In February of this year I gave a presentation at the Annual Meeting of the Society for Mining, Metallurgy & Exploration (SME 2009) entitled “An Assessment Of The Reliability Of The Present Determination Of The Rare Earth Resources and Reserves Of The People’s Republic Of China“. The following is drawn from that presentation.
Laissez-faire capitalism is alive and well in the rare earth mining sector of the economies of the United States, Canada, Australia, and the Republic of South Africa. None of these top-tier industrial economies issues or funds government mandates for the exploration for, production of, or production of end-use products of the rare earth elements and/or thorium. Thus the world’s most competent, experienced, and educationally qualified mining exploration and engineering groups, have only the “free” marketplace to look for funding for such endeavors.
The governments of some other nations, particularly, China, but also now including Korea and Japan as well as, most recently, the central governmental regulatory bodies of the European Union, take a more pro-active role in securing for themselves, for their domestic use, supplies of materials that they consider critical to their heavy and high tech industries and to their military-industrial complexes. The rare earth elements and thorium are at the top of everyone’s list in the pro-active countries. The same is true for the “reactive” countries, such as today’s USA, Canada, and Australia, but the strength of the reaction has not yet been effective in producing civilian or military sector funding for rare earths or thorium.
The National Academies is the current name for the combined single successor to the former United States’ National Academies of Science, Engineering, and Medicine. It is responsible to the U.S. Congress, from which it receives its funding, for advising the legislative branch and any other branch the legislature designates, on matters within its purview as requested by members of the House or Senate, most often in regard to legislation being proposed to regulate an area of science, engineering, or medicine.
In October of 2007, the National Academies published a book entitled “Minerals, Critical Minerals, And The U.S. Economy,” which was an analysis of a two year long study by a group consisting mostly of academics but which also included some selected representatives of the U.S. mining and manufacturing industries. The study identified not only which minerals and metals were critical, i.e. which ones were the bases of technologies that could not be actualized as practical devices without them, but also set out criteria for assessing the impact of the interruption of their supply on U.S. industry, the general economy, and, in an additional volume, “Managing Materials for a Twenty First Century Military,” on the capability of the U.S. military to be effective in the event of the interruption of the supply of critical materials. For this article, I want to reproduce the Mission Statement designated as the “Statement of Task” for the first study:
Statement of Task
Understanding the likelihood of disruptive fluctuation in the supply of critical minerals and mineral products for domestic applications, and making decisions about policies to reduce such disruptions, requires thorough understanding of national and international mineral sources, mineral production technology, the key uses of minerals and mineral products in the United States economy, and potential impediments to the mineral supply.
This study will:
- Identify the critical minerals and mineral products that are essential for industry and emerging technologies in the domestic economy (addressed in Chapters 1-3 and in culminating discussion in Chapter 4);
- Assess the trends in sources and production status of these critical minerals and mineral products worldwide (addressed in Chapters 3 and 4);
- Examine the actual or potential constraints, including but not limited to geologic, technological, economic, and political issues, on the availability of these minerals and mineral products for domestic applications (addressed in Chapters 3 and 4);
- Identify the impacts of disruptions in supply of critical minerals and mineral products on the domestic workforce and economy (addressed in Chapter 2);
- Describe and evaluate the current mineral and mineral product databases and other sources of mineral information available for decision making on mineral policy issues (addressed in Chapter 5); and
- Identify types of information and possible research initiatives that will enhance understanding of critical minerals and mineral products in a global context (addressed in Chapter 5).”
I want to address item 3 above, because when it is analyzed in further detail, it exposes a serious flaw in strategic planning, which is that prior to assessing the impact of geological, technological, economic, and political issues on the availability of critical minerals it is first necessary to assess the credibility of the numerical data, which is the basis of one’s analysis. In layman’s terms it comes down to:
- Is the data accurate,
- Is it complete,
- Is the provider truthful, or
- Is the provider truthful but incapable of being correct due to ignorance, lack of the appropriate scientific background, incompetence, or inability to assess or measure the credibility of either the data or its provider of that data, and
- In any of the cases above is there any hidden agenda coloring the transparency of the data?
In the case of the rare earth metals the simple fact that, it is commonly stated, and it is true, that more than 95% of their total global supply today is produced in the People’s Republic of China should be enough to set off alarm bells in the strategic planning offices or departments of governments and private businesses. Even if you ignore, for the moment, the issue of whether or not the world of trade is “flat,” i.e. whether or not China will always sell and deliver its resources to the highest bidder, which is the free market capitalist ideal, transparency has never been a hallmark of China’s dealings with outsiders, and when we accept data on resources and reserves from the PRC not only are we facing an unknown degree of data filtration for reasons of commercial competitive advantage, with which we are all, or at least should be, familiar, but also we are facing the filtering imposed by a government that mandates that if a resource level has been declared to be present by a mining operation, then that operation will be required to either produce a certain minimum amount or be faced with losing its access to markets and finance through a reduction in its next production allocation.
The simple fact of life that failure to meet government imposed production allocations may lead to loss of position without any hope of redeeming one’s economic (job) status or social status is far more important to a Chinese manager, than accuracy in reporting the reserves upon which that allocation was based.
In China, if you set your goals lower by fudging what you think you have, or can actually produce, and then meet your goal, set for you by and in the five year plan, you have been successful.
As recently as 1993. today’s situation – China as a the ultimate monopolist in rare earths – was far from obvious, and was not even considered likely by western observers. In a joint survey of the rare earth’s industry published in 1993 as “International Strategic Minerals Inventory Summary Report- Rare-Earth Oxides, U.S. G.S. Survey Circular 930-N” it was stated after a detailed analysis of the-then known data on rare earth resources and reserves that:
“The country having the greatest potential for REO (rare earth oxides – the commonly used identifier for this category) production is South Africa, which could produce 41,280 metric tons per year as compared to an actual production (1993) of 700 metric tons per year; this would be an increase of approximately 59 times the present production. The United States has the capacity to produce about 32,764 metric tons per year, which is a 50% rise over the 1989 actual production of 21,875 metric tons per year. China could undoubtedly produce more REO than is reported, especially if Bayan Obo steel slag could be successfully treated. Australia could produce 11,462 metric tons per year, about half again the present rate, if Olympic Dam and some of the placer operations introduced REO mineral recovery plants. REO output in Brazil could be raised by a factor of five with little trouble”.
The difference in the quality and credibility of the data apparently was enough to cause the authors of this study, financed by the UN and the most credible commodity mineral data reporting agencies in the USA, Canada, Australia, The UK, and Germany to not state or estimate, quantitatively, their conclusions about future Chinese production in 1993.
But even before that, it was clear to Western-educated and -trained geologists familiar with mining in the Soviet Union, that China was far too unsophisticated to provide reliable data on its potential mineral resource. A geologist colleague of mine told me that as he traveled across that part of the Soviet Union’s mining landscape where it was permitted for a foreign (Canadian) visitor to see, he was struck even thirty years ago by the quality of the data being obtained as deposits were mapped meticulously while, in stark contrast, his conversations with Russian and other Soviet mining exploration personnel revealed that plate tectonics was not “officially” taught in Soviet universities that were training geologists. Soviet era geologists were thus not very good at the theoretical bases for exploration, he said, and to advance in the political hierarchy one did not disagree with official geological “doctrine.” Those who advanced the use of new or foreign ideas rarely got the resources to test those ideas. No one could benefit officially, for example, from discovering or developing a gold mine, so those mining cooperatives that did find easily fungible resources were engaged in a constant battle with bureaucrats and corrupt officials for scarce equipment, supplies, and skilled labor for all of which they traded with other similarly situated enterprises outside of the official economy. It goes without saying that “official” data on Soviet mineral resources and reserves were a total fabrication, produced in Moscow to showcase Soviet “progress”, frequently with scant regard to the data even for proven resources.
When Mao Zedong succeeded in overthrowing China’s literally mandarin bureaucracy and its last outright autocratic successor to the Ming dynasty, Chiang Kai-Shek in 1949, it stands to reason that in the much more unsophisticated and sparsely populated Chinese mining space, as we would now call that industry, data on resources and reserves was non-existent on a public or survey level. Mao welcomed “fraternal” Soviet geologists who came to “help.” In fact we now know that these Stalin-era geologists were thoroughly politicized and that they came to map out Chinese resources, as a source of cheap raw materials for Soviet industry.
In surveying the iron ores of Bayan Obo for the purpose of setting up a contained, vertically integrated (and thus hidden from prying Western eyes) steel industry, it seems that Soviet geologists familiar with deposits in the Kola peninsula of the Soviet Union noted and brought to the attention of the fraternal colleagues they were training in Soviet style exploration, the fact that Bayan Obo iron was a rich source of bastnaesite, the most common hard rock ore of the rare earth elements. The rest is a convoluted history of fraternal cooperation and is best left for a spy novel featuring Chinese students at Kola trying to fit Russian mining, extraction, and separation techniques from there to the operations at Bayan Obo, where rare earth production was primitive, labor intensive, and subject to the whims of the commissars overseeing the planning and operations of the Baotou Steel Works, a great showcase of the strength of the people and the party under Chairman Mao and not to be interfered with lightly.
By 1997 when Deng Xiaoping’s dictum that “The middle east has oil, we have rare earths” had filtered to the local level in Bayan Obo, a short lived cooperation allowed an American survey team from the USGS in concert with China’s Ministry of Metallurgical Industry, to go to Bayan Obo and issue for public consumption: “The Sedimentary Carbonate-Hosted Giant Bayan Obo REE-Fe-Nb Ore deposit of Inner Mongolia, China: A Cornerstone Example For Giant Polymetallic Ore Deposits of Hydrothermal Origin.” I am certain that this title was first written in Chinese, to emphasize that theirs was a lot bigger than any of ours; it is traditional in the orient to write like this.
That 1997 study concluded that:
“on the basis of reported estimates of total reserve(s) of 48 million metric tons (average grade 6 wt. percent Re2O3 , Drew and others, 1990) to as much as 100 million metric tons of Re2O3 of unspecified average grade (unofficial estimate from Chinese colleagues, oral comm.., 1987), Bayan Obo is the world’s largest known REE deposit.”
The report concluded that
“although the [total] size has not been disclosed in the Chinese literature… [it has been acknowledged based on unreported drilling data] that Bayan Obo is China’s largest niobium deposit.”
What don’t we know about Chinese resources and reserves of REOs? We’re on the way to finding out. The point I am making, is that Western businessmen who base their long term supply requirements for rare earths, not only on continued access to Chinese production of rare earths, but on Chinese produced studies of resources and reserves as well as the idea that Chinese miners and refiners are economically competitive with Western operations, are walking on thin ice.
Recent Chinese actions in the non-Chinese rare earth mining space, make it suspiciously likely that China itself needs rare earths from the outside. We need to start thinking about what that means for the future of technology-based products in the West.