten overdraagt en een strafrechtelijke klacht tegen u indienen en ​​u een boete van een $ 20.000 USD op u proberen te verhalen – voor het illegaal gebruik van octrooien en genetisch-gemanipuleerde zaden.

En er is meer: De rechtbank stelt de multinationale ondeeming in het gelijk!
Maar toch, u vecht terug…

Dit korte verhaal is geen utopie – eerder, over de hele wereld, is het de bittere praktijk. Het is de ervaring van de familie van Percy en Louise Schmeiser in Canada, die tevens winnaars van de alteatieve Nobelprijs zijn en die sinds 1996 in gevecht zijn met de chemicaliën en het zaad fabrikant Monsanto. Vandaag de dag is bijna driekwart van de geoogste genetisch gemanipuleerde planten over de hele wereld afkomstig uit de laboratoria van Monsanto. Monsanto is een Amerikaans bedrijf dat sombere uitvindingen, zoals DDT, PCB's en Agent Orange tot haar bijdrage rekent. In haar streven naar absolute hegemonie over planten te krijgen – van de akkers tot aan het bord van de consument – kent Monsanto geen scrupules. De boeren Tony Rush, David Runyon en Marc Loiselle zijn er via de harde manier achter gekomen wat het betekent om geconfronteerd te worden met Monsanto's manier van zaken doen, net als duizenden andere boeren over de hele wereld.

Zij en de Schmeisers zijn niet alleen tegen Monsanto aan het vechten – en daarmee voor hun voortbestaan ​​als boer – maar ook voor hun rechten op de vrijheid van meningsuiting en het recht van hun eigendommen.

Maar bovenal zijn zij campagne aan het voeren voor de toekomst van hun kinderen en kleinkinderen – zodat ook zij een kans zullen hebben om op te groeien in een wereld zonder genetisch gemanipuleerd voedsel.

Deze film is geruststellend … geruststellend aan allen die vrezen dat als een individu, niemand enige macht heeft om in verzet te komen tegen beleidsmakers, grote bedrijven of de zakenwereld. “David vs Monsanto” bewijst het tegendeel.

Ten grondslag aan deze documentaire ligt de wijze waarop – via patenten – economische beloningen worden toegekend aan nieuwe (uit)vindingen. De huidige invulling van patenten verschaffen partijen een exclusief alleenrecht om een toepassing (commercieel) te gebruiken. Dit zijn in alle eenvoud monopolierechten. Hierdoor worden bedrijven in staat gesteld om via de rechter concurrenten te verhinderen om gebruik te maken van dezelfde of soortgelijke technieken. Patenten zoals die nu zijn ingevuld beperken concurrentie.

Dat de huidige economie iets te doen heeft met kapitalisme is en blijft de meest hardnekkige misvatting. Dat komt niet alleen door centraal en fractioneel bankieren, maar ook vanwege deze monopolistische invulling van patenten. Dat een dergelijk alleenrecht in strijd is met de meest fundamentele beginselen van vrije marktwerking, namelijk vrije toetreding (en uittreding), is slechts één voorbeeld waaruit geconcludeerd kan worden dat de veronderstelde kapitalistische marktwerking pertinent onjuist is.

Via de achterdeur van wet- en regelgeving hebben overheidsbureaucratieën marktcondities geschapen die grote bedrijven bevoordeeld ten opzichte van kleine bedrijven. In “David versus Monsanto” wordt duidelijk dat die monopolierechten bedenkelijke bedrijfsstrategieën ontlokken, zoals die van Monsanto. De kruisbestuiving van genetische gemodificeerde gewassen met 'eigen' gewassen van boeren moet Monsanto geld opleveren. Monsanto wil namelijk via haar patenten de controle krijgen over de voedselproductie van boeren. Of boeren hier vrijwillig aan meewerken of niet.

Ten aanzien van de patentwetgeving is het eigenlijk van een nog grotere economische betekenis dat het aantal economische kansen en de diversiteit van die beschikbare economische kansen door de huidige monopolistische invulling van patenten worden beperkt. Door het ontbreken van vrije toetreding is het averechtse effect dat niet de doelstelling van het bevorderen van economische groei wordt bereikt, maar in plaats daarvan juist beperkt wordt.

Terwijl in de academische wereld patenten als maatstaf worden gehanteerd om de innovativiteit van een economie te meten, wordt er geen enkele aandacht geschonken aan de onderliggende economische gevaren van monopolierechten. Dat gevaar is eenvoudig samen te vatten, want: “Elk monopolie corrumpeert, absolute monopolies corrumperen absoluut!”.

Deze wijsheid wordt zeer treffend geïllustreerd in de documentaire “Percy Schmeiser versus Monsanto” en dus een must see: 

Deel één:

Deel twee:

Deel drie:

Deel vier:

Deel vijf:

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation

Terence van der Hout – Gold&Discovery Fund

Dec 18 – 24, 2011

This week’s bulletin takes a look at China’s decision to exclude Baotou from the country’s approved list of exporting companies, we see political issues continuing at Lynas’ Malaysian separation plant, and Greenland profiling itself as a future mining country to Chinese investors.

Baotou excluded from export list
In October, China announced it would suspend production at the world’s largest rare earth mine, Baiyun Obo, at Baotou. As explained in SMB50, the mine produces 60% of the world’s rare earths (of the lighter sort), and I considered the falling away of a few months’ production a nuisance, indirectly aimed at raising the export (FOB) prices. On Monday, the story received a serious follow-up with the announcement that Baotou will be excluded from the Chinese Ministry of Commerce's list of 11 approved exporters for next year, citing environmental conces.

Currently, Baotou has the highest quota for export, and if I use Gareth Hatch’s figures and select all the companies that are linked to Baotou, we are talking about a loss of 25.8% of the amount of rare earths currently available for export to the west, or 7,800 tons. So is this a bad thing? Well, an Aussie newspaper has cited industry insiders as saying the “lost exports from Baotou could lead to acute supply constraints and potentially prompt a surge in rare earth prices, mirroring a similar spike when China banned exports to Japan last year over a diplomatic row”.

For sure, if China is seeking to maintain current export quota levels, the remaining Chinese production capacity would need to fill the gap. We know a number of Chinese operations have been closed, and we also know that China is aiming for an annual production of roughly 90,000 tons moving forward. If for 2012 we take away all of Baotou’s production from the quotas, there would be roughly 18,000 tons left from other operations to ensure current export quotas are filled. These operations would collectively almost need to double production from current levels to achieve this goal. And REO will remain available to weste manufacturers at current levels only if China is willing to cede all of this added production for export.

Although these calculations are fairly crude for lack of a more accurate insight, even with a higher margin of error it becomes very clear that export quotas for next year will be substantially lower, should China follow up on these statements. We may not immediately notice the effects, given the economic state of Europe, the USA and Japan, but should policies become focused on providing more liquidity to the markets, we should find production in various sectors using rare earths pick up again, and cause renewed serious shortages in REE supply chains. Things may heat up again, with good chance of a repeat of rising prices, recycling and re-engineering efforts on the part of the manufacturers, hoarding, moon-mining stories and other forms of misinformation that will keep the media happy and the general public confused.

Lynas update
Lynas is insisting they will start processing rare earths at their Malaysian separation plant during the course of 2012, in spite of increasing resistance at grass roots level protesting against the hazards of radioactivity at the site and its surroundings.

As we discussed in a previous bulletin, Malaysia has a REE-radioactivity trauma thanks to Mitsubishi’s gross neglect during exploitation of their REE refinery in the nineties. Local birth defects and leukemia were allegedly linked to their operations. This has caused an understandably deeply rooted suspicion of similar current initiatives in the country, however much standards have improved since then.

However, in the run-up to the elections expected next year, the Lynas-issue has become politicized to the highest levels. Under pressure from regional politicians, Malaysia’s inteational trade and industry minister came out in public opposition to Lynas, reprimanding the company for  releasing completion dates for their separation plant that pre-empted the Govement’s approval process. The minister was further cited as saying  “The absence of any meaningful consultation prior to the construction of the rare earth plant is unacceptable.”

As we leaed from the IAEA representative in Hong Kong, the problem that Lynas have is not technical. It is assumed their plant complies to the highest environmental levels. The problem is social engagement, and the failure to address this sufficiently has politicized the issue to unnecessary levels. Given the history of REE production in Malaysia, social anxiety should certainly have been one of the major criteria for selecting the site for Lynas’ separation plant. And if it was taken into consideration, social engagement should have been a prime focus of activities from the outset. Even after eruption of the protests, Lynas would have been better suited to maintain a very low profile, instead of raising expectations about their production schedule.

Greenland presents itself
After wresting political autonomy from Denmark a few years ago, Greenland govement officials have recently gone on a road show to attract investors for their vast untapped natural resources, and the main focus is China. Mr. Berthelsen, Greenland's minister of Industry and Mineral Resources, led a delegation of Greenlanders to the China Inteational Mining Conference in November in search of Chinese mining companies willing to invest. The minister said his goal is to change Greenland into a land of mining resources. The govement hopes to see five or six mature projects for extracting iron, zinc and rare earths under way within five years.

Greenland is particularly looking for proceeds from mining in terms of infrastructure. Although the additional employment opportunities would also be welcomed, the inhabitants are largely fisherman and hunters, not destined for lives hauling rocks. Thus, importing Chinese labour would not present a large problem, further lowering the hurdle for Chinese companies.

Another positive development accommodative of REE mining in Greenland has been the govement’s recent inclusion of radioactive materials in rights to apply for exploitation licenses. Mining of substantial volumes of uranium is currently still forbidden, and the regulation change allows companies holding deposits containing uranium as a by-product (notably Australian company Greenland Minerals) to apply for an exploitation license.

Besides Greenland Minerals, which holds the largest rare earth resource outside of China, another company active in Greenland is fellow Australian company Ram Resources, exploring a deposit with large historic niobium and tantalum potential. Ram Resources is in early exploration phase. A third company exploring in Greenland is Hudson Resources. Hudson have changed from a diamond discoverer to a REE explorer when the REE market set fire last year. They have a light rare earth deposit of respectable size.

The opening up of Greenland presents a once-in-a-lifetime opportunity for resource-starved China to gain access to the Arctic, and it would surprise me greatly if Chinese investors failed to answer the minister’s call.

Twitter: @GoldDiscFund
www.gdfund.com

 
Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

Copyright: The information in this bulletin can be forwarded, cited or used otherwise, but only within the context as intended by the author, and with complete reference to the source.

 

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation

Terence van der Hout, december 4 – 10, 2011

This week’s bulletin is the final set of commentaries on the Hong Kong Rare Earth Conference, and covers the REE processing steps as described by ANSTO, summarizes the Ferro Corp presentation, and makes some concluding remarks on the conference.

ANSTO

The processing of rare earths (REE) into a product worth selling is, due to its complex nature and subsequent impact on operational costs, the make-or-break for a junior. Although I have touched on the topic of processing a lot in the past, I feel I should summarize the points laid out to us by Karin Soldenhoff from the Australian Nuclear Science and Technology Organisation (ANSTO), the institute that has been involved in designing and testing the processing flowsheets for Lynas, Arafura and Alkane.

Dr. Soldenhoff identifies five stages in coming to a viable REE concentrate:

1. Batch testing small volumes of REE helps understand the mineralogy and determines what is gangue material.
2. Designing a conceptual flowsheet, including various sub-stages through bench scale testing. This also helps in making preliminary cost assessments with regard to chemical agents. Chemical agents can contribute two-thirds of the operational costs of REE processing, so this is a crucial step.
3. In a mini pilot plant, the continuous processing of the flowsheet is tested, and scale-up issues identified. Data is collected that is used for a Preliminary Feasibility Study.
4. In a subsequent pilot plant, volumes testing is done in combination with the testing of different feeds. First steps are made in integration of various steps in processing.
5. Continuous testing of the fully integrated circuit at higher volumes is done in a demonstration plant. This delivers end-products for client testing.

Dr. Soldenhoff was there are numerous considerations to make during testing, and each will have impact on economics. These pertain to whether the mineralogy is well known, whether there is just one mineral or many, whether REE is a by-product or not, whether the processing is complex or not, where does the thorium/ uranium get separated, and whether a mixed concentrate will be produced or separated into individual elements.

Dr. Soldenhoff concluded that REE processing is NOT simple, and is not amenable to short cuts. As a reference, Lynas has taken over 10 years to get past this stage, and Alkane has needed 7 years to define a process for extracting two REE concentrates from their fine-grained zirconium-containing minerals.

Ferro Corp

In what was possibly the most interesting presentation in Hong Kong, Jai Subramanian of Ferro Corp introduced us to the world of polishing powders and ceramics.

Mr. Subramanian looked at strategies for coping with the price explosions for cerium in the glass polishing sector, and in ceramics. Glass polishing is highly sensitive to price. Where in the past cerium, at $7 per kg, was a low cost input, it has now become an input subject to efficiencies. In the polishing of flat glass, cerium has been eliminated completely. In other applications such as LCDs and camera lenses where replacement of cerium is not feasible (both price and performance are critical), manufacturers have been forced to improve upstream processes, reduce cerium usage to the benefit of zirconium, extend the life of polishing slurries, and take more liberties in what previously were the cost bottlenecks in the process. In all, the added processing costs that are the consequence of these measures are more than off-set by the reduction in cerium costs that are achieved.

In the world of ceramics (capacitors used in virtually every electronic device), Mr. Subramanian said cost is a very important factor. Because of innovation advancing towards further miniaturization, tiny volumes of material are needed to manufacture something which is a low cost high performer. Raising the price of an input ten-fold has severe consequences for the price of the end-product. Mr. Subramanian distinguishes between various classes of capacitors, ranging from those where performance is critical and the REE content is largest, to those where the input of REE does not constitute a necessary improvement to the operation of the capacitor. In the former, neodymium will remain a necessary element because of its properties of remaining stable in a range of temperatures. In the lesser performance-oriented capacitors, the usage of neodymium is more one of accidental development. Palladium was originally used, and when that got too expensive, a mixture of nickel, copper and neodymium was applied. Should neodymium remain too expensive or supply-constrained, Mr. Subramanian predicts that it will be engineered out of these capacitors, possibly replaced by magnesium. This would take two to three years of innovation, but once it is out, it will not retu.

Hong Kong conclusions

The sum of the Hong Kong Rare Earth presentations leads me to conclude that the application of REE will become more selective. REE production is destined to shift towards a split into two worlds. One route leads up the commodity path, where the input of REE is conditional on low pricing. We have seen that in the big (in REE terms), cost-driven markets for low performance capacitors, glass polishing of flat screens and the low performance magnets, the current pricing of REE is much too steep to be sustainable. It is here that REE will eventually be engineered out of the products, in favour of lower cost inputs with similar characteristics. Innovation in this commoditized section is already in full swing, and whether the prices of rare earths drop or not, I would assume that given the insecurities involved as well as the politicization that has become inherent in REE, this development will continue, leading to a sustainably lower demand in these sub-sectors. If the REE isn’t price-competitive, it’s out. It is here that large volumes of future REE demand will probably be lost.

The second route that REE will take, is where performance is a precondition for the quality of the end-product. Where the product is subject to harsh environmental conditions such as high temperatures, corrosion, etc. This is where REE are irreplaceable. Rising costs are considered a nuisance, and may lead to reduction strategies and other efficiencies, but REE will be needed for an indefinite period. Particularly in high performance magnets and phosphors, demand will remain strong and may even strengthen given the particular unique characteristics of some elements. And despite current market conditions that see speculators offloading their stocks and lower demands due to unsure global economic conditions, supply is not likely to keep up for such elements as dysprosium, europium and terbium for a while.

It is these sectors that presentors at the conference refer to when they say that there will be no new and high technology without rare earths. Period. A few of these technologies, such as magneto resistance and magnetic refrigeration have the potential to tap into multi-billion dollar markets. Other markets have yet to be discovered. All it takes is a steady supply of a specific set of rare earth elements, and this is where the challenge lies for juniors: find and develop deposits containing these elements, preferably economically, and don’t get too distracted by the mixed signals that are currently being sent out to confuse uninformed investors.

Terence van der Hout

Twitter: @GoldDiscFund

www.gdfund.com

 

Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

 

Copyright: The information in this bulletin can be forwarded, cited or used otherwise, but only within the context as intended by the author, and with complete reference to the source.

Aims to update investors on developments in the world of strategy metals – crucial inputs to industry, defense and technology innovation

Terence van der Hout
Nov 27 – Dec 3, 2011 – Gold&Discovery Fund

This week’s bulletin is covers my interpretation and selective thoughts on two presentations given at the Hong Kong REE Conference, namely those of Molycorp and Roskill.

Molycorp strategies
Molycorp, together with Lynas prime contender to become a major near term non- Chinese producer of rare earths (REE), has a practice of being very vocal in the press whilst managing to leave the world in confusion as to what was actually meant. Molycorp’s presentation in Hong Kong more or less followed this tradition. Two topics that came up in the presentation are highlighted here, namely the status of their mine-to-magnet strategy, and an elaboration of what Molycorp calls a heavy REE (HREE) strategy.

Mine-to-magnet strategy
Molycorp’s business strategy envisages complete control over their supply chain from ore to the production of high performance magnets, their so called mine-to-magnet strategy. Historically, Molycorp was capable of extracting the light REE (LREE), separating them into purified oxides, and in some instances manufacturing them into metals & alloys. Now, in a rare earth world driven by magnets, Molycorp is going the extra mile to capture the final and most value added stage in the chain, namely the production of high performance magnets. Sintered NdFeB magnets, currently the most powerful magnets, are applied in hybrid vehicles and generators in wind turbines. They contain neodymium, iron and boron, as well as small quantities of dysprosium to improve their operating temperature.

Molycorp conveniently colours the steps in the supply chain that they proclaim are already under their control in blue, and if the joint venture with Daido Steel and Mitsubishi announced yesterday takes off, they will be in a position to colour the final green chain blue as well. Moving up the chain, the manufacturing of magnet alloys is done at the Tolleson facility, recently acquired from Santoku America. However, there is a slight chink in the chain which doesn’t get a lot of air-time.

 
Earlier this year, Molycorp purchased the Silmet separation plant in Estonia. Silmet has historically been fed by loparite concentrate from the Russian Kola Peninsula, and is therefore exclusively focused on producing separated oxides and metals for the light REE and other metals such as tantalum and niobium. Just recently, Molycorp proudly proclaimed that neodymium metals can now be produced by Silmet. However, what it doesn’t do is produce separated or purified dysprosium or dysprosium compounds & metals, a key ingredient for making magnetic powders. And as we move further up the chain, the chink is paralleled on the extraction side. Despite the Molycorp presentation containing a figure proclaiming the pending production of dysprosium, no production has officially been recorded in the recent past at Mt Pass (although a solvent extraction circuit was designed). Perhaps the figure relates to future production from their recently ‘rediscovered’ HREE deposits, but I would expect it will be at least another 5 years before HREE concentrate comes pouring from the leach tank there. So dysprosium as yet is the missing link for Molycorp.

HREE strategy – reduction
The second topic of note in  Molycorp’s presentation was their HREE strategy. This contained two interesting aspects. The first was their aim to reduce the application of HREE in technologies, and more specifically to help development of a dysprosium-free permanent magnet technology. We have just seen that Molycorp’s prime business strategy is to establish a complete non-Chinese supply chain for permanent magnets, which by their nature contain HREE and will probably do so for a long while. According to my neighbour at the conference (a representative from JLMAG Rare-Earth co. – a magnet maker from China), engineering dysprosium out of high performance permanent magnets requires at least 10 years of development. So, after announcing plans to develop four ‘re-discovered’ HREE deposits, Molycorp is embarking on a HREE strategy of doing away with the REE absolutely essential for their mine-to-magnet strategy. I must confess I found this confusing.

HREE strategy – tolling
The second interesting element regarding Molycorp’s HREE strategy was their intention of developing what I interpreted to be universal mineral cracking technologies for providing tolling services to juniors. The idea is to become a centre for industry where the separation of rare elements from the minerals they are contained in (so-called ‘cracking’) forms a financial or expertise hurdle for juniors with a promising deposit. This practice is quite common in the copper and gold industries. For those of us not well versed in the complexity of this phase in the processing of rare earths, we must consider that every deposit on earth requires a tailor-made flow sheet for separating rare earths from the encapsuling minerals. As the ANSTO representative showed us at the conference, every flow sheet needs to be tested extensively on bench and pilot scales before advancing towards production. Development is sequential and necessarily time-consuming, with no possible short-cuts. Thus, providing this as a service to juniors would be an incredible asset to the sector, but given the required level of ‘uniqueness’ of each flow sheet, I question whether this phase in the processing is amenable to outsourcing or tolling at all. The comments from Lynas in this regard, were a little bit more realistic, saying that they may consider providing tolling services for separation and purification of REO, but only after the juniors themselves have gone through the laborious process of cracking.

Roskill demand forecasts
On day two of the conference, Suzanne Shaw of Roskill looked at developments in green technologies and their effects on demand of rare earth elements moving forward to 2015. The technologies discussed were magnets for consumer electronics, automobiles and wind turbines, the usage of REE in nickel metal hydride (NiMH) batteries, their application in phosphors, and their use in auto catalysts.

Magnets, as we have seen, are the high-value drivers of the REE industry, and because of the fears of availability of supply for the rare dysprosium and their price rise, alloy producers have been looking at ways of coping with the issue. As Yu Danbo from GRIREM Advanced Materials determined in his presentation, the NdFeB magnet cannot be replaced as the strongest magnet within the next 10-20 years, and manufacturers have not found ways of outright engineering dysprosium out of these magnets. Hence, the current focus is on efficiencies, and reduction of dysprosium in magnets from 5-8% to 2-4% is currently being achieved. Besides reduction, substitution of NdFeB with SmCo is a strategy that is also being applied in China, largely as a result of the high price of neodymium. This is taking place despite the fact that samarium is in short supply, and any replacement away from NdFeB magnets at this point is going backwards on the path of technology evolution. Roskill foresees a growth of 11-13% in this sector by 2015.

Tuing to electric vehicles (EV) and hybrid vehicles (HEV), the presentor forecasts a conservative uptake of HEV vehicles, probably as a consequence of the current market conditions combined with innovations in the efficiencies of standard inteal combustion engines. Also, the current line of NiMH batteries (containing lanthanum) is quickly being eclipsed in HEVs by the more energy dense and powerful Li-ion technologies. Growth of the NiMH technology will amount to 10-15% until 2015, and decline beyond that, impacting the application of lanthanum.

REE application in phospors (lighting and colours in displays) is largely irreplaceable. Both Rhodia and Mitsui have embarked on recycling innovations for extracting REE from the more commoditized fluorescent lamps. In the long term, Roskill foresees a decline in this sector by virtue of technology gradually moving from incandescents towards LEDs. Roskill foresees a 7-8% growth of REE demand in this sector by 2015.

Auto makers are finding ways to reduce the use cerium in catalytic convertors, but regulations are getting stricter in reducing CO2 emissions, offsetting the decline, and keeping a steady 6-7% growth for the sector.

In all, Roskill foresees rare earths growing from 125,000 tons in 2011 to roughly 170,000 tons in 2015, which despite recent doubts in various media conceing the long-term viability of the REE sector, is a very solid demand base.

Twitter: @GoldDiscFund
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Disclaimer: The author is a researcher for the Gold&Discovery Fund, and neither he nor the Gold&Discovery Fund has commercial ties to, or shares in, the companies reviewed, unless explicitly stated in the text. The information in this bulletin is the author’s independent opinion of developments in markets and at companies, and hence may contain factual errors, and may not reflect the opinions of the Gold&Discovery Fund. The content of this bulletin is not intended as an investment recommendation.

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