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.

Even though the supply of all chemical elements in the universe is infinite with regards to the needs or uses for them known by the human race, nonetheless the limited supply of tellurium present at or near the earth’s surface, that part of the world in which we do and can mine and recover it, is very limited.

The amount of tellurium that can be obtained, not the total amount produced, by any one user, such as First Solar (FSLR), is the limiting factor to their production rate.

Investors in high technology device manufacturing need to determine if such devices depend critically, that is they cannot be made otherwise, upon any specific metal. If they are dependent then investors need to ask the manufacturer how it plans to secure its supply of that critical material.

Unfortunately it has become common in the rapid development of our technological society to simply assume that, providing one is willing to pay then, any material will always be available.

This is not true, because the production rate of some of the most critical natural resources used in the latest high tech devices is limited due to either:

1. The material, such as tellurium, is the byproduct of another material, so that the production of the byproduct is entirely dependent on the production rate of the mother natural resource, or
2. The cost of producing the critical material as a primary product is prohibitive, or
3. We do not know how to recover additional quantities of the critical material either technologically or economically in any practical way.

The largest manufacturer of cadmium telluride thin film photovoltaic cells has said that its use of tellurium is between 50 and 100 metric tons per gigawatt of solar energy conversion from its devices. The open question therefore is “can tellurium’s production rate sustain any more than a small contribution by cadmium telluride based solar cells to the future demand for renewable energy?”

The manufacturer says that they are able to obtain much more tellurium than is currently believed by geologists and mining engineers to be available.

Investors are betting that the company’s statements are correct.

If the company is wrong then cadmium telluride thin film photovoltaic cells are going to be a niche product at best as the capacity to manufacture them becomes resource limited to the point where their production is capped.

By David Phillips – BNET – Published: November 29, 2010

First Solar has signed a five-year purchase agreement with a China-based mining company for an undisclosed amount of refined tellurium (Te). The deal underscores the thin-film module maker’s need to secure visible, longer-term supplies of its core photovoltaic (PV) commodity — but also highlights how uncertainty over supplies of the rare metal could monkeywrench some solar-panel makers.

According to the contract, Apollo Solar Energy (ASOE) will provide an estimated $110 million of 5N (”five-nines,” or 99.999%) ultra-high purity tellurium — feedstock for cadmium telluride (CdTe), the semiconducting compound coating First Solar’s thin-film PV panels.

The global leader in sales of thin-film solar panels, First Solar (FSLR) had to delay panel shipments last quarter due to capacity constraints. Complicating production problems, the utility-scale PV market is anticipated to surge next year, growing five-times faster than the rest of the industry, according to a recent analysis from IMS Research. With a growing backlog — 2.2 GW in North America alone — this new demand supports management’s recent decision to nearly double production from 1.4 GW to more than 2.7 GW come 2012.

Given CdTe thin-film solar modules are less efficient at converting sunlight to electrical energy, First Solar has excelled at offering customers the cheapest manufacturing costs, a 20 to 30 percent discount to traditional crystalline silicon (c-Si) PV makers. In second-quarter 2010, the Arizona-based PV supplier posted a new low for module costs of $0.74 per watt. Robust demand and tight inventories of tellurium upstream, however, could challenge attempts to improve manufacturing efficiencies.

“First Solar’s problem is not simply one of getting tellurium, but in getting the amount it needs annually,” says Jack Lifton, co-founder of Technology Metals Research.

The market price for 5N-grade tellurium has increased almost fifteen-fold in the last decade, recently trading at about $275 per kilogram.

Tellurium is a relatively rare element, with more than 90 percent of global production recovered as a byproduct of copper mining and processing. Despite projections as high as 1,600 tons per annum, the actual global output of tellurium is essentially unknown, as producers rarely publish production numbers. Data published by the U.S. Geological Survey (USGS) puts annual global production at around 200 tons.

In e-mail correspondence, Lifton cautioned:

“Tellurium has never been stockpiled — it has simply not been produced for the most part; it has stayed in the copper or been discarded from copper production in the tailings in which it is far too disseminated for recovery.”

“Total world production of new copper in 2008 was at an all time high of 16 million metric tons,” said Lifton. “Theoretically that would have produced a maximum of around 50 metric tons of new tellurium, were it all recovered.”

More likely, believes Lifton, global production (from all sources) is on the order of 200 to 300 metric tons. Competition for this scarce resource comes mostly from steel manufacturers, where it is used as an alloying additive to improve machining characteristics.

One GW of CdTe PV modules requires 66 metric tons of tellurium — between 20 to 30 percent of annual global production.

As one of the few miners with alleged commercial quantities of primary tellurium ore deposits, the supply deal with Apollo Solar could prove invaluable to First Solar’s expansion plans. Unfortunately, a review of Apollo Solar’s regulatory filings with the SEC suggests there are limits as to how much tellurium-ore deposits the miner can recover economically (ignoring other issues, like a number of accounting “red flags” uncovered, such as millions in interest-free loans to major shareholders and liquidity concerns):

At September 30, less than 60 percent of the tellurium used in its refinery operations was sourced from open-pit mines at its leased Dashuigou property, located in Sichuan Province (which borders Tibet in southwest China). Why? Of 25 identified veins, available sampling data indicates that only 3 have significant tellurium grades!

Damoder Reddy, CEO of solar panel startup Solexant, believes tellurium supply concerns are overblown, telling Greentech Media: “More-than-adequate amounts of tellurium are extracted to meet photovoltaic demand for several years to come.  The amount of tellurium used per watt decreases as CdTe module efficiency increases and CdTe layer thickness decreases.”

Assuming PV demand remains high enough to keep its additional lines highly deployed, capacity expansions will aid First Solar in reducing its costs — even further beyond its competitors, according to IMS Research.

Reddy’s and IMS’ predictions are premised on ”Learning Curve Theory 101,”  which  states that “as the quantity of items produced doubles, costs decrease at an often predictable rate.”

The learning curve assumes that as volume increases, costs of raw materials will decline, manufacturing efficiency will improve, administrative and distribution costs can be spread over higher production volumes, and other economies of scale can be realized.

True, as tellurium becomes a cost-limiting factor, manufacturing will shift to thinner layers — currently about 3 microns thick — and still maintain module performance. Learning curve has demonstrable histories of success. Unfortunately for CdTe manufacturing, the technological know-how to “thin down thin-film” hasn’t arrived yet.

Furthermore, as Jack Lifton told me, “we may already have seen a peak of tellurium production, since no one will now mine any copper or lead merely to recover some tellurium traces. The economics of that do not and cannot ever work.”

Unless, of course, the price per kilogram for tellurium soars — crushing First Solar’s profit margins.

China is by far the world’s largest end user of copper, from which is constructed the nerve system of our civilization, the electric power distribution grid, as well as all of the devices that generate electricity and transform it into motive power or heat for individual or industrial end use.

China’s domestic mining produced just short of one million tons of new copper in 2009, a year in which the total global production of copper was 16 million tons. Yet China used in 2009 just short of 6 million tons of copper, nearly 40% of 2009’s total world supply of that metal. This amount used in China, 6 million tons, is one and one-half times the total annual copper production of copper by all Chilean sources. Chile is the world’s largest producer of copper at 4 million tons a year, which is 25% of global production.

China imports its copper mostly as a standard form of crude (impure) metal and then purifies it and fabricates it into forms for drawing wire and producing sheet and bar stock for manufacturing purposes. The crude – in the sense of too impure for electrical use – copper has usually already been processed at the originating mine, to remove most of its non-metallic impurities, but still very much carried in the ‘crude’ copper, as it goes into final electro-refining, are molybdenum, gold, silver, platinum, palladium, selenium, tellurium and rhenium. Some copper ores are even very significant sources of gold, but most are not. What is significant about China’s inflow and the processing to ‘purify’ it is the sheer volume of it. Even ‘impurities’ in the copper that are present only as traces, can be produced in relatively substantial quantities when the flow through produces 6 million tons of copper.

China, through this final purification step, is gifted with the world’s largest reliable supplies of the above named rare technology metals, some of which are critical to the green revolution in sustainable  alternate energy technology.

Take the example of tellurium, which in addition to being recovered from the vast volumes of copper processed in China, is also able to be recovered from the vast volumes of lead, zinc, bismuth, and antimony produced or refined in China. In addition to the low grade sources ( ie. the ‘traces’ in the base and more common other metals), a Chinese company operates the only mine in the world the primary product of which is tellurium. The mine’s avaerage grade of tellurium is an astounding 1.17%.

That company, Apollo Solar Engineering in Chengdu, Sichuan, which is listed in the USA, (ASOE.OB)  is the world’s largest producer of ultra-high purity tellurium, which it produces primarily from its mine, at a rate of 3-4 tons a month. The company is also the destination point for much of the crude tellurium recovered in China, from the refining of the ores, domestic and imported, of copper, lead, gold, silver, antimony, and bismuth.

There can be no cadmium telluride thin-film photovoltaic solar cells made without ultrahigh purity tellurium, ultrahigh purity cadmium telluride, and ultrahigh purity cadmium sulfide. The pre-eminent American producer of thin film photovoltaic solar cells, First Solar (FSLR), is already Apollo’s largest customer for its production of all of these items.

There is an International ‘New Energy’ Fair in Chengdu during September 28-30, 2010. ‘New Energy’ is the most common translation into Chinese of the term ‘Alternate Energy.’  I have been invited to speak on the future and the importance of the production of rare technology metals such as tellurium, selenium, indium, gallium, as well as of the ‘common’ technology metal, copper, to the thin-film photovoltaic solar cell industry both in China and in the world.

China is already the world’s largest producer or the largest end user or both of ALL of those metals! Those who want to invest in green technologies need to take note.  China now dominates the production and use of the specialized technology metals critical for solar. China should be the first place that anyone who wishes to invest in the future of thin film photovoltaic solar cell production looks.

Keep in mind that China is rapidly going green, even as the rest of the world just talks about it, and that if we in the West wait any longer it will be of no avail to us, because the critical raw materials production is already centered in China.

Disclosure: I am a business development consultant to Apollo Solar Engineering.

CHENGDU, China, June 23 /PR Newswire-Asia-First Call/ — Apollo Solar Energy, Inc. (OTC Bulletin Board: ASOE) (“Apollo Solar” or “the Company”), a leading vertically integrated miner, refiner and producer of high purity tellurium (Te), tellurium-based compounds and other metals for the solar photovoltaic (PV) industry and specific segments of the electronic materials market worldwide, as well as design and construction of solar PV projects and solar power stations in the People’s Republic of China, today announced that the Company has engaged Mr. Jack Lifton as Chief Technical and Business Advisor of the company.

According to the consulting agreement, Mr. Lifton will be entitled to receive a monthly base consulting fee of $2,500 commencing June 18, 2010 and has also been granted options to acquire 300,000 shares of the Company’s common stock which will vest in instalments over the thirty-six month period of his consulting agreement with an exercise price at $3.50.

Mr. Jack Lifton is an independent consultant, with more than 48 year’s experience, in the sourcing of those minor metals for which he originally coined the phrase “the Technology Metals.” Educated as a physical chemist and metallurgist, his work includes original research into the properties of most of the rare metals used in alternative energy technologies. He now covers the exploration for, and the mining, refining and recycling of a spectrum of nonferrous metals, including lithium, tellurium, selenium, indium, gallium and the rare earth metals.

Mr. Jack Lifton consults, writes, and lectures around the world. His clients include companies in the global OEM automotive, heavy equipment, electrical and electronic, mining, smelting and refining industries. He has a wealth of knowledge in locating and analyzing new and recycled supplies of technology metals. Today, Mr. Lifton primarily consults to institutional investors doing due diligence on metal-related opportunities for green technologies.

Based upon the consulting agreement, Mr. Jack Lifton will provide consulting services to Apollo, including but not limited to, the following: (i) organizing a technical and business advisory board that consist of top worldwide experts in the field of high purity metals that have strategic and critical applications in alternative energy, electronic materials and other high technologies; (ii) assisting Apollo’s marketing team with selling its high purity metals, including tellurium, in the United States and other major industrial countries; (iii) introducing Apollo to institutional investors and accredited investors.

“We are very pleased to engage Mr. Jack Lifton as Chief Technical and Business Advisor of the Company,” Mr. Renyi Hou, CEO of the Company commented. “Mr. Lifton has 48 years experience in the sourcing of ‘Technology Metals’ that play a significant role in innovation of green energy, electronic materials and other high technology industry. We expect that Mr. Lifton’s experience and network in the field will assist Apollo’s management and marketing effort to a new level.”

“I’m also very pleased to take the position of Chief Technical and Business Advisor of Apollo,” Mr. Jack Lifton commented. “Apollo’s innovative technologies and manufacturing skills in producing high and ultra-high purity technology metals in large quantities for the mass production of green technologies in particular and for electronic in general are unsurpassed. Therefore it is to Apollo that the high tech industry will now turn for the first step on the green road to the future.”

About Apollo Solar Energy, Inc.

Apollo Solar Energy, Inc., through its wholly owned subsidiary, Sichuan Apollo Solar Science and Technology Co., Ltd, is primarily engaged in mining, refining and producing high purity tellurium (Te), tellurium-based compounds and other metals for thin film solar PV industry as well as for specific segments of the electronic materials market. The Company’s products include CdTe thin-film compounds, CIGS thin-film compounds, ultra- high purity metals and commercial-purity metals. Apollo Solar also expects to be a leading constructor and operator in future government-funded solar power station projects in China, including possible 10 GW solar power stations in Anhui province, China.

Safe Harbour Statement

The statements contained in this press release that are not historical facts are “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In particular, the statements regarding the Company’s expectation that it will supply thin film solar panels to CECS and joint construction of thin scaled solar energy power stations with CECS are examples of such forward-looking statements. The forward-looking statements include risks and uncertainties, including but not limited to, general economic conditions and regulatory developments, not within our control. The factors discussed herein and expressed from time to time in our filings with the Securities and Exchange Commission could cause actual results and developments to be materially different from those expressed or implied by such statements. The forward-looking statements are made only as of the date of this press release, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstance.

From Materials Recycling Week – Published: May 17, 2010

Their names are like tongue twisters: neodymium, molybdenum and niobium. For the past 20 years, these metals have been used to make high-tech products smaller, smarter, stronger, and more energy efficient. Without them, technology would be thrown back in time. They are also badly needed to make the transition to an economy that is not dependent on fossil fuels.

Today, experts claim that these metals will become scarce in the near future. And it is said that reserves of commonly used metals such as copper will be depleted. So what is really going on and what role can recycling play?

Take, for example, rare earth metals (REMs), a well-suited name in a story about scarcity, even though they are spread widely over the Earth’s crust. The problem here is that one country, China, has a monopoly on 95% of their production. Last year, the Chinese threatened to ban the export of REMs, which resulted in mines in Australia and the US either expanding or reopening. But in the coming years, demand will likely exceed supply by about 40,000 tonnes a year. World-renowned REM expert Jack Lifton stated in an analysis that, “when there are no rare earth metals to be had in China for export, the prices of these metals will skyrocket”, particularly as “there is little or no recycling of them”.

Some metals are only found in one or two countries. When there are problems in such a country, metal production can decline rapidly. “In 2008, a power crisis in South Africa resulted in the shutdown of all platinum mines for five days in January. This caused production loss and record-high prices in the first half of 2008,” according to the US Geological Survey (USGS).

“Another cause for scarcity is that certain metals, such as gallium, germanium and tellurium, are by-products of other metals: independent production growth is therefore not an option,” says Dutch defence specialist André Diederen. Other experts like engineer Richard Walden claim that, “large amounts of gallium can be extracted from the Idaho phosphate plants fly ash waste, for example”.

And something else has come up: the depletion of reserves of some metals due to growing global demand, as has been researched by professor Tom Graedel from Yale University, Swedish geoscientist Harald Sverdrup, Diederen and others. Analysis of the USGS data on reserves show that metals such as silver, copper and tin will be depleted in 20 years.

But this is a heavily debated topic. Some experts say the data on reserves is incomplete as it is expensive to prove the reserves because it requires the drilling and testing of ore for extraction rates. Others, such as Ugo Bardi from the University of Florence, and Diederen, claim that, “mining of metals will be affected by peak oil”. In their opinion, resources cannot be turned into reserves because energy will be too expensive.

Experts do agree that an increase in recycling rates will be essential. Different reports about metal scarcity mention recycling as an important means of diminishing import dependence. Problems that need to be solved include “difficulties in obtaining scrap, the lack of information about the quality of recycled materials and about who is buying and selling”, according to an EU report.

Metals such as copper and silver have been used to make products for years, effectively keeping them in use and therefore the material out of the recycling loop. Others are only used in very low quantities, such as lithium in mobile phone batteries, making extraction difficult and expensive. A leading company in this area is Umicore in Belgium. Recently, the UN published a report that focuses on urban mining stating that “a gram of gold can be obtained by recycling 41 mobile phones instead of mining a tonne of ore”.

Other discoveries are being made by scientists from the University of Leeds, who are now able to recover significant quantities of rare earth oxides from the waste stream of titanium dioxide refining. Japanese scientists, meanwhile, have experimented with molten silver to extract neodymium from permanent magnets. But since silver itself could become scarce, it is not likely that this technology will be widely accepted.

There are also companies including Neo Material Technologies in Canada that are working on a closed loop system. The company produces magnetic materials based on REM. Last year, it acquired Recapture Metals, a Canadian producer and recycler of gallium, indium and rhenium as part of its strategy to fully integrate every step of production, whether primary or secondary, into its company.

I’ve just completed the finishing touches to a new report that I’ve written for subscribers to The Jack Lifton Report.

In December 2009, I was invited to New York’s Essex House by CLSA, one of Asia’s leading independent brokerage and investment groups, to present a short seminar on “Rare Metals in the Age of Technology” to CLSA University, an ongoing executive education program that CLSA produces for its clients.

The seminar focused on discussion of the rare metals, and the issues and challenges facing their supply and production rates. I also presented a set of tables detailing production rates of a wide range of metals, to illustrate some key points on the subject.

The seminar answered three fundamental questions relating to the business of the technology metals:

1. How are metals produced, which is to say, where do the metals we can use actually come from?
2. What quantities of new metals are produced each year, and can the production rates of any or all of them now be increased beyond 2008 levels, or can or will the production rates for some of them actually decrease?
3. How does the location of the production sites for any and all metals factor into their availability, if at all?

A free 10 page PDF copy of the new report based on this seminar, is now available exclusively to subscribers of The Jack Lifton Report.  Just fill out the simple form in the upper right of this Web page and you’ll have the report in minutes.

A note to existing subscribers – if you took a look at the report prior to 6:15 PM EST today, then you’ll want to download a slightly updated version which was missing some minor data in the tables. It can accessed with the same URL and password that you received already.

The market fundamentals of the technology metal tellurium are an enigma. There is no general agreement whatsoever on the size of the global supply, the rate of production or the location(s) of that production. Yet, the small but consistent uses of tellurium in steel and copper alloying, as well as in military applications, has now been joined by a new demand that threatens to be voracious: the use of tellurium as a critical material for manufacturing high efficiency cadmium telluride thin-film photovoltaic cells and modules.

This situation is ideal for the promotion of both a technology and a commodity bubble based on pure conjecture about the supply of tellurium. Fortunately for us and unfortunately for the bubble-ists we can, I believe, accurately project the maximum possible total production of tellurium in any given time period, even though we do not know the actual production level (supply).

Merriam-Webster’s Collegiate Dictionary (10th edition) defines a conjecture as “a conclusion deduced by surmise or guesswork.” It is amazing to me how many high-technology business models are based on nothing more than conjectures about the security of supply of critical metals. Individual as well as institutional investors, and all of their financial advisors, can learn an object lesson about this class of short-sighted planning, from the story of the expensive development and implementation of some new end-uses for the rare element tellurium, which end-uses should have been easily foreseen to be resource limited dead-ends.

The analysis of a business model or of a specific business plan, involves both subjective and objective determinations of the probability of the success of the model or plan. The evaluation of management skills, for example, is mostly subjective, unless the management team in question has previously brought an identical business model or plan into successful operation; this is very unlikely in high technology because it is usually a new technology, always called an “advanced” technology, that is being proposed. For such technology-based companies, marketing plans are even more subjective because they must base future demand for their products on meeting manufacturing and pricing objectives in the future, which are and must be based on present predictions of what manufacturing costs and selling prices might be in a future world – even when such numbers now change daily with unpredictable trend directions!

The most tenuous and subjective conjecture of all in a technology based business plan, is the guess as to how much people will pay for a particular technology at a future time when other competitive, even more “advanced,” technologies may well have been developed.

So, we must ask whether there are any objective considerations, based on hard (verified or verifiable) numbers, that can be factored into determining the risk of an investment in a technology that will only be brought into mass production in the future? The answer is yes. The probability of success in securing a supply chain for any critical metals involved in the manufacturing of the technology, can be determined quite accurately today. Keep in mind that a critical metal is defined as one without which the technology cannot be manufactured.

Although I will now demonstrate how to evaluate the probability of success of any existing or planned venture for which the rare metal tellurium is critical, I want to first make a general statement about the most common error made by individuals who, in their analysis of a business model or plan, must take into account the security of the supply of any critical metal for any venture.

It is commonly and incorrectly stated by people who do not understand geology, geochemistry, mining or supply chain economics that the percentage of a metal in the earth’s crust, or, even in the universe at large, is related to the ultimate availability of that metal to the human race as a natural resource. This is not only wrong, it is ignorant. I call this rather common reason to dismiss the security of supply problem the earth fundamental argument after a phrase I saw used just last year, in an article in the prestigious peer-reviewed journal Science. It was used to assure the reader that the amount of the rare metal gallium, in this case, in the earth’s crust, was so large as to make practical the idea of using gallium aluminum compounds to decompose water, releasing its hydrogen for use as fuel. This idea was based on a “discovery” by a professor at Purdue University who actually got the university to finance the filing of a patent, proposing this use of gallium aluminum. The professor announced to the world that he would seek financing to start a company to manufacture gallium aluminum alloy, dispense it at fueling stations and recapture the spent alloy and recycle it for re-use.

I wrote an article at the time pointing out that the annual global production of gallium was less than 200 metric tons (t), all of which was in use for the electronics and weapons industries, and that the only source of gallium that even allowed the 200 t p.a. production figure to be achieved and maintained was the production of the base metal aluminum, from which gallium is recovered as a tiny byproduct. The global annual production of aluminum in 2008 was 39 million t, which allowed for the recovery of less than 200 t of gallium. There are no primary mines for gallium.

I hope this brief example and discussion will allow you to understand that the amount of any metal available to the human race is due to its concentration over geologic time into deposits, called ore bodies, of sufficient size, near to or on the land surface of the earth, where power, water and transportation are available and from which the metal ores can be extracted, separated from the rock, refined, and purified by equipment and technologies that are known to work and economical. No two ore bodies are alike and little speculative research goes on in mining engineering. All such research is “to order” and is expensive and time consuming, due to the limited number of skilled researchers and research locations for such endeavors.

I’m now working on what I hope will be a comprehensive book, which I also hope will be useful to investors, that will cover the theme of security of supply and illuminate, for the purpose of eliminating them, such misleading conjectures as the earth fundamental argument. The book’s working title is “The Age of The Technology Metals.” I have recently been named as a Senior Fellow of the Institute for the Analysis of Global Security (IAGS)  and I hope (again) that the IAGS will sponsor my book so it can be published.

Now, let’s take a look at the “tellurium supply conjecture.”

Almost all (90%+) of the tellurium available to the human race exists as a byproduct of copper. The remainder is mostly a byproduct of lead and some small amounts exist as ore forms in some deposits of gold, silver and bismuth. In the case of telluride ores of gold, silver and bismuth, the proportion of tellurium can be large but the substantive amount of tellurium in any of these small deposits is usually uneconomical without the recovery of the gold, silver or bismuth and even with such recovery intended, the deposits may be too small to be economical for any combination of recovered metals.

I am frequently told of a primary tellurium deposit in China, but upon investigation that deposit turned out to be a bismuth telluride ore body, too small to be economical in the face of the costs of development.

The total amount of tellurium that could be recovered from all of the sources above is estimated to be as much as 3,200 t per year by the most optimistic reporters, but the actual amount recovered from all sources is surely no more than 25%-50 % of that total, and it may well be that the total annual maximum possible production is no more than 1,600 t per year as was estimated by the US National Renewable Energy Laboratory (NREL) in a comprehensive 1997 study.

In 2002 in a book by by Ayres, Ayres & Rade entitled The Life Cycle of Copper, its Co-Products and By-Products, published by Kluwer for the World Business Council for Sustainable Development, the following paragraph appears:

4.8.12. Tellurium [Andersson 2000]: Tellurium is the scarcest of all the by-product metals, except for gold . Crustal abundance is 0.005 ppm. It is mainly recovered from copper ores (1.5-3 ppm), where it is considerably enriched. There are two known deposits where tellurium is found at much higher concentrations, one in Mexico (0.2%) and one in China. Tellurium has a significant potential use in thin-film cadmium telluride (CdTe) photovoltaic cells.

Note that the first sentence means “…of all the by-product metals [found in copper], except for gold.” Also the next sentences should read for clarity “Crustal abundance is 0.005 ppm. It is mainly recovered from copper ores [where it is found as a by-product in the range] (1.5-3 ppm), where it is considerably enriched [compared to its crustal abundance].”

If you calculate the maximum amount of tellurium that could be recovered from the 2008 global production of copper using the percentage composition of tellurium in copper as stated above, you only get 16 million t of copper, multiplied by 3 ppm of tellurium per t, equals 48 t. This figure, although low, is still higher than the total production of tellurium produced (outside of the United States) as “discovered” and verified by the United States Geological Survey (USGS) for 2008, which was 38 t from Peru (30 t) and Canada (8 t). The USGS admits that its data do not include US production for reasons of not disclosing information that could give foreign companies a competitive advantage, and it further states that “Australia, Belgium, China, Germany, Kazakhstan, the Philippines and Russia produce refined tellurium, but output is not reported, and available information is inadequate for formulation of reliable production estimates.” Note that including Belgium and Germany in the aforementioned list is (unintentionally) misleading because tellurium production in those countries is based solely on recycling.

I was told last November (2008) by a colleague gathering statistics on global metals production, that she had directly asked Codelco, the Chilean state owned and world’s largest copper producer, how much tellurium it produced in 2007 and was told “less than two tons.” Note that the USGS Commodity Mineral Survey for Selenium and Tellurium for 2007, published in October 2008, does not even include Chile as a source either of selenium or tellurium.

This report further enlarges the possible production of tellurium globally. beyond the total stated in the Ayre’s [2002] book noted above. It says that:

“Total world production of … tellurium has been estimated between … 450 [and] … 500 t/yr…. Based on global copper refinery data (Moats and others, 2007, p. 202-241) the USGS estimates that copper anode slimes could generate … 1,200 t/yr of … tellurium,….”.

At this point, I want to explain why all of the resource reporters addressing the tellurium supply issue use so many “shoulds” and “coulds’ to modify their production total statements.

Tellurium is only efficiently recovered from copper that is refined by the electro-winning process. In this traditional process, “crude” or “blister” copper from a smelter is used as the anode in a bath of sulfuric acid. The copper is plated onto a thin pure copper or stainless steel cathode. In this operation the “impurities” that may be present in the crude copper anodes such as the gold, silver, platinum, arsenic, molybdenum, selenium and tellurium can be made either to dissolve in the acid or “fall out” as “anode slime” or “anode mud,” which is then collected and processed for these trace metals that have been concentrated by this process. To show you the scale achievable, I can tell you that when I was working with the Amax secondary copper smelter in Carteret, N.J., in the 1980s, the yearly flow through of copper scrap and new “blister” copper from Amax’ mines reached 250,000 t per year. The smelter produced from anode slimes 100,000 troy oz of gold, 10,000 troy oz of platinum and 1,000 troy oz of rhodium a month! To the best of my knowledge, no selenium or tellurium was recovered commercially. It was there; it just wasn’t deemed to be of sufficient economic value to repay the costs of separating and purifying it.

Today, the highest grade ores from which copper is produced are being exhausted, and new processes for extracting copper from lower grade ores are now used more and more in places like Bingham Canyon, Utah, where Kenencott Copper, a unit of Anglo-Australian Rio Tinto, operates America’s largest copper mine. A Kenencott operations manager told me that solvent leach operations at Bingham Canyon actually recover more molybdenum from the lower grade ores than electro-winning ever did from the higher grade ores. As for tellurium, the solvent leach technology does not lend itself to the recovery of selenium or tellurium, so unless the prices for selenium and tellurium were to rise dramatically, they would essentially not be recovered.  Today they are thus produced in much less quantity than when the mine, and any other mine of the same type, solely utilized electro-winning of higher grade ores.

As I previously mentioned, global tellurium production was estimated in 1997 by the NREL, to be a maximum of 800 t out of a total possible recovery of 1600 t. Unfortunately, the NREL credibility has been compromised by a more recent NREL publication, “Will we have enough materials for energy-significant PV Production?”. It contains the following paragraph, the statements and conclusions of which are wrong because they are vastly oversimplified:

“In brief, our conclusion is this: Producing 20 GW/year of PV in the United States by 2050 would not create problems with materials availability. Issues surrounding the availability of PV materials at this level simply do not exist. Only indium and tellurium remotely approach becoming bottlenecks at this annual production rate, and simple strategies exist that would solve these problems, including extracting them from ores that are currently mined but unused”.

Many papers have been written in the last few years assuming that all of the tellurium that could be recovered will be recovered, and that copper production will simply continue to increase, thus increasing the production of tellurium.

Both assumptions are questionable. The recovery of copper only from high grade ores is ending and recovery from lower grade ores is more expensive. Also it must be noted that 2008 was the highest production year in history for all metals. From the beginning of the age of the electrification of the West (and of the use of brass-cased ammunition for repeating firearms), until now, has been a period of more than 100 years; the key metal in that electrification, and the manufacturing of brass-cased ammunition, has been copper, and in 100 years, humanity has reached the production level of 16 million t per year.

Let’s assume that the doubling of copper production is possible. It will have to be, ultimately, from lower grade ores, which are abundant, and that, plus the ever-rising cost of energy, will sharply reduce that part of the total that is produced by electro-winning, so it will most likely also sharply reduce the production of tellurium. For argument’s sake, let’s assume that the global production of copper can and will double within 25 years. Note that from 2007 to 2008, the total global production of copper rose just 2%, illustrating that when production levels get to this volume, increases will ordinarily only be marginal.

Let’s also assume that the USGS estimate of global tellurium production in 2007, 500 t, in fact represented only 50% of total possible production, and that tellurium production will keep pace with copper production increase and that all of it will be recovered from the copper in 2034. This means that a total production of 2000 t of tellurium is possible in 2034.

Let’s further assume that all of the tellurium mined in 2034 goes to First Solar to make cadmium telluride thin-film photovoltaic cells.

An article in Wikipedia about cadmium telluride PV cells states that “One gigawatt (GW) of CdTe PV modules would require about 66 tonnes [of tellurium] (at current efficiencies and thicknesses).” The installed capacity for electricity generation in the United States is today, in 2009, about 1,100 GW.

According to the Energy Information Administration publication “Electric Power Annual” for 2007, total installed photovoltaic generating capacity in the United States on 2007 was 503 MW at 38 installations for solar energy conversion – not all of which were based on photovoltaics. This means that in 2007, the US capacity for electrical energy generation that could be produced by solar energy conversion was a maximum of 0.05%.

The USGS report on tellurium, in its discussion of end-uses, states that:

“First Solar Inc. (Phoenix, Ariz.) was the leader in CdTe production, with plants in Ohio and Germany and another plant opening in Malaysia in 2008. In 2007, with an annual capacity of 210 MW, First Solar accounted for 90% of global CdTe cell capacity. By 2010, it was projected that global CdTe cell production capacity will reach 608 MW (Ullal and von Roedern,)”

A recent article entitled “Sustainable Energy”, makes the following point:

“For example, if solar energy is to expand from its present contribution of less than 1% of renewable power generated here last year to, say, 10% of our total power supply, the use of an ingredient in proportions as small as a hundred grams per kilowatt of capacity would translate into a cumulative requirement for tens of thousands of tons. If the substance in question was the Tellurium used in Cadmium-telluride solar cells, its global output would have to expand by at least 10X within a decade or two. That might not be possible, or at least economically feasible.”

In fact, based on 2007 statistics, if the increase were to come from the most scientifically efficient technology, First Solar’s cadmium telluride thin film photovoltaic, the amount of tellurium required would be approximately 220 times the amount for which First Solar had the need and capacity in 2007.

Assuming that the Wikipedia figure of 66 t of tellurium per GW required by First Solar’s technology is accurate, this means that First Solar needed 13 t of tellurium in 2007. But for its solar energy conversion technology to get to a total of 10% of our American 2008 installed capacity, would then require 7,260 t of tellurium! First Solar is predicted to get to a manufacturing capacity of 608 MW in 2010; this means it will need 39 t of tellurium in 2010.

My conclusion from these facts is that First Solar is most likely struggling to obtain tellurium even now, because its demand just for next year could be as much as one-third of the annual global production of tellurium if we believe the most conservative of figures above. In any case, it will be no less than 8% of the USGS guesstimate of total annual global production of tellurium based on the continued production of 16 million t per annum of copper. It cannot be overemphasized that First Solar’s demand for tellurium is a demand for new material. Its technology has created a new demand and does not replace an older demand for tellurium, so we are speaking of additional recovery of tellurium to satisfy First Solar’s requirements.

It may be possible to increase the percentage recovery of tellurium from copper, but it is more likely that the annual global production of tellurium will decrease as copper production technology, even if the total copper produced is growing slightly, moves to solvent leach extraction processes to beneficiate lower grade ores.

First Solar’s problem is not simply one of getting tellurium, but in getting the amount it needs annually. First Solar’s end use product has a long life and can probably be recycled, so that in theory given enough time First Solar could obtain 7,250 t of tellurium and with it manufacture cumulatively enough solar cells to generate 110 GW of electricity, 10% of our current installed capacity from all types of generating devices and fuels.

No one knows even within 50% how much tellurium is produced annually today, but I am going to make the conjecture that it is between 500 and 1,000 t. It is possible that this range could be increased, by increasing the amount of copper processed by electro-winning for tellurium, but it is unlikely that such an agenda would be able to be carried out. Just to demonstrate the economics, it is only necessary to consider that in 2008, copper reached a price of almost $9,000 per t, so that the copper market for 2008 had a high value of $144 billion. 1,000 t of tellurium at its high point in 2008 was worth $200 million. The copper mining industry cannot logically continue to use electro-winning and thus decrease production and raise the costs of producing copper, simply to add even double the $200 million that doubling the tellurium output would bring, in the face of the reality that such an undertaking could cost billions of dollars of copper production. There is no economic driver for increasing the production of tellurium!

I will give more detail on this topic in future articles and my forthcoming book, but suffice to say that for First Solar to increase its production by 2 GW per year, which is three times its projected manufacturing capacity for 2010, which in turn will be three times its 2007 capacity, will require a supply of 120 t a year of tellurium, and that at that enormous production rate, it would take 60 years to achieve the changeover of 10% of the installed electric generating capacity of the USA in 2008, to the cadmium telluride thin flim photovoltaic cells today produced by First Solar.

Solar cells today are not economical; they cost more per watt of output than fossil fuel production of electricity. Solar cells today are only manufactured and sold through taxpayer subsidies. The Cap and Trade promoters have overlooked the increase in costs their regime will bring to the metal mining and refining industry. Whatever economies of scale have been “conjectured” by First Solar, will now be obsolete and the time when their product could be competitive with fossil fuel, production will move further into the future.

The biggest risks of all is that non-solar industries will raise their demand for tellurium and both domestic and foreign other solar cell makers will increase their demand for tellurium. The United States produces today about 10% of the world’s copper, which means that it likely produces 10% of the world’s tellurium. It is likely that First Solar’s current production demand, in the United States, alone requires that the US industry become reliant on foreign sources of tellurium already. In that case, because US production of copper can increase only marginally, if First Solar is to grow it will certainly have to do so by creating jobs in mining overseas or by moving its production overseas. Other sustainable energy companies chasing subsidies and “stimulus” funds, will surely complain that subsidizing First Solar, is simply subsidizing foreign resource producers.

I am not qualified to analyze First Solar’s balance sheet to see to what level their current costs would have to do, to make their products competitive with other electric generating technologies of all types. However, I am qualified to predict that the cost of tellurium will increase and its availability will decrease in the near future.

A company such as First Solar, which is critically dependent on a secure supply of tellurium to exist and on an unsustainable growth in the supply to it of tellurium for it to grow and achieve competitive pricing is a big risk for short-term investors. The maximum supply and production levels attainable of tellurium are quantifiable even if the actual production figures are murky, and they do not bode well for the future of First Solar if it must make profits to survive.

There are some practical reasons why a mass-produced technology cannot depend critically on the metal tellurium:

1. There is very little new tellurium produced annually, certainly less than 1000 metric tons (t),
2. There is very little likelihood that additional tellurium production. based mainly on increased total recovery of tellurium byproducts from base metal ores. can more than double present production in even the most optimistic scenario, and
3. Thin film devices have a lower limit of effectiveness both practically and economically, because they have a threshold of thickness below which they do not work.

Where does the idea that there are as yet undiscovered new sources of minable tellurium come from?

The first and most often repeated error is that tellurium is “earth fundamental,” which is supposed to mean that its proportion in the composition of the earth’s crust indicates that there is plenty of it available. This is not true.

In a 2002 paper included in a book called  “The Life Cycle of Copper, Its Co-products and Byproducts” it is pointed out that

“Tellurium is the scarcest of all the byproduct metals, except for gold . Crustal abundance is 0.005 ppm. It is mainly recovered from copper ores (1.5-3 ppm), where it is considerably enriched. There are two known deposits where tellurium is found at much higher concentrations, one in Mexico (0.2%) and one in China. Tellurium has a significant potential use in thin-film cadmium telluride (CdTe) photovoltaic cells.”

When I read press releases such as the one from Unico, on its “In-house Evaluation of Historical Data Regarding Tellurium Levels at the Deer Trail Mine“, I see only an analytical result from a small sample, which tells me nothing about the size, composition, accessibility, or minability of the ore body.

Last year I was asked by a major global investment bank, to comment on a “bismuth” mine in China which was “also rich in tellurium.” I pointed out to the bank’s mining analyst, that it was probably a small deposit of bismuth telluride and that it would be played out long before any capital investment could be recovered. I was told later on that my analysis was exactly correct; the “mine” could have produced a few tons of bismuth and of tellurium for a few years with a grand total production of perhaps 30 t, and was simply therefore not financible as it would have required millions of dollars of infrastructure beforehand.

Unfortunately announcements of this type of “tellurium” mine are now becoming a common occurrence.

Notwithstanding that, I would estimate that if every instance of contained-tellurium in copper, lead, bismuth, and gold were 100% recovered, the total would be less than 2000 t per year.

In fact the general movement of copper mining to lower grades is causing the electrowinning process for refining copper, which brings the tellurium out with gold, silver, platinum, and selenium, to be used less and less, and the increasing use of solvent exchange-leaching hydrometallurgy has decreased the recovery of tellurium (and the other byproduct metals).

The decline of new lead mining in the US. and the increased use of recycling. has also decreased the recovery of byproduct metals such as tellurium from that source.

Total world production of new copper in 2008 was at an all time high of 16,000,000 t. Theoretically that would have produced a maximum of around 50 t of new tellurium were it all recovered. In fact, the global production of tellurium in 2008 was more than 200 t, according to the USGS, and was probably less than 800 t in total from all sources.

Clearly any increase in total tellurium production from base metals, can only be at the margin, since large increases in new global production are not to be expected. It is likely, in fact, that any new additional production would be achieved by increasing the recovery from existing ores rather than by adding recovery from additional production.

There is little likelihood that the global copper and lead industry can maintain 2008 levels, even if the economy should recover, so we may have already seen a peak of tellurium production, since no one will now mine any copper or lead merely to recover some tellurium traces. The economics of that do not and cannot ever work.

There is also no hope of thinning down “thin films” in order to increase the production of photovoltaic cells. The point has already been reached where just enough substance is maintained in current films, to avoid internal resistance build up by just barely maintaining bulk effects.

I believe that the capacity for manufacturing thin-film photovoltaic solar cells from cadmium telluride already exceeds the maximum supply of tellurium available, or that may become available,

Thus, with time, such cells will become uneconomical to manufacture if the enormous capex already in place has to be recovered.
In fact I believe that this has already taken place, and that the only hope for maintaining such an industry is taxpayer subsidies for which I do not see a point or an end.