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"Price may not be as important as security of
supply," says Jack Lifton, an independent
consultant with more than 45 years of experience in sourcing nonferrous
strategic metals. In the U.S., our dependence on rare metals is undermined by
the simple fact that we're not producing any. Given that China now controls
95% of these 'technology metals' and the world is projected to eat 200,000
tons of rare earth metals near 2015, Jack tells The Gold Report we need to jumpstart our own
domestic supply chain and, more importantly, build the refineries to process
them—rather than sending them to China for refining, which is our only
option currently.
The
Gold Report: Jack, we hear you're starting on a documentary,
"On the Green Road." Tell us a bit about it, and what you mean by
"Green Road."
Jack Lifton: I came up with that title because
no matter what the attitude of the individual is towards being
"green," there really isn't any other path for us now. My proposed
documentary "On the Green Road" will follow the path that a rare
earth metal takes from the mine to the market, so that the consumer can see
the necessary steps required to make the technological devices upon which our
quality of life depends. If the Green Road is the path to the future we need
to get on it and stay on it right now.
Six
hundred million people in the Western world are enjoying a life increasingly
dominated by technology that we don't understand. In particular, we don't
understand how it is made. What I see in America is a reluctance to admit
that the green road starts in the black earth. We have to mine and refine the
minerals and metals into forms which can then be fabricated into forms which
can then be made into parts which can then be assembled into the technology
devices we use to conserve energy. Everything starts at the mine or at the
oil or gas well.
In the
West, electronic devices using electricity produced by a huge network of
generating devices control our transportation, communication, and our environment.
We've got a grid that we talk about as if we understand it, but it's an
extremely complicated system. We ignore the fact that we produce and
distribute oil and its by-products, metals and their compounds and alloys.
Nobody pays attention to that. All we do is say we've got to stop doing this
and stop doing that. We have to start educating everyone as to how a metal
becomes a radio or how a metal becomes a battery, how a battery propels a
car.
TGR: I heard you
speak recently at the Hard Assets Conference about supply issues in terms of
expanding wind and solar technologies. Can you explain some of those supply
constraints?
JL: Yes. In the
United States, Canada, and Western Europe we are consuming most of the
supplies of the technology metals. Now we're facing six billion people in the
rest of the world whose standard of living is growing rapidly and we do not
have ten times the amount of materials used to create the good life in the
West to create the same standard of living for the entire world.
I don't
mean to be a doomsayer, but if the Chinese government wants its own people to
have the standard of living that people in Los Angeles have today, it's going
to mean that China must use all of its own natural resources to improve its
standard of living and its quality of life, which will mean that our standard
of living will have to decline. Why? Because there are some
materials—for example, the rare earths—that China controls 100%
of the supply of today. And as China's economy is growing, China is requiring
more and more of these materials for its own domestic economy.
Ten years
ago China exported 75% of its production of rare earth metals to the rest of
the world. Today it exports less than 25%, even though the production in the
last 10 years has more than doubled. So that should tell you what's going on
here. This is not a conflict. This is economic reality.
Now I'm
using the rare earths as an example of something I think is very much
misunderstood in the West. The rare earth metals were originally discovered
in Europe and originally produced commercially en masse in California. The
largest rare earth deposit in the world of its kind was discovered in
California in 1947. It was put into production and by 1984 that site,
Mountain Pass, California, near the Nevada border on M-15, was producing 35%
of the world's rare earth metals and 100% of the domestic needs of those
metals here in the U.S. That was 25 years ago. Today that mine is producing
nothing and approximately 95% of the rare earth metals are today produced in
the People's Republic of China. The United States imports all its rare earth
metals from the People's Republic of China.
Why?
Because between 1984 and 2009, Chinese production of those metals ramped up
to the point where the Chinese decided to lower the price so that they could
sell more metals so they could mine more metal and employ more people. They
basically were able to sell these metals into the market, including to the
United States, at a price less than the cost of producing it in California.
Well, if you believe in a global economy, then you say, that's how capitalism
works.
There are
now other issues arising besides price, which is what shut down the Mountain
Pass mines. Price may not be as important as security of supply. Do we really
need rare earth metals to maintain our style of life? We cannot force the
Chinese to sell them to us. The Chinese have an internal priority to develop
their domestic economy. China's issue is the need of the Chinese economy to
grow and to improve the quality and style of life of the Chinese people. We
have become so dependent on rare metals in general and rare earth metals in
particular in our technological economy and at the same time we've simply
ignored the fact that we are not producing them in the West.
TGR: Doesn't the
U.S. have plenty of metals? Why aren't we supplying more of what we need?
JL: The United
States has the largest distribution of different metals and minerals of any
country in the world. The National Mining Association, on their website, nma.org, shows that we have 76 minerals and metals in the United States in
sufficient quantity to supply our needs. However, in the last 10 years we
have lost our self-sufficiency in between 14 and 25 metals and minerals. Not
that we don't have them, but that we don't produce them.
The
reason for this is that we have been going global in our economic outlook.
For example, Chile produces 25% of the world's copper. Well, the United
States was always self-sufficient in copper. Now we're not. Now we're
beginning to import copper because it's cheaper to buy Chilean copper than to
keep mining more of it in Utah. The U.S. was always self-sufficient in iron.
Today we import 30% of our iron ore to make steel here because it's been, up
till this moment, cheaper for us to do this than to produce it here. But now
something new is happening. The demand in the rest of the world is increasing
at such a rate that the United States must, for the first time in its
history, compete.
We need
to produce wealth here and not just consume it. One way we can produce wealth
is by reactivating, for example, the rare earth mines we have and by starting
new ones in the United States and North America. If we don't start producing
our own critical and strategic metals and minerals, we're going to find that
our industry, and anything we want that uses those materials, will be made in
other places such as China. We'll be at the mercy of those economies as to
whether they have a surplus to ship us. China is a dynamic growing economy,
which has four times as many people as we do and maybe 20% of our GDP. So, on
average, they're way behind us, but they're growing and they are consuming
their own production of energy, minerals, and metals and they do not believe
that they must export those things to us, either as raw materials or finished
goods if there's a Chinese demand for them and they're trying to increase
Chinese demand.
TGR: So North
America, the U.S. in particular, has a wealth of these minerals within their
own borders. When does the price either get to the point that you get miners
who now say, hey, I can make money by mining these rare earths here or the
government comes in and decides they're going to subsidize the exploration
and the initial development of these mines?
JL: I don't know.
I'll tell you what the real problem in the United States is. These industries
are too small to return a profit in a short time. In other words, if you look
at a rare earth mining opportunity in the U.S. like Molycorp, or a newly named company, U.S. Rare Earths (both privately owned), you have to think, well,
it'll cost how much to develop the mine and how much does the product sell
for. If you want a return on your investment in one, two, or three years,
mining isn't the place for you. So, yes, in order to get mining going, the
government has to subsidize it. That's absolutely correct. Or you have to
assemble something new in the United States, which is a vertically integrated
company.
TGR: At the
conference there were companies claiming to be either producing or almost
ready to produce these rare earth metals. Will that solve the supply issue?
JL: The problem is
it'll solve the issue of the first step in the supply chain. We'll have the
mines in North America producing the concentrates we need. But those
materials then need to be refined and purified into the pure metals. Then
those metals need to be made into fabricated forms that people who make
magnets, electronics, cars, and batteries can use. Then those devices have to
be made from them and put into products that ultimately wind up in your
driveway, in your drawer, in your purse, in your pocket. The problem is we
have yawning gaps in that supply chain in the U.S. The fact is if we were
producing rare earth metals in North America today, those ore concentrates
would go to China for refining. We do not have any refining capability in the
United States today. It's all been shut down.
TGR: So these
companies who are mining this will not be able to refine it?
JL: That's right.
Those companies, in the tradition of mining, have a plan to dig up the ore,
remove everything but the mineral—that's called
concentrating—then in the case of rare earths, they'll probably
separate those minerals into the constituent forms of the individual metals,
the oxides or whatever end form. And then they stop.
Now the
next step is to take those individual metal concentrates and make them into
metals. Let's say we're talking about neodymium. We take the neodymium. It
will come from the mine in the form of an oxide. You make it into neodymium
metal. That's usually one company. And then another company will make special
alloys of neodymium iron and boron, for example, to make magnets. What that
company will do is they'll supply it to a magnet maker. The magnet maker will
do their work on it and make it into a magnet. The magnet will then go to a
generator producer or a motor producer or a speaker producer or computer hard
drive producer and they'll use the magnet as a critical part of some end use
product, which will then end up in the shop that you'll buy it from. That
includes a car, a computer hard drive, a laser, things
like that. What we don't have in America are any of the steps beyond
concentrating the ore. That's the problem.
TGR: So, at this
point we aren't concentrating the ore because we're not currently producing
rare earths?
JL: That is
correct. We are not currently in North America producing any rare earth ore
at all.
TGR: So having the
capabilities to refine if there's no production here is somewhat irrelevant.
JL: We have one
refinery running at this point, which is Mountain Pass, California. It's
still working off concentrates last produced in 2002 and they restarted the
refinery. Mountain Pass is producing two tons of neodymium praseodymium every
day, which is a commercial form that needs further work and, also, four tons of
lanthanum. Both of those products are produced as oxides and those materials
go to their customers, one of which is in Japan and the other one they didn't
state. Let's put it this way. Nobody in the United States today has the
capability of taking those materials and making the pure metals from them. So
that is today almost entirely done in China.
TGR: Would Mountain
Pass have the ability to either scale up what they're doing now?
JL: Yes, but it
will take years and a lot of money. Mountain Pass—it's Molycorp—has announced that they plan to produce
the metals when they resume mining, but they need to build a rare earth metal
refinery and get it going. So we're talking about a lot of money and a lot of
years because no one in the United States has made those metals for some
time. We have people here with the skills, but there's been no demand for it
because China now dominates this.
This is
why I'm saying you can view success as bringing ore out of the mine,
concentrating it and separating it into its individual materials, and the
next step is refining that material. One of the biggest problems I have with
the mining industry is they don't plan ahead. They don't have a marketing
plan.
When I
look at a business model for a mining venture, especially in something like
rare earths, I look for a mine-to-market venture such as Great Western Minerals Group
(GWMG) has. Great Western owns a magnet alloy producer in Great Britain
called Less Common Metals Ltd. of Birkenhead, U.K. When I say magnet alloy,
they make neodymium iron boron, they make samarium cobalt. Those forms, those
base alloys go to people who make magnets. Some of it goes back to China.
Some of it goes to the U.S. Some of it goes to Europe. But they're the only
vertically integrated rare earth miner that I'm aware of outside of China. So
when they start producing, they are planning to build a refinery next to the
mine at the same time that they're developing the mine. The goods from that
operation will go to a metal producer, which will be theirs, probably in the
U.K. Then their U.K. operation will produce magnet alloy, which then goes to
magnet makers. Having control of just those steps in the supply chain gives
Great Western on paper enough margin, enough profit from producing the metals
to show an excellent return on investment. The bankers I've talked to and
institutional investors are thrilled with this model.
I am not
saying that Great Western can supply the world's needs. I'm saying in my
opinion, they'll be the first rare earth producer outside of China to produce
heavy rare earths economically. That means that because of what they can do,
they hope to be able to produce total rare earth production of 2,500 tons, I think,
in three or four years and then maybe 5,000 tons a year after that. In a
world that is projected to eat 200,000 tons of rare earth metals by 2015, you
can see that's not a lot. But it'll be disproportionally high in the heavy
rare earths and they'll be able to sell everything they're mining. They can't
produce any more than that. That's what they've got. Because they're going to
be the first past the post, they will get a lot of attention and they'll
probably get financing. But, more important than that, that's going to make
it easier for the other companies that can produce much more to get into the
market.
I think
the second producer will be Avalon Rare Metals (TSX:AVL), which by sheer volume in size, swamps Great
Western. Keep in mind that Great Western's product is not going to be rare
earths. It's going to be magnet alloy and Avalon can't compete with that.
Avalon is going to produce huge quantities of rare earths ultimately. They
have one of the largest if not the largest rare earth ore body on earth in
Canada. But they won't be the first to produce. Once Great Western is
producing and once the supply chain is reinvigorated in North America, that's
going to bring all of these other guys and you're going to have in the next
10 years, in my opinion, four to six producers of rare earths in North
America and no more than that. Maybe there's 85
companies, but you're going to have just four to six produce.
TGR: So you say there
are four to six producers of rare earth in the next four to five years.
You've mentioned Great Western, Avalon. Who else is teeing up to get into
that production place?
JL: There's Molycorp. There's Lynas Corporation (LYSCF:US) . I would say there's a good shot for the company
U.S. Rare Earths (which I mentioned earlier) in Idaho, Colorado, and Montana.
Please note I consult for U.S. Rare Earths. I've been looking at those deposits
for several years. They're very nice deposits. It's a junior. It's just now
they're trying to raise money to do a pre-feasibility study. So it's very
early on. U.S. Rare Earths is a player in the long term because of the
accessibility and size of its deposits. But in our immediate time frame, it's
Great Western, Avalon, Molycorp, Lynas. That's it. Quite frankly,
Molycorp is really a restart. Molycorp's
mine holds the record. It was the world's largest producer of rare earths,
20,000 tons a year in, I believe, 1984. No mine today existing or projected
has ever approached that output. China's production of 124,000 tons comes
from 40 mines, the biggest of which I think is
10,000 tons. Molycorp is a huge deposit. It's 9.5%
ore, 30 to 50 million tons.
TGR: How much of
that deposit remains after being extracted for so many years?
JL: About 99%.
They have just touched the surface of that; it's so huge. Molycorp's
distribution of rare earths maximizes cerium, lanthanum, neodymium, the so-called light rare earths. But in order to make
modern technology devices that operate at high temperatures, we need the
heavy rare earths, dysprosium, terbium, europium.
The Canadian deposits are disproportionately rich in the heavy rare earths. I
don't mean that they're running over with it; whereas, in Molycorp,
basically, dysprosium and terbium are non-existent.
In Avalon
and Great Western deposits in Canada you have as much as one or 2% of the
total rare earths would be the heavy rare earths, which is very, very high.
Great Western has one mine where the heavy rare earths make up 8% of the
total. It must be the richest heavy rare earth mine in the world. It's a
small ore body, but it can be produced. The point is we need an American
producer like a Molycorp or a U.S. Rare Earths and
we need a Canadian producer or we need the Australian Lynas,
which also is only in the light rare earths and a Canadian producer. We need
these kinds of combinations.
I have
been doing due diligence consulting for Canadian institutional investors, and
I can tell you that they are only waiting for the production of the rare
earths to begin at either Great Western or Avalon to support them
substantially. I always say to a banker, would you guys please buy Avalon and
Great Western and Molycorp and make one company and
they say to me, yeah, we will as soon as somebody starts producing. And
they're not joking. It's logic.
TGR: Jack, is the
supply situation with lithium similar?
JL: It's actually
quite different. The world is in over-supply of lithium because the hype on
lithium was much more than the demand. So there is no shortage of lithium.
The problem is that the six largest producers of lithium today are telling us
if we want more lithium, we have to pay. They will not use their capital to massively
increase the output of lithium when there's no demand. That's foolish.
TGR: What about
tantalum?
JL: The amount of
tantalum sold in this world is tiny; there's no market in tantalum. Here's
what I'm predicting is going to happen. Those end user companies for which
the rare metals are critical are going to create a virtual hedge market.
Today you can only hedge materials that are exchange traded with transparent
prices, so you have to create a virtual hedge for the rare metals. But if
Honeywell were to say to Commerce Resources Corp.
(TSX.V:CCE) (PKSHEETS:CMRZF) we'll buy $250 million worth of tantalum from you
for delivery from 2015 to 2020 and here's our guarantee of payment, Commerce
then goes to Toronto Dominion and says, look, we've got this. Toronto
Dominion says we could discount that for you right now. How about if we give
you a facility of $225 million and you start building that mine?
I don't
know if it's going to happen in the tantalum industry, but it's going to
happen in one of these industries sometime in the next 12 months. Some big
company is going to say we've decided to take a risk. So if the U.S.
government says, for example, we'll cover you—in other words, the
Defense Department is going to give you the order for the machines from 2014
to 2020 and it guarantees payment, then you issue your guarantee on the off-
take, the bankers are willing to work with that and so is the Congress. I've
been involved in these discussions already. We need to get this done. In
other words, off-takes are a great way to get buy-ins kick started. It
wouldn't surprise me if something like that happened with Commerce Resources,
or Molycorp, or Great Western.
TGR: Jack, this has
been great. Any closing comments?
JL: We need to
safeguard our future. I'm not saying take the future back, beat the Chinese.
We can't do that. We need to safeguard our standard of living, not our
lifestyle; our standard of living. If we don't stop the outflow of our wealth
to overseas, we're going to decline and we can see it already. We now have to
adapt and understand the Chinese are doing it right; we're doing it wrong. We
have to do long-term thinking, secure our supplies of raw materials, maintain high productivity and efficiency. Otherwise,
we're just going to be stop on the world economic train.
Jack Lifton is an independent consultant, focusing on the
sourcing of nonferrous strategic metals. (View videos featuring Lifton
on strategic metals.) His work includes exploration and mining, and the
recovery of metal values by the recycling of not only metals and their alloys
but also of metal-based chemicals used as raw materials for component manufacturing.
Mr. Lifton has more than 45 years of experience in
the global OEM automotive, heavy equipment, electrical and electronic,
mining, smelting and refining industries. His background includes the
sourcing, manufacturing and sales of platinum group metal products, rare
earth compounds and ceramic specialties used to make catalytic converters,
oxygen sensors, batteries and fuel cells. He is knowledgeable in locating and
analyzing new and recycled supplies of "minor metals," including
tellurium, selenium, indium, gallium, silicon, germanium, molybdenum,
tungsten, manganese, chromium and the rare earth metals.
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