On February 26, 2014, Tesla Motors Inc. (NDQ:TSLA) announced details of its long-awaited “gigafactory”, an ambitious plan to build a facility to manufacture lithium-ion batteries in large-enough quantities to meet the needs of the 500,000 electric vehicles (EVs) that the company plans to produce in 2020. Tesla proposes to build this facility somewhere in the southwest United States, in reasonable proximity to its California-based vehicle assembly plant.

Tesla’s plans call for the creation of 35 GWh/year of production capacity for its third-generation Model E vehicle, implying an average 70 kWh of storage capacity per vehicle. The plan calls for an additional 15 GWh/year of production capacity, presumably to meet the needs of additional ventures with which Tesla founder and CEO Elon Musk is involved.

In addition to the significant quantities of lithium, cobalt and other metals that the batteries from this proposed facility will require, even greater quantities of graphite will be needed to produce the anodes that are used in these batteries.

It is obviously early days for the gigafactory initiative, and a number of important details have yet to emerge. There is certainly no guarantee that Tesla will actually move forward with the project, or that it might not morph into some other form. Nonetheless, it is important that the supply chain gets itself ready to participate.

Bloomberg picked up on the use of graphite in lithium-ion batteries in a March 14, 2014 article. Titled “Teslas in California Help Bring Dirty Rain to China“, Bloomberg linked the future Tesla facility to the significant pollution generated by China’s natural-graphite industry, which has “fouled air and water, damaged crops and raised health concerns“. Of particular concern is the use of acids by the Chinese industry to purify mined graphite so that it can be used in battery anodes.

Tesla’s battery supplier is Panasonic Corporation (TYO:6752), providing battery packs for the Tesla Model S vehicle that contain more than 7,100 individual 18650-model cells. It is unclear if Panasonic uses synthetic or natural graphite in these batteries, or how such materials are processed. Mr. Musk did use his Twitter account on the same day that the Bloomberg article was published, to describe the accusations as “[b]eyond ridiculous“.

Nonetheless, synthetic graphite is twice the cost of battery-grade natural-flake graphite, and is typically derived from petroleum coke, which relies on crude oil as its source. Tesla has a stated goal of reducing the unit cost of battery production by a minimum of 30% between now and the initial ramp-up of the Model E in 2017. Natural flake graphite stands to play a significant role in reducing the unit costs of battery production and in reducing the environmental footprint associated with production, if acid-based purification steps can be avoided.

The present flake-graphite market is dominated by China; aside from the issues of pollution, there is increasing evidence that the country’s flake-graphite resources are becoming depleted. Fortunately, there are a number of promising flake-graphite projects under development outside of China.

Producing battery-grade flake graphite
As with any natural resource, the quantity and grade of any given graphite deposit is important, but the type and distribution of the flake size, their purity and their amenability to processing dictate the quality of any given project.

The graphite ore is mined from the deposit and is subject to standard beneficiation processes, such as crushing, milling and flotation. The higher the initial head grade, the cheaper this process will generally be, all other things being equal. The resulting graphite concentrate, known as run-of-mine, or ROM concentrate, is typically sold directly to end-users in a number of sectors. Some junior mining companies are planning to upgrade a portion of that ROM concentrate internally for specific applications, such as the high-purity graphite used in the production of battery anodes.

Battery-grade graphite requires very high purity levels, typically >99.9% carbon-as-graphite (Cg). This material also needs to be spheroidized using careful processes that convert the flat graphite flakes into potato-like shapes, which pack much more efficiently into a given space. The high purity levels and the enhanced “tapping” density (to >0.9 kg/m³) are important for producing the high electrical conductivity that is required during anode operation.

Spheroidizing the graphite flakes also reduces their size, a process known as micronization. Standard battery-grade materials require an average diameter of approximately 10-30 μm, so in theory, feedstock materials with flake sizes greater than 30 μm (+400 mesh) could be used. However, starting purity levels tend to decrease with flake size, so flake material with an average diameter of 150 μm (+150 mesh) or greater is typically used. This is, of course, a double-edged sword, since the larger the flakes used, the more energy will be required to reduce the average size of the flakes to the desired 10-30 μm. Smaller particles are preferred, as this makes it easier for the lithium ions in the electrolyte to diffuse between graphite particles.

It should be noted that it is the tendency for purity levels to increase with flake size that is the real reason for the common ‘mantra’ that for battery-grade materials, the bigger the flake size, the better. In fact, the ideal precursor material would have small flake size if it had sufficient purity levels for the subsequent processing to be cost-effective.

One other important factor in the production of battery-grade materials is that of wastage. The standard spheroidizing and micronizing processes used in China waste up to 60-70% of the mass of total graphite flakes present during processing. Therefore, for every one tonne of spheroidal graphite produced in China, approximately three tonnes of feedstock materials might be required (though the waste materials can be used for other purposes).

The graphite may be purified before or after spheroidizing and micronizing, depending on the manufacturer. As mentioned earlier, the low-cost approach typically used in China is to leach the impurities from the graphite with acid, with the associated environmental concerns that that brings. Alternatively (and far more acceptable in Western jurisdictions), a thermal process can be applied. This typically involves the use of halogen gases to cause chemical reactions at high temperatures with the impurities, which covert the resulting compounds into gases too and eliminate them from the bulk graphite material. The higher the starting purity levels of the graphite after initial concentration at the mine site, the lower the cost will be for purification, and this can make a substantial difference when comparing concentrate feedstocks with different starting purity levels. TMR estimates that the cost difference in purifying a 95% Cg concentrate to >99.9% Cg, versus taking a 98% Cg concentrate to >99.9% Cg could be as much as $2-3,000/t of concentrate, using thermal processes.

The final step for preparing spheroidal graphite for anode production is the application of a coating to the particles to reduce their specific surface area. This is important, as reducing the specific surface area will increase the long-term capacity of the battery cell. Intercalation of the electrolyte solvent into the graphite and its reaction with it causes expansion of the graphite, with the potential for delamination and a lowering of the life expectancy.

During the first charge of the battery cell, an initial, irreversible chemical reaction occurs between the electrolyte and the graphite in the anode, resulting in the formation of a so-called surface electrolyte interphase (SEI) layer. Once formed, this layer reduces further decomposition of the electrolyte and actually protects the graphite anode from exfoliating.

With too large a specific surface area, the formation of the SEI layer can reduce the graphite’s ability to subsequently hold and to release the lithium ions in the electrolyte, thus reducing lifetime capacity for the battery. Coating the graphite prior to anode production reduces this effect and helps to maintain the maximum capacity possible for the battery. The coating can also reduce the chances of a runaway chemical reaction in the battery.

Such coatings are typically carbon- (not graphite-) based; uncoated spheroidal graphite typically sells for $3-4,000/metric tonne (t); coated spheroidal graphite sells for $9-10,000/t. The battery manufacturers typically apply these coatings, though some traders will buy uncoated materials and apply coatings before selling the finished product to the battery manufacturers.

How much battery-grade graphite will Tesla need?
Let’s return now to Tesla and its proposed gigafactory. We know that the 500,000 EVs that Tesla has planned for 2020 will require a total of 35 GWh of energy storage. We now need to determine how much graphite will be contained in those batteries.

The Department of Energy estimates that graphite constitutes approximately 16% by weight of a typical lithium-ion battery. The Panasonic spec sheet for its 18650 batteries indicates that each cell weighs 45 g, which means that the 7,104 cells in the 85 kWh battery pack for the 2013 Tesla Model S weigh approximately 320 kg. We can therefore estimate that these batteries use approximately 0.62 kg of graphite/kWh storage capacity – over 54 kg of graphite per 85 kWh vehicle. Note that the battery pack for a Tesla Model S is approximately four times the capacity of a “standard” battery EV.

This translates into approximately 21,600 t of graphite required for the 500,000 batteries (each with 70 kWh capacity) needed in 2020. However, we need to account for the relatively low (30%) yield of battery-grade graphite, using current processing methods. This means that some 72,050 t of graphite feedstock would actually be required for these batteries at those yields.

Using today’s prices for synthetic (~$20,000/t) and coated spheroidal natural graphite (~$10,000/t), all other things being equal, a switch from all-synthetic to all-natural-graphite anodes for those 500,000 EVs/year would save $216M in material costs, which translates to over $6/kWh, or over $430 per vehicle. Not a bad start.

On top of the batteries for its EVs, Tesla will need a further 9,250 t of graphite for the additional 15 GWh/year of non-EV capacity at the gigafactory, which in turn, would require 30,900 t of graphite feedstocks for the production of battery-grade materials, at current yield levels.

This is a total of just under 30,900 t of graphite in the batteries, requiring 102,900 t of feedstocks using current processing methods and yields. This is over 125% of the global natural flake graphite market, currently at 80-85,000 t/year!

Who can supply this battery-grade graphite?
Clearly, there is a potential significant imbalance between current levels of supply and the projected future demand for graphite, if the Tesla gigafactory comes on-stream.

TMR tracks graphite projects under development via the TMR Advanced Graphite Projects Index. The minimum requirement for a project’s inclusion on the Index is for it to have an NI 43-101- or JORC Code-compliant mineral resource estimate. At present, there are 23 such mineral resources on the Index associated with 20 graphite projects being developed by 16 different companies in 8 countries. Those resources are:

Projects on the TMR Advanced Graphite Projects Index (March 2014)

Project	Location	Owner	Ticker Symbol(s)	Resource
Albany	CAN	Zenyatta Ventures Ltd.	TSX.V:ZEN	NI 43-101
Balama East	MOZ	Syrah Resources Ltd.	ASX:SYR	JORC
Balama West	MOZ	Syrah Resources Ltd.	ASX:SYR	JORC
Bissett Creek	CAN	Northern Graphite Corporation	TSX.V:NGC, OTCBB:NGPHF	NI 43-101
Campoona	AUS	Archer Exploration Ltd.	ASX:AXE	JORC
Epanko	TZA	Kibaran Resources Limited	ASX:KNL	JORC
Geuman	KOR	Lamboo Resources Ltd.	ASX:LMB	JORC
Graphite Creek	USA	Graphite One Resources, Inc.	TSX.V:GPH, OTCQX:GPHOF	NI 43-101
Kearney	CAN	Ontario Graphite Co.	N/A	NI 43-101
Kookaburra Gully	AUS	Lincoln Minerals Limited	ASX:LML	JORC
Koppio	AUS	Lincoln Minerals Limited	ASX:LML	JORC
Kringel	SWE	Flinders Resources Ltd.	TSX.V:FDR	NI 43-101
Lac Guéret	CAN	Mason Graphite Corp	TSX.V:LLG	NI 43-101
Lac Knife	CAN	Focus Graphite Inc.	TSX.V:FMS, OTXQX:FCSMF, F:FKC	NI 43-101
McIntosh	AUS	Lamboo Resources Ltd.	ASX.LMB	JORC
Mousseau West	CAN	Graniz Mondal Inc.	TSX.V:GRA.H	NI 43-101
Molo	MDG	Energizer Resources Inc.	TSX:EGZ, OTCBB:ENZR	NI 43-101
Nunasvaara	SWE	Talga Resources Limited	ASX:TLG	JORC
Raitajärvi	SWE	Talga Resources Limited	ASX:TLG	JORC
Samcheok	KOR	Lamboo Resources Ltd.	ASX:LMB	JORC
Taehwa	KOR	Lamboo Resources Ltd.	ASX:LMB	JORC
Uley Main Road	AUS	Valence Industries Limited	ASX:VXL	JORC

Any number of these projects potentially has what it takes to become successful graphite mines, especially given the pressure that demand from lithium-ion batteries and other applications might put on the overall supply chain. However, to be in a position to be able to produce battery-grade graphite by 2017, when Tesla says that it will commence production ramp up of the Model E, only projects that are far enough along are likely to have the opportunity to capitalize on the demand from the gigafactory. One can argue as to how to define “far enough along,” but my suggested requirements would include:

• The project should have as a minimum, Demonstrated mineral resources (i.e. Measured + Indicated);
• The project should have a completed Feasibility Study *FS), or have one underway;
• A purification process for getting to battery-grade (>99.9% Cg) should have been defined and successfully tested (preferably without using the wet acid method); and
• A spheroidization and micronization process should have been defined and tested.

Additional considerations relate specifically to potential costs of production, and include:

• Initial grade of in-situ graphite (relates to beneficiation costs);
• The resulting purity levels of the resulting run-of-mine (ROM) concentrates after beneficiation (relates to subsequent purification costs);
• The proportion of smaller flake materials with higher purity levels after beneficiation (related to subsequent spheroidization and micronization costs and yield levels);
• Whether or not a coating process has been developed and tested for the spheroidal graphite; and
• Proximity of the project to the southwest US, proposed home of the Tesla gigafactory.

I acknowledge that there can be no ‘definitive’ list of criteria for assessing projects for this exercise, but nevertheless, the above are what I’ve chosen to use. I re-iterate that I am looking here only at the potential ability of graphite projects to service the needs of the Tesla gigafactory within the announced time frame for its development. There are plenty of other future opportunities for companies and projects that might not quite be ready for the gigafactory.

Applying the initial set of criteria to the projects on the TMR Index results in the following three companies (in alphabetical order) and their projects:

• Focus Graphite Inc. with the Lac Knife project in Quebec, Canada;
• Northern Graphite Corp. with the Bissett Creek project in Ontario, Canada; and
• Syrah Resources Ltd. with the Balama project in Mozambique.

It should be noted that additional companies may be developing high-purity, spheroidized and micronized battery-grade graphite, but to my knowledge, these are the only three that have discussed such developments and their achievements in the public domain, and which meet the other primary criteria.

Focus Graphite Inc.
Focus announced the completion of a Preliminary Economic Assessment (PEA) in October 2012 on its Lac Knife project in Quebec, Canada. In November 2013, the company updated the economics for the PEA, which put the capex requirement for going into production at $126M (including a $24M contingency). It also announced commencement of a definitive FS for Lac Knife, which is slated for completion by late spring or early summer this year.

Lac Knife has total Demonstrated mineral resources of 9.6 Mt @ an average 14.8% Cg. Focus plans to produce 44,300 t/year of graphite from the future mine, with a mine life of 20 years. Metallurgical work to date indicates that the ROM concentrate will have a purity level of >96.6% Cg and will cost a total of $458/t to produce.

The flake graphite in the Lac Knife ROM concentrate is distributed as follows:

The >98% Cg purity levels of the Lac Knife flake above 75 μm (constituting almost 80% of the content) is particularly high. The company recently indicated that this is a result of most of the impurities being found at the surface of the flakes, instead of being “ingrained” in the layers.

In November 2013, Focus announced that it was working on the production of spheroidal graphite from Lac Knife concentrates and the development of purification processes for producing battery-grade graphite. During this month’s PDAC Convention in Toronto, Focus showed samples of 99.95% Cg battery-grade, spheroidal graphite. Company management has subsequently indicated that coatings for this battery-grade material are currently being tested, the results of which should be announced in the near future.

In an industry first, Focus announced a significant off-take agreement in December 2013 with a Chinese industrial conglomerate for up to 40,000 t/year of its concentrates. A clarification earlier this month indicated that this agreement calls for a minimum purchase of 20,000 t/year by this Chinese group.

Northern Graphite Corp.
Northern announced the completion of a definitive FS in July 2012 on its Bissett Creek project in Ontario, Canada. In August 2013, the company received final approval for the project and was granted a mining lease, allowing it to begin construction subject to financing. In September 2013, the company updated the economics for the FS, which put the capex requirement for producing 20,800 t/year, with a mine life of 28 years, at $101.6M (including a $9.3M contingency). Operating costs were estimated at $795/t ROM concentrate.

In October 2013, Northern announced the completion of an “Expansion Case” PEA for the Bissett Creek project, which would see an increase in the production rate to 33,183 t, an initial capex of 146.8M and reduced operating costs of $695/t.

Bissett Creek has Probable mineral reserves of 28.3 Mt @ 2.1% Cg. Total Demonstrated mineral resources are an estimated 69.8 Mt @ an average 1.7% Cg. Metallurgical work to date indicates that the ROM concentrate will have a purity level of >96% Cg.

The flake graphite in the Bissett Creek ROM concentrate is distributed as follows:

In October 2012, Northern announced that it had successfully produced spheroidal graphite from Bissett Creek concentrates, with up to 70% yields when starting with so-called large (180-300 μm or -50 / +80 mesh) flake. In September 2013, the company announced the development of a proprietary method for the purification of concentrates and spheroidized graphite to 99.95% Cg. The company claims that the cost of this purification process will be less than $1,000/t. Company management indicates that this is a “low-temperature thermal process” that uses no acids, in which a mixture of gases, tailored to the impurities and mineralogy of the Bissett Creek deposit, is used.

In November 2013, Northern announced that it had partnered with Coulometrics to develop coatings for their spheroidal graphite, and earlier this month, the company announced the completion and successful testing of this work.

Syrah Resources Ltd.
Syrah announced the completion of a Scoping Study (SS) for its Balama West deposit in June 2013, one of a number of endeavors associated with its Balama project. However, because the study was based on an Inferred mineral resource only, the company was required to clarify that the SS did not demonstrate economic viability. I have been unable to find many more details or numbers in an announcement on the SS itself. Balama West was subsequently upgraded, with reported total Demonstrated mineral resources of 13.6Mt @ 19.8% Cg.

A statement in December 2013 indicated that the company was in the process of undertaking an FS to be completed by Q1 2014.

In January 2014, Syrah announced that it had purified ROM concentrate to >99.9% Cg using a “chemical wash” containing acids. Earlier this month, the company announced that it had produced spheroidal graphite with an average diameter of 4.7 μm, from a 100 μm feedstock. It is unclear as to why the graphite was micronized to below the standard 10-30 μm range typically used for battery anodes.

The flake graphite in Balama East ROM concentrate is distributed as follows [per the same announcement made earlier this month]:

It should be noted that the published flake size ranges are for Balama East (which does not have Demonstrated mineral resources), as opposed to the Balama West deposit.

In March 2014, Syrah announced the completion of a Memorandum of Understanding (MOU) with a subsidiary of Chinalco Group of China for an off-take of 80-100,000 t of graphite over an unspecified time period. The MOU required the two parties to negotiate a binding off-take agreement within three months of execution.

Discussion
From their public announcements, it is clear that these three companies are well on their way to achieving the technical milestones required for the production of battery-grade graphite.

In terms of other parameters, however, it may be a little early to determine if Syrah Resources will be able to provide such materials in time for the launch of the proposed Tesla gigafactory. The lack of a detailed, published SS summary or other quantitative analysis makes it difficult to evaluate the applicability of the Balama project to the gigafactory at this time. Completing a binding off-take agreement with the Chinalco subsidiary could go some way to assuaging such uncertainty; however, the larger issue probably relates to the location of the deposit in Mozambique – a long way from southwest United States. This distance puts Balama at a disadvantage in terms of transportation costs when compared to the other two projects, and potential access to infrastructure.

In terms of technical progress, the results announced by Northern Graphite to date indicate that it has a product that is ready to go for the battery market, with similar definitive results expected from Focus Graphite in the very near future. Based on the Bissett Creek Expansion Case PEA and the Lac Knife PEA (and subsequent updates), Focus appears to have significantly lower operating costs to produce its ROM concentrate, and the resulting concentrate has higher Cg purity levels across the various flake-size ranges.

The projects of both of these companies are located in Canada, which presents relatively inexpensive transportation costs for getting materials to the southwest United States.

It is always hard to compare ‘apples to apples’ when it comes to graphite project flake size, as each company has its own mesh size ranges that it uses to report. However, it appears that the Lac Knife ROM concentrate has a significantly higher proportion of flake, at higher purity levels after beneficiation than that for Bissett Creek. Northern states that the cost to get to high-purity battery grade with its proprietary process is less than $1,000/t; how much less will determine the overall costs required to get from the lower purity levels in the ROM concentrate to 99.9% Cg. Starting at levels above 98% Cg, as Lac Knife does, is a distinct advantage.

The completion of a definitive FS for Northern’s project means that the costs of production of ROM concentrate that result from the study have a higher degree of certainty at this point than those detailed in the Lac Knife PEA (and subsequent updates) for Focus Graphite. Relying on the Expansion Case PEA lowers the production-cost estimates for Bissett Creek, but decreases the accuracy of those numbers compared to the original FS.

It remains to be seen if there will be any increase in anticipated product costs in the forthcoming Lac Knife FS. The costs would have to increase by more than 50%, however, to reach those estimated in the Bissett Creek Expansion Case PEA. The Lac Knife cost advantage is likely a result of the significantly higher grade to be found at Lac Knife (14.8% Cg for Demonstrated resources vs. 1.7% Cg at Bissett Creek), and the proposed larger annual production rate, which naturally gives economies of scale. One might question why the estimated cost differential is not actually higher, given the distinct baseline differences, but it likely indicates that the cost of physical comminution (crushing and grinding) of the graphite ore is a relatively small fraction of the overall mining and processing costs.

Finally, there can be no mine without the financing to construct and to operate the mine. While Northern is no doubt negotiating with third-parties on future off-take agreements and other arrangements, the fact that Focus was the first company in the sector to complete such an agreement, and for such a substantial proportion of its planned output, is significant.

Based on the above criteria, I believe that both Northern and Focus have the potential to take advantage of the Tesla gigafactory, if it comes to fruition. Given the volumes of material required, it is entirely possible that both could service the supply chain requirements. I believe, however, that Focus may well stand to gain greater benefit from the opportunity that the gigafactory presents. Its lower ROM concentrate operating costs, likely lower battery-grade purification costs and the fact that it has already secured a significant off-take agreement (making it that much easier to finance the eventual construction of the mine) are key factors.

I wish both companies well, and I make one last observation. Even if the Tesla gigafactory does not come to pass, there will undoubtedly be opportunities for these and other graphite companies to service the needs of the wider EV market in the years to come. Doing so does not need to come at the expense of the environment either, as appears to be the case in the Chinese graphite sector.

Vehicles ‘fueled’ by electricity, especially electricity generated via renewable means, need to be built using as sustainable and environmentally-friendly a supply chain as possible. In the case of batteries for EVs and the graphite required to make them, natural-flake sources are clearly the way to go.

Disclosure: at the time of writing, Gareth Hatch is neither a shareholder of, nor a consultant to any of the companies mentioned in this article.

It is fuel-cell-vehicle (FCV) season again as many of the world’s premier car makers make their annual ritual announcement that they are ‘studying’ or putting into ‘limited production’ passenger-carrying vehicles for personal use (i.e. cars), propelled by electricity generated by ‘fuel cells.’

Once again, the perception of greeniosity is meant to trick us into thinking that the fundamental laws of economics have been suspended.

As far as I can determine, the electricity for FCVs will be generated when diatomic hydrogen molecules are split into hydrogen ions and free electrons, by the action of passing the hydrogen over a catalyst. This previous sentence is totally intelligible to a chemical engineer with the only undefined word in it being ‘catalyst.’

As far as I know the only such ‘practical’ catalysts known for such a reaction are the platinum-group metals (PGMs), primarily the metal palladium (Pd). There has been a lot of research over the last 20 years on trying to produce a fuel-cell chemistry based on a more readily available catalyst than a PGM but the results have not been economical. One such program backed by no less than Kleiner Perkins is for a Solid Oxide Fuel Cell (SOFC), which uses the extremely scarce rare-earth-element (REE) related metal scandium (Sc) in its catalyst.

The thing that all current fuel-cell technologies have in common, is that they rely for their operation on large amounts of very scarce materials such as PGMs or Sc, as in the discussion above.

There is another problem, the relative value to achieving the goal of reducing carbon emissions of a FCVm versus an internal combustion engine (ICE) vehicle, using a catalytic converter. This is the real issue of the most efficient use of strategic metals. Let’s say that a Pd-based fuel cell would use at least one ounce of Pd in order to be able to produce enough electricity to power a four-passenger car. That same amount of Pd could be used to manufacture 100 exhaust-emission catalytic converters, for hydrocarbon-fueled ICE-powered vehicles! Note well, that new global production of Pd is in the 200 tons per year range. This is twice what it was 10 years ago, but nearly impossible to increase as most of the world’s new Pd comes from its production as a byproduct of nickel mining in Russia and Canada, with a little more coming from South African platinum mining. North America produces some 10% in total of the world’s annual new Pd. It is difficult to see how green technologists could ask us to depend on either Russia or South Africa for an ‘assured supply’ of anything much less for an increased supply.

So, the best solution for constructing fuel cells is not to use environmentally precious Pd or any other PGM in such a horribly wasteful way. Unfortunately, the best SOFC, based on Sc, is an even worse solution. There simply is not enough Sc produced in the world. Currently just a few tons a year are produced, so it is believed, in the former Soviet Union.

So we can either rob Peter or mine an empty bank vault.

There is a real analogy here to the REE supply issue now facing the world, and even an interface, since Sc is only likely ever to be produced as a byproduct of REE production (which itself is ironically usually produced as a byproduct of iron mining).

PGMs used in automotive-exhaust emission control devices (catalytic converters) are so scarce as to be among the most recycled materials on the planet. In relative-percentage-recycled terms they are right up there with iron, copper, aluminum, lead, and gold. But it is in absolute terms that the comparison fails. An excellent example of this is the PGM rhodium (Rh), used to eliminate acid-forming nitrogen oxides from automotive ICE exhaust. The world production of new Rh as a byproduct of South African platinum production is 30 tons a year. Yet the apparent demand from the global OEM automotive industry is nearly 50 tons per year. This additional material must come from the extensive recycling of catalytic converters.

It is the same type of thing with the REEs with a notable exception geographically. In China extensive recycling of REE industrial process waste as well as of end-of-life waste, is one of three things that keeps the supply of the key heavy REEs terbium and dysprosium, nearly equal to the demand. The others are illegal production within China and purchase of heavy REE ore concentrates from outside of China. The three processes together provide a doubling of ‘official’ production of these key REEs.

Only now in 2014 is there even the beginning of a non-Chinese REE recycling industry. This is because with just one exception, there is no REE separation plant outside of China with the capability/capacity to separate the heavy REEs from ore concentrates or scrap; there are 38 such facilities in China.

What little Sc is produced in the world may be augmented by the three processes above, but officially there is no verifiable Sc production anywhere. So, if there is to be a fuel-cell-powered OEM automotive power-train revolution, it will have to be itself driven by a fuel-cell technology that as of now is unproven, and does not involve a need for large quantities of either PGMs or Sc.

At the moment, supplies of PGMs and Sc globally are either insufficient or unavailable. Thus fuel-cell-powered vehicles will be curiosities, or the toys of the elites, for the foreseeable future.

During a visit to Australia last month, I had the opportunity to visit the Commonwealth Scientific And Industrial Research Organization (CSIRO), the country’s main governmental organization for scientific research and development. More specifically, I visited CSIRO’s Materials Science & Engineering Division in Lindfield, New South Wales, about eight miles north of Sydney.

CSIRO is well known in many parts of the international scientific community for the quality of its work. It has its origins in the Advisory Council of Science and Industry which was founded in 1916. Today CSIRO has over 6,500 staff (approximately 5,200 full-time equivalents or FTEs) who work at 56 sites in Australia and overseas. While folks outside of Australia may not be too familiar with CSIRO, you undoubtedly are a beneficiary of some of its work; inventions at CSIRO include the underlying technology behind Wi-Fi systems, phase contrast imaging for X-ray imaging and atomic absorption spectroscopy. The organization had an annual budget in 2012-2013 of approximately AUD 1.6 billion.

Materials Science & Engineering at Lindfield (the Division also has sites in Victoria) shares a building with the National Measurement Institute (NMI), Australia’s top body responsible for maintaining Australia’s measurement standards. I had to chuckle when I arrived in the lobby of the building – on the wall opposite the front entrance are a couple of clocks which show VERY precisely the time at that moment – no excuses for being late in this building! I later found out that it was here at this location, in a collaboration between the NMI and CSIRO’s Australian Centre for Precision Optics (ACPO), that a pair of extremely round objects were created and measured, as part of the international Avogadro project. This is an initiative centered on developing a new way of defining the kilogram, the SI unit of mass. Unlike all of the other fundamental SI units of measurement, the kilogram is the only one that is defined as a comparison to a physical object. The NMI / ACPO project set out to produce two perfect spheres of pure, single-isotope silicon, containing enough atoms to make a kilogram. The idea is for other researchers to then measure the number of atoms in these spheres, in order to re-define the kilogram. The best sphere that the scientists achieved as part of the project had an out-of-roundness of just 35 nanometers – less than 150 times the diameter of a single silicon atom!

My visit to the Lindfield facility was hosted by Dr. Stephen Collocott, a long-time researcher in the field of magnetic materials and applications. I first met Dr. Collocott at a magnetic-materials conference many, many moons ago. We’ve been corresponding and bumping into each at conferences and workshops ever since. It was great to finally get to visit him on his home turf and to learn more about the work that he and his colleagues do at CSIRO.

Dr. Collocott wears two hats these days; he is the group leader for magnetic materials research at CSIRO’s Materials Science & Engineering division; he is also the stream leader for electric drive systems, within CSIRO’S Future Manufacturing Flagship initiative. These Flagships bring together multi-disciplinary teams to focus on key research themes. Dr. Collocott’s group has for years been involved in the application of magnetic materials to real engineering systems, and so is a natural fit for the Future Manufacturing Flagship. The group frequently conducts contract research for OEMs and other companies in the manufacturing, automotive, appliance and general transportation sectors. Past and present clients include GM Holden (both CSIRO and GM Holden are members of the Co-operative Research Centre for Advanced Automotive Technology), Electrolux, Marrand Enginering, and Transfield. The group, presently consisting of eight researchers, has particular expertise in electric machine design using 2D and 3D FEA, power and control electronics and machine simulation.

The magnetic materials group at CSIRO was involved in some of the early work to characterize and optimize neodymium (Nd)-based permanent magnet alloys (Nd-Fe-B). In the early 1990s, a spin-out company called Australia Magnetic Technology (AMT) actually set-up to manufacture approximately 50 tonnes / year of these materials in a pilot plant for the Australian market. Plans to scale up production were put on hold indefinitely due to falling prices at that time, as a result of the growth of Chinese magnet companies. AMT was eventually acquired in 2003 by AMF Magnetics, another Australian magnetics company.

The CSIRO magnetics group continued with its materials research work, being involved in the subsequent discovery of so-called 3-29 rare-earth intermetallic phases for possible permanent magnet applications. They were also involved in melt spinning, mechanical alloying and hydrogen-based processing of rare-earth-based materials, as well as powder metallurgy. This work eventually evolved into looking at more fundamental questions concerning magnetic materials, relating to, for example, the role of dysprosium in increasing the resistance of Nd-Fe-B magnets to being demagnetized (coercivity). The purpose of such research was to increase understanding of the underlying mechanism in such materials, rather than creating incremental improvements in specific magnetic alloys.

The group then turned its attentions to the use of magnetic materials for specific end-use applications, building on the industrial collaborations that it had fostered over the years. These days the focus is on high torque density and high power density electric drives, based on brushless permanent-magnet machines as well as switched-reluctant machines that use no magnets at all. The idea is to provide the best machine required for the specific application being developed and refined. Examples of such applications include drives for electric vehicles and for more energy-efficient (and lower cost) consumer appliances such as washing machines. Some of the group’s machines have been used in ultra-long distance races for solar-powered vehicles, where the ultimate in efficiency and reduced weight is required. Being able to meet or exceed the specifications for such challenging applications helps to spur the wider development and utilization of such devices for commercial applications, just as innovations that we see in, for example, Formula One racing cars eventually make their way into the mainstream some years later.

During my visit I got a chance to tour Dr. Collocott’s group laboratories; as you might imagine, a number of the projects are sensitive (commercially or otherwise); I was allowed to take some photos though, which can be seen by clicking the thumbnail images above. I saw some really interesting electric devices and equipment under development, but I think my favorite device of the ones that I was shown was a more energy-efficient electric sheep shearing device. This tool uses an Nd-Fe-B magnet, and dissipates heat by using the blood flow in the operator’s hand, without him or her noticing the device getting warm. A very clever and elegant way to improve a long-established tool used in one of Australia’s quintessential industries.

Dr. Collocott commented that 60% of the CSIRO budget comes from government funding; the rest is drawn from contract research, royalties and licensing fees from previous technology, as well as cooperative entities. The organization has a number of ongoing research programs in collaboration with groups outside of Australia. One example in which Dr. Collocott is involved is with the University of Shanghai. He commented that quite often, Australian-based researchers are seen as “honest brokers” when it comes to their perspective on matters pertaining to strategic materials. This reinforces similar comments that I’ve heard from others too, from entities that would rather work with Australian than US or even Canadian groups, for this reason.

That said, CSIRO as a whole has strong collaborations with partners in Canada and the USA, with dozens of projects undertaken each year. Canadian projects tend to focus on minerals, mining, mineral resources and related engineering services. Recent partners include Alcan, COREM, Barrick Gold, Riot Tinto Alcan and Syncrude. Incidentally, CSIRO has a Minerals Down Under Flagship which builds on the organization’s expertise in these areas (most notably on extraction and separation), based at a CSIRO facility in Clayton, Victoria. US-based partners include Boeing, Chevron, DuPont, NASA, the US Department of Agriculture, the National Oceanic and Atmospheric Administration. According to the CSIRO web site, other initiatives include the Fulbright CSIRO Postgraduate Scholarship, established in 2008 to enable an American citizen to undertake postgraduate research in Australia at a CSIRO institute.

The strong Australian dollar has been an ongoing issues from the economic perspective, since it hurts the country’s ability to export products that it manufactures. As a consequence there has been a lot of off-shoring to Thailand and Malaysia, primarily because of free-trade agreements in place with these two countries. The once strong electrical appliance industry in Australia has largely disappeared, with some exceptions, namely in the large refrigeration and commercial cooking appliance markets. There has been 15-20% decline in the manufacturing of larger passenger vehicles in Australia; Toyota, General Motors and Ford still have a visible presence but are confined these days only to a handful of vehicles being manufactured in the country.

Still, it is through working with entities like CSIRO that the Australian manufacturing sector can re-group and prosper once again. CSIRO is undoubtedly a jewel in Australia’s crown, a jewel that hitherto now has not got a lot of whole lot of attention from strategic materials folks outside of the academic community. Folks in the rare-earths sector may have heard of the work and capabilities of ANSTO Minerals, another Australian government organization, with respect to process development; CSIRO also has extensive capabilities and experience in these and other related areas too and should not be overlooked. Groups like the one that Dr. Collocott leads can be a “below-the-radar secret weapon” for manufacturers, who need high quality contract research done by folks who know what they are doing.

My thanks go to Stephen Collocott for facilitating my visit to the CSIRO Materials Science & Engineering Division.

Earlier today I got word that the US Department of Energy (DOE) has released an update to its Critical Materials Strategy, which was first published as a report in December 2011 2010. This document has helped to shape a fair amount of the debate on rare earths in particular, and critical & strategic materials in general, in the past 12 months.

You can download a copy of the report from here.

I’m still digesting the contents of the report; I can tell you that the DOE still considers the five rare earths dysprosium, neodymium, terbium, europium and yttrium to be critical in the short and medium term; indium is judged to now be near-critical in the near term, compared to being categorized as critical in the 2010 report.

New sections include one that covers the use of rare earths in fluid cracking catalysts, and how the petrochemical refining industry reacted to escalating prices of materials in 2011.

More to follow once we’ve had a chance to read through the report more thoroughly.

Update (01/17/12): the URLs for the report have been updated, since the original links no longer work.

by Brian Sylvester – The Critical Metals Report – published: Nov 22, 2011

Brian Sylvester: Gareth Hatch, co-founder of Technology Metals Research LLC, gives us the lay of the land in the rare earth sector. Many variables are shaping this developing market, and from calculating global demand to anticipating individual project costs, data makes the difference in determining viable investments. Gareth Hatch gets down to the nitty gritty in this Critical Metals exclusive, and comes up with some promising projects in the works.

The Critical Metals Report: Gareth, Greenland’s natural resource minister said that beginning in 2012, his country will take bids to develop its rare earth element (REE) deposits. What do you make of that?

Gareth Hatch: It was a little surprising, frankly. Of course it very much depends on the existing relationships in place between the private-sector companies and the government there, and how they intend to exploit those resources, but I might be a little concerned if I were one of the private companies and the government had not approached me first, before making this announcement.

TCMR: Are you talking about companies like Hudson Resources Inc. (HUD:TSX.V)?

GH: Possibly, yes. Of course we don’t know who has talked with whom. Hudson has its Sarfartoq project in the southwest. Greenland Minerals & Energy Ltd. (GGG:ASX) has its large Kvanefjeld deposit in the south, and a handful of others have projects, too. They have invested a lot of time, effort and money into their projects.

TCMR: Molycorp Inc.’s (NYSE:MCP) CEO, Mark Smith, asserts that the 30 thousand ton (kt) REE export quota issued by Chinese authorities for 2011 is equivalent to only 21 kt rare earth oxides (REOs). Considering that ferroalloys are included in the list of compounds covered by the quota, it seems like an even tighter quota than was expected.

GH: Including this new category of materials likely does reduce the equivalent REO to 21–22 kt, but in 2010, without ferroalloys, the equivalent was 22–24 kt. We have to compare the right sets of numbers. I agree that there has been a decline, even if it is not as dramatic as going from 30–21 kt. Whichever way you look at it, it is still less than the demand for rare earth oxides, although of course there are significant quantities of rare earths being exported out of China illegally.

TCMR: Electric vehicles are a key end-use for rare earths, particularly in permanent magnets. Is the recent, highly publicized combustion of Chevrolet’s Volt a threat to the sector?

GH: I don’t think so. If there were systemic safety issues that threatened the rollout of these vehicles, and subsequent market penetration, then there might be some concern about demand. But I think it’s unlikely. On the other hand, from a material usage point of view, if there really is a problem caused by Li-ion batteries, then this could be an opportunity: Prius-class hybrid vehicles use nickel-metal hydride batteries, which contain fair quantities of rare earths. Either way, I don’t see the industry being derailed.

TCMR: In Critical Rare Earths, you say that the world will break even on supply and demand for neodymium oxide by 2013, but not until 2015 for europium oxide. Meanwhile, Byron Capital says there will be 5 kt of annual oversupply of neodymium oxide by 2013, and 309 tons of extra europium oxide by 2015. Whom do investors believe?

GH: There are several differences between our numbers. Byron is predicting lower demand than the U.S. Department of Energy (DOE), whose projection numbers I used in my report. With respect to europium specifically, Byron includes some potential ionic-clay deposits outside of China in its projections. I suppose that one or two of these might exist. Byron assumes that they do and that they can be brought online faster than other sources of supply, which will generally come from hard-rock deposits; I did not factor hypothetical ionic-clay deposits into my calculations.

TCMR: Byron assumes there will be less demand for neodymium and europium because, if they are too expensive, end users find alternatives. In some cases, that has already happened.

GH: The DOE numbers were based on projections completed in the latter half of last year, and prices didn’t peak until this past summer. When the DOE updates its data, it will likely factor in current prices and potential effects on demand. If we look at downstream end uses, the price of raw materials directly affects the price of permanent magnets, for example, and motor engineers are already starting to choose designs that use fewer magnets, because the cost savings outweigh the additional manufacturing challenges of such designs. Thus, I can see current demand projections being quite different from where they were a year ago. Byron likely has a more up-to-date set of assumptions. We are waiting to see what updated figures the DOE puts out before the end of this year, and based on that, I would imagine that in the first half of next year we would revise our surplus/deficit projections accordingly.

TCMR: What numbers are rare earth companies using to project supply and demand?

GH: Most junior mining companies use the data that Dudley Kingsnorth puts out from Industrial Minerals Company of Australia (IMCOA). He typically updates his information two or three times a year. Mr. Kingsnorth recently reduced his demand projection for 2015 from about 190–170 kt of total rare earths. Other companies, most notably Lynas Corp. (PINK:LYSCF) and Molycorp, combine IMCOA’s numbers with their own research, but get roughly similar projections.

TCMR: You also said the grade and distribution of the critical REE (CREE) neodymium has the greatest influence on the rankings by grade, of CREEs present within specific mineral resources. Does that mean the higher the grade of neodymium present, the more likely a deposit is to be developed?

GH: Not necessarily. By mass, you would expect to see more neodymium than any of the other rare earths (i.e. europium, terbium, dysprosium and yttrium) simply because it is a light REE (LREE) and LREEs are more abundant; the other four are heavy REEs (HREEs) and generally occur in much lower quantities than neodymium. That said, there is increasing demand for neodymium-based permanent magnets, and thus neodymium (and praseodymium) and its usage in magnets will be a key factor in the potential development of early-stage projects. However, other factors must be considered, such as first-mover advantage and infrastructure. Some would argue that these are more important than the grade present of a particular element. You don’t have to have a top-five CREE distribution or grade to have a potentially successful project.

TCMR: In terms of the in-situ quantity of individual CREEs, what are the top-five deposits?

GH: If you look at the breakdown of in-situ tonnage of each of the five CREEs, for neodymium, the Kvanefjeld project in Greenland and the Nechalacho project at Thor Lake, owned by Avalon Rare Metals Inc. (AMEX:AVL), ranks highest. They both have well over an estimated 800 kt of neodymium within their respective mineral resources. You’ve also got the relatively new resource estimates for the Montviel project in Quebec from GéoMégA Resources Inc. (GMA:TSX.V) and the Eldor Project owned by Commerce Resources Corp. (CCE:TSX.V; D7H:Fkft; CMRZF:OTCQX). The fifth-ranked deposit by quantity of neodymium would be Strange Lake, owned by Quest Rare Minerals Ltd. (AMEX:QRM).

It’s important to bear in mind the maturity levels for each of the projects in this sector in terms of their mineral-resource estimates. Many of the early-stage exploration projects have Inferred resource estimates only, in contrast to, for example, Avalon’s Nechalacho deposit, which in addition to having a portion of its mineral resources at the Indicated level (which gives a higher degree of confidence in that part of the estimate than data at the Inferred level), is also one of the very few projects out there with an actual mineral-reserve estimate (i.e. a portion of the mineral resource has been independently determined to be economically viable). That gives you a particularly high level of confidence in the overall in-situ quantity data for a development project like that, versus those at a much earlier stage. If you look at europium, terbium and dysprosium, Nechalacho has the most of each in the ground, based on those resource estimates. You have Montviel and Eldor for europium, too. Mount Weld in Australia, owned by Lynas, has quite a bit of europium and terbium and Kvanefjeld again shows up on the list, for europium.

Other names that show up as you go down the line: the Norra Karr project from Tasman Metals Ltd. (TSM:TSX.V; TASXF:OTCPK; T61:Fkft) in Sweden would be one. Norra Karr features quite a bit of terbium and dysprosium, as does Alkane Resources Ltd.’s (ALK:ASX) Dubbo Zirconia Project in Australia. They make the top five for quantity of in-situ dysprosium and yttrium. Some of the same names show up repeatedly, reflecting the overall size and maturity of their rare earth estimates.

TCMR: What were your impressions when you recently visited Tasman Metals’ Norra Karr project? Can it supply European manufacturers with the rare earths that they need?

GH: Well, one has to remember that these materials are fungible, so you can use them anywhere, not just in one geographic region, but certainly, shipping costs do apply. What struck me about Norra Karr was that it’s maybe 400 meters from a major highway that comes southwest from Stockholm. From an infrastructure and accessibility point of view, it doesn’t get much better than that.

TCMR: Is the company planning to produce oxides or concentrate?

GH: The current plans go as far as the concentrate stage. Like a number of other rare-earth projects currently under exploration and development, Norra Karr contains zirconium silicate minerals, so Tasman will have to demonstrate that it can handle what are thought of by some, to be difficult minerals to process.

HREE concentrates are typically going to be separated via different processing circuits than the other concentrates potentially produced at such deposits; so the company may go elsewhere to get its concentrates separated; Tasman is keeping its options open. The company may not necessarily do the separation in-house.

TCMR: Isn’t that where the most value is?

GH: It is. Tasman won’t necessarily sell its concentrates; there are potential opportunities to do tolling or to maintain value and ownership in other ways. The key concept behind Innovation Metals Corp., the company that I recently co-founded with Patrick Wong, is the creation of centralized separation facilities for just this type of scenario—to provide services to companies that have concentrates, particularly HREE concentrates. The companies could toll those materials for a nominal fee, while retaining ownership of the separated materials afterward, all without having to invest extensive capital in big and expensive separation facilities of their own.

TCMR: Like a base-metal smelter.

GH: Yes; this tolling concept is a fairly well known concept in other industries. The key technical challenge of course, is whether you can take in concentrate feedstock from multiple sources. We think we can do that.

TCMR: What struck you when you visited Quest’s Strange Lake deposit in northern Quebec?

GH: Quest has a really nice deposit up there; a number of knowledgeable geologists walked us through the details on our visit. Quest also has a very professional organization and is well resourced. The challenge of course, is that Strange Lake is tucked away in a part of Canada that would require significant new infrastructure, to be able to properly service it and to get materials in and out.

When we were there, the company was just finishing up exploration and was starting the process of “handing over the reins” to the engineering people. Quest is now finishing up its prefeasibility study. The company has also recently added a director to its board with mining project experience. Quest is looking to expand and looking to put the right people in place to make this project a reality, if it can get the next stage funded.

TCMR: Quest President and CEO Peter Cashin has been talking about not only shipping concentrate, but separating the rare earths into oxides. What are your thoughts on the probability of that?

GH: These companies have to make a decision: at what point should they sell: at the concentrate stage or after producing oxides? If they can find the capital to build separation facilities and produce oxides and they have workable processes, then they will of course consider separating concentrates into oxides. Currently there aren’t many alternatives; no one processes commercially significant quantities of heavy rare earths outside of China, which is where a company like Innovation Metals comes in. If Quest doesn’t get into separating oxides, it has to figure out how to maximize its revenues from its concentrates.

TCMR: What other projects have you visited?

GH: I have visited Avalon’s Nechalacho project in the Northwest Territories, which is in the advanced stages of development. The company is currently looking to hire a number of additional production and engineering folks. I have always been impressed with the Avalon management team’s handling of technical development, especially its interactions with the First Nations people who live in that area.

TCMR: Nechalacho has some impact benefit agreements worked out with the local First Nations. However, there could be some issues as people learn about the environmental risks associated with rare earth mining. Do you think that Avalon’s exceptional relationship with First Nations will mitigate that?

GH: The plan for Nechalacho is to mine underground. Visually and physically, underground mining has less impact on the surface, though of course every project has supporting facilities above ground.

TCMR: But there will be tailings, right? And often these deposits have elements like uranium or thorium, which are radioactive. I’m not sure if Nechalacho has these, but it’s common.

GH: Certainly some groups are likely to be concerned about the effects, sure, but that’s not unique to Nechalacho. As I said, I have always been impressed with Avalon’s corporate and social responsibility initiatives; I think that the company has a genuine desire to do the right thing, and yes—it has very good relations with the local people—exemplary, in fact.

We need education on this. Environmental protection is extremely important, but some companies are actually prepared to invest in the technology and careful planning that can be used to reduce and to mitigate environmental impact. The industry as a whole needs to get that story out there. It is also important that consumers realize where the magnets in their cars and hard drives, the phosphors in their computer screens come from— ultimately from minerals that you have to get out of the ground. That is not an excuse to rape and pillage the land, and some companies in the industry are better than others in doing their bit. But this is not just a rare earth issue; it’s a mining issue in general.

TCMR: Among the projects you named, what’s a rough estimate of the average cost of development?

GH: At a minimum you’re talking in the low hundreds of millions of dollars. Larger projects with higher production rates or HREE-rich deposits tend to run from half a billion to over a billion. Projections for the Kvanefjeld project in Greenland, for example, are over $2.3 billion (B). There is quite a range for different types of projects in different stages of development. Of course, if a project has already completed a prefeasibility study, the current cost estimates should be closer to the actual final costs, than those in a scoping study or other earlier-stage estimates.

TCMR: Are any projects going to be developed for under $200 million (M)?

GH: The Tasman folks have said that Norra Karr is looking at $200M for getting to the concentrate stage. Its relatively low number for a HREE project is influenced by the presence of existing infrastructure. Smaller projects, like the Bokan-Dotson deposit in Alaska owned by Ucore Rare Metals Inc. (PINK:UURAF), and the Zeus/Kipawa project in Quebec owned by Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX ), are fairly modest from a production rate point of view. Assuming these companies can sort their metallurgy and flow sheets out, my understanding is that current estimates for Bokan-Dotson are around $175M for development, and for Zeus / Kipawa, probably closer to $300-350M.

TCMR: Much like Tasman Metals, Matamec is also close to infrastructure and located in a mining-friendly area.

GH: I had the chance to take a trip out to Matamec, and it was pretty close to power lines and logging roads and not far from paved ones. It was a short hop from North Bay, and Quebec is by all accounts a mining-friendly jurisdiction.

TCMR: What are some promising projects in Africa?

GH: One is the Steenkampskraal mine in South Africa, which I visited earlier this year, and is owned by Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX). It is a former thorium mine with historical estimates of very rich REE grades. It is currently being refurbished. Also in South Africa is Zandkopsdrift, the project owned by Frontier Rare Earths Ltd. (FRO:TSX), which has Indicated and Inferred mineral-resource estimates. It is going through the scoping study for Zandkopsdrift right now, more usually known these days as the preliminary economic assessment (PEA). Montero Mining and Exploration Ltd. (MON:TSX.V) recently published an Inferred mineral-resource estimate for its Wigu Hill project in Tanzania. The other project that some folks will be familiar with is Kangankunde, in Malawi, currently owned by Lynas. Those four have the most public-domain data available on their exploration activities, out of all of the REE exploration projects currently underway in Africa.

TCMR: Frontier and Montero both have deals with Korea Resources Corp. (KORES). Do you think that that gives them an advantage?

GH: It depends on the scope and scale of KORES’ involvement, but in terms of financing and support, there is a potential distinction in the investor’s mind between them and other companies at similar stages of development. Some see it as offering increased confidence that the company will have access to funds and other resources. On the other hand, there is potential concern from the supply chain that once such resources are developed, they won’t be available on the market, so the deals would have little direct benefit to non-Korean end users. I think it’s too early to say, but it is clear that non-private-sector actors are looking to establish long-term relationships with the owners of potential sources of supply, on behalf of end-user companies in their respective countries.

TCMR: Why do you think KORES chose those two deposits?

GH: Their mineral-resource estimates show that they have good grades (over 2%) of LREE materials, contained in minerals that should be fairly straightforward to process. Do remember that LREEs are still required for a wide range of applications; I think that this simple fact gets lost in the stampede of interest in HREE projects sometimes.

TCMR: What is the production timeline for Frontier’s and Montero’s projects?

GH: Montero has just recently defined its resource, so I would be surprised if the company was throwing around production dates yet. Frontier is estimating that its Zandkopsdrift project will enter production in about 2014. Some investors would probably stick their neck out and use such dates, but for me, the scoping study/PEA stages are perhaps a little early for decent estimates.

TCMR: Is there anything you’d like to leave our readers with?

GH: They need to realize that the investor’s point of view is very different from that of the supply chain. Investors are looking to grow their investments through dividends and increased share prices, while supply-chain folks are looking for production—they need metals and other finished goods. They really don’t care which projects succeed in the stock market, so long as some do. They are also not going to wait forever for projects to come onstream, in the face of escalating prices; they will do what they need to, whether that is engineering re-design work, or reducing the per-unit quantities of materials that they need. Therefore, investors need to keep a close eye on demand estimates. The conversation about Byron’s numbers versus mine was a good illustration of that. The supply chain ultimately dictates demand, and understanding the individual rare earths, each with their own demand profiles, will give some clues about where the supply chain is going, and thus the potential future market as a whole.

TCMR: Are you saying there isn’t room for all of these projects to be developed?

GH: TMR is tracking well over 390 different rare earth projects at present; I can’t see more than 8-10 coming onstream in the next 5-7 years. My colleague Jack Lifton recently got some heat for saying something similar recently, but it should be pretty obvious that that’s the nature of the beast. Projects already well past exploration and into the development and engineering stage, and beyond, clearly have first-mover advantage. As demand grows, other projects might become viable.

TCMR: Thank you, Gareth; it’s been a pleasure.

DISCLOSURE:
1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Quest Rare Minerals, Matamec Explorations Inc., Ucore Rare Metals Inc., Commerce Resources Corp., Tasman Metals Inc., Montero Mining and Exploration Inc. and Frontier Rare Earths Ltd.
3) Gareth Hatch: I personally and/or my family own shares of the following companies mentioned in this interview: Innovation Metals Corp. I personally and/or my family am paid by the following companies mentioned in this interview: Innovation Metals Corp.

A couple of weeks ago the US Department of Energy (DOE) announced a Request for Information (RFI) on rare-earth metals and other materials used in the energy sector. This follows on from a similar solicitation made last year, that culminated in the publication of the DOE’s Critical Materials Strategy in December 2010.

The DOE says that this second RFI will be used to update the Critical Materials Strategy, and will also cover areas not considered in the original document, such as fluid-cracking catalyst materials for the petroleum refining industry.

The DOE is soliciting information in eight categories:

1. Critical Material Content
2. Supply Chain and Market Projections
3. Financing and Purchasing Transactions
4. Research, Education and Training
5. Energy Technology Transitions and Emerging Technologies
6. Recycling Opportunities
7. Mine and Processing Plant Permitting
8. Additional Information

The deadline for RFI submissions is May 24, 2011 and submissions from the public are welcomed. You can get more information from the DOE Web site.

By ABR Staff Writer – Automotive Business Review – Published: January 17, 2011

Toyota is expected to be on the verge of developing an induction electric-car motor which does not require rare earth metals for its electromagnets.

Toyota’s effort on this would allow the company to become less dependent on China, as the country is the main supplier of these metals, and might also defeat the last year’s price rise of these metals due China’s restricted supply.

Toyota global chief engineer Takeshi Uchiyamada was quoted by the Wall Street Journal as saying the technology that would allow the company not to use the magnets and yet to make a high-performance smaller size motor will come soon.

The permanent magnets used in existing electric-car motors are made from a rare-earth mineral called neodymium.

Toyota has taken many steps to decrease its dependence on China for these metals including the launch of a joint venture to explore rare metals in Vietnam.

Technology Metals Research Illinois founder Jack Lifton said the auto industry purchases 40% of the world’s supply of neodymium and Toyota buys more than any other company.

“There is about a kilogram of neodymium in every Prius,” Lifton said.

Earlier today CNBC ran a series of segments throughout the day on rare-earth metals and associated companies. One such segment featured a very short clip of Gareth, shown during the “Squawk On The Street” program. You can see the video by clicking below:

By Mike Ramsey – Wall Street journal – Published: January 14, 2011

Toyota Motor Corp. is striving to develop a new type of electric motor to escape a simmering trade conflict involving China’s grip on a rare mineral.

The Japanese auto maker believes it is near a breakthrough in developing electric motors for hybrid cars that eliminates the use of rare earth metals, whose prices have risen sharply in the past year as China restricted supply. The minerals are found in the magnets used in the motors.

All electric motors rely on magnets to make them work. The new motor Toyota is working on is based on the very common and inexpensive induction motor, found in such devices as kitchen mixers. Induction motors use electromagnets—magnets that only have their magnetic attraction when power is applied to them.

Most motors used in electric and hybrid cars today use a different type of motor that relies on permanent magnets. These magnets always have a magnetic field—akin to the magnets used to attach things to refrigerator doors.

But the permanent magnets found in electric-car motors, unlike those that hold up the school lunch menu, are made from neodymium, a rare-earth mineral that is almost entirely mined and refined in China.

As car companies race to improve electric and hybrid vehicles, their reliance on metals like neodymium and lithium—used in batteries found in electric and hybrid cars—is raising a host of new geopolitical issues over access to the minerals. The supply of many of these minerals is controlled by China.

Toyota has taken several steps to reduce its dependence on China for the materials, including investing in a lithium venture in Argentina and launching a joint venture in Vietnam to prospect for rare metals like neodymium.

The auto industry purchases 40% of the world’s supply of neodymium and Toyota buys more than any other company, said Jack Lifton, a rare earth materials expert and founder of Technology Metals Research in Carpentersville, Ill. There is about a kilogram (2.2 pounds) of neodymium in every Prius, he said. Toyota declined to comment on this figure.

“It would be a big change in demand for neodymium” if Toyota switched to an induction motor, said Mr. Lifton.

General Motors Co., which launched its Volt electric car last month, also is looking into alternative types of motors. “We have ongoing development in those areas and the induction motors do work,” said Pete Savagian, who leads GM’s hybrid powertrain engineering division.

Continental AG of Germany, one of the world’s largest auto parts makers, said it already has developed a rare-earth-free motor that will be used in an undisclosed electric car due out in Europe this year. This motor uses a variation of an electric motor often found in power plants.

Part of the rationale for developing this motor is to avoid rare earth metals, but it mostly is a move to lower costs, said Mike Crane, who runs Continental’s hybrid and electric vehicle programs.

“Even in the best scenario of supply, these [rare earth-based] magnets are very expensive,” Mr. Crane said.

China produces about 95% of the world’s supply of neodymium and last summer the country began restricting exports. In December, China announced a 67% increase in export tariffs on the metal and has declared new limits on exports this year.

Neodymium prices have quadrupled in the past year, according to Lynas Corp., an Australian company developing a giant mine and refinery for the material.

Rare earth minerals are a grouping of 17 chemically similar elements that are usually found together in ore and are refined and split apart. They are used in magnets and semiconductors and a host of other technologies. The U.S. and Australia have deposits of them but lack the expertise in extracting and refining the minerals.

For Toyota, getting around this barrier is crucial. The auto maker at this week’s Detroit car show announced the expansion of its hybrid-electric lineup by adding two new Prius variants and plans to spread the technology to all of its models in the next decade.

“The technology that would allow us not to use the magnets and yet to make a smaller size, high-performance motor will come soon,” said Takeshi Uchiyamada, Toyota’s global chief engineer.

“We currently have such a motor, but controlling the motor is rather difficult,” he said.

Mr. Uchiyamada wouldn’t say when the motor would be introduced.

Toyota spokesman John Hanson said the new motor could come in the “near term.” He added: “It looks like we could reduce cost, weight and mass and avoid the geopolitical issues with the rare earth metals.”

Elias Strangas, an electrical engineering professor at Michigan State University, said induction motors that serve as the basis of Toyota’s work “are cheap to make and as rugged as you can get, but they are not terribly efficient, and they are big.” Improving them “is kind of a holy grail in motors.”

Prof. Strangas said he had heard rumors of Toyota working on an advanced induction motor, but hasn’t seen a published study on the work. “I would like to see the numbers [on the motor’s performance] to say they are convincing,” he said.

The permanent magnet motor took off only in the past decade as car makers tried to find more efficient and powerful motors for electric vehicles and hybrids.

“But then we discovered they are a bit expensive, and the rare-earth places where they are mined are not too many,” Prof. Strangas said. “We are now trying to revisit very old technology and remove the problems” in induction motors.

At the same time, Toyota affiliate Toyota Tsusho Corp., which imports metals, said in October it would begin working with Vietnamese companies to extract the rare earth metals from deposits there.

A year ago, the same company struck a deal with an Argentinean company to develop a lithium mine to secure a direct source for the key element in advanced electric batteries.

The vast majority of the world’s mined deposits of lithium are in China, Chile, Argentina and Bolivia.

There is pressure on the entire automotive industry to develop better supplies of these materials because of a slew of new and planned all-electric cars, including Nissan Motor Co.’s new Leaf.

Electric cars require much larger motors, with more rare earth metals, than hybrids such as the Prius.

Today I want to look at China’s dominance of critical raw materials for clean-tech. Most people think that they left graphite behind when they graduated from pencils to pens early on in their school days, but the truth is that this slippery substance remains a crucial part of our daily lives. Consider the laptop computer, which has by and large replaced pens for most of us over the past decade — did you know that there is actually 10 times more graphite than lithium inside a lithium-ion battery?

Graphite has long been a key ingredient in steel, castings, lubricants, vehicle brakes, golf clubs, tennis rackets and — no surprise — pencils. But this polymer of carbon — a chemically identical sibling of both diamonds and coal — will become increasingly important in coming years due to its chemical, electrical and thermal properties. Its ability to remain stable in ordinary corrosive environments, conduct electricity and resist heat allow it to serve as a key component in applications like the storage batteries and nuclear-electricity generation stations that will power us into the future.

Coal powered the Industrial Revolution; its chemical twin, graphite, will be of great value in constructing the components of the clean-energy economy, making graphite a true diamond in the rough!

While one may assume that it is as common as the dirt that it somewhat resembles, the supply of graphite is far from infinite. Natural graphite comes in several forms: Flake, amorphous and lump. Of the one million tons of graphite that are processed each year, just 40% is of the most desirable flake type. Only flake and synthetic graphite (made through an expensive process from petroleum coke) can be used in lithium-ion batteries. Graphite mining and processing are limited to a relatively small handful of countries, with China currently producing 70% of the total global supply.

Demand for lithium-ion batteries will increase rapidly as battery-power (electricity) supplements, and will even replace gasoline- and diesel-fueled internal-combustion engines in vehicles as ‘green energy’ expands. While hybrid automobiles such as the Toyota Prius have used nickel-metal-hydride batteries for more than a decade, newer hybrid models like the Chevy Volt, as well as battery-only electric-drive vehicles like the Tesla Roadster and the Nissan Leaf, rely upon the more-efficient lithium-ion batteries that will almost certainly be employed in all hybrid or fully electric vehicles in just a few short years. Large-flake graphite will be very much in demand to produce the hundreds of millions of lithium-ion batteries required for these automobiles.

Governmental bodies are taking notice of just how crucial secure supplies of graphite are. Graphite prices have been increasing in recent months, and investors’ interest in this industry is almost certain to climb as word spreads about the impending boom in demand and the companies that will be making moves to meet it.

A Slippery Supply

Global graphite production has held steady at approximately one million tons per year over the past decade. The weak demand in the first half of the 2000s, combined with relatively low prices, led to little investment and development of graphite mining and processing capabilities over this time span. Many graphite-producing countries saw a steady drop in annual production between 2001 and 2008, including the Czech Republic, Russia, Madagascar, Zimbabwe, Canada and Mexico. Taking up the slack over this period were the Ukraine, Brazil, India and North Korea. China saw some peaks and valleys in production during this time, but currently produces nearly four-fifths of the world’s total supply of graphite, keeping 60% of this output for its own manufacturing requirements.

Japan, the U.S., Europe, South Korea and Taiwan — each of which has an economically significant and well-developed steel industry — import significant quantities of graphite from China. While China is the dominant player in the graphite game, 70% of its production is of the amorphous and lower-value small-flake graphite that is used in industrial applications rather than in batteries.

At this point in time, the fragmented nature and seasonality of its graphite production base raise some doubts that China will be able to increase its output; in fact, China itself currently imports a significant amount of North Korea’s graphite production. Producers in other regions of the world will need to step up their efforts to meet demand, which will require significant investment.

Increasing Applications Driving Demand

Graphite has long been a key component for the aviation, automotive, steel and plastic industries, as well as in the manufacture of bearings and lubricants. High-purity large-flake graphite is essential for the production of the lithium-ion batteries that are crucial to the consumer-electronics industry. Demand for this form of graphite will rise rapidly as production of larger batteries for vehicular propulsion comes online.

Currently, the iron and steel industries are the largest consumers of graphite. But demand for graphite has been rising for other applications — researchers in the field of material science continue to find new uses for this durable, heat-resistant, electricity-conducting substance. Graphite will be used in the construction of next-generation nuclear reactors, which are expected to reach temperatures as high as 1,000 °C in their cores — triple the temperature of today’s reactors.

Graphite is one of the few substances that can resist such heat. It has already replaced asbestos as a health-risk improvement in automotive brake linings and pads. As the standard of living rises in developing nations like Brazil, Russia, India and China, many more vehicles of all types will be added to the world’s roadways, increasing demand. Few people realize that 84% of the world’s total population lives in emerging-market countries.

Of course, it is expected that a rapidly growing number of automobiles will utilize extensive lithium-ion battery systems to assist with or singlehandedly provide propulsion, which is where the single-greatest increase in graphite demand is anticipated. At present, 2% of all new vehicles sold are gas-electric hybrids, plug-in hybrids or battery-only full-electric drive — most of which still use nickel-metal hydride batteries. It is projected that by 2020, these types of automobiles will represent 5-18% of all sales and almost exclusively be powered by lithium-ion batteries, which are both lighter and more powerful than nickel-metal hydride ones. With 70 million vehicles forecast to be sold in 2020, vast amounts of graphite will be required to manufacture the lithium-ion batteries that will power many of them.

Emerging fuel cell technologies also rely heavily on graphite. One of the more promising types under development, the proton-exchange-membrane fuel cell, requires 100 pounds of graphite per vehicle. Fuel cells will also be used for stationary power generation, as utility providers seek to overcome the inherent inefficiencies around electricity transmission to remote locations.

Perhaps the single greatest testimony to graphite’s importance is the concern that governmental bodies have shown about its important role in security. A 2010 European Commission study regarding the criticality of 41 different materials to the European economy included graphite among the 14 materials high in both economic importance and supply risk. A recent WikiLeaks posting revealed that a list known as the Critical Foreign Dependencies Initiative developed by the U.S. Department of Homeland Security and the State Department included graphite mines in China among those overseas sites that could damage American interests if terrorists were to disable them. The U.S. military will also increasingly rely on graphite for battery and fuel cell applications, as the armed forces lessen their dependence on petroleum.

Intriguing Prospects

Top Stock Pick

China Carbon Graphite Group, Inc. (CHGI.OB), through its affiliate Xingyong Carbon Co. Ltd., manufactures graphite electrodes, fine-grain graphite, high-purity graphite and other carbon-derived products at its Inner Mongolia facility. The company believes that it is the largest wholesale supplier of fine-grain graphite and high-purity graphite in China. The company reported dramatically higher sales and earnings for the quarter ending September 30, 2010.

Additionally, China Carbon Graphite has started building new forming and baking plants in order to meet the growing demand for high-purity (and higher gross margin) products in the global market. Construction of the new forming plant, which will produce large-size ultra-high-graphite electrodes as well as high-purity and fine-grain graphite, is slated to be completed by June 2011. The new baking plant will have 36 furnaces and include 30,000 tons of annual capacity, making it the largest baking plant in China’s graphite industry.

The company noted in its recently-filed 10-Q that steel plants in China have been upgrading their electric-arc furnace facilities, which has boosted demand for large-size ultra-high graphite electrodes, a unique and specialized product. China’s steel industry, far and away the world’s largest, is today rapidly evolving into an industry, like that of the U.S., where electric-arc furnaces requiring graphite electrodes in huge quantities will ultimately be the dominant type of steel furnace used. This is inevitable, as the Chinese steel industry begins to utilize not only imported scrap steel and iron but, soon, domestically produced scrap as well. Shortages have developed and are expected to continue. Earnings could rise materially once these new plants are brought online.

The company’s long-term strategy is to diversify and expand its product offering by manufacturing graphite that would be used as a reflector or moderator in nuclear reactors in China — a product that would have significantly higher profit margins than its current offerings. At present, there are 11 nuclear power plants in China, with 15 more plants currently under construction — and only one other manufacturer of nuclear graphite pure enough for use in these plants. The company works with Hunan University and Qinghua University to research and develop nuclear-grade graphite.

China Carbon Graphite has approximately 550 full-time employees and a market capitalization of $24 million, and the shares trade at just over a dollar. This price could easily triple once the company begins to sell nuclear-grade graphite.

While some investors are wary of investing in Chinese companies due to the risks and volatility in China’s economy, CHGI represents a compelling speculation in the rapidly expanding global graphite industry. It is reassuring to know that internationally-recognized accounting firm BDO is the company’s auditor of record.

Lower Risk Pick

GrafTech International Limited (GTI), based in Parma, Ohio, is another strong graphite stock pick. Founded in 1886, GrafTech is one of the world’s largest manufacturers and providers of high-quality synthetic and natural graphite and carbon-based products. It has four major product categories — graphite electrodes, refractory products, advanced graphite materials and natural graphite — that it manufactures in 11 facilities on four continents, with customers in about 65 countries.

This low-cost global producer has a reputation for product quality, value and service excellence. It is one of the world’s largest manufacturers and providers of advanced graphite and carbon materials for the transportation, solar, and oil and gas industries. Approximately 70% of the graphite electrodes that it sells are consumed in the EAF steel melting process, the steelmaking technology used by “mini-mills.” According to the company’s most recent annual report, it operates “one of the world’s most technologically sophisticated advanced natural graphite production lines.”

The company’s share price has been hovering near $20 recently, and the current market capitalization is $2.4 billion. The stock is very heavily held by institutions such as The Vanguard Group, William Blair & Co. and Calamos Advisors. GrafTech appears to be very well positioned to fully capitalize on the favorable outlook for the graphite industry and the recovering global economy. Indeed, several analysts are projecting robust long-term sales and earnings growth for GrafTech.

Quality Speculation

Northern Graphite Corporation (not yet trading) is a mineral exploration and development company based in Ontario, Canada, that holds a 100% interest in mining claims for the Bissett Creek Project. The Bissett Creek Project consists of approximately 1,343 hectares near Mattawa, Ontario, that contain large crystal graphite flakes in a graphitic gneiss deposit.

The company is about to complete a multimillion-dollar public offering of common stock, and plans to use the proceeds to conduct metallurgical testing, prepare a pre-feasibility project report, and continue drilling and bulk sampling onsite. This project is unique in that almost 90% of the anticipated production is expected to be large-flake, very high-purity graphite that should command a premium price on the market.

Moreover, the company’s prospectus indicates that the mine’s assumed life should exceed 40 years, making Bissett Creek the only significant North American high-purity graphite producer. The deposit is near surface and only 10% of the property has been drilled to date. The project is ideally situated near the Trans-Canada Highway, with rail and power lines close by. Major graphite users in the steel and automotive sectors are in close proximity. These shares could quickly climb from the $0.50 IPO offering price once it begins trading in January 2011.

The Drive Is On

Graphite is one of the quintessential wonder materials of today that will only become more important moving forward. While the supply has proven adequate over the past decade, demand will increase significantly across all sectors of the industry in the years ahead. Already, prices are on the rise, with the best quality large-flake graphite rising in price from a low of $1,350/t to more than $2,000/t during the fourth quarter of 2010 alone. New supply sources will be needed to meet this uptick in demand — existing mining, processing companies and startups alike will require investment. The prudent investor will not want to miss out on this overlooked opportunity. The demand for metals and minerals is now fed by the insatiable economies of southeast Asia and Brazil. There is a lag between increasing supply and demand that leads to long-term price growth for producers of such natural resources.

Disclosure: I have no positions in any of the stocks mentioned above.