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.

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.

Chinese domestic demand growth for the rare-earth-permanent-magnet (REPM) metals neodymium (Nd) and dysprosium (Dy) over the next five years, will be strongly influenced and perhaps determined by, the emphasis on industrial policy announced in the new Chinese economic development Five-Year Plan. The general outline of this 12th Plan is reviewed and analyzed in the London Telegraph for March 5, 2011, in an article which is entitled “China’s five-year plan: key points“.

Before we discuss the specific section of the new Five-Year Plan that influences rare-earth-metals demand growth, we first need to understand that China’s industrial economy is centrally planned and rigorously controlled in detail, by the China State Council. This is the executive body of the Chinese Communist Party, which operates in a “King-in-Council” manner similar to the way in which the British government operated when its monarch had actual power centuries ago. In the case of the China State Council, of course, it is the “President” of China who is the head of state while the Prime Minister and State Council members are the daily overseers and rulers of the operations of the government.

It’s not appropriate to refer to the China State Council as equivalent to the Chinese President’s cabinet as many pundits do. The State Council is much more than an advisory group to the President; it is actually operating as the office of the executive branch of the government, and it consists of powerful men, all members of the Communist Party hierarchy, the men who actually rule China. The China State Council does not recommend industrial policy; it defines, organizes, and controls the Chinese economy in order to achieve the goals of the Chinese industrial policy.

The Council sets the goals ahead of time for each five-year period, and it has traditionally done so by asking the permanent civil-service bureaucracy to prepare position papers on their needs and wants, prior to the finalizing of each new Plan. From these studies the China State Council decides on what the goals of the Plan will be, and how the state’s total resources will be allocated to implement it successfully.

The current Plan just officially promulgated is the 12th since the 1949 revolution, which brought the Chinese Communist Party into power. This centralized planning of goals for industry is a legacy of the Soviet Union’s evolution of the economic measures thought to be necessary for the transformation of socialism ultimately into communism. Needless to say, Lenin and Stalin would no longer recognize the policies of the present Chinese Communist Party, as having originated in their own theorizing and economic experimentation, which was finally an unmitigated disaster and eventually brought about the economic and political collapse of the Soviet Union.

Second, you need to understand that the job security of a Chinese manager is a direct function of his or her ability to meet the goals of the Five-Year Plan. Only systemic failure can save a manager who does not meet his assigned goals from disgrace and unemployment. Therefore Chinese managers take their assigned goals very seriously. Plans are made in detail by industry in China, in collaboration with the central and provincial governments,  to allocate the resources of labor, capital, and natural resources necessary and sufficient in the eyes of the planners to meet the industrial goals for production.

Beijing may alter the timing of the execution of any particular aspect of the Five-Year Plan, but local officials have no such power to do so.

Note well that this is the complete opposite of American practice, where legislators, if they bother with this type of planning at all, set over-reaching goals and then leave it to private industry and capital to meet them. Typically when Western politicians simply do not understand a technology, such as vehicle electrification and the production of cost-efficient batteries for such technologies, they then simply set goals to be met after they leave office. They then accept the congratulations of their similarly inclined constituents who like them know nothing of economics, manufacturing engineering, or from where natural resources come and at what rate.

This is not the case in China, where bureaucrats are chosen for specific expertise as well as political reliability.

The punditry usually refers to the Chinese planning as industrial policy, but it is as much direction as it is just simple policy.

The Telegraph article contains the following in its translation of the Five-Year Plan’s key points:

“Introduce targets for energy efficiency and consumption that will see China finding 20pc of its energy from non-fossil fuel sources by 2015. The contribution of coal and oil to fall from its current 90pc to 80pc.”

When I was in Beijing in August 2010, for the 6th Annual Chinese Society of Rare Earths Summit, a speaker representing the Chinese wind-turbine electricity-generation industry told the conference that in the next two Five-Year Plans (the 12th and 13th) beginning in 2011 China, in order to reduce the usage of coal to generate electricity and to improve energy-use efficiency per productive unit of capacity, would add 330 gigawatts of wind-generated electrical power, and that this would require a total of 59,000 metric tons of neodymium.

He said that the wind turbines to be built would use REPM-type generators to save on weight and maintenance. The reaction of the crowd, overwhelmingly made up of Chinese rare-earth miners and refiners, seemed to be one mostly of surprise.

I understood why this was so. The Nd required makes up just 28% of the total typical neodymium-iron-boron (Nd-Fe-B) alloy that comprises a REPM. Yet the spokesman from the Chinese wind-turbine industry had clearly said, and his slide showed, a need for 59,000 tonnes of new, additional, Nd demand that had not before been added to the demand-growth figures anyone had seen.

The Chinese businessman next to me had been busy photographing the wind-industry spokesman’s slides. I asked why he didn’t just request a copy of the presentation. His reply was “You’ll never get a copy from these guys. They’re running trial balloons for the State Council.”

Nd is typically around 20% of the total REEs produced by the Chinese light-rare-earth industry. That total last year, 2010, has been said by Dr Chen of the China Society for Rare Earths to have been just 89,000 tonnes of which 77,000 tonnes, or 86%, were light rare earths. This means that the Chinese production of Nd for 2010 was about 15,000 tonnes.

Of the 12,000 tonnes of heavy rare earths produced in China in 2010, just 7% was reported to be the heavy rare earth Dy, which would mean that 840 tonnes of Dy were produced from the so-called ionic absorption clays in southern China.

A typical Nd-Fe-B-based REPM contains 3-12% of Dy overall – this means that 100 kg of such magnet alloy contains from 3 to 12 kg of Dy as well as around 28 kg of Nd. The OEM automotive industry uses the most Dy loading, as high as 12%, to give their REPM-based motors, sensors, generators and the like, the maximum service life at constant high-temperature use.

Even assuming that the new demand for Nd-Fe-B-based alloy for the Chinese wind-turbine industry uses only 3% of Dy, and even if the 59,000 tonnes of Nd were only 59,000 tonnes in total of magnets, one would still need an additional 1,800 tonnes of Dy just for this project, as well as an additional 18,000 tonnes of Nd! If the demand for new additional Nd for the wind-turbine project is indeed 59,000 tonnes then a minimum demand for Dy could be 6,000 tonnes, which would be, at current production, the total dysprosium produced for the next 7 1/2 years!

These demand-growth figures, assuming that the need is 59,000 tonnes of Nd, would require at least a doubling of current Chinese light-rare-earth-metal production and the total dedication of Dy production to this clean-tech goal for most of the next decade. If there is a further demand growth from the automobile industry, the current largest user of Dy-enhanced Nd-Fe-B-type REPMs, and that growth parallels the increase in motor-vehicle production expected in the next decade then this use alone will add the need for an additional production equal to the entire 2010 production of Nd and Dy.

We would then be looking at a minimum at a torrid 15% a year growth in the demand for Nd and Dy between 2011 and 2020, just from the Chinese domestic-wind-turbine industry, and the global OEM automotive industry.

Such growth may be possible for Nd production; it is unlikely to be achieved for Dy unless there is for the first time development of Dy resources outside of China.

The Chinese have emphasized over the last year that they believe their Dy resources are being exhausted, and that at current rates of production they have only 5-25 years of production remaining.

If the growth of demand for Nd and Dy above are correct, then it is most likely that Dy will be OR IS ALREADY in short supply.

Therefore unless rare-earth mining ventures with commercially significant Dy are now brought into production as soon as possible, then clean-tech growth outside of China will slow down or stop, depending on whether or not the clean-tech manufacturer has a Chinese source for Nd-Fe-B-based-magnet-containing components, and that Chinese source has an export license for rare-earth-containing components.

By Emma Davies – Chemistry World – Published January 2011

Last October, China started building the world’s biggest off-shore wind farm in Bohai Bay, a few hours from Beijing. The country is constructing wind farms on an unprecedented scale – surely good news given its insatiable appetite for coal. But each megawatt of power a wind turbine generates requires up to one tonne of rare earth permanent magnets. The elements used in the magnets – neodymium, dysprosium and terbium – are in short supply and the west is in danger of losing access to them as China’s domestic needs soar.

Read the rest of the article….

The television commentator and former Jesuit, John McLaughlin, used to make me laugh when he would tell a panelist of an opposing political view: “Once again you’ve stumbled upon the truth, even though you don’t know how you got there.”

The New York Times recently reported the facts of a story entitled, “China to Invest Billions in Electric and Hybrid Cars,” but failed to stumble upon the truth. So let me do that for the Times and for your benefit, dear readers:

China, as part of its national plan, a goal centrally set by those in overall charge of its economy, announced yesterday that its motor vehicle industry will be required to build one million electric and hybrid motor vehicles in the next few years. I believe that this means that the industry will be required to reach a production rate of one million electrifed motor vehicles, the size of passenger cars, per year.

This is part of an overall plan to marshal and deploy China’s natural resources and its resources of intellectual property for the benefit of its own people, first. How much more logical can it get than that as a reason to conserve precious natural resources such as the rare earths?

The New York Times points out in the above story:

“The announcement, analysts say, is another example of how China seeks to marshal resources and tackle industries and new markets. The plan also underlines what China describes as its growing commitment to combating pollution and reducing carbon emissions.”

When I was in Beijing in the first week of August, three weeks ago, one of the other (I was a speaker at the plenary session) speakers at the Chinese Society for Rare Earths 6th Annual Rare Earths’ Summit, stated that a goal of the next two five-year plans, to be completed in 2020, was to have 330 GW of wind-turbine-generated electricity installed by that time. The speaker pointed out that this would take 59,000 metric tonnes of neodymium, calculated as 28% of the rare earth permanent magnet alloy, neodymium-iron-boron, since each 1.5 MW wind turbine generator will require one tonne of rare earth permanent magnet alloy.

The same speaker who was from the Chinese rare earth permanent magnet manufacturing industry didn’t mention how much of the heavy rare earths would be required for the project. I will estimate that at most it would be one thousand tons of terbium and three thousand tons of dysprosium.

In any case the total requirements for these new (not replacement) uses for neodymium, would be the total production for three years at the most recently achieved high production rate of neodymium, and as much as five years of terbium and two to three years of dysprosium.

If the neodymium demand is to be met, and this means that China, AS THE SPEAKER SAID, decides to use only rare earth permanent magnets for its wind turbine electric generator program, then it would require that three years’ production of the contained neodymium, at the rate it was mined in China in 2008, among all the rare earths mines there, be reserved for Chinese domestic magnet and wind equipment manufacturers and be targeted for the Chinese domestic market!

I think that it is crystal clear, that China is not reducing the production of rare earths on a long term basis and is not reducing their export on a short term basis. It is in fact pausing to:

• physically clean up the rare earth mining sector;
• eliminate illegal mining and smuggling of this precious green resource;
• consolidate the rare earth mining industry under the largest state-owned base metal producers of iron, copper, and aluminum, to prepare to ramp up the Chinese domestic production of rare earths both to meet and to guarantee the success of its long-term green strategy.

This is called long term strategic planning for those in Washington and on Wall Street who don’t understand why the Chinese are ‘depriving us’ of this vital resource. This process is also called ‘conservation of domestic resources’, by the way.

As to electric and hybrid cars, they require neodymium, dysprosium, and terbium for the magnets in the rare earth permanent magnet electric motors – both that drive them and that power their accessories. Some or all may also use lanthanum in nickel metal hydride batteries, as all hybrids made today currently do. A. In any case, whether or not the Chinese electrified cars use NiMH batteries, they are being designed to use rare earth permanent magnet electric motors. A million such vehicles will probably require just one million kg (1,000 metric tonnes) a year. Oh, did I mention that they will need also 10-20 tonnes of terbium and up to 50 tonnes of dysprosium. All of this new demand will be added demand not replacement demand, by the way.

I have no doubt that China will remain the world’s largest producer of the rare earths indefinitely. In the near term, perhaps over the next 5-10 years, China will need to import the ‘light’ rare earths lanthanum and neodymium, to make up any shortfalls created by its proposed quantum leap in demand in the face of the temporary reduction of production, for environmental and reorganization reasons. If the non-Chinese light rare earth miners get their acts together in time so that they can produce light rare earths at a lower cost than their Chinese competitors are able to do, then both Molycorp and Lynas have a good chance of success even in the long term.

The real issue for the future of rare earth utilization and therefore of mining, is the continued growth of the use and need for the heavy rare earths, terbium and dysprosium.

These ‘heavy rare earths’ are believed by the Chinese to be in short supply domestically. China today is the world’s only producer of heavy rare earths, mostly from southern Chinese deposits known as ‘ionic clays’, although significant quantities are also produced from the Bayanobo region (even though they report in Bayanobo only in small quantities) due to the overall massive amounts of rare earths mined there. Nonetheless, China believes that its own domestic supply of the heavy rare earths has between 5 and 30 years remaining at present levels of use.

This means that the real supply opportunity in the non-Chinese rare earth mining sector, is for those deposits that have above average proportions of heavy rare earths, to be brought into production as quickly as possible.

It is a horse race among those non-Chinese juniors with commercially (i.e. economically) recoverable heavy rare earths.

They are:

Canada

1. Great Western Minerals Group
2. Avalon Rare Metals
3. Quest Rare Minerals

(Note: some of my colleagues have urged me to add other Canadian juniors to this list, such as Matamec Exploration, but I know little about that company and will reserve my judgement on them for a future time, when I have had time to study Matamec Exploration and to visit its site.)

USA

1. Ucore Rare Metals
2. Rare Element Resources (a light rare earth deposit but with significant europium only)

Republic of South Africa

1. Rareco (in conjunction with Great Western Minerals Group)
2. Frontier Rare Earths (private at this time)

The success or failure of any of the above, will depend on the quality of their deposits, the efficiency of their extractive metallurgy, the ability of the global rare earth refining industry to service them, and the growth of the Chinese, Japanese, Korean, and Indian domestic markets.

Disclosure: I own shares in Great Western Minerals Group, and I am a paid consultant in business development to Ucore Rare Metals and to Frontier Rare Earths.

I am in Beijing, where I am attending and have spoken at the 2010 China Rare Earth Summit, part of the 6th International Conference on Rare Earth Development and Application, run by the Chinese Society of Rare Earths. I was honored to be one of only three American guest speakers. The other two were America’s most well known academic experts on rare earths, Professor Karl Gschneidner of the Ames Laboratory at Iowa State University and Professor William J. Evans of the University of California – Irvine.

The conference has 300 attendees who are a comprehensive group, representing the academic, business, and governmental sectors of the Chinese rare earth research (academic and business), development, mining, refining, and end use manufacturing industries.

I was asked to speak about ‘The American Perspective of the Rare Earth Supply Issue.’ My presentation and commentary will be posted shortly here on the Technology Metals Research web site for review.

Although most of the nearly 100 speakers in the 6 technical tracks, and most of the 222 papers listed on the program were highly technical, interspersed among them were some that were purely descriptive of mines, processes, and important sectors dependent on the rare earth metals such as permanent magnets, batteries, phosphors, wind energy generation, and other clean-tech/green-tech applications.

My colleagues Dudley Kingsnorth of IMCOA and Judith Chegwidden of Roskill Information Services, were also both invited guest speakers and Ms. Chegwidden was the moderator of the introductory session at which I spoke. Their respective presentations might be available online in the near future.

I am here in China to find out what the Chinese rare earth industry is doing and where it is going. I have a scientific background, and was once a researcher myself. I also worked with rare earths in product development for phosphors and batteries, so I was interested in and able to understand most, if not all, of many of the technical papers I heard. THe biggest surprises though, came from the survey papers on clean-tech/green-tech applications of the rare earths.

It is obvious from the vantage of the rare earths’ sector in China, that China is simply racing ahead of the rest of the world in volume production, as well as development of state-of-the-art clean tech and green tech products.

For example, it was pointed out that China built and installed 13 gigawatts of wind turbine electricity generating capacity last year, using rare earth permanent magnets for efficiency and low maintenance. The astounding prediction was made that by 2020, China will install 330 gigawatts more wind power capacity, with each 1.5 megawatt generator require one metric ton of neodymium-iron-boron magnet alloys, which, if they contains 34 weight % neodymium, would mean that the Chinese wind power industry would need a further 70,000 t of neodymium, approximately 3 1/2 times the 2008 production of that metal – all as new added material – between now and 2018-19.

I plan to write much more on this topic during the next few weeks, but I believe that the trend is clear. China will be the driver for, and the home of, the most demand in the world for the rare earth metals from now on.

There wasn’t much talk about Molycorp in China, other than to hope that if it gets into production, Chinese customers will have an opportunity to buy its products. The only non-Chinese rare earth mining venture present was Great Western Minerals Group. Its chairman gave a talk on his ‘mine to market’ strategy, and he told me he was there both because he was invited, and in order to continue negotiations for a strategic alliance with a Chinese refiner, on an African project the goal of which is to supply Great Western’s UK alloy plant, Less Common Metals, with feedstock metals for its operations from GW’s South African venture at Steenkampskraal.

Japanese companies and academics were well represented and there were even French and Russian miners and refiners. I was disappointed that there were so few Americans, and as for the American media I saw only public radio’s Marketplace (who interviewed me) and the New York Times’ Asia correspondent.

If the rare earth supply issue is so important to America’s security, why then do so few Americans and almost no American media come to the world’s premier rare earth informational event? It is most likely because China is the center of the world rare earth industry, in all of its aspects.

The Chinese and Japanese magnet industries both need heavy rare earths. They may even need light, imported, non-Chinese, rare earths sometime before 2015, but I think it is clear that after 2015 they will both need heavy rare earths from outside of China. Japan may actually need both types of rare earths from the outside by 2015, if Chinese demand should exceed or meet its domestic supply capability by then, which is probable, so that China no longer is willing to export rare earths.

If all roads lead to Rome then certainly the home of all metals is now China.

Disclosure: I have a LONG position in Great Western Minerals Group stock.

The immediate consequences of total import reliance
DETROIT, Nov 8, 2009 — U.S. Senator Charles (Chuck) Schumer (D-NY) is up in arms about the fact that a wind power “farm” to be erected in Texas, would be made up of components entirely constructed in China, and would create in the USA only the temporary jobs needed to erect them and a few permanent jobs to maintain them – while providing work for more than a thousand Chinese. He is questioning why such a project should receive public money. I am amazed to find myself in total agreement with the Senator. The projects should not receive any public money, but this will entail, for the present, that they not be built. If the USA is to embark “On The Green Road” it must first establish a balance between environmental activism and economic necessity.

The real question to be addressed is why are the components being made in China? Can we do anything to cause them to be made in the USA?

The companies that mine rare earth metals in China are not public nor are they audited by independent third parties. There is no way of telling if they make a profit or what their cost structures are. Therefore, the prices for the rare earth metals are set and the price “discovery mechanisms” for the rare earths, are simply the prices for the metals “set” by the producers or the trading companies that export the metals from China. Is this why we cannot get rare earth mines financed in the West? How can we determine the long term value of their products? What is the value to be added for strategic necessity or criticality? Is there a green value to be added to the rare earths?

The hot air over the Texas wind farm is instructive if the larger issues are examined.

For any and all wind turbine generators designed to use rare earth based permanent magnets, with a handful of minor exceptions it is today necessary to have the magnets made in the People’s Republic of China (PRC). The growth of modern manufacturing technology and engineering in China, just since 1989, along with the – for the time being – lower cost of skilled labor in the PRC, also makes it economically beneficial to produce all of the components of permanent magnet type wind turbine generators in the PRC! One of Europe’s major producers of electric generators, Siemens, has, in fact, already begun construction of a world class wind turbine generator manufacturing facility in Inner Mongolia for the express purpose of serving the Chinese domestic market. America’s General Electric has been subcontracting the construction of any and all wind energy components, using rare earth based permanent magnets, to its partner companies in the PRC for most of the twenty-first century.

These are the current consequences of the non-production of any but trivial amounts of the rare earths outside of China, combined with the economic thinking of America’s business and government elites; the former want to maximize profit at any cost, the latter want revenue from the taxes on those profits. The economic future of the United States as an industrial manufacturing economy producing goods for both the domestic and export economies (one of only two ways to create wealth – the other being the production of natural resources to supply the industrial economy) does not seem to be of any interest to America’s business or government leaders.

In the 12th century Mongol military geniuses Kublai and Genghis Khan conquered China. When the new Mongol emperor turned his attention to the large island nation near China’s coast known then, dimly, to Europeans as Cipango, and now as Japan, he ordered an invasion fleet be constructed to ferry his Mongol warriors to an easy conquest. But, as the Japanese tell the story, the gods intervened and a “divine wind,” a kamikaze in the Japanese language was sent by the gods to blow the Mongol ships back to China, and it scattered and destroyed the Khan’s ships and drowned his soldiers. Japan was saved from the Mongols.

Ironically, miracles based on wind are turning out quite differently today. Now the wind from Inner Mongolia, today a Chinese province that produces essentially all of the world’s rare earths, is blowing strongly towards and across Japan – so strongly. in fact. that it has had noticeable effects as far away as the American “Lone Star” state, Texas.

Please take a moment to read the story in the Sunday, November 8, 2009 edition of the New York Times, which is entitled “Schumer Seeks to Block Stimulus Funds for Chinese Backed Texas Wind Farm.” Senator Schumer, a multiply elected senior (and therefore powerful) member of the United States Senate, has noticed that going green in America, through the erection of wind turbines to generate electricity sustainably without the need to burn fossil fuels, can and may well in fact create jobs – green jobs, I guess, but the majority of those jobs are to be created in the People’s Republic of China. Ironically, most of the jobs created or “maintained” in China by the proposed wind farm in Texas, will be in Mongolia – talk about a divine wind.

In my article “The Rare Earth Crisis of 2009 – Part 1” [available for free download to subscribers – just fill out the form in the top right of this page] as if the rare earth story was unique. In thinking further about this topic, I have come to realize that the looming “crisis” is only symbolized by and, due to some perhaps precipitous Chinese “trial balloon” announcements, actualized by the current situation in which the Chinese have a monopoly on the “production” of rare earths. This is in addition to their refining, the production of metals and their alloys, and the production of end-use products critically dependent on the properties of the rare earths. Keep in mind that the Chinese today monopolize the entire supply chain for the rare earth metals. Note well that this means that they also control the benefits accruing from the value chain, for the production of rare earth based technologies. Controlling the value chain means that the added money value of the mining, refining, fabricating, and assembly of components and devices based on the rare earths, translates into jobs for Chinese workers, directly in China. This is called “wealth creation”, for those of you who think that consuming is the paramount economic activity.

Chinese businessmen with whom I have spoken, typically evince disbelief when I tell them that Americans, especially the business leaders, do not understand the core value of maintaining high employment in China as a driver for many so-called “mysterious” or “sinister” Chinese actions in the natural resource acquisition and utilization fields. They think that I am crazy when I tell them that American business and government leaders mistake the value that the Chinese put on full employment, for the productivity gains that in America allow a manufacturing company to contain costs and maintain prices. They, the Chinese, think it is obvious that they put as great a value on employment, as the so-called free market economies put on “profitability.”

Institutional investors have been so far reluctant to finance the development of rare earth mining in the non-Chinese world, because they and the governments under which they function are myopic.

If you examine the costs of putting a mine, any mine, into production you will find that for the hard-rock mining of metals it typically takes 5-7 years before any revenue can begin to flow from the mine. Even this relatively short time – in mining terms – requires that infrastructure be present or cheap and fast to build. Before mining starts, there must be adequate supplies of skilled and unskilled labor, water, electricity, and heavy transportation.

As if the very long wait for the return on investment for hard rock mining wasn’t enough, there is also the question of calculating whether or not there could even be a profitable return, or any return at all! This involves being able to predict both the price and the demand for the metal(s) to be mined, at the time in the future when production and delivery begin and during the life thereafter of the mine. The twenty-first century has been anomalous for mining promotion finance. The “new” economy of cheap money and high risk was a bonanza for mining stock promoters. All they had to do was incorporate a buzz-word into their prospectuses and someone would underwrite an office in Toronto or Vancouver as well as small mining camp and some drilling and chemical analysis. Thereafter announcements of the findings of high grade pebbles were clothed as findings of potentially large ore bodies. and money continued to be raised for offices, overhead, and public relations by junior miners always telling investors that they were in negotiation with a “major” miner to develop the property.

Institutional investors do not have the luxury of infinite time to value mining opportunities, and so they tend to be conservative. They have a difficult time separating the wheat from the chaff or the noise from the information.

Institutional investors interested in mining are not financial engineers. They have mostly missed the importance of the supply and value chains as a metric for the long term valuation of mining opportunities. Nowhere is this truer than in the rare earth space.

Rare earth mining did not begin in the USA, but it reached its first high point here at Mountain Pass, California, where in the early 1980s production levels of contained rare earths in concentrates reached more than 20,000 metric tons per year. This is a level that has not yet been surpassed by any one mine working from a single ore body. Yet, due to the rise of Chinese predominance in rare earth production today – which I have discussed elsewhere in great detail – the Mountain Pass operations of Molycorp today function solely by separating and refining above ground concentrates produced last in 2002, when low pricing from China forced the shutdown of rare earth mining operations.

While Mountain Pass was fighting to hold on to market share against intense Chinese competition over the last twenty-five years, the supply chain for end use products based on the properties of rare earth metals, simply abandoned the United States and removed itself mostly to China with a small amount going to Japan. China’s strategy was simple: if you wanted a secure supply of the rare earths for your product(s) then all you needed to do was to locate in, or re-locate to, China where your raw materials could be obtained, obtained for less, and your products produced by lower cost labor. This process worked so well that it can be viewed now as a paradigm, a model, for the Chinese process of improving a country’s domestic economy. One could say that the Chinese system is today “corner the natural resources and the world will come to you for its needs. Then you can cherry-pick what technologies and production you need domestically, and then, and only then, sell some of those raw materials to obtain the technologies and the manufacturing engineering. When you are secure and self sufficient simply cut off the supplies other than for exports you can spare.”

America has vast resources of rare earths, as does Canada. Ironically, China is now worried about running out of the heavy rare earths for its own domestic needs within 30 years -imagine that, an economy that worries about more than the share price, an economy that has a national long term strategy! Chinese and Japanese companies are now looking at these North American resources for the benefits of the economies of their home countries. They can only do this so long as North America does not any longer have a domestic supply chain to refine, produce metals and alloys, produce components, and assemble those components into end use products. North America has today remaining from its only recently complete rare earth supply and value chains, just two manufacturers of rare earth permanent magnets. Both buy the high purity rare earth metal, samarium, from Chinese suppliers, and both import cobalt from overseas. The main use of the products of these two suppliers is in critical military applications.

There is a movement in the US Congress called RESTART for the purpose of restarting the North American rare earth production and utilization industry as a closed loop supply and value chain. The Defense Appropriations Act for Fiscal Year 2010 requires that an immediate (due April 2010) assessment of the rare earth supply and demand situation be prepared for the Secretary of Defense. This is a very good start, but we must now devise a financial strategy, for private equity to allow an investment in a rare earth mining project to take into account the total end-use-product value, to determine the value of the mining project. This requires what the mining analyst John Kaiser calls strategic logic, as well as economic logic. And that requires government action in the form of guarantees or off-takes from mines not yet in production. Until such action is undertaken the wind from China will only get stronger.

According to a report earlier this week, China may have 100 GW of wind power capacity by 2020, more than three times the 30 GW the government set as a target 18 months ago. If China commits to producing this capacity by 2020, it will place this goal in its next two five-year plans as part of the official statement of the goals for the Chinese utility industry. If this happens, then China’s recent takeover of the Australian rare earth mining industry makes perfect sense.  The Chinese, you see, like to make long term plans not only for economic goals but also for implementing the necessary steps in the value chain to achieve them.

To make the most efficient, lightest weight, lowest service wind turbine generator of electricity, takes one metric ton (t) of the rare earth metal neodymium, per megawatt of generating capacity. This to to build the neodymium-iron-boron permanent magnet necessary for the generator to function.

The current production of neodymium is around 20,000 t per year, and all of it is produced in China.

The world’s demand for neodymium for current uses is now in balance with production.

If none of the world’s current demand becomes obsolete, and in fact, if it grows, then where is 100,000  t of neodymium going to come from, for China’s projected 100 gigawatts of new wind generated electricity, if China opts for 100% neodymium-iron-boron permanent magnet type electric generators?

The answer is simple: Australia.

The two large rare earth mining operations now in the process of being acquired by Chinese companies, Lynas and Arafura, are said to be capable each of producing 20,000 t of total rare earths per year; it is also said that one of them, Lynas, has higher than to be expected neodymium content in its ore body element distribution.

One problem that had dogged investors in Lynas recently, was that if it were brought into full production there might be a surplus of neodymium, thus paradoxically driving its price and the value of Lynas future production down.

That problem may now be solved. The new Chinese wind power plan would be able to take 100% of the Australian production of Lynas of neodymium for ten years of full production. Thus the current neodymium market would not be impacted.

Is this why the Bank of China is so eager to extend a 250 million dollar guarantee to ensure that Lynas rare earth refinery gets built? Probably it is.

Based on current and projected Chinese domestic production and current and projected use of neodymium for non-Chinese wind power, batteries, electric motors and generators for vehicles, vehicle accessories, and military use, I predict that the price of neodymium will rise sharply throughout the second decade of the 21st century.

The only possible non-Chinese, or non-Chinese owned, sources for neodymium for the open market now are the Americans, privately owned Molycorp Minerals and privately owned Thorium Energy, and the Canadians, publicly traded Great Western Minerals Group and publicly traded Avalon Rare Metals.

For now it is still possible to buy shares of Australia’s Arafura and Lynas. There is no indication of any immediate plan by their new Chinese owners to take them private, but they might just do that not too far down the road. If the run up of neodymium has then begun, those who were long term investors at that point will be in very good shape.

Don’t say I didn’t tell you about this early on.

During May 4-7, 2009 in the windy city of Chicago, there will be held a conference entitled “Wind Power 2009.” I have some comments to make and I am issuing a simple challenge to the organizers and participants in this conference. Investors in mining pay special attention.

My comment is this: Are you, the wind power industry, buying the permanent magnets for manufacturing the lightest weight most reliable, and low service needs, electric generators, which are turned by the force of the wind, from American companies, employing American workers in the United States? I believe that the large magnets for the generators you have already used, and are planning to buy and use, are made in the People’s Republic of China (PRC) ; I further believe that these magnets are of the neodymium iron boron type, which can only be made from the rare earth metal “neodymium,” which today is only produced in the PRC.

If it is the case that you are having these magnets made in the PRC, and that you intend to increase your purchases of them as you build more wind turbines, then I would like to know how you plan to address the fact that the supply of all of the rare earths, including neodymium, from the PRC, is being reduced each year by the Chinese as China’s domestic demand for rare earth metals increases steadily, This demand is in fact expected to exceed China’s production levels by 2013 at the latest, at which point there could be no rare earth metals available for export or for use in products made in China to be exported.

I would like to also know why your industry does not support the production (by financing it) of rare earth metals, including neodymium, by the reopening of the world’s largest single-point rare earth element (REE) mine, that of Molycorp Minerals’ Mountain Pass mine in San Bernardino, County, California? I would also like to know why your industry does not invest in developing North America’s largest so-far undeveloped rare earth ore body in the Lemhi Pass District of Idaho and Montana, owned by Thorium Energy, or the two proven substantial rare earth deposits in Canada at Hoidas Lake, Saskatchewan, (owned by Great Western Minerals Group) and at Thor Lake, NWT (owned by Avalon Rare Metals). The total investment in all of these REE mining operations taken together, to bring them to a total yearly production of as much as 40,000 metric tons per year of REEs (more than twice the current use of REEs by all American industries and the military combined) would be around $750 million, of which two thirds would be spent within the USA creating jobs and ensuring the continuation of industries such as yours, without the possibility of interruption of their critical REE supplies by either the growth of southeast Asia’s demand for REEs, or by an unfriendly action to cut off exports for political reasons. Developing domestic sources of these critical raw materials would create wealth, not simply distribute what we have to workers in Southeast Asia.

The power of the wind from your combined voices will not produce a single gram of neodymium towards the one metric ton per megawatt of production capacity that you need for each new installation. Only the logical development and prioritization of your value chain, beginning with mining your critical natural resources in the United States and Canada, can make your proposed green solution to the production of electricity without burning fossil fuels anything more than pissing in the wind.

We cannot have energy security and independence, without first having secure production of natural resources to insure the independence and security of our manufacturing industry and military.

It has been estimated that to build the latest and most efficient one megawatt (MW) capacity wind turbine-powered electric generator, requires one metric ton (t) of the rare earth metal neodymium for use in a permanent magnet made from the alloy neodymium-iron-boron (Nd-Fe-B). The total amount of neodymium produced annually in the USA is at most 600 t, and all of it is used already to build Nd-Fe-B magnets for various applications. The current US installed capacity for electricity generation is 1,000 GW (1000 MW), of which 0.6%, 6 GW, is generated from wind turbines. The global annual production of neodymium, essentially all of which is mined in China, is today at an all time historical high of 26,500 t.

There is no significant neodymium production surplus.

Therefore the neodymium would have to be obtained from new production and such production would have to be over and above the total projected demand for 2014 already estimated at 38,000 t, 50% greater than today’s production and demand.

The only possible sources for this extra production would be:

1. Lynas (Mount Weld, Australia)
2. Arafura Resources (Nolan’s Bore, Australia)
3. Molycorp (Mountain Pass, California)
4. Great Western Minerals Group (Hoidas Lake, Saskatchewan, Canada)
5. Avalon Rare Metals (Thor Lake, Northwest Territories, Canada)
6. Thorium Energy (Lemhi Pass, Idaho)

Not a single one of the above mining ventures has yet produced a single gram of commercial rare earth metal, although numbers 1 and 2 above are claimed to be “ready to go,” and 3 above was until 2000 a producing mine, which in 1994, for example, was the world’s largest single point rare earth mining and refining operation, with an annual total production of 20,000 t.

Companies number 4,5, and 6 above are all in the process of validating resources and reserves and developing refining processes.

Various factors have recently brought the physical operations of all of the above companies to a halt, so that at the present time there is no foreseeable alternative to Chinese sourcing for rare earth metals at any date certain in the near term.

China does not have any known plans to divert any of its present or near term neodymium production to foreign manufacturers, for the production of large scale permanent magnets for American wind turbine electricity generation.

Therefore American wind turbine electric power generation must be on hold unless it is to be accomplished using outmoded, outdated, and therefore very inefficient and expensive iron based magnet technology.

There is no point in getting excited about building the structural components for wind power electricity generation in Michigan or anywhere else, if the turbine generators cannot be built due to natural resource limitations.

Perhaps the brilliant minds of Wall Street and Washington should revisit their knee-jerk opposition to American mining, before they make plans for renewable energy sources.