Tuesday 23rd May 2017

Resource Clips


Posts tagged ‘china’

China’s “disgusting” behaviour disrupts conflict diamonds meeting

May 3rd, 2017

by Greg Klein | May 3, 2017

An indigenous welcoming ceremony at a meeting to address illicit gems might command dignified respect. But not on May 3, not from the Chinese delegates.

The scene was a Perth conference of the Kimberley Process hosted by Australia’s foreign minister. Australia acts as this year’s chair of the group formed in 2000 by governments, industry and activists to fight the trade of rough diamonds used to undermine legitimate governments.

China’s “disgusting” behaviour disrupts conflict diamonds meeting

“It was disgusting,” the Sidney Morning Herald quoted an unnamed senior Australian official. “It was extraordinary, so uncalled for and so inappropriate, and so disrespectful.” The paper said the Chinese government delegation shouted over the indigenous speaker, forcing proceedings to a halt. Order wasn’t maintained until after Taiwanese observers were “ejected.”

The SMH reported that the Chinese “used the microphone at their table to speak over the chairman of the meeting, senior Department of Foreign Affairs and Trade official Robert Owen-Jones, as he tried to introduce the foreign minister Julie Bishop and the indigenous welcome ceremony, attendees said. The Chinese delegation said they had a point of order and demanded to know if everyone in the room had been ‘formally invited.’ The interruptions continued until the agenda was changed to address the so-called ‘point of order’ as the first item. Only then was the welcome to country permitted to go ahead, followed by Ms. Bishop’s speech.”

But more outbursts erupted later, according to the article. “Fairfax Media understands that another session later in the morning involving a panel discussion with executives from mining companies was abandoned altogether because of continual interruptions by various African delegations in support of the Chinese position.”

The Australian Broadcasting Corporation reported that an attendee said “he had heard the Chinese were sending WhatsApp messages to their allies in the room, asking for support.”

If Australia had decided not to give into Chinese pressure on Monday I would be mightily surprised if China stopped buying Australia’s natural resources as a result because China desperately needs them for its economical development.—J. Michael Cole, quoted by ABC

The SMH stated a foreign affairs spokesperson said Australia had invited the Rough Diamond Trading Entity of Chinese Taipei “in line with earlier precedent.

“Continual disruption to the proceedings in the opening session was regrettable and the Australian government’s concerns with respect to the behaviour of Chinese delegates have been raised with the Chinese ambassador,” she added.

ABC spoke with J. Michael Cole of the University of Nottingham’s China Policy Institute, who noted that Australia’s one of the countries economically dependent on China. But he added, “I also want to emphasize that China needs those countries as much as those countries need China.

“If Australia had decided not to give into Chinese pressure on Monday I would be mightily surprised if China stopped buying Australia’s natural resources as a result because China desperately needs them for its economical development.”

Cobalt’s Congo conundrum

May 3rd, 2017

The battery market’s DRC dependency can only grow, says Benchmark

by Greg Klein

“If there’s any nation that contributes over 50% of supply for a mineral, alarm bells start to go off.” That’s especially true when the country is as troubled as the Democratic Republic of Congo, Benchmark Mineral Intelligence analyst Caspar Rawles told a Vancouver conference on April 21. Social and political instability combined with child labour concerns intensify what he calls the “cobalt conundrum,” in which battery manufacturers have no choice but to increase their reliance on DRC resources. That’s his forecast, even as he acknowledges demand for new sources from elsewhere.

The DRC easily dominates global cobalt, with 64% of mined supply according to the most recent Benchmark figures. No more reassuring, China dominates refined supply with 57%. Without significant cobalt reserves of its own, the country holds a prominent position in DRC mining, where the energy ingredient results as a byproduct of copper extraction.

The battery market’s DRC dependency can only grow, says Benchmark

That position expanded this year with the Freeport-McMoRan NYSE:FCX/Lundin Mining TSX:LUN sale of their DRC Tenke Fungurume copper-cobalt mine to China Molybdenum and a Chinese private equity firm. An anticipated and equally geopolitically feckless follow-up would be the American/Canadian JV’s sale of its Finnish cobalt refinery to the same people. By processing Fungurume ore, the facility provides about 10% of the world’s refined supply, Rawles says.

For all the disturbing news coming out of the Congo, “there will be no lithium-ion battery industry without DRC cobalt,” Rawles maintains. “We expect cobalt supply from the DRC to become more dominant in the market, and that’s because of where the large projects are, plus-10,000 tonnes a year.”

Yet by no means is Congo cobalt necessarily conflict cobalt, even when artisanal supply is considered. Some artisanal operations are perfectly legal, he says, while media-reported numbers can be “inflated.”

Tackling the issue presents difficulties, Rawles says. Companies often mine a small part of huge concessions, with no power to prevent the desperately poor from working other parts of the claims. The only people with any such power in the DRC “are the mining police and they just confiscate the material, they don’t take away the problem. It’s a longstanding problem and it’s going to take time to resolve.”

Not surprisingly, “substitution is definitely something that cathode companies are working on,” he points out. Not all cathodes require cobalt, unlike lithium. Even so, he sees about 81% of the market continuing to use cobalt cathodes.

As the Li-ion battery market grows from 70 GWh last year to Benchmark’s estimated 170 GWh in 2020, “cobalt demand will be high but won’t surpass supply.” Beyond 2020, Rawles predicts a deficit growing to 2023, then ending around 2024 or 2025.

“The only thing that can accelerate a reduction in cobalt is supply disruption,” he adds. Critics of DRC President Joseph Kabila attribute the country’s delayed elections to his determination to retain power after 16 years in office. Protests have resulted in scores of fatalities, raising fears of even wider civil unrest.

Another possible impact on supply/demand forecasts could come “if EVs take off even more quickly than we expect.”

The DRC hosts the world’s two big near-term copper-cobalt operations, Glencore’s majority-held Katanga mine and Eurasian Resources Group’s Metalkol Roan Tailings Reclamation project. Rawles expects Katanga to resume production early next year after its 2015 suspension. While the project’s technical report sets annual cobalt capacity at 30,000 tonnes, he expects the early years will probably realize half of that.

There will be demand from certain companies that don’t want to touch DRC cobalt.—Caspar Rawles,
Benchmark Mineral Intelligence

RTR’s slated for 2019 startup, Rawles says. ERG targets an initial 14,000 tonnes of cobalt annually, increasing to 20,000 tonnes over the next three to five years.

So despite “a number of other, smaller projects in the pipeline,” DRC dominance will prevail. Still, Rawles does see opportunity for other sources of cobalt. But new suppliers will have to follow a “value-added strategy,” he argues. They must produce a cobalt chemical that meets a manufacturer’s precise requirements. And the suppliers need to do that without refining their product in China, where it might be blended with conflict supply.

“That’s how they can brand themselves,” he says. “There’s going to be demand for that. Certainly the large supply is going to come from the DRC and if you’re really serious about EVs, that’s where the cobalt’s going to come from. It’s not going to happen without that.”

But, he emphasizes, “there will be demand from certain companies that don’t want to touch DRC cobalt.”

Lithium-ion’s bigger picture

April 25th, 2017

Chris Berry looks beyond exploration and mining to the battery supply chain

by Greg Klein

He dates it to what he calls “lithium’s Big Bang,” the February 2014 announcement of Tesla’s first gigafactory. New investment rejuvenated the juniors, as they set out in search of new supply. But “it’s not just the metals and mining space that’s seen an influx of capital,” Chris Berry points out. As an independent consultant to asset managers, he’s spent a lot of time over the last 18 months “talking to what I call new types of money that are trying to understand the lithium-ion space.”

He brought his perspective to Vancouver on the April 21 stop of the Benchmark Mineral Intelligence World Tour.

Chris Berry looks beyond exploration and mining to the battery supply chain

Although lithium prices continue their ascent, the battery-powered revolution is “really rooted in economics,” explained the president of House Mountain Partners and editor of the Disruptive Discoveries Journal. “I don’t think this technology-driven deflation in battery prices can really be stopped…. Lithium-ion battery prices have fallen 60% in the last three years alone, just since the gigafactory announcement.”

With more battery megafactories coming (Benchmark currently tracks 15 existing or planned projects), he believes price deflation will “continue, perhaps intensify, for the next five to 10 years.”

That can only encourage further electric vehicle sales. And apart from the practical advantages of EVs, driving them is “a really transformative experience. There really is nothing like it,” he maintains.

There’s no questioning future demand for energy minerals, he insists. But there is a question of whether supply “will overshoot or undershoot.”

Even so he sees “a very robust supply chain response” that goes beyond Albemarle NYSE:ALB, FMC NYSE:FMC and SQM NYSE:SQM to include, for example, Intel’s $15-billion takeout of driverless car designer Mobileye, Chinese EV/energy storage manufacturer BYD’s plans to boost its battery production to megafactory stature and Beijing-based search engine giant Baidu’s cash injection into NextEV. “This entire lithium-ion supply chain is continuing to grow, continuing to see huge investment,” Berry emphasized.

“The beauty of it is there are a number of different ways you can gain exposure.” Fund managers and others with deep pockets might compare Albemarle with SQM, but Berry suggested also comparing the “risk/reward paradigm” of such companies with an outfit like Nano One Materials TSXV:NNO, a Vancouver-based company working to transform battery design.

Chris Berry looks beyond exploration and mining to the battery supply chain

Chris Berry: “This entire lithium-ion supply
chain is continuing to grow, continuing
to see huge investment.”

Of course the pace of new development raises questions about operating margins. “Does it make sense to focus on a company like Albemarle that has a 40% EBITDA profit margin?” he asked. “Or does it make sense to go further down the supply chain and think about a company like Panasonic, much different than Albemarle but still heavily invested and involved in the lithium supply chain? The challenge, I would argue, with Panasonic is that they are going to get a tremendous amount of competition from BYD, Tesla and a number of other battery manufacturers. So the profit margin of Panasonic, despite being one of the biggest players in the space, is going to shrink.”

Looking back at lithium exploration and development projects, Berry said different extraction technologies offer miners and would-be miners additional opportunities to leverage themselves to investors.

For all that, one of Berry’s concluding remarks must have taken many attendees by surprise. Benchmark managing director Simon Moores asked why attention so often focuses on lithium and not other battery materials.

Berry’s response? “I would actually be the most optimistic about nickel, cobalt and lithium in that order.” But noting China’s long-term strategy in building supply chains, he added, “The interesting thing about lithium relative to other niche metals is that China doesn’t have a stranglehold on it.”

Nevertheless, he cautioned, about 60% of battery capacity comes from China.

Read about Simon Moores discussing the rise of battery megafactories.

Converging on batteries

April 23rd, 2017

Benchmark sees big investors wakening as three huge sectors chase three vital minerals

by Greg Klein

It’s “a sign of the times that big investors with big money are starting to look at this space in a serious way,” Simon Moores declared. “We’re seeing it with lithium, that’s just starting. And I think we’re going to see it with the other raw materials as well.” To that he attributes the automotive, high-tech and energy sectors for their “convergence of three multi-trillion-dollar industries on batteries.”

Addressing a Vancouver audience on the April 21st inaugural stop of the third annual Benchmark Mineral Intelligence World Tour, he pointed out that cobalt and graphite have yet to match lithium for investors’ attention. But not even lithium has drawn the financing needed to maintain supply over the long term.

Benchmark sees investment lagging as three huge sectors chase three vital minerals

While EVs still lead the battery-powered revolution, energy storage
will become more prominent after 2020, according to Simon Moores.

Back in 2006, batteries accounted for 22% of lithium demand. Ten years later the amount came to 42%. “We believe in 2020, 67% of lithium will be used for batteries.”

What’s now driving the battery market, almost literally, is electric vehicles. Energy storage will play a more prominent role from about 2020 onwards, he maintained.

He sees three cars in particular that should lead the trend: Tesla Model 3, Chevrolet Volt and Nissan Leaf. As consumers turn to pure electric vehicles with battery packs increasing capacity to the 60 to 70 kWh range and beyond, the industry will sell “hundreds of thousands of cars rather than tens of thousands… the era of the semi-mass market for EVs is beginning and it’s beginning now, this year.”

Last year’s lithium-ion market reached 70 GWh, Moores said. Forecasts for 2025 range from Bloomberg’s low of about 300 GWh to Goldman Sachs’ 440 GWh and a “pretty bullish” 530 GWh from Cairn Energy Research Advisors. As for Benchmark, “we’re at the lower end” with a base case of about 407 GWh.

“What does that mean for lithium demand? A lot of raw materials will be needed and the investment in that space is just starting.”

Lithium’s 2016 market came to about 80,000 tonnes. By 2020, demand will call for something like 180,000 to 190,000 tonnes. While battery-grade graphite demand amounted to about 100,000 tonnes last year, “by 2020, that will be just over 200,000 tonnes.” As for battery-grade cobalt, last year’s market came to just under 50,000 tonnes. “By 2020 it’s going to need to get to about 80,000 to 85,000.”

Benchmark sees investment lagging as three huge sectors chase three vital minerals

Simon Moores: “No other mineral
out there has this kind of price profile.”

Investment so far favours lithium but for each of the three commodities, it’s “not enough, not for the long term,” he stressed.

Three years ago only two battery megafactories had been envisioned. Now in operation, under construction or being planned are 15, with the number expected to grow. “That’s going to be needed if we’re ever going to get anywhere near the forecast that everyone’s saying. Not just us, not just Bernstein or Goldman Sachs, everyone is saying significant growth is here but investment is needed.”

But although Tesla gets most of the headlines, “the new lithium-ion industry is a China-centric story.” The vast majority of megafactories are Chinese plants or joint ventures with Chinese entities operating in South Korea or Japan. “The majority of their product goes to China.”

At the end of last month lithium carbonate averaged $12,313 a tonne while lithium hydroxide averaged about $17,000. Spot deals in China, meanwhile, have surpassed $20,000.

That compares with prices between 2005 and 2008 of around $4,000 for lithium carbonate and $4,500 for lithium hydroxide. Only slightly higher were averages for 2010 to 2014. But prices spiked in 2015 and 2016. “Between now and 2020 we believe lithium carbonate will be in and around an average of $13,000 a tonne and lithium hydroxide will be closer to $18,000 a tonne.”

Those long-term averages “are important for people building mines and investing in this space.”

Except for 2010, lithium prices have shown 11 years of increases, corresponding with battery demand. “No other mineral out there has this kind of price profile.”

Moores sees no oversupply or price crash for lithium in the next five years. Spodumene-sourced lithium “will fill the short-term supply deficit and brines will help fill the longer-term supply deficit post-2019 and 2020,” he said. “Both are needed to have a strong, balanced industry in the future.”

Turning to graphite, he noted that batteries had zero effect on the market in 2006. By 2016 they accounted for 16% of demand. By 2020, that number should jump to 35%.

While flake graphite comprises the feedstock for most anode material, “really, the price you should look at is spherical graphite.” That’s fallen lately to about $2,800 a tonne.

Moores foresees better margins for companies producing uncoated spherical graphite. “The people who make the coated will also make good margins, but not as good as in the past. For this reason, and because battery buyers are becoming more powerful and there’s more competition in the space, we believe the coated spherical graphite price will actually fall in the long term average, but will still be between $8,000 and $12,000 a tonne. So there’s very high value and significant demand for this material.”

He also sees natural graphite increasing its anode market share over synthetic graphite. “That’s a cost issue primarily, but there are green issues too.”

Silicon, he added, “will play a part in anodes but it will be an additive, not a replacement.”

Speaking with ResourceClips.com after the event, Moores said Benchmark World Tour attendees differ by city. The Vancouver audience reflected the resource sector, as well as fund managers attracted by BMO Capital Markets’ sponsorship. Tokyo and Seoul events draw battery industry reps. Silicon Valley pulls in high-tech boffins.

This year’s tour currently has 15 cities scheduled with two more under consideration, he noted. That compares with eight locations on the first tour in 2015. Moores attributed the success to Benchmark’s access to pricing and other sensitive info, as well as Benchmark’s site visits. “We go to China and other countries and visit the mines,” he said. “Our travel budget is through the roof. We’re not desktop analysts.”

More critical than ever

April 13th, 2017

The USGS promotes awareness about essential resources and their supply chains

by Greg Klein

Let’s call it Critical Minerals Awareness Month. The U.S. Geological Survey hasn’t actually labelled April that way, but the agency does have a “big push” underway to inform American decision-makers and the general public about the country’s often tenuous hold on commodities vital to the economy and security of that country. Of course those concerns apply to its allies as well.

The USGS promotes public awareness about essential resources and their supply chains

“We decided to do a big push on critical minerals in April largely because we’ve got several big publications coming out on the subject,” USGS public affairs specialist Alex Demas tells ResourceClips.com.

“One of the things we’ve been focusing on is supply chain security, so with the sheer number of mineral commodities that are used in the United States, and the number of them deemed critical, we felt it was important to emphasize where a lot of those mineral resources are coming from and if there are any potential issues in the supply chain, getting them from the source to the United States.”

Computers provide an obvious example, increasing their use from “just 12 elements in the 1980s to as many as 60 by 2006,” points out one recent USGS news release. Smartphones offer another example. Looking back 30 years ago, “‘portable’ phones were the size of a shoebox and consisted of 25 to 30 elements,” states another USGS release. “Today they fit in your pocket or on your wrist and are made from about 75 different elements, almost three-quarters of the periodic table.”

Larry Meinert, USGS deputy associate director for energy and minerals, pointed out some of the sources. “For instance, the industrial sand used to make the quartz in smartphone screens may come from the United States or China, but the potassium added to enhance screen strength could come from Canada, Russia or Belarus. Australia, Chile and Argentina often produce the lithium used in battery cathodes, while the hard-to-come-by tantalum—used in smartphone circuitry—mostly comes from Congo, Rwanda and Brazil.”

That brings an ominous warning. “With minerals being sourced from all over the world, the possibility of supply disruption is more critical than ever.”

The campaign also reveals the agency’s methods for tracking this essential stuff. A USGS-designed early warning system described as “mathematically rigorous and elegant” helps the U.S. Defense Logistics Agency monitor a watch list of about 160 minerals. Not all have been labelled critical, but those so defined can change due to technological development and geopolitical conflict.

The USGS itself tracks something like 90 minerals important to the American economy or security but sourced from about 180 countries. For last year the agency identified 20 minerals on which the U.S. relied entirely on imports and 47 on which the country imported more than half its supply.

Not all the source countries are always best buddies with the West. China supplies most of America’s mined commodities, including 24 of the 47 minerals supplied 51% or more by imports. Among the critical items are rare earth elements, 100% imported, over 90% directly from China and much of the rest through supply chains originating there.

As a supplier, Canada came a distant second, the chief provider of 16 minerals, not all of them critical. Runners-up Mexico, Russia and South Africa were each chief suppliers for eight American mineral imports.

Among the research reports coming soon will be “a compendium of everything the USGS knows about 23 minerals critical to the United States,” Demas says. “It’s going to cover the industry side of things, the reserves, production, shipment, etc. It’s going to cover geology and sustainability. Each chapter on each mineral will have a section on how this can be mined sustainably so we can meet our needs not only today, but also in the future.”

In part the publications target “decision-makers in Congress, as well as the Defense Department and others who use mineral resources,” Demas adds. But he emphasizes the campaign wasn’t motivated by the proposed METALS Act (Materials Essential to American Leadership and Security). Currently before U.S. Congress, the bill calls on government to support domestic resources and supply chains of critical and strategic minerals. On introducing the bill, Rep. Duncan Hunter argued the risk of foreign dependence to national security “is too great and it urgently demands that we re-establish our depleted domestic industrial base.”

As Demas notes, “Since we are a non-regulatory, non-policy agency, we don’t directly influence policy. But we do want policy-makers to have our tools available so they can make the best science-informed decisions.”

And while this month will see special attention to critical minerals, Demas says the subject’s an ongoing concern for the USGS. Some of the reports coming out now will be updates of annual publications.

“We’re really trying to promote the idea that USGS has a lot of really useful information that we put out all the time,” he adds. “This information will hopefully be useful to people when they’re considering where their resources are coming from.”

Follow USGS news here.

Read about the West’s dependence on non-allied countries for critical minerals here and here.

Elements of Power author David S. Abraham contrasts China’s critical commodities strategy with the West’s dependency

April 7th, 2017

…Read more

USGS: Possibility of supply disruption more critical than ever

April 5th, 2017

by Greg Klein | April 5, 2017

USGS: Possibility of supply disruption more critical than ever

Many and various are the sources of smartphone minerals.
(Map: U.S. Geological Survey)

 

In another article warning of foreign dependency, the U.S. Geological Survey uses smartphones as a cautionary example. Looking back 30 years ago, “‘portable’ phones were the size of a shoebox and consisted of 25 to 30 elements,” pointed out Larry Meinert of the USGS. “Today they fit in your pocket or on your wrist and are made from about 75 different elements, almost three-quarters of the periodic table.”

USGS: Possibility of supply disruption more critical than ever

Smartphones now require nearly 75% of the periodic
table of the elements. (Graphic: Jason Burton, USGS)

The increasing sophistication of portable communications results from a “symphony of electronics and chemistry” that includes, for example, “household names like silicon, which is used for circuit boards, or graphite used in batteries. Then there are lesser known substances like bastnasite, monazite and xenotime. These brownish minerals contain neodymium, one of the rare earth elements used in the magnets that allow smartphone speakers to play music and the vibration motor that notifies you of new, funny cat videos on social media,” the USGS stated.

Almost as varied are the sources. “For instance, the industrial sand used to make the quartz in smartphone screens may come from the United States or China, but the potassium added to enhance screen strength could come from Canada, Russia or Belarus. Australia, Chile and Argentina often produce the lithium used in battery cathodes, while the hard-to-come-by tantalum—used in smartphone circuitry—mostly comes from Congo, Rwanda and Brazil.”

Rwanda and the Democratic Republic of Congo are also sources of conflict minerals.

“With minerals being sourced from all over the world, the possibility of supply disruption is more critical than ever,” Meinert emphasized.

The April 4 article follows a previous USGS report on an early warning system used by the U.S. Defense Logistics Agency to monitor supply threats. In January the USGS released a list of 20 minerals for which the country relies entirely on imports. Whether or not by design, the recent awareness campaign coincides with a bill before U.S. Congress calling on government to support the development of domestic deposits and supply chains for critical minerals.

See an illustrated USGS report: A World of Minerals in Your Mobile Device.

Read about the West’s dependence on non-allied countries for critical minerals here and here.

Washington defence lobbyist Jeff Green watches rival Chinese and American assertion in the South China Sea with a sense of déjà vu

March 23rd, 2017

…Read more

U.S. Congress to vote on support for domestic critical materials supply lines

March 9th, 2017

by Greg Klein | March 9, 2017

With an eye to national defence, American lawmakers will decide whether their government should help develop domestic supplies of rare minerals. A Congressional bill introduced March 7, Rep. Duncan Hunter’s proposed METALS Act (Materials Essential to American Leadership and Security) would offer a number of inducements to create supply lines for strategic and critical commodities.

U.S. Congress to vote on support for domestic critical materials supply lines

A “dangerous lapse in the supply chain for strategic and
critical materials” will be examined by the U.S. Congress.

“The U.S. must no longer be wholly dependent on foreign sources of strategic and critical materials,” said Hunter, a veteran of two combat tours in Iraq and one in Afghanistan. “The risk of this dependence on national security is too great and it urgently demands that we re-establish our depleted domestic industrial base.”

Pointing to China’s lockhold on over 90% of global rare earths supply, Hunter argued the U.S. has “ceded” its ability to produce REEs. Following the bankruptcy of the last U.S. rare earths miner, Molycorp “sold a portion of its assets to the Chinese,” said a statement from Hunter’s office. “The mine is now being considered for purchase by a firm with ties to a Russian billionaire.”

As reported by the Wall Street Journal last month, a group including Vladimir Iorich’s Pala Investments has offered US$40 million for Molycorp’s former Mountain Pass mine in California. The METALS Act would prohibit foreign acquisition of American rare earths deposits.

It would also provide five-year interest-free loans for new production or manufacturing techniques involving strategic or critical minerals. Additionally, Washington would reimburse defence programs for higher costs of domestic products. Funding would divert 1% of Department of Defense administration spending, Hunter said.

The act would also bar foreign interests from sourcing American supplies of ammonium perchlorate, a propellant for rockets and missiles. The bill further calls for a study on the viability of using thorium-fuelled nuclear reactors in naval vessels.

Besides encouraging supply chains essential to national security, the bill “supports the U.S. domestic industrial base by aiding domestic investment opportunities,” according to Hunter’s office.

Speaking with ResourceClips.com last month, David S. Abraham expressed skepticism about Hunter’s proposal. “Most bills on critical materials have not passed and his bills usually have the least chance of passing…” said the author of The Elements of Power: Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age. “That’s not to say the U.S. hasn’t given money to metallurgy and mining before, but with the exception of some dabbling in beryllium in the ’90s, I can’t recall a time where the U.S. was really investing in mines from a defence perspective.”

But Washington defence lobbyist Jeff Green told ResourceClips.com of “a totally different dynamic” in circles of power that would be willing to “invest in America to protect our national security and grow our manufacturing base.”

A January report from the U.S. Geological Survey stated the country was wholly dependent on foreign sources for 20 minerals last year, some of them considered critical or strategic “because they are essential to the economy and their supply may be disrupted.”

As of press time Hunter’s office hadn’t responded to an interview request.

Not ready for another shock

March 1st, 2017

Unlike China, the West lacks a rare minerals strategy, warns David S. Abraham

by Greg Klein

Something of an epiphany came to him in 2010 as he watched the aftermath of a minor incident in internationally disputed waters. China’s shock-and-awe response turned its near-monopoly on rare earths into a mighty geopolitical weapon, exposing the perilous nature of our dependence on seemingly obscure commodities. That inspired David S. Abraham’s 2015 book The Elements of Power: Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age. Now, as a similar confrontation threatens to flare up again, he sees the West still unprepared for further attacks on vital supply lines.

Asked whether people in power have at least gained greater awareness, his response is a firm No.

Unlike China, the West lacks a rare minerals strategy, says David S. Abraham

Speaking on the phone from Indonesia, Abraham took time to discuss the issue with ResourceClips.com. The 2010 event, of course, began with the China-Japan territorial dispute in the East China Sea. Late last year American warships entered the South China Sea, in another challenge to China’s claim to sovereignty. Yet compared with previous years, “I think we’re even more vulnerable to shock in our supply lines,” he says.

“If you look at rare earths, in 2010 there were opportunities for new supplies to come onstream quite quickly, and they’ve since failed. People look at that failure and say these places couldn’t compete, they couldn’t produce economically, so they failed.”

China, having pushed up prices exponentially by withholding rare earths, swung to the other extreme and flooded the market. That dashed the hopes of many potential non-Chinese producers yet encouraged complacency among end-users. “But the supply lines themselves really look no different than they did back then,” Abraham cautions.

Of course the problem’s hardly limited to rare earths. Just one example Abraham points to is cobalt and the Democratic Republic of Congo. Estimates of DRC supply range from 51% of the world total (2015 figures from the U.S. Geological Survey), to nearly 60% (Benchmark Mineral Intelligence), to 65% (Disruptive Discoveries Journal). That gives a disproportionate amount of supply not only to a single country, but one plagued with political instability and conflict mining.

Troubling too is the ownership.

Already a major player in the country, China stands to increase its DRC position should China Molybdenum and a Chinese private equity firm succeed in their $3.8-billion purchase of a majority interest in Tenke Fungurume, one of the world’s biggest copper-cobalt mines. With a 20% stake, the DRC state-owned company Gécamines has tried to block the sale but reportedly accepted a $100-million settlement.

What you see China doing is really consolidating up the supply line…. What they’re trying to do is build up their material capacity so other people producing batteries have to use material coming through China.—David S. Abraham

“What you see China doing is really consolidating up the supply line…. What they’re trying to do is build up their material capacity so other people producing batteries have to use material coming through China.”

The country fosters economic growth by “adding to the value chain that they can produce in their own country. It’s a strong economic argument. It’s not dissimilar to what Trump says, but he hasn’t really gone into the deep thinking that’s happening in China.”

Certainly, China’s strategic approach contrasts with the West. That’s suggested by the example of Tenke Fungurume’s would-be vendors, the American/Canadian team of Freeport-McMoRan NYSE:FCX and Lundin Mining TSX:LUN.

“For those companies, it’s about profits,” Abraham acknowledges. “The question is, what are the technology companies thinking about? Companies like Apple are trying to do a better job of understanding where their materials come from, but some of the others are less concerned.”

With the U.S. military in mind, Rep. Duncan Hunter is anticipated to propose a congressional bill that would help develop domestic supplies of rare minerals.

Abraham’s skeptical. “Most bills on critical materials have not passed and his bills usually have the least chance of passing…. That’s not to say the U.S. hasn’t given money to metallurgy and mining before, but with the exception of some dabbling in beryllium in the ’90s, I can’t recall a time where the U.S. was really investing in mines from a defence perspective.”

If decision-makers lack awareness, they’re not alone, he believes. Abraham sees little evidence that consumers understand the issues. “People talk about being concerned about where these materials come from but they really have to understand the challenging supply lines, and that’s what the book was trying to introduce people to,” he says. “It’s still a little too complex to fathom and I don’t think people think beyond ‘my phone causes conflict in Congo’ and get to the point that ‘my phone leads to geopolitical war.’”

If so, that makes The Elements of Power as timely now as it was in 2015. A paperback edition comes out in April.

In concluding the phone call, Abraham offers a maxim: “Nothing changes very fast. Then everything changes all of a sudden.”