Critical Metals

Geopolitics and Critical Metals

Michael A. Berry, PhD

January 22, 2011

The United States is80% dependent forsupply of 32 Metals.

This Dependency aloneimplies CRITICALITY

The US Strategic Metals Stockpile –Sold Down

Not so many years ago, the U.S. used to hold a vast strategic metalsstockpile to ensure supplies were available for the country's defense.

But with the end of the Cold War and as global tensions reduced, atthe instigation of Congress in 1992, the stockpile has now largelybeen depleted.

Much political capital has been made of the $7 billion of sales fromthe stockpile over the years. A stockpile disposal program continuesto this day.

Now Americans must bare the burden of an empty stockpile and aruinous natural resource policy fostered by Interior and the EPA.

Artillery Peak Report From Arizona Geological Survey.The Manganese deposits of the Artillery manganese district are the largestand perhaps the only significant group of Manganese deposits in the UnitedStates*

http://www.azgs.az.gov/Mineral%20Scans/Artillary%20Mn%20District%20%20Arizona.pdf

Over the course of recent mining history many changes have come aboutwith regards to the viability of low grade US mineral deposits. For examplewe used to have many Copper mines running in multiple percentage pointsof Copper, now most are in decimal points and making vast profits atthat. One of the main key factors besides the higher metal price itself lies ina term called “Beneficiation”.

How About Domestic HydrologicalManganese?

Manganese is the most essential mineral aside fromiron in the production of steel. You cannot producesteel without adding 10 – 20 lbs. ofmanganese per ton of iron.

Manganese is the 4th largest traded metal commodityat approximately 30 Billion pounds per year, justbehind copper.

The steel industry in Canada and the United States hasvast amounts of domestic iron deposits yet noproduction of manganese in either countryeven though it is a strategic metal.

Manganese: An Example of a CriticalMetal

Graphite: Not Only Pencils

• Declared a critical “metal” by the EU. Graphiteplays a critical role in lithium ion batterytechnology, nuclear technology as well as thenew semiconductor applications in itsemanation as graphene.

Critical, Unavailable MetalsRare Earths: Also called the "gourmet powder" of hi-tech industries. Many Hi techuses – particularly hi temperature magnets..Indium: Used in flat displays, semiconductor, and the manufacturing of spaceproducts. China's indium reserves rank first in the world.

Tungsten: It is used in products such as hard alloy and special steel, and is alsowidely used in mechanical processing. The defense and space industries utilize thisrare metal, calling it the "tooth of the industry.

Germanium: Mainly used in the production of night vision devices, heat visiondevices, activators for petroleum products and solar cells.

Molybdenum: Used in the smelting of alloy steel, stainless steel, heat-resistantsteel and super alloys. Used in the military industry, it has earned the nickname of"the metal for war." China has the second largest molybdenum reserve in theworld.

Critical, Unavailable MetalsRare earth: Also called the "gourmet powder" of hi-tech industries.

Indium: China's indium reserves rank first in the world.

Tungsten: The "tooth of the industry." China supplies 85% of the world'stungsten demand.

Germanium: China has the largest germanium reserves in the world, with itsoutput accounting for 50% of the global total.

Molybdenum: "the metal for war." China has the second largest molybdenumreserve in the world.

Vanadium: Steel and vanadium redox battery technology a key fordevelopment of the alternative energy storage and leveling of the smart grid

China’s Critical Metals Policy

As a last resort, the Chinese Government formulatedstricter policies of controlling their exports. In April 2009,the Ministry of Land and Resources (MLR) issued acircular on controlling exploitation volumes of tungsten,antimony and other rare metals for 2009. According tothe circular, MLR would not accept any application forexploration and exploitation permits for these raremetals.

Just Thursday

• China began the process of nationalizing itsrare earth minerals.

• Canadian REE Stocks reacted accordingly.

Germanium: Industrial Gold

“Germanium and rare earth metals are widely called "industrial gold"but the volume of this metal is even less than rare earths …. China has3,500 tons in germanium reserves, the second largest in the world.However, the total amount of global reserves -- estimated at 8,600tons -- may not last more than 40 years.”

Chen Jianheng of the Chinese Society of Rare Earths

The planet's remaining germanium reserves are much less than thegold reserves of 86,000 tons while its price is not even 6% of the priceof gold.

Alas even China is running out of “Industrial Gold” metals.

India Also – Tip of The EmergingMarket Ice Berg

India currently has a population of around 1.2billion. It is already beginning to tie down globalsupplies of strategic metals and minerals

As it doesn't have China's financial clout is very muchin second place in this respect – for now.

US Exploration Lags; Canada Doublesits Neighbour

Geopolitical Issues Bubbling:

China Flies her First Stealth Jet andTests A Carrier Destroyer Missile

The US: World’s Extractive Industry Laggard

• The US accounts for meager 8% of worldwideexploration budgets today.

• Americans now depend on imports for 100% of 19mineral commodities.

• Both yttrium and vanadium are essential to themanufacture of microwave communications andsuperconductors respectively.

• No exploration = no discovery = no domesticsupply chain infrastructure = impairedstrategic capability

• The Rationale for Discovery Investing!

The Problematical, Short Term Situation InWhich Washington Finds Itself

No production capabilities for Neodymium IronBoron.

Neo magnets, the product derived from NeodymiumIron Boron, and Samarium Cobalt, are critical tomany defense products. They are essential elementto many military weapons systems:

Jet fighter engines and other aircraft components,including samarium-cobalt magnets used ingenerators that produce electricity for aircraftelectrical systems;

Examples Related to Criticality

Missile guidance systems, including precision guidancemunitions, lasers, and smart bombs;

• Electronic countermeasures systems;• Underwater mine detection systems;• Antimissile defense systems;• Range finders, including lasers; and• Satellite power and communication systems, including

traveling wave tubes (TWT) rare earth speakers,defense system control panels, radar systems,electronic countermeasures, and optical equipment.10

US Supply Chain Issues: Rare Earths

• Consists of mining, separation, refining, alloying, andmanufacturing.

• U.S. lacks refining, alloying, and fabricating capacity

• Only 1 U.S. company today, produces samarium-cobaltpermanent magnets,

• No U.S. producers of neodymium-iron-boron magnets forconsumer electronics, energy, and defense applications.

Its Not Only Exploration andDevelopment of the Resource

Example of a Rare Earth Supply Chain

Lithium Ion Supply Chain

China’s Control of the Supply Chain

The REEs needed for magnets that operate atthe highest temperatures include small amountsof dysprosium and terbium, both available onlyfrom China at the moment

Intellectual Property Development

• IP development is a 10 to 20 year process.

• Someone yesterday said this was a short term – 2 yearproblem. Really???

• Russians in Kirgizstan at Kutesay II.

• It has become clear that countries with surplusresource and incremental IP can control the market.

• Yesterday’s Molycorp wisdom:

• “full mine to magnet supply chain in the US.”

• Today 80% to 90% alloy production in Asia.

• A recent GAO report illustrates the lack of U.S.presence in the REE global supply chain at each of thefive stages of:

• mining,• separation,• refining oxides into metal,• fabrication of alloys and• the manufacturing of magnets and other

components.

The REE IP LegacyToday China Produces:

• 97% of the REE raw materials.

• ~ 97% of rare earth oxides,

• is the sole exporter of commercial quantities of REE metals.

• ~ 90% of the metal alloys are produced in China.

• China manufactures 75% of the neodymium magnets and60% of the samarium magnets.

Can the US Catch Up?

Rare Earth Legislation in the 111th Congress

House bill H.R. 6160 -- 09/22/10

To establish a Rare Earth Materials Loan Guarantee program forcommercial application of new and improved technologies for theseparation, and recovery of rare earths, the preparation of rareearths (i.e., oxides, metal, and alloys) and the application of rareearths in the production of magnets, batteries, optical systems,and electronics, among other things.

The Secretary would be required to cooperate with the privatesector to assure complete rare earth materials productioncapacity five years after H.R. 6160 would be enacted into law.

Rare Earth Religion

• H.R. 4866, the Rare Earths Supply-ChainTechnology and Resources TransformationAct of 2010

• P.L. 111-84, the Fiscal Year 2010 NationalDefense Authorization Act

• S. 3521, Rare Earths Supply Technology andResources Transformation Act of 2010

NRC: Metals Critical to the US EconomyThe National Research Council (NRC) has produced an in-depthreport on minerals critical to the U.S. economy and offers itsanalysis as described here: “... most critical minerals are bothessential in use (difficult to substitute for) and prone to supplyrestrictions.”

While the NRC report is based on several availability criteria usedto rank minerals for criticality (geological, technical, environmentaland social, political, and economic), REEs were determined to becritical materials assessed at a high supply risk and the possibility ofsevere impacts if supplies were restricted.

Some REE applications are viewed as more important than others.Some are at greater risk than others, namely the Heavy Rare EarthElements (HREEs), as substitutes are unavailable or not as effective.

But critical metals involve far more than the development of theREE supply chain.

What Will Drive Individual CountryExtractive Resource and Supply Chain

Development Programs?

The Great Convergence to 2030:China 9% to 24% Global GDP

India 2% to 10%US 24% to 12%

What About Chinaand India’s Nascent QOL Cycle?

• If India as well as China were to catch up, world consumption rates wouldtriple. If the whole developing world were suddenly to catch up, worldconsumption rates would increase 11-fold.

• It would be as if the world population ballooned to 72 billion.

• “Some optimists claim that we could support a world with 9 billion people.But I haven’t met anyone crazy enough to claim that we could support 72billion.”

• Our Conclusion:

Discovery Investing in Energy, Resources, Biotech and High Tech willbecome critically important and HIGHLY VALUED.

Professor Jared Diamond, January 2008.