Every few years, a craze engulfs the commodity industry: A new and exotic source of mineral supply is about to emerge, solving all the world’s shortages. The list stretches the imagination from the ocean abysses (deep sea mining) to the vastness of space(asteroid mining).
The buzz today is more mundane: Greenland — cold, vast and, so we’re told, endowed with every mineral the world needs. So large are its riches that US President-elect Donald Trump wants it. Trouble is, the theory is utter nonsense.
US Vice President-elect JD Vance says the territory has “a lot of great natural resources” — but geological surveys say otherwise
Sources: Geological Survey of Denmark and Greenland; Natural Earth
As with every tall tale, the story starts from a grain of truth. The island of about 60,000 people, a self-ruling territory of Denmark, has some mineral deposits, some of which are even large. That’s unsurprising. Geologically, the island is an extension of the North American continent, and we know that the US and Canada do enjoy a significant mineral endowment.
But cynical observers should be forgiven a case of déjà vu: The hyperbole aroundGreenland and commodities has a 50-year long history. Back in the 1970s, the interest was about oil.The craze resurfaced in the early 2000safter oil and iron ore prices surged. Suffice to say the island doesn’t pump a barrel of oil and the miner that planned to develop aniron ore deposit went into bankruptcy.
Now it’s an eagerness to tap “a lot of great natural resources” — in the words of Vice President-elect JD Vance. But here, it really depends on your definition of “a lot” — certainly, using my definition, it doesn’t qualify. It’s not even close.
A 2023Danish geological survey identified at least 50 locationswith mineral potential. Of them, more than half are north of the Arctic Circle, making their exploitation very hard and expensive, if not impossible. A handful, however, are in the ice-free southern tip of Greenland, opening the door to development. But most of them are small. Of the potentially large, perhaps the most interesting one is the Tanbreez rare earths deposit.
Yet the geological report warns that Greenland has very little chance of developing its commodity deposits due to high production costs. “Greenlandic deposits could become more economically viable in the future,” it says, only if prices were to rise significantly.
The price of key rare earth elements surged in 2010-12 during a trade dispute between China and Japan, but they fell as quickly as went up
Source: Shanghai SteelHome E-Commerce
Here is where the sales pitch is required. Of course, prices will rise, the bulls say; haven’t you seen that China controls 90% of the world’s rare earth metals, and Beijing could close the tap any day, they add. Yes, I have; I even saw the price of dysprosium, one of the rare earth compounds often quoted as very rare and very important, go parabolic in 2011, during the last rare earth mania. In a few weeks, it went up 800%, only to crash nearly as quickly.
Rare earths are a bit of a misnomer — they are quite abundant. The problem is that rarely are they abundant in a concentration worth mining for. Even when the concentration is high, extracting the elements from the ore is expensive and very polluting. Hence why China controls the market. Not only does the Asian giant have more reserves than anyone else, it also doesn’t mind the environmental cost of the rare earths refineries.
Are the Greenlandic reserves of rare earths large? Not as far as we know. According to the US Geological Survey, considered an authority in the field, the island contains 1.5 million tons. That puts Greenland in the world’s top 10, but well behind the US itself, as well as China, Brazil, Vietnam, India and Australia. Very likely, mining for rare earths in all of those countries would be easier and cheaper than in Greenland.
What about the geopolitical considerations? Let me put it this way: Rare earths aren’t oil. Or copper; or uranium; or natural gas. In 2023, the total value of the rare earth compounds and metals theUS imported was $190 million. The price of rare earth can surge by 50 times and not be more than a blip for the US economy. And at those prices, American companies would find many projects at home before Greenland.
Despite the talk about its huge potential meeting future consumption needs, Greenland has very small reserves of rare earth elements
Source: US Geological Survey
True, if the cost of rare earths like dysprosium was to surge once again — and crucially, stay higher for a long period — perhaps some of the Greenlandic projects would make sense. But one has to assume the most bullish price forecasts — and simultaneously, that climate change will render mining in Greenland a lot easier than today, and that every other nation with rare earths reserves wouldn’t rush to develop their own, crashing the market.
Past performance is no guarantee of future results— but investors should beware of the siren song of the rare earth sector. Look at the VanEck Rare Earth and Strategic Metals exchange traded fund. It’s down nearly 80% since its launch in 2010.
If Greenlandic rare earths aren’t worth the time and money, perhaps other commodities? I don’t think so. Not at current prices, anyhow. Take cobalt, key for the batteries used by Tesla Inc. and other electric -car companies. It’s hoveringclose to a 20-year low thanks to Chinese miners, deterring investment everywhere. The same goes for nickel, facing a glut thanks to booming Indonesian output; likewise, iron ore. Perhaps copper has a future, but if prices climb, many other locations would be far more profitable – and offer far more production potential — than Greenland, which has very limited reserves of the reddish mineral. The same applies to more exotic minerals like titanium, tungsten and vanadium. For all, the potential reserves are equally abundant elsewhere, and at a lower production cost.
If the US is serious about mineral supply, it has better places to flex its diplomatic muscle. The Democratic Republic of Congo is, by far, the most important one — home of huge proved reserves of copper and cobalt, two minerals far more important than rare earth elements. So are Chile, Peru, Brazil and Mongolia. Kazakhstan goes into the list too. Sadly, none of them is for sale. But neither is Greenland.
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