overview of critical metals (john kasier)
TRANSCRIPT
2011 Critical Metals Investment 2011 Critical Metals Investment
SymposiumSymposium
Vancouver, Canada
January 21, 2011
Presented by John KaiserPresented by John Kaiser
Critical Metals OverviewCritical Metals Overview
www.KaiserResearch.com
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Supply Concentration vs Diversity:
Economic logic coupled with a
skewed natural geographical
distribution of deposits encourages
the concentration of production the concentration of production
into a small number of national or
corporate producers which in turn
creates opportunity for supply
disruption.
Supply
concentration
creates price
distortions.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Government subsidies through lax
environmental regulation encourages
supply concentration with disruptive
consequences when such policies
are reversed:are reversed:
China’s historical tolerance of
multiple small scale production and
absence or lack of enforcement of
emission controls has enabled it to
marginalize mine supply from
elsewhere in the world.
Wakeup Call for the Rest of the World:Wakeup Call for the Rest of the World:
China to stockpile key metals, consolidate China to stockpile key metals, consolidate
production & restrict exports as it focuses on production & restrict exports as it focuses on
security of supply.security of supply.
� Molybdenum
� Tungsten
� Indium
� Tantalum
� Rare Earths
� Tin
� Antimony
� Germanium
� Gallium
� Zirconium
China has become very concerned about resource depletion China has become very concerned about resource depletion
and the negative environmental and human impact of its and the negative environmental and human impact of its
historical mining practices that have underpinned its supply of historical mining practices that have underpinned its supply of
cheap metals to the rest of the world. cheap metals to the rest of the world.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Supply concentration allows cartel
style supply management geared
toward serving domestic agenda:
China is now using export quotas
and duties to prevent itself from
being just a raw material exporter. being just a raw material exporter.
Other nations have no choice but
to be primarily a raw material
producer and will use royalties
and carried interests to minimize
exploitation.
Recent estimates have reduced China’s HREO Recent estimates have reduced China’s HREO
resource life from 20resource life from 20--30 years down to 1530 years down to 15--20 years.20 years.
Once this 15Once this 15--20 m thick “skin” of heavy rare earth 20 m thick “skin” of heavy rare earth
bearing clays is gone there is nothing to be found by bearing clays is gone there is nothing to be found by
drilling into the third dimension!drilling into the third dimension!
Why has China become anxious about its Why has China become anxious about its
heavy rare earth supply?heavy rare earth supply?
Export Restrictions & Sector Consolidation: Can China Export Restrictions & Sector Consolidation: Can China
be blamed?be blamed?
R&D into the properties of the heavy rare earth R&D into the properties of the heavy rare earth
elements are creating the possibility of new elements are creating the possibility of new
applications that can become major demand drivers applications that can become major demand drivers ––
ie “smart dust” and the brave new world of sensors. ie “smart dust” and the brave new world of sensors.
What if the crackdown closes the smuggling gap?
Chinese Chinese
Rare Earth Rare Earth
Policy in Policy in
ActionAction
Export Quota Reduction in H2 2010 creates 2 tier pricing
Export Quota Reduction encourages end users to
shift advanced component production to China and
risk transfer of intellectual property.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Free Market Crisis for Just in
Time Procurement:
Free markets in which metals go
to the highest bidder will become to the highest bidder will become
thinner and less reliable for just-
in-time procurement strategies,
particularly if high risk
development funding is linked to
off-take agreements.
The Rise of China in the Age of GlobalizationThe Rise of China in the Age of Globalization
� Central command economy with outsourced production
� Cheap Labor – urbanization of 1 billion rural Chinese unleashed by the end of orthodox communism
� No Health & Safety for Workers
� No environmental emission controls
� No Unions to secure medical or pension benefits
� US Dollar Peg: the devil’s bargain of maintaining an undervalued renminbi by bankrolling the US trade
deficit through the accumulation of US treasury debt
� FDI: foreign direct investment and technology transfer
BRIC
Post-Industrial
Advanced Raw
Material Producers
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Policy can drive future demand
of critical metals: Efforts to
implement long term clean
energy policies that reduce
CO2 loading of atmosphere CO2 loading of atmosphere
and dependency on crude oil
as a transportation fuel impact
critical metal demand.
It’s the unprecedented COIt’s the unprecedented CO2 2 Ievels and their rapid Ievels and their rapid
achievement that matter!achievement that matter!
The World in 2099
Source: New Scientist Feb 25, 2009
Transforming the Energy Foundation of the WorldTransforming the Energy Foundation of the World
Footprint Reduction Footprint Reduction Footprint Transformation Footprint Transformation Footprint Reduction Footprint Reduction
StrategiesStrategies
Footprint Transformation Footprint Transformation
StrategiesStrategies
� Quality over quantity
� Durability
� Efficiency
� Miniaturize
� No more cost dumping
� Short term sacrifice for long term legacy
� Leveraged giving
� Reduce
� Re-Use
� Repair
� Renewables
� Recycle
� Rethink
� Relearn
DOE Critical Materials Strategy December 2010DOE Critical Materials Strategy December 2010
DOE Critical Materials Strategy December 2010DOE Critical Materials Strategy December 2010
It’s not the rare earth demand growth in the next 5 years It’s not the rare earth demand growth in the next 5 years
that is the critical issue today, but the demand growth 5 that is the critical issue today, but the demand growth 5
years and beyond when clean energy really scales up.years and beyond when clean energy really scales up.
Source: Mineral Resource Research Group
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� State controlled capital investment:
Chinese trend is for state
controlled entities to make
investments in raw material supply
around the world which often go around the world which often go
hand in hand with parallel
infrastructure investments guided
by long term security of supply
rather than profit goals.
Chinese Military Expansion seeks to secure Supply Channels
“Eyes in the Sky”
“32 million surplus males”
Petro-Dollar Recycling?
The Carrington Event
1859 Geomagnetic Storm
Security of Supply for Critical Materials is becoming Security of Supply for Critical Materials is becoming
an issue for Europe, Japan and the United States as an issue for Europe, Japan and the United States as
China moves to secure its own needs.China moves to secure its own needs.
Source: EC Commission – The Raw Materials Initiative
GAO ConclusionsGAO Conclusions� While rare earth ore deposits are geographically diverse, current capabilities to
process rare earth metals into finished materials are limited mostly to Chinese
sources.
� The United States previously performed all stages of the rare earth material
supply chain, but now most rare earth materials processing is performed in
China, giving it a dominant position that could affect worldwide supply and
prices.
� Based on industry estimates, rebuilding a U.S. rare earth supply chain may take
up to 15 years and is dependent on several factors, including securing capital
investments in processing infrastructure, developing new technologies, and
acquiring patents, which are currently held by international companies.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Innovation vs Implementation:
New applications invented
through innovation cloud the
demand outlook worsened by
the gap between upstream and the gap between upstream and
downstream.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Strategic Logic – measuring profit in
terms of what security of supply for
incremental upstream inputs implies for
downstream products: profits will reside
in the downstream products for which
metals are a critical but incremental input, metals are a critical but incremental input,
not in the margin between mining cost
and market price
What is your opportunity cost because you What is your opportunity cost because you
cannot commercialize an innovation?cannot commercialize an innovation?
Dodd-Frank Financial Reform bill will
require end users to document the source
of their tantalum supply for their Ipods
and cell phones among other consumer
electronics gadgets.
What is the
opportunity
cost of being
tainted by
blood tantalum
versus a higher
cost for clean
tantalum?
Jevons’ Paradox:Jevons’ Paradox:
Scarcity results in higher prices for
raw material inputs, which should
result in lower demand through
substitution, but when substitution is
not possible, a push for more efficient
Would a rare earth price shock reduce demand?Would a rare earth price shock reduce demand?
not possible, a push for more efficient
utilization of inputs is undertaken,
which, if successful, will stimulate
total demand growth, which in turn
enables raw material supply
expansion without glutting the market
and triggering a price collapse.
Rare Earth elements lend themselves well to R&D Rare Earth elements lend themselves well to R&D
aimed at developing more efficient utilization.aimed at developing more efficient utilization.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Long term Cost Volatility &
Spot Price Opacity: Volatility
in currency exchange rates
and energy/chemical costs
rule out long term price rule out long term price
based contracts while lack of
transparency and poor price
discovery mechanisms make
spot market pricing unreliable
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� Mainstream Mining Sector’s
aversion to uncertainty:
Mainstream mining companies
are unlikely to invest in
primary specialty metal mines primary specialty metal mines
such as rare earth deposits
because they cannot predict
demand driven by policy and
innovation. At best they will
add circuits for by-product
recovery.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� A new upstream role for end-
users: End users with large
downstream markets at stake
will need to make upstream
equity and/or debt investments equity and/or debt investments
in resource juniors which raise
risk capital to acquire and
advance specialty metal
deposits.
Issues with Critical & Strategic MetalsIssues with Critical & Strategic Metals
� A new downstream role for
producers: Critical metal
producers not owned and
operated by a consortium
of downstream users will
need to own downstream
operations which add value
to the mined raw materials.
Stage Exploration Cycle
Stage
Objective Time
Required
1 Grassroots Conceptual, land acquisition 1 year
2 Target Generation &
Drilling
Filtering for drill targets 1-2 years
3 Discovery
Delineation
Defining the limits of a discovery -
tonnage & grade
1-2 years
4 Infill Drilling Producing a mineral resource estimate & 1-2 years
How do we get to a mine?
4 Infill Drilling Producing a mineral resource estimate &
scoping study
1-2 years
5 Bulk Sample &
Metallurgy
Evaluating recoveries and optimal
processing method
1 year
6 Prefeasibility Produce a mineable reserve, establish a
mining plan and associated costs
1-2 years
7 Permitting,
Marketing &
Feasibility
Securing approval, negotiating offtake,
making a production decision
1-3 years
8 Construction Building the mine 1-3 years
9 Production Mining cash flow 10-20 years
Thank YouThank YouThank YouThank You
www.KaiserResearch.com