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I was a
keynote speaker at the recent Murdock Capital Partners Critical Metals/Strategic Elements
Symposium in New York City. This is my second gig at one of convener Tom
Dean’s on-going series of symposia and I thank him for continuing
support. Although the venue is small, intimate, and limited to 75 attendees,
the investor quality is second to none, particularly in the amount of money
represented and managed. In my presentation I categorized the metals critical
to modern-day civilization and reviewed the minor metals that are
increasingly used by society in new technological applications.
Recently a
plethora of alternative names have been proposed and promoted for what were
once known as the specialty or minor metals. These mostly obscure elements
span the gamut from the lightest to the heaviest on the periodic table. In my
opinion, analysts and investors alike have become confused by these
newly-invented misnomers.
Much of the
confusion can be blamed squarely on two recent reports from the United States
government.
In December
2010, the US Department of Energy (DOE) produced a report entitled
“Critical Metals Strategy.” It identified seven rare earth
elements and three minor metals (lithium, indium, and tellurium) that are or
could become in high demand and short supply from 2011-2025. The DOE list and
analysis was predicated on future growth fueled by Obama’s proposed subsidies
of the electric and hybrid vehicle, wind turbine, solar, and fluorescent
lighting industries.
Subsequently,
the US Department of Homeland Security produced its list of “Strategic
Metals” based on national and economic security and public health and
safety. However, its list had few metals in common with the DOE compendium.
Homeland Security’s strategic metals were more realistic and included
ferrous alloys chromium, manganese, titanium, and cobalt, and minor metals
germanium, niobium, tellurium, the rare earth elements, and tungsten.
Not
surprisingly, these government studies recommended bureaucratic and
regulatory solutions involving interagency coordination, cooperative studies,
research funding, comprehensive plans, and international workshops.
The various
proposed names for the low demand metals are arranged below from youngest to
oldest and include short explanations of their origins:
- Critical metals: DOE’s aforementioned list
in late 2010 is based on Obama’s agenda for green energy
subsidies.
- Electric metals: This is the title of annual
conferences beginning in April 2010 and held by Byron Capital, a group
of Toronto-based research analysts.
- Doping agents: A name that was proposed by The
Hague Center for Strategic Studies in early 2010 for metals that are
minor additives in alloys and composites.
- Rare metals: Don Bubar,
CEO of Avalon Ventures, renamed the exploration company Avalon Rare
Metals upon gaining a TSX listing in mid-2009.
- Technology metals: According to my source, this
term was coined by materials engineer Jack Lifton
and first used publicly in September 2007.
- Strategic metals: A term that was first used for
both major and minor metals during the Department of the Army metal
mining subsidies in the 1940s and 1950s. It also references the National
Defense Stockpile from post-WWII until the Soviet Union’s failure
in the early 1990s.
However, this
alphabet soup of metals has long been known by two names that are of common
usage and are easily categorized by several key criteria: Specialty metals,
which is the term I prefer; or if you wish, minor metals.
Before we
delve further into the specialty metals, I offer my real world answers to the
question, “What makes a critical metal “critical”?
In my opinion,
the general characteristics of a critical metal include the following: It is
essential to modern-day industrial processes and/or applications and
therefore, world economic health and well-being; a major tonnage (with few
exceptions greater than one million tonnes) is
mined, processed, and used per year; it trades on open world markets,
including futures and options; or, it trades as a bulk dry commodity
via a negotiated contract or pre-set price.
I submit that
these are the world’s critical metals, arranged for the
most part in order of their yearly mined tonnages:
- Iron ore (Fe) comprises 95% of the world’s
total metal production. Iron and steel are the foundations of our
modern-day civilization and the Iron Age marked a major advancement for
mankind beginning in 1200 B.C.
- Aluminum (Al) is the strong and lightweight metal
that was not used in any major industrial application until the 1890s
and now is the world’s second most important metal with over 44
million tonnes of production in 2011.
- Copper (Cu) with a Ph.D. in Economics is the true
“electric” metal. Its 19 million tonne
supply, demand, and price most directly reflect the world’s
current industrial and economic health.
- The major ferrous alloys including: Chromium (Cr),
the third most used metal at 24 million tonnes,
manganese (Mn), fifth at over 14 million tonnes, nickel (Ni) with 1.8 million tonnes, and molybdenum (Mo) with 250,000 tonnes. These metals are alloyed with iron for
various types and grades of steel, essential for today’s
industrial applications.
- Titanium (Ti) oxide production was 6.7 million tonnes in 2011. Titanium minerals are used mainly in
the pigment industry in addition to 186,000 tonnes
of metal sponge demand for iron and specialty alloys.
- Zinc (Zn, 12.7 million tonnes,
lead (Pb, 4.5 million tonnes),
and tin (Sn, 250,000 tonnes)
are essential for major industrial applications including galvanizing,
batteries, and alloys respectively. Copper-tin combinations were the
first alloys used by Man and ushered in the Bronze Age at about 3300
B.C.
- Uranium (U) had no significant use or supply until
the1950s but it now contributes 14% of the world’s electrical
energy supply. Current mine production of 53,000 tonnes
is about 75-80% of annual world demand. Uranium diverges from the other
critical metals in its relatively low tonnage and it does not trade on
open markets, but it is no doubt essential for our long-term energy
future.
Despite the
aforementioned efforts to invent new names for the specialty metals, each
individual metal has a number of common characteristics with its brethren.
First and foremost, a specialty metal is non-essential to a healthy and
well-functioning world economy.
It also has a
small tonnage and a relatively small total value mined, processed, and used
on a yearly basis; is a by-product or a co-product of large mining or
smelting operations; or, deposits are small and the economics are
especially sensitive to processing and refining costs.
In addition, a
specialty metal does not trade on open markets and pricing is negotiated by
buyers and sellers via term off-take contracts or spot sales. As a result,
pricing, trades, supply movements, and annual production are largely opaque.
World supply may be controlled by a monopoly or oligopoly via a company,
deposit, country, or region.
This periodic
table shows my categorization of the world’s critical metals and
specialty metals:
The Critical
(Red) and Specialty (Green) Metals
Because I am a
speculator in the junior resource sector, my on-going study of commodities is
geared toward understanding supply and demand fundamentals and determining
those metals that are suited as flagship projects for junior explorers or
miners. With that in mind, I will provide a brief synopsis of each specialty
metal and then reveal those that I currently consider permissive for
successful speculation.
Lithium (Li): The lithium compounds
market is controlled by a cartel of three large chemical companies that
extract the metal from shallow brines, mostly in South America. Lithium
compounds are used mainly in batteries and grease. The spodumene
market is monopolized by a single mine in Australia that supplies much of
that mineral for glass and ceramics. China is also a major domestic supplier
and consumer of both markets. Altogether, these sources produce an estimated
34,000 tonnes of elemental lithium in 2011.
Beryllium
(Be): The free world’s beryllium supply of 240 tonnes
is controlled by a US company in a mine-to-market monopoly supplied by a
deposit in central Utah. Its production is supplemented with high-grade
sorted ores from other countries used as mill sweeteners. Russia and China
source beryllium from Soviet-era stockpiles in Kazakhstan as does a mid-tier
US alloy fabricator. Beryllium is used in specialty alloys mostly for
military and high tech applications.
Scandium (Sc): World production is miniscule at an estimated two to
four tonnes a year. It is a by-product of some REE mining
and is also obtained from Russian stockpiles. Scandium is a minor component
for specialty aluminum alloys used in aerospace applications and sporting
equipment.
Vanadium (V):
It is produced mainly from steel mill slags, but also as a by-product of uranium
mining and heavy oil residues with one stand-alone mine in South Africa.
Current supply of 60,000 tonnes is sufficient to
meet anticipated demand in iron alloys and catalysts. Recent speculation on
increasing demand focuses on new battery applications.
Cobalt (Co):
The 98,000 tonne world supply is obtained as a
by-product of nickel and copper smelting and is controlled by operations in
central Africa and integrated mining companies elsewhere. Cobalt is used in
high-strength superalloys, pigments, batteries,
catalysts, and radioisotopes.
Gallium (Ga): The world supply is a by-product of aluminum and
zinc smelting and is controlled by giant aluminum and zinc companies that
produced 216 tonnes in 2011. Gallium is used in
semiconductors.
Germanium (Ge): The 2011, 118 tonnes
supply is a by-product of base metal smelting, mainly zinc, by the
world’s large base metal companies. Germanium is used in fiber optics,
night vision devices, and catalysts.
Zirconium (Zr): The world’s supply of 1.41 million tonnes comes mainly as a by-product of titanium mining
from heavy mineral beach sand deposits. Production is concentrated in
Australia, South Africa, and the United States and generally controlled by
major mining companies. Zirconium is used mainly in refractories and
ceramics, but also in alloys, jewelry, and nuclear fuel assemblies.
Niobium (Nb): About 75% of world supply of 63,000 tonnes comes from a single open-pit mine in Brazil that
contains over 100 years of anticipated world demand. It produces at two to
six times the grade of two other deposits of significance in Brazil and
Canada. Ferroniobium and nickel-niobium are used as
minor components of many specialty steels, and pure niobium is used in superalloy applications.
Cadmium (Cd):
Supply is a by-product of zinc smelting and controlled by integrated zinc
companies; production was 21,500 tonnes in 2011. It
is used mainly in batteries and to a lesser extent in electroplating
applications. Cadmium is limited in its uses by toxicity.
Indium (In):
The 640 tonne supply is a by-product of base metal
smelting by integrated mining companies with recycling contributing over half
of annual world consumption. It is used mostly in thin film coatings for LCD,
LED, and solar cells.
Antimony (Sb): Most of the world’s supply of 169,000 tonnes comes from China via mining and processing of
small vein deposits. It is also recovered from smelting of some copper-silver
ores. Antimony is used mainly in flame retardants and also in lead alloys for
ammunition, batteries, and solder. Minor uses include electronics and
pigments.
Tellurium (Te): The world’s supply of 115 tonnes
is obtained from the refining of copper ores by integrated mining companies
in the United States, Peru, Japan, and Canada. It is a minor additive to some
iron, copper, and lead alloys, high-tech electronics, and solar panels.
Hafnium (Hf): Zirconium ores always contain small amounts of
hafnium. The world supply is obtained by separation from the pure zirconium
required for cladding of nuclear fuel assemblies, a process that amounts to
about 70 tonnes a year. Most hafnium is used in
nuclear control rods; minor applications include specialty alloys and
microprocessors.
Tantalum (Ta):
It generally occurs with niobium and the world supply of 790 tonnes comes from three mines in Australia and Brazil, as
a by-product from processing of placer tin slags in Malaysia, and artisanal
placer mining in central Africa. Tantalum is used mainly for capacitors in
personal electronic equipment with minor amounts used in specialty alloys.
Tungsten (W):
China currently supplies about 85% of demand from numerous small mines.
Potentially economic deposits occur in many countries of the world. In 2011,
about 72,000 tonnes were produced. It is used
mainly as tungsten carbide and in steel and superalloys,
with minor uses in electronics and as catalysts.
Rhenium (Re): This metal is rare
and expensive and does not form its own minerals. Supply of 49 tonnes is obtained as a by-product of molybdenum refining
and is controlled by integrated mining companies. Rhenium is used in superalloys for jet and rocket engines and as a petroleum
catalyst.
Mercury (Hg):
The world supply of 1900 tonnes is dominated by
small mines in China with Kyrgyzstan also a significant producer. Mercury is
used in industrial chemicals, electrical and electronic devices, and various
lighting devices. It is also used by artisanal miners in many countries to
recover gold, often with environmental consequences because of its toxicity.
Thallium (Tl): Ten tonnes are recovered
per year in the refining of base metal ores. Approximately 65% of thallium is
used in electronics with the remainder in pharmaceuticals, glass
manufacturing, and infrared detectors. It is extremely toxic and past uses
are banned in many countries.
Bismuth (Bi):
The 8500 tonne supply is mostly obtained by
refining of lead concentrates and other base metals and is dominated by
China. Bismuth is used in pharmaceuticals, cosmetics, specialty alloys,
solders, and as a non-toxic substitute for lead.
Yttrium (Y)
and the 15 Lanthanides (REEs): By-products from a large iron mine in China
and a primary mine in the United States currently supply most of the
world’s light rare earth elements. Total rare earth supply in 2011 was
133,000 tonnes with yttrium oxide at 8900 tonnes. Yttrium and heavy rare earths come from small
mines in southern China. New sources in North America, Australia, Europe, and
Africa are undergoing development with initial production scheduled in
four-five years. REEs are used in military, high tech, and green energy
applications.
As can be seen
from the list above, most of the specialty metals are not contained in
concentrations that support stand-alone deposits. Many are by-products from
the refining of major industrial metals while others are controlled by a
monopoly or an oligopoly. Most have sources and supplies that are adequate
for future world demand. Therefore, the majority of specialty metals are not
well-suited as exploration targets for junior resource companies.
However, there
is a justifiable concern about the dependency of the Western World on
unfriendly and/or unstable sources for many of the specialty metals.
As the Chinese economy continues to grow, its current specialty metals market
is transitioning from export of products to domestic use. As this occurs, it
is likely China will invoke additional incentives to keep mined supplies for
internal consumption.
We saw this
happen in 2009-2011 in the rare earth sector. The Chinese announced export
taxes, tariffs, and quotas, metal prices skyrocketed, juniors companies piled
in and on, and market capitalizations went exponential then parabolic.
Although the REE bubble has largely run its course, there remain
opportunities for a few select companies to compete successfully in the world
marketplace. I was involved very early-on in the rare earth element sector
and will always strive to duplicate that record with other specialty metals.
In my opinion,
the specialty metals that offer attractive opportunities for speculation in
the junior resource sector have three common characteristics: They occur in
small monometallic deposits that can be developed with relatively low capital
expenditures; they can be concentrated, processed, and a final product sold
into a free marketplace without incurring significant third-party risk (i.e.,
no monopolies, cartels, or large smelters involved); and potentially economic
deposits are located in countries that have acceptable geopolitical risk
(i.e., stable and corruption-free governments, strong rule of law,
mining-friendly, and reasonable bureaucratic and environmental regulations).
There are only a few metals that
can ever match the criteria listed above. I currently consider antimony and
tungsten to be top targets for juniors in specialty metal space and am
searching for companies worthy of my speculative dollars. At this juncture I
have found no obvious candidates, but rest assured my loyal subscribers will
know soon after I take a position and initiate coverage.
Mickey
Fulp
The
Mercenary Geologist
Miningcompanyreport.com
The Mercenary Geologist Michael S. “Mickey” Fulp is a
Certified Professional Geologist with a B.Sc. Earth Sciences with honor from
the University of Tulsa, and M.Sc. Geology from the University of New Mexico.
Mickey has 30 years experience as an exploration geologist searching for
economic deposits of base and precious metals, industrial minerals, coal,
uranium, and water in North and South America and China.
Mickey has worked for junior explorers, major mining companies, private
companies, and investors as a consulting economic geologist for the past 22
years, specializing in geological mapping and property evaluation. In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient and is bilingual in English and Spanish. From 2003
to 2006, Mickey made four outcrop ore discoveries in Peru, Nevada, Chile, and
British Columbia.
Mickey is well known throughout the mining and exploration community for his
ongoing work as an analyst for public and private companies, investment
funds, newsletter and website writers, private investors, and brokers.
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