Rare earths in slag, nuclear power saving lives, and greeting the Tin Man — these and other Investor Intel moments of 2013
A commentator in a Sydney newspaper today describes 2013 as “a year of Friday the 13ths”. So far as those sectors followed by Investor Intel — rare earths, gold and uranium mainly, also potash and phosphate to a lesser degree — are concerned, the same description could apply to them. It is true to say that 2013 was not kind to any of them. But then it wasn’t kind to commodities as a whole: on average, commodities (from oil to agriculture to rare earths to gold) were off 8% for the year.
However, there seems to be more optimism about 2014. Analysts see global industry picking up, Europe raising interest rates and the American energy transformation continuing.
Over the space of a year, people like me write many words about many subjects. The Uralkali story accounted for a lot of those words, as did the surge in graphite interest, and Japan’s progress with sourcing rare earths from outside China. Much of what was written was over-taken by events, or contradicted by subsequent developments are therefore just filed away in the archives.
John Clarke here on Investor Intel yesterday picked his top six stories of the year. I won’t try to top that; instead, I scrolled through my 2013 offerings looking for items that, while not making big headlines, seem to have some enduring relevancy. Stories that were reported, forgotten, but somehow worth recalling as something to keep in the back of readers’ minds. So here we go.
1. Rare earths in slag
It was December 26, 2012, a week before the year began, but I am stretching my own brief to include it. This was the report on the Beijing-based Caixin website that the Chinese claimed they had something like $80 billion worth of rare earths contained in slag that has already been mined and treated from their biggest REE mine. The article quoted Baosteel Rare Earth Research Institute director Ma Pengqi saying the resource value of all that sludge contained by 20 metre-high concrete walls was equivalent to what still remained to be extracted from the Bayan Obo mine itself. That rare earth deposit retains a reserve of 36 million tonnes, which Ma says is 36 per cent of the world’s total. The Chinese company says researchers found the value of rare earths in the 180 million tonnes of slag was higher that the estimated remaining elements contained ore at the Bayan Obo mine. The average grade of rare earths averages 7% compared to 5.5% in the mine.
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Yet we have not heard another word about this, significant though it is.
2. The West’s rare earth problem is all its own fault.
Jumping forward to April, I advised not to blame China for that country’s dominance in REE. As I wrote back then: “We had them, we knew all about them — all about them that is, except how to maintain control (or at least assure ourselves of plentiful supplies) of these now vital elements“. I argued that the West — and the United States, in particular — surrendered without a fight. The United States once had such a head start. Even by 1951, Time magazine was condensing the name Molybdenum Corp. into MolyCorp. As the news magazine pointed to its readers back then, the elements with “tongue-twisting names” (the writer cited praseodymium, gadolinium, cerium, lanthanum and ytterbium) were in that year being seen as having a new importance as the jet and atomic age was opening up. It noted that cerium, combined with magnesium and aluminium, produced tough, light, heat-resistant alloys ideal for jet engine parts. The magazine’s story was provoked by the announcement from Molybdenum Corp President Marx Hirsch of the Mountain Pass discovery, said to contain 14 of the 15 rare earth elements. Time concluded: “If the deposit lives up to Hirsch’s hope, the U.S. will no longer have to rely on imports of the earth’s once forgotten elements.” As Woody Allan once said, if you want to make God laugh, tell Him your future plans.
In 1957, Oregon’s state Department of Geology and Mineral Industries published a report Thorium, the Rare Earths, and their Uses. In this, it was noted that rare earths were “one of the richest areas for exploration in the field of metals today”. It summed up very neatly the technical challenges of dealing with 15 elements (they considered yttrium separately) so remarkably alike in their chemical behaviour: “This characteristic has made chemical separation so difficult that only in recent years have metallurgists and engineers had relatively pure metals to use in testing and alloying”.
The Wall Street Journal reported in May 1965 that, before colour television came into being, rare earth producers had a surplus on their hands. By the time the article was written, it was a different story: supplies of REE by then were so tight that producers had to ration them. The newspaper reported that both Molybdenum Corp and American Potash & Chemical (which had taken over Lindsay Chemical and its rare earth business) were planning to spend more than $1 million each on new rare earth processing plants, and that Nuclear Corp. of America was planning a 10-fold rare earths expansion.
And yet it all went wrong.
3. The fact about nuclear power that its opponents won’t like to hear
Just moving a couple of days forward to April 6, I reported that “nuclear energy has saved — yes, saved — 1.84 million lives. And it has saved the Earth’s atmosphere from 66 billion tonnes of greenhouse gas emissions“. This was based on the conclusion reached by two scientists writing in the American Chemical Society’s journal, Environmental Science and Technology. Pushker Kharecha and James Hansen of NASA’s Goddard Institute looked at all the historical data between 1971 and 2009 and calculated how many more people would have died over the years from atmosphere-related issues such as respiratory diseases had nuclear not existed and, instead, that quantity of electricity had been generated by fossil fuel plants. They went on to extrapolate those figures over the next four decades —and conclude that nuclear power will save as many as 7 million more lives by around 2050. In other words, nuclear energy has prevented many more deaths than it has caused.
Keep this report up your sleeve for the next time you meet an anti-nuclear lobbyist.
4. Did the potash sector change for the better?
Not yet but, on August 1, I greeted the news of Uralkali busting up with Belaruskali as shepherding in a new era where cost control was going to rule more than ever in the potash industry. The Financial Times at the time was talking $300/tonne and I commented “that won’t matter to Uralkali whose cash costs are under $100/tonne, but it will to Germany’s K+S with a cash cost of $265/tonne”.
Overall, I saw it as the thin of the wedge in breaking up the market dominance of Belaruskali and Canpotex, and ushering in opportunities for new players. Wrong!
But here is a point I made then that we may have let slip from our minds: longer term (and apart from the world’s growing need for potash) miners outside the old USSR or North America will have certain advantages where they get producing close to markets. I cited Ethiopia and Eritrea for the Indian market; I should have mentioned West Africa (Republic of Congo or Angola, for example, for their proximity to the Brazilian market), or better still, located in Brazil itself. “As the United States is a potash importer, new mines there will also be close to a ready market“, was an afterthought. That much still remains valid.
5. Greet the Tin Man
September saw me extolling tin as the critical metal to watch after the World Bank said tin output may be able to be kept at this level of production for only another 19 years, and then there won’t be enough. Tin solder is needed in almost every electronic device. It’s now a technology metal, and lining food cans is one of its less dominant uses these days.
6. Can’t the West understand gold?
By October, I was getting pretty frustrated by the sell-off of gold in the West. I argued that there “is a fundamental flaw in the way gold is valued. That flaw is that market sentiment about the yellow metal is driven largely by Western analysts and institutions. By and large (and with a small number of honourable exceptions), they hate gold. If they don’t hate it, they certainly don’t like it, they can’t figure out why there is so much interest in the metal, and they can’t wait to put out client notes predicting the next big fall in the gold price”.
Meanwhile, in what seems a parallel universe, Asia continues to embrace gold. China is buying every bar it can get its hands on, Singapore has decided it wants to get some of the gold action, and make itself the gold-price referencing centre for Southeast Asia, and the Kuala Lumpur Stock Exchange, the Bursa Malaysia, is now trading gold futures. Western investors are letting gold slip through their fingers.
7. Besieged in Fort Rare Earths
Feeling a bit like Beau Geste* defending the French Foreign Legion fort against the Saharan African fighters (he propped up dead legionnaires to make it seem the fort was heavily defended), I came up in early December with some much-needed good news for rare earths and critical metals. A team from Yale University investigated possible substitutes for 62 different metals. Their conclusion: “For not one of the 62 metals are exemplary substitutes available for all major uses”. In starting their paper, the authors made a point that goes to an argument that I have put forward several times on this site: that it is difficult to make any real projections and forecasts because technology is changing too quickly — as in, no one in 1990 could have factored in iPhones. For all the talk of replacing rare earths from many technologies, it really is not yet a practical option. If that’s not good news, I don’t know what is.
And now on to 2014.
* The character in the famous 1924 novel of the same name by P.C. Wren. Gary Cooper played him in the 1939 movie.
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