China Embargoed Rare Earths
In a recent ‘spat’ over water and fishing rights, China put an embargo on sales of “rare earth” elements to Japan. These have economic and strategic importance in that they are widely used in electric motors, high performance magnets, and a variety of electronics. Since China is presently the source of over 90% of the rare earths, this was a significant boot to the neck of Japan.
So, many folks have leapt to the conclusion that China has some special lock on the global distribution of rare earth minerals. Are we in fact slave to China having the natural abundance and the rest of us impoverished?
Common Rare Earths
From the wiki, we learn that at one time rare earths were rare, as they were thought to come only from rare oxide deposits:
The term “rare earth” arises from the rare earth minerals from which they were first isolated, which were uncommon oxide-type minerals (earths) found in Gadolinite extracted from one mine in the village of Ytterby, Sweden. However, with the exception of the highly-unstable promethium, rare earth elements are found in relatively high concentrations in the earth’s crust, with cerium being the 25th most abundant element in the Earth’s crust at 68 parts per million.
Hmm, that doesn’t sound so rare…
Are they hard to extract? Well, they used to be. Now we use a variety of techniques.
In the 1940s Frank Spedding developed an ion exchange procedure for separating and purifying the rare earth elements.
“Ion exchange”. That’s what is used in your water softener. I’m sure the rare earth ion exchange is more complicated, and probably uses a far more expensive ion to exchange than ‘salt’. But still, it’s not that hard a process. A mineral or resin has one type of ion absorbed into it, a liquid solution is run over it and the ion in the resin moves into the liquid while the desired ion goes into the resin in exchange. When the ‘regenerating fluid’ is run into the reactant bed, the swap goes the other way. In the process, a very dilute concentration in the original liquid becomes a very high concentration in the effluent of the reactor (and a fairly clean solution in that it contains the target ions and the reactant ions primarily).
The principal sources of rare earth elements are the minerals bastnäsite, monazite, and loparite and the lateritic ion-adsorption clays. Despite their high relative abundance, rare earth minerals are more difficult to mine and extract than equivalent sources of transition metals (due in part to their similar chemical properties), making the rare earth elements relatively expensive. Their industrial use was very limited until efficient separation techniques were developed, such as ion exchange, fractional crystallization and liquid-liquid extraction during the late 1950s and early 1960s.
So they are more expensive due to the extraction and separation from a bunch of similar ions, but folks have worked out ways to do that. So the cost is not from scarcity of ore, but from the process.
Of these, “monazite” caught my eye. This is a modestly common mineral (often a sand) used to mine Thorium. Thorium can be (and presently is being) used in nuclear reactors to generate power much as Uranium is used. In fact, Thorium is turned into U233 during the fuel burn up.
Notable Occurrences are wide spread and diverse. They include beach and river sand deposits from Travancore, India; Australia; Brazil; Sri Lanka; Malaysia; Nigeria; Florida and North Carolina, USA. Pegmatite sources include Encampment, Wyoming; Petaca District, New Mexico; Amelia Court House, Virginia; Climax Mines, Colorado; Maine; Alexander and Madison Counties, North Carolina, USA as well as Callipampa, Bolivia; Madagascar; Norway; Austia; Switzerland; Joaquim Felicio, Minas Gerais, Brazil and Finland.
Humphf… Sounds pretty common to me…
But What About The Graph?
Doesn’t that show the USA running out and China taking over?
It shows the USA shutting down production, but not running out.
Like most other manufactures, it’s simply cheaper to do it with labor at $2 / day and with hardly any regulations (and very low capital gains taxes) than to do it in the USA with $50/hour (or more) Union wages, busloads of regulatory paperwork needing $500 / hour lawyers to review, agency permits that are not granted (try getting a mine open in California… we used to mine rare earths, but shut the mine as it was too much trouble to keep it open and Chinese prices undercut the market) and then you face the 2nd highest capital gains tax rate in the world if you do get past those hurdles.
So we have mining and refining running off to China.
We are shutting down, not for lack of resources, but due to the mercantilist policies of China.
Why Does This Matter?
Because rare earths are necessary for a large number of critical devices. Everything from exotic lenses ( I have a lanthanum eyepiece for my telescope, for example) to electric motors and electronic parts, to parts in cruise missiles and other weapons systems and medical equipment like x-ray machines.
And now we know that China is quite happy to use it’s economic position as a weapon to get what it wants. Japan folded the next day and gave in to Chinese demands…
So how will the USA react when, for example, China says it’s time to hand over Taiwan, or perhaps to shut down those bases in Japan that we don’t need any more? And how will we react when told that there will be no more goods sold to the USA until those things are done?
Think we would just say no? Go to a department store and visit the clothing, housewares, toy department, you name it. Look at the country of origin. I just did this at a teacher supply store. I found one thing (a floor jigsaw puzzle of the US Presidents) made in America. One each from Korea and Taiwan, and an endless stream of “Made in China”.
Any Other Problems?
Oddly, the mining of rare earths from things like the Monazite Sands in the Carolina’s is complicated by the presence of Thorium. Rather than us the Thorium for energy production, we treat it as waste. And even mildly radioactive waste causes “issues”.
There are contaminants that can limit the ability to conduct economic work on a deposit or even limit the ability to exploit it at all. Thorium is one of the more common contaminants that you find accompanying many rare earth element deposits. Thorium is a radioactive element that someday may have uses in the nuclear power industry but, right now, if you have enough of it in a deposit, your tailings are radioactive. You must have the appropriate permitting to store those tailings, or you’re never going to start a mine.
Looks to me like a ‘win-win’ to just mine BOTH Thorium and Rare Earths. Get energy independence AND high tech resources…
Where Does It Come From? Thorium is widely distributed in small amounts in the earth’s crust. The chief commercial
source is monazite sands in the United States (in North Carolina, South Carolina, Idaho, Colorado, Montana, and Florida)
as well as in Brazil, India, Australia, and South Africa. The concentration of thorium oxide in monazite sands is about 3 to
10%. Thorium is also found in the minerals thorite (thorium silicate) and thorianite (mixed thorium and uranium oxides).
The isotope thorium-230, a decay product of uranium-238, is found in uranium deposits as well as in uranium mill tailings.
So what is Monazite? (Ce, La, Th, Nd, Y)PO4, Cerium Lanthanum Thorium Neodymium Yttrium Phosphate.
Notice that we get phosphate too. So lets think about this for a minute. Some folks are just all crazy over the pending demise of civilization from running out of energy, phosphate fertilizer, and the limited availability of Rare Earths. Yet in some of the most common rocks (and sands) on the planet we get a bunch of rare earths, Thorium for energy for the next 30,000 years, and , oh yes, phosphate.
Somehow I’m not worried about “running out”…
And is it India and the Carolinas that are so uniquely blessed? Nope. Look again at that quote from the USGS article about Thorium:
The chief commercial
source is monazite sands in the United States (in North Carolina, South Carolina, Idaho, Colorado, Montana, and Florida)
as well as in Brazil, India, Australia, and South Africa.
All over the USA, Brazil, Australia. Just waiting to be needed.
Back To China
As an interesting insight to the mercantilism of China, they also observe this about the general Chinese restrictions on total exports (not just the Japanese embargo):
That’s not what the Chinese are envisioning, though. I think that by limiting the export of these materials, China is intending to move a lot of those refining operations and a lot of those final assembly operations into China. This is a still a very labor-intensive operation at that stage, and China is trying to bring those higher value jobs back to China. Unless we actually produce alternative sources of REEs outside of China, frankly, the companies in the U.S. and Europe and elsewhere will have no choice; those jobs will go to China because that’s where the material is. We still consume most of the end products; it is not the Chinese buying electric cars. It’s Europeans and Asians in Japan and Korea and people in Europe who are buying those, but it’s the Chinese who are going to be ultimately building those for the next few years, unless we find alternatives.
So much for Obama and the Dimocrats notion that we’re going to build all that ‘green stuff’ here and dominate e-cars globally. Hey Obama!: China has your number and is planning on eating your lunch! Good Luck with that…
The “Marketoracle” article is a good one and worth reading. It talks about particular mines in places like the USA and Australia. So hit the link and read the article (and it’s disclaimers) if you have interest.
What was ‘the worlds largest rare earth mine’ is in California. It was shut down when China was selling all you wanted dirt cheap. With luck, we can find a way to get it back open (there are efforts underway to do that for 2011, but who knows what California will do.) The Mountain Pass Mine.
http://en.wikipedia.org/wiki/Mountain_Pass_rare_earth_mine owned by Molycorp.
The Mountain Pass deposit is in a 1.4 billion year old Precambrian carbonatite intruded into gneiss, and contains 8% to 12% rare earth oxides, mostly contained in the mineral bastnäsite. Gangue minerals include calcite, barite, and dolomite. It is regarded as a world-class rare-earth mineral deposit. The metals that can be extracted from it include:
Known remaining reserves were estimated to exceed 20 million tons of ore as of 2008, using a 5% cutoff grade, and averaging 8.9% rare earth oxides
Notice that reserves are measured in MILLIONS of tons; while on the graph, world production is in KILO tons. Not exactly a shortage…
The Mollycorp chart?
It looks like a recent spin-out of a parent, with a short history, that is a rocket ride up (probably driven by recent news).
I’d be willing to buy a ‘tiny’ of it but be cautious with any ‘rocket ride story stock’ like this, they will often crash as the news fades. But given the Chinese behaviour, I expect a US Government driven initiative for some USA capacity and would also expect some Japanese makers might want a 10% or so ‘second source’ as insurance…
What about the kind of mineralization at the mine?
In 1949, the huge carbonatite-hosted bastnäsite deposit was discovered at Mountain Pass, San Bernardino County, California. This discovery alerted geologists as the existence of a whole new class of rare earth deposit: the rare earth containing carbonatite. Other examples were soon recognized, particularly in Africa and China. The exploitation of this deposit began in the mid-1960s after it had been purchased by Molycorp (Molybdenum Corporation of America). The lanthanide composition of the ore included 0.1% europium oxide, which was sorely needed by the burgeoning color television industry, to provide the red phosphor, so as to maximize picture brightness. The composition of the lanthanides was about 49% cerium, 33% lanthanum, 12% neodymium, and 5% praseodymium, with some samarium and gadolinium, or distinctly more lanthanum and less neodymium and heavies as compared to commercial monazite. However, the europium content was at least double that of a typical monazite. Mountain Pass bastnäsite was the world’s major source of lanthanides from the 1960s to the 1980s. Thereafter, China became increasingly important to world rare earth supply. Chinese deposits of bastnäsite include several in Sichuan Province, and the massive deposit at Bayan Obo, Inner Mongolia, which had been discovered early in the 20th century, but not exploited until much later. Bayan Obo is currently (2008) providing the lion’s share of the world’s lanthanides. Bayan Obo bastnäsite occurs in association with monazite (plus enough magnetite to sustain one of the largest steel mills in China), and unlike carbonatite bastnäsites, is relatively closer to monazite lanthanide compositions, with the exception of its generous 0.2% content of europium.
So we have very similar ore in both places. Looks like mostly just Sovereign Risk, taxes, and labor costs keeping Molycorp in check. I expect China will find it acceptable to have a small competitor hanging on with small contracts, and will not drop prices to predatory levels nor flood the market with production; but that risk exists. The history of Molycorp shows it was consumed by an oil company, kicked around as a subsidiary, and was since spun out (though perhaps minus some lubricant / moly-grease parts…)
I’d also expect that the Sovereign Risk from California will be kept in check by the US Military concerns…
This is an example of how you take a news story (China embargoing Japan on Rare Earths) and working through the background find an investment thesis and a target stock. Still not in this example is looking at the actual financial background of the company, sales, etc. So I’d buy a ‘tiny’ as a reminder or toy, but not a large position without a bit more homework on the stock. And some investigation of other competitors in the world.
Ran into this little Canadian / Wyoming start up stage mine. Having a bit of a parabolic run at the moment. Dangerous right now, but after it drops back some might be interesting. Looks like a couple of years before it will be actually mining anything, so for now it’s a ‘story stock’.
This article does a pretty good job of running down the uses and status of mining as of late 2008:
OK, here is a chart of a bunch of non-Chinese tickers from around the world that mine R.E.E. and / or process them.
SPY - S&P 500 baseline ETF BHP - BHP a broad spectrum miner baseline REE - Rare Element Resources (Canada with Wyoming property) AU:LYC - Lynas Corp, Australia ARAFF - Arafura Resources (pink sheets USA, Australia AU:ARU) SHWDF - Showa Denko (Japan: interested in refining and 'stable supplier') AU:ALK - Alkane Resources ( Australia)
China Rare Earth miners and processors:
CN:600111 - Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co Ltd SPY - S&P 500 baseline CREQF - China Rare Earth Holdings Ltd ACH - Aluminum Corporation of China Ltd NEMFF - Neo Material Technologies Inc.
Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co Ltd is the worlds largest miner of rare earth minerals at present.