resource investor article

North American Minor Metals Predicament Obscured By Oil Crisis

By Jack Lifton
15 Jul 2008 at 05:51 PM GMT-04:00


Last week, Senator Jon Cornyn (R-Texas) said that, “The U.S. is the only country in the world that refuses to develop its own natural resources.” It might have been more accurate for him to have said that the U.S. is the only country in the world that can be not only self sufficient in most natural resources, but has the money and the technology to do so, and yet does not.

He was speaking mostly, in fact, about oil. However it is crucial to understanding the natural resources supply crisis to note that the problem is much more broadly based than just on the U.S.’ dependence on foreign supplies of liquid and gas hydrocarbons. Americans need to understand that due to political refusal to develop their own abundant natural resources of strategic metals and minerals the U.S. has already become totally dependent on foreign sources, most of them unfriendly—or at best disinterested in American problems—for the very survival of some of U.S. basic industries and its place in the world! The wolf of resource hunger is literally at America’s door and the best the U.S.’ political class can think to do is to try and reason with the beast.




Adapting to a global market. American heavy industry now tries, after a very late start, to adapt to a now large, growing, and very competitive global marketplace for raw materials, for which there was little or no demand in the recent past. It has and put its American engineering and scientific resources into developing new technologies based on these new raw materials. The political class simply ignores the economic consequences of their anti-domestic-natural-resource-production actions. Moreover, with critical needs of the newest energy-saving and emissions-reducing technologies, it has made it impossible to obtain the necessary raw materials from domestic sources even though the U.S. could be self sufficient in these resources. In other words the U.S.’ political class is fighting against the very things they claim to champion, reduced:

Energy consumption; and
Pollution through the use of minor metals based technologies for alternative energy production; and
Energy consumption and emissions from machinery and vehicles.
Unless environmental bipolar disease, otherwise called economic-consequence-realization-disability, ECRD, is cured, the U.S. will lose not only its American owned-and-operated automotive industry but also its heavy industries and high tech sector as well.

Dependencies become self sustaining. Those who do not believe this need to take note of the fact that America’s growing dependence on foreign sources of liquid and gas hydrocarbons and its total dependence on foreign sources of strategic and critical minor metals will not change if it turns out that global warming is only a periodic phenomenon that is not affected by or caused by human activity. Today’s, American natural resources dependencies are politically driven. And many believe that they are a positive response to and a contribution to stopping global warming. The dependencies are now self sustaining due to:

Producing countries using their own natural resources to develop their own economies through the development of local heavy industries and high technology sectors just as the U.S. developed its own world-leading economy;
The mistaken belief by American financiers and business managers that the mechanics of free market capitalism as practiced in the U.S. will trump those of command economies and mixed free market/command economies, so that they wrongly believe that 1.) Any commodity will be available if a sufficiently high price is offered, and 2.) Demand alone will always generate new supplies; and
The mistaken belief that the dollar will always be the world’s reserve currency no matter what its value versus the currencies either of natural resource producing countries or those of countries without large trade imbalances.
Rare Earth Metals. An excellent example of North America’s self-created supply-crisis is the situation today with the industrially critical rare-earth metals.

In 1994 the United States was self sufficient in the 17 rare earth metals, scandium yttrium, and the 14 naturally occurring metals beginning with lanthanum, atomic number 57, and proceeding by one step at a time to lutetium, atomic number 71 (One of the series, promethium, atomic number 61, is naturally radioactive, short lived, and is no longer found on earth).

What are they used for and what is the significance of these metals? You may not have heard of most, if any, of these rare earth metals, but the general public and many industries, (and to a large extent, our politicians), do not understand that, without these rare earth metals, we simply would not have the technology that we have today. And now, with an impending crisis, it may be very difficult for us to retain a leadership role in new technology. We are on a slippery slope and the slope is getting steeper at a rapidly accelerating rate.t have heard of most, if any at all, of these rare earth me, but the general pub

In 1994, Mountain Pass mine, in southern California, produced 100% of U.S. demand for all of the rare earths, as well as 34% of the global demand for rare earths. The mine’s owner, MolyCorp—a unit of Occidental Petroleum—shut the operation down in 1994, because cost exceeded revenue. In the late 1990s Occidental Petroleum itself went on the auction block. Pressure from the U.S. government, designed to keep Occidental’s deep sea drilling technology, molybdenum production, and North American marketing organization out of the hands of the China National Oil Co., CNOOC, led Chevron to acquire all of the assets of Occidental. They included the shut-down Mountain Pass rare-earth mining and refining operations.

Late-20th century dawn of electric cars. In 1984 Sumitomo of Japan and General Motors in the USA had completed a joint research-and-development program to develop a small powerful permanent magnet that could be used to make electric motors smaller and lighter. This allowed all automobile doors to be made thinner and still contain the motors for power windows and power locks. The critical material for such motors was the rare earth, neodymium. Until 1994 the revolutionary, small, and powerful electric motors for vehicle applications were made for the US either by a GM Delco subsidiary or by a licensee of the process, which paid a royalty to GM in the form of a discount on every motor made.

After 1994 when neodymium was no longer produced in the U.S., even though the demand for small electric motors for an ever increasing variety of applications was booming, the neodymium-iron-boron magnet-manufacturing business went to Japan. Japan has no domestic supplies of rare earth metals, and these were then obtained by Japan from the People’s Republic of China, which, upon the shut-down Molycorp’s Mountain Pass operation, became the world’s sole supplier of rare earth metal concentrates. There was a short interlude after Mountain Pass shut down when some Russian and Indian sources of rare earth metals were available but Chinese predatory pricing quickly eliminated those sources just as many now believe that the same strategy had put Mountain Pass out of operation by 1994.

In the mid-1980s the American materials research company, Energy Conversion Devices, Inc., while working on hydrogen storage alloys had developed a rechargeable storage battery system based on the alloy LaNi5 where La is the name metal of the continuous band of increasing atomic numbered metals beginning with number 57, lanthanum, the lanthanides or ‘rare earths.’ This battery type, nickel metal hydride (NiMH), was able to hold twice the amount of energy as a lead acid battery and as GM looked at it as a possible battery for the electric car, which the company, was developing to meet California’s 1999 deadline for a zero emissions car. Toyota quietly licensed the battery technology. GM’s engineers determined that the first type of NiMH battery could not stand the deep discharge necessary to move a car from a dead stop and continue its forward motion for any great length of time without being irreversibly damaged. So they dropped the battery as an electric car power source and decided to go with lead acid batteries for their EV1. Conversely, Toyota engineers did not believe that the range and performance of a lead-acid battery-powered electric car was saleable in the market, so they hit upon the idea of a hybrid vehicle, one that would combine the best features of the new NiMH battery and of a gasoline engine to provide a power train with the range and performance of a normal gasoline powered car but with far better fuel efficiency and much lower emissions.

California dropped the zero emission requirement in 1999; and GM eventually withdrew the EV1 from the market and destroyed all of them as lessees returned them. Toyota introduced the Prius into the California market in 1999 and took a gamble on continuing the production of the car indefinitely. Today the Prius is the world’s best-selling hybrid car, and even GM admits that the Prius casts a ‘halo of green-ness’ over Toyota. That is astounding since the total contribution of the Prius to Toyota’s volume is currently under 3% globally.

GM lost half of its total market share since the introduction of the Prius and its ineffective approach to the NiMH-based hybrid with a variety of low production half-hearted cars, which culminated in a 2007 model year total failure of the NiMH batteries. They were made by its sole supplier, an American assembler of Japanese battery components that were designed in the U.S. Suddenly GM has seen the light, and claims that it will produce the car of the future. It plans a production run of 10,000 units in 2011; the electric car will be powered by a lithium technology battery. The car, a so-called ‘plug-in hybrid,’ will have a range, after charging, of 40 miles; then an onboard gasoline engine will run a generator to both recharge the battery and supply electricity to the drive motors. This car is expected to be twice the price of a Prius, powered by a battery that, as of this writing, is non-existent. GM wants it to cast a halo over the company giving it instant green credentials and an edge over Toyota.

In the meantime Toyota has committed to producing 1 million NiMH batteries for 1 million Priuses annually beginning in 2011. Honda has also committed to build a large number of NIMH batteries, some 200,000 per year, by 2011 to power its ‘Prius ‘fighter,’ which the company says will be smaller and less expensive than the Prius.

Clearly, the NiMH battery has a rosy future.

The problem for Toyota and Honda and the opportunity for investors is shown on the following graph (courtesy of IMCOA and created by Dudley Kingsnorth



China’s exports in question? Simply put, China’s domestic demand for rare earths has been estimated to exceed its production by early 2011. This projection was made before Toyota and Honda announced their commitment to NiMH batteries last month. (only a few months ago, this date was 2012 …. Something very scary is happening and faster than we first thought!)

That this is not just speculation is affirmed by information published in Metal-Pages.com on July 9, 2008, which points out that, “2H 2008 Rare Earth Quotas (issued by the Chinese Ministry of Commerce) will be 11,376 t REO. The 1H Quota was 22,780 t REO, making a total for the year of 34,156t REO. Comparing recent annual quotas, with annual reductions:

2004: 48,500 t REO

2005: 48,300 t REO -1/2%

2006: 45,000 t REO -7%

2007: 42,500 t REO -6%

2008: 34,176t REO -20%

This will be of great significance to non-Chinese consumers; particularly Japan where 2008 forecast demand has been put at >40,000t!!! (although that is not as REO but a mix of REOs, metals and alloys). The ROW will consume – if they can get it – 20-30,000t.

There is no doubt that this will have significant impact on prices in the near term and long term.

Note now the following graph, courtesy of the Martec group, that shows that the prices of the minor metals critical.



Of all of the metals on the above graph, in the U.S. only copper is produced in a quantity such that America’s production can be considered self-sufficient. Yet with the exception of platinum, and its byproduct rhodium, all of these metals can be produced in the U.S. for its car industry to be independent of foreign supplies no matter which electrification system is ultimately chosen.

Metal-Pages.com further points out that, “Chinese industry sources suggested that the government uses the export quota system to limit rare earth exports for the sake of protecting domestic rare earth resources and promoting the development of downstream rare earth products in China.”

Today, the U.S. imports 100% of its rare earth needs from China, which now produces essentially 100% of the global supply. There are four potential production sites for rare earth metals in North America; two in the U.S. and two in Canada. The closest one to production is that of the Great Western Mineral Group.









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