Rare Earth Minerals | Green World Investor

Are Molycorp,REE Stocks in Trouble as 100 Billion Tons of Rare Earth Minerals found beneath Pacific by Japanese

4 Jul, 2011

Uncategorized

Japan has been frantically searching for Rare Earth Deposits in the surrounding sea floor,Vietnam,Mongolia and India after China imposed an unofficial embargo on the exports of Rare Earth Minerals to Japan following a fishing incident.Note Japan is totally dependent on imports from China given that it has little or no reserves.Japanese AutoMajors like Toyota,Nissan and others require high amounts of these minerals in the manufacture of Electric Vehicles.The sharp lowering of Export Quotas has already thrown the plans of the Green and Auto Companies in doldrums.This incident led to a massive frenzy in rare earth stocks like Molycorp,Lynas,Avalon and others which were lying dormant after years of Chinese underpricing had made many of them unviable.As the prices of rare earth minerals like yttrium increased by 4-5x in a matter of months,the stocks of rare earth minerals went hyperbolic.

Japan Efforts start Paying Off

Japan has been looking to develop mines in Vietnam and Kazakhstan to secure these minerals which are essential to the green and defense industries.The desperation seems high amongst the Japanese as they are also looking to prospect for these minerals in the seas surrounding Japan.Besides these efforts to secure these minerals from newer sources,METI is also looking to recycling and efficiency measures.A University of Tokyo geologist has said that around 100 billion of rare earth deposits have been discovered on the sea floor of the Pacific in international waters.Note around 100-150,000 tons of rare earth minerals are used per year which would imply that just using this deposit would keep the global rare earth demand supplied for 10,000 years.The discovery is said to have a higher concentrate of Rare Earth Minerals in the Ores and there is a large amount of Heavy Rare Earth Minerals which are much scarcer and costlier than the lighter Rare Earth Minerals.

Economic Viability the Key Question

The strongest reason for the rally in REE companies like Molycorp has been the future gap in demand supply.However with the discovery of this huge deposit means that the scarcity factor is no longer valid.Extracting these REE might make it economically infeasible in the short term as the technology for mining underwater is not mature enough and the huge costs might not justify the efforts.But the whole bull argument of peak REE goes for a toss.I think some sanity would return to the Rare Earth Sector and the stocks might start being valued in more realistic earnings terms rather than a speculative play.

Huge rare earth deposits found in Pacific: Japan experts

They found the minerals in sea mud extracted from depths of 3,500 to 6,000 meters (11,500-20,000 ft) below the ocean surface at 78 locations. One-third of the sites yielded rich contents of rare earths and the metal yttrium, Kato said in a telephone interview.

The deposits are in international waters in an area stretching east and west of Hawaii, as well as east of Tahiti in French Polynesia, he said.He estimated rare earths contained in the deposits amounted to 80 to 100 billion metric tons, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States.

Metal Recycling Importance increasing with Green credentials, Peak Everything and Rising Prices (Metallum,CMA)

30 Jun, 2011

Green Investing

Metal Recycling importance has increased dramatically in recent times highlighted by the rare earth metals embargo imposed on Japan by China following a fishing incident.With global population increasing and per capita consumption rising,global commodity prices have increased dramatically in the recent decade.According to Jeremy Grantham we have entered a new age of scarcity and we are seeing it already in the form of rising prices.With prices of metals touching new highs,recycling has assumed increasing importance.The Japanese companies have already starting researching on increasing the recycling of rare earth metals.With prices of copper,silver and other metals touching new highs,recycling technology has become more valuable.Hitachi is looking to increase the amount of Rare Earth Supply through new recycling technologies.Showa Denko another major REE consumer is also looking towards recycling in Vietnam to secure the supply of Rare Earth Metals.Japan’s government and its giant conglomerates have massively increased their efforts in new process and sources for Rare Earth after the Chinese shock.

Global Commodity Parabolic Price Rise Bubble or Real- Is it Really Different This Time

Grantham has made a famous call that the rise in commodities is not a cyclical phenomenon but a secular long term one.He says that the rise in commodity prices is different from the past.Note Grantham has done an extensive study of bubbles and is one of the leading minds in the investment community.While every time in the past,the statement “this time is different” has led to a crash,Grantham’s call cannot be taken lightly.He says that the rise in population,shortage of resources,the growing consumption power of massive chunks of prosperous citizens in India and China will lead to a continued surge.Note commodity prices have declined secularly in the last century and since 2000 have managed to erase all their losses to form new peaks.Grantham also says there is a possibility of a massive short term decline which will give a historic opportunity to load on commodities.Jim Rogers is the most famous commodity bull and now Grantham has joined him

This has started to make smart money increasingly interested in metal recycles.KKR the leading PE firm has made a $95 million dollar bet acquiring a leading metal recycler CMA. First Reserve followed suit soon afterwards with a 10 time bigger bet buying Metallum.Note e-waste recycling has become a highly profitable business as well both due to increasing government regulation and rising realizations from the useful products like gold,silver,copper extracted after recycling.Recycling is a Green alternative to extracting metal from mining as it uses less money,effort,energy reducing GHG emissions.

More private equity firms to target scrap metal

In April, First Reserve Corporation squeezed into the tight copper market through its 670 million euro ($968.8 million) acquisition of Europe-based metal refining and recycling company Metallum.Just before that, Kohlberg Kravis Roberts & Co invested about $95.0 million through its KKR Asset Management unit ( KAM) in Australian metal recycling group CMA Corp Ltd.

China puts Quotas on Production of tungsten,iron,rare earth,antimony and molybdenum in National Interest

25 Apr, 2011

China,Electric Vehicles,Japan,Renewable Energy

China has recently put increased scrutiny and control over the mining,smelting and export of important minerals like tungsten and rare earth oxides.Note mining in China often takes place illegaly without any regard to environment in quest for a quick buck.Japan which is the largest importer of rare earth oxides from China gets most of its demand met through illegal mining.However China has cracked down on this practise as it regards these minerals like tungsten,iron,rare earth,antimony and molybdenum as important for national goals.China has severely curtailed the exports of rare earth exports leading to a sharp rise in rare earth prices and stocks of rare earth companies.This has sparked concern in developed countries and blocks like EU,Japan and USA which has taken the case to the WTO.

China also used the rare exports as a blunt foreign policy weapon in its recent spat with Japan over a sea incident.This caused much concern in Japan whose hitech industries like Electric Vehicles,Optics,Electronics are heavily dependent on these crucial raw materials.China has decided to stop issuing new licenses for mining of these minerals though the production quota has been raised by 5-15% (exports are a different matter).The mining will be heavily regulated with only specific companies allowed to mine tungsten,iron,rare earth,antimony and molybdenum.MIIT,NRDC and the Ministry of Land and Resources will track the production and exports of these minerals.

China caps rare metals output, raises mandatory quota

China, world’s largest exporter of rare earth metals has raised the mandatory quota for the production and smelting of five minerals this year, said the Ministry of Industry and Information Technology (MIIT).

The quota, set by the MIIT, the National Development and Reform Commission and the Ministry of Land and Resources, allocates the maximum quantity of the production and smelting of tungsten, tin, antimony, molybdenum and rare earth ores in 25 provinces or autonomous regions, the ministry said in a statement today. Only those enterprises that meet the requirements of national industrial and management policies can get the quota from local governments’ supervisory departments and “no extra quota or production beyond the limit will be allowed,”it said. According to it, the output control target for tungsten concentrates was 87,000 tonnes this year, up 8.75 per cent from last year’s 80,000 tonnes. The output quota for tin ores rose 12.3 per cent to 73,000 tonnes from 65,000 tonnes in 2010. The maximum output limit for antimony concentrates was 105,000 tonnes, compared to 100,000 tonnes last year. The production quota for molybdenum concentrates was 200,000 tonnes, up from last year’s 185,000 tonnes.

India’s Mining Industry controlled by handful of Mining Companies (Vedanta,Hindalco,NMDC,CIL) – India’s Mineral Production, Policies and Issues

22 Apr, 2011

Uncategorized

Mining Industry in India is an important economic sector which contributes significantly to the economy of India. India’s minerals range from both metallic and non-metallic types.The total working mines were 2,854 in 2007-08 with 569 mines belonged to coal and lignite, 676 mines to metallic minerals and 1,609 mines to non-metallic minerals.There were 755 mines in public sector and the remaining 2,099 mines in private sector.India is an important exporter of iron ore, titanium, manganese, bauxite, granite, and imports cobalt, mercury, graphite etc. India mineral resources of the country are surveyed by the Indian Ministry of Mines, which also regulates the manner in which these resources are used. The ministry oversees the various aspects of industrial mining in the country.Note Mining in India comes under both the ferderal and state supervision.Coal Mining Companies in India are almost exclusively government owned because of the government coal mines nationalization act in the 1970s.

Mineral Production of India

The total value of mineral production (excluding atomic minerals) was around $25 billion during 2007-08 .In the total value of mineral production, the fuel minerals contributed the major share of Rs.70,336 crore or 61%. The rest was accrued from metallic minerals Rs. 24,038 crore or 21 %, nonmetallic minerals Rs. 3,446 crore or 3% and minor
minerals Rs.16,695 crore or 15% (source India Bureau of Mines)

Fuel Minerals

The value of fuel minerals in 2007-08 at Rs. 70,336 crore.The production of coal at 457 million tonnes,lignite at 34 million tonnes,petroleum (crude) at 34 million tonnes and natural gas (utilised) at 32,274 m cu m

Metallic Minerals

Among the principal metallic minerals, iron ore contributed Rs. 18,495 crore or 77%, chromite Rs. 2,020 crore or 8%, manganese ore Rs. 1,098 crore or 5%, lead (concentrate) & zinc (concentrate) Rs. 1,080 crore or 4%, bauxite Rs. 526 crore and copper (concentrate) Rs. 383 crore or about 2% each, gold Rs. 283 crore or 1%, while the remaining was jointly shared by silver and tin concentrates. The production of iron ore at about 206.45 million tonnes,Manganese Ore was 2.6 million tons,Gold only 2.8 tons,Bauxite 23.1 million tons,Chromite 4.8 million tons and Copper concentrate at 159 thousand tons.

Mining Reserves of India

India has significant sources of coal (fourth-largest reserves in the world), bauxite, titanium ore, chromite, natural gas, diamonds, and limestone. India ranks 3rd in production of coal & lignite, 2nd in barites, 4th in iron ore, 5th in bauxite and crude steel, 7th in manganese ore and 8th in aluminum (source Wikipedia).In India, 80 per cent of mining is in coal and the balance 20 per cent is in various metals and other raw materials such as gold, copper, iron, lead, bauxite, zinc and uranium.

Mining Industry in India Issues

One of the most challenging issues in India’s mining sector is the lack of assessment of India’s natural resources. A number of areas remain unexplored and the mineral resources in these areas are yet to be assessed. The distribution of minerals in the areas known is uneven and varies drastically from one region to another. The accidents in mining are caused both by man-made and natural phenomenon, for example explosions and flooding. The main causes for incidents resulting in serious injury or death are roof fall, vehicular accidents, falling/slipping and hauling related incidents. In recent decades, mining industry has been facing issues of large scale displacements, resistance of locals, environmental issues like pollution, corruption, deforestation, dangers to animal habitats.

India Mining Policies

The Government of India has enunciated National Mineral Policy, 2008 which includes policy measures like assured right to next stage mineral concession, transferability of mineral concessions and transparency in allotment of concessions New Exploration Licensing Policy (NELP)-VIII was announced by the Government of India in 2009 offering 70 oil and gas blocks covering a sedimentary area of about 163,535 sq km comprising 24 deep water, 28 shallow water and 18 on-land blocks

MINING COMPANIES

Privately owned Indian Mining Companies

Hindalco Industries Ltd. – With a market cap of Rs.29,000 crores, revenue Rs.5,900 crores & NPM 7.7% (Dec’10), Hindalco Industries is an industry leader in aluminium and copper. The metals flagship company of the Aditya Birla Group is the world’s largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia. Its copper smelter is the world’s largest custom smelter at a single location. It is a metals powerhouse with high-end rolling capabilities and has a global presence in 12 countries. The company’s copper unit, Birla Copper, produces copper cathodes, continuous cast copper rods and other by-products, such as gold, silver and DAP fertilisers. Birla Copper also produces precious metals, fertilisers and sulphuric and phosphoric acid. Hindalco’s major products include standard and speciality grade aluminas and hydrates, aluminium ingots, billets, wire rods, flat rolled products, extrusions and foil.

In 2007, Hindalco Industries Limited acquired Novelis (a spin-off from Alcan Inc). Novelis Inc. is the world’s leading aluminium rolled products producer based on shipment volume. The company produces an estimated 19 per cent of the world’s flat-rolled aluminium products and is the number one producer in Europe and South America, and the second largest in North America and Asia. Novelis is also the world leader in the recycling of used aluminium beverage cans. Hindalco Industries Ltd, also owns 51% of Aditya Birla Minerals Ltd. Hindalco-Almex Aerospace Limited (HAAL) is a joint venture between Hindalco Industries Limited and Almex USA Incorporated. The company manufactures high-strength aluminium alloys for applications in the aerospace, sporting goods and surface transport industries. Hindalco holds 70% equity while the balance 30% is held by Almex.

VEDANTA GROUP COMPANIES

Vedanta Resources – It is an LSE-listed diversified FTSE 100 metals and mining company, and India’s largest non-ferrous metals and mining company based on revenues. There are other operations in Zambia and Australia. Vedanta Resources is engaged in copper, zinc, aluminium and iron ore businesses, and are also developing a commercial power generation business. There has been a significant growth in recent years. Revenue from the businesses increased from $3,701.8 million in 2006 to $7,930.5 million in 2010. The acquisition of Sesa Goa (51% of ownership) in 2007 marked the entrance in the iron ore business. Sesa Goa is engaged in the exploration, mining and processing of iron ore. The Indian copper business of Vedanta Resources is principally one of custom smelting and is operated by Sterlite (54% of share capital). The zinc business is owned and operated by Hindustan Zinc Ltd, India’s leading zinc producer. Sterlite owns 64.9% of the share capital of HZL. The aluminium business is primarily owned and operated by BALCO. Sterlite owns 51% of the share capital of BALCO. Vedanta Aluminium also contribute to the aluminium business. The company owns 70.5% of the share capital of Vedanta Aluminium, with Sterlite owning the remaining 29.5%.Note Vedanta recently entered India’s Oil and Gas Business through its intention of acquiring India’s second largest private listed company Cairn India though it still is awaiting for a government clearance.Vedanta which is India’s biggest Mining Company recently ran into a major controversy for violating environmental,forest and tribal laws at a mine in Niyamgiri hills in the mineral rich poor state of Orissa.The mining permit was cancelled despite strong support from the provincial government.Note a number of top investment funds have sold all their Vedanta shares on ethical concerns.
Sesa Goa Ltd. – It is India’s largest producer and exporter of iron ore in the private sector and is on course to be in the league of top four iron ore producing companies in the World. Apart from Iron ore it also produces pig iron and metallurgical coke. It has a market capitalisation of Rs.12,000 crores, revenue 0f Rs.1,700 crores & NPM of 49% (Dec’10). Sesa Goa Ltd was acquired by the Vedanta Resources in 2007, which owns 51% of the company. It was India’s largest producer-exporter of iron ore in the private sector by volume in 2007, according to the Federation of Indian Mineral Industries.
Sterlite Industries (India) Ltd. – Another Vedanta Group company with a market cap of Rs.27,000 crores, revenues of Rs.4,000 crores & NPM 7% (Dec’10), Sterlite Industries is one of the fastest growing private sector companies. It is India’s largest non-ferrous metals and mining company and is listed on the BSE and NSE in India. It is the First Indian Metals & Mining Company to list on the New York Stock Exchange. The primary business consists of Aluminum, Copper, Zinc, Lead and Commercial Energy. The Indian copper business of Vedanta Resources is operated by Sterlite. The Vedanta resources owns 54% of Sterlite Industries’ share capital. Sterlite was India’s largest metals and mining company based on net sales in 2008.
Hindustan Zinc - India’s leading zinc producer with a 79.7% market share by volume of the Indian zinc market in 2008, according to the Indian Lead Zinc Development Association & world’s second largest integrated producer of zinc & lead, with a global share of approximately 6% in zinc. Hindustan Zinc is an integrated mining and resources producer of zinc, lead, silver and cadmium, with a market capitalisation of Rs.64,000 crores, revenues of Rs.3,000 crores & net profit margin of 54% (Dec’10). The core business comprises of mining and smelting of zinc and lead along with captive power generation. Hindustan Zinc is a subsidiary of Sterlite Industries which owns 64.9% of the share capital of HZL.

Public sector Enterprise (Government Owned Companies)

NMDC Ltd. – It was incorporated in 1958 as a Government of India fully owned public enterprise. NMDC is under the administrative control of the Ministry of Steel, Government of India. NMDC is involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, beach sands etc. With a market cap of Rs.1,10,000 crores Rs.2,600 crores & 57% npm (Dec’10), it is India’s single largest iron ore producer and exporter, presently producing about 30 million tons of iron ore from 3 fully mechanized mines. NMDC has the only mechanized diamond mine in the country with a capacity of 1 lakh carats per annum in Madhya Pradesh. The company saw a follow on public offering
National Aluminium Company Ltd. - Incorporated in 1981, as a public sector enterprise of the Government of India, National Aluminium Company Limited (Nalco) is Asia’s largest integrated aluminium complex, encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail and port operations. With a market capitalisation of Rs.24,000 crores, revenues Rs.1,400 crores & net profit margin of 17% in December 2010,Nalco is now India’s 2nd largest aluminum company
Hindustan Copper – incorporated in 1967, Hindustan Copper Limited is a public sector enterprise of the Government of India. It is India’s only vertically integrated copper producing company encomapssing mining, beneficiation, smelting, refining and casting of refined copper metal. It is under the administrative control of the Ministry of Mines. The Company markets copper cathodes, copper wire bar, continuous cast copper rod and by-products, such as anode slime (containing gold, silver, etc.), copper sulphate and sulphuric acid. More than 90% of the sales revenue is from cathode and continuous cast copper rods.The company is supposed to come out with an IPO soon
MOIL – MOIL is the largest Mn Producer in India with around 1.1 million tons in 2010.The Company is planning to increase production by around 10% each year to reach 1.5 million tons by 2014. The 69 million tons of reserves that the company has is of high grade ores.The Company accounts for around 50% of the Mn production in India.The Company has set up JV with Indian Steel PSUs to set up value added manganese alloys production for the Steel Industry.The company came out with a very successful IPO in 2010.
Coal India Limited (CIL)- The State Owned Giant Coal Producer dwarfs the other companies through its sheer size,scale,cost and reach.The company has fared poorly in the current year after its IPO as its production growth has almost come to Zero.However its sells coal at such a low cost,that it could easily raise prices of coal in select categories to meet its financial goals.One of the safest investments in the stock market.It posseses high level of cash,low valuation compared to global peers and has a huge room to raise coal prices in the future.
Neyveli Lignite Corporation is a PSU like NTPC and is also involved in lignite mining company in India. The company is mainly based out of the southern state of Tamil Nadu and mines some 24 million ton of lignite per year with an installed capacity of 2490 MW
Singareni Collieries Company Limited (SCCL) is a PSU jointly owned by Andhra Pradesh and the Federal Governm .The company is involved in mining coal in the Godavari Valley region, with reserves of around 8 Billion Tons with production of around 50 million tons a year.Note listed currently still one of the major coal companies in India.

Others – Other smaller companies are SMIOR,Mangilal Rungta,Bombay Minerals,Prabhu Das Vithal Das,OMC, MML and Industrial Development Corpn. of Orissa Ltd (IDCOL),Hutti Gold Mines,Indian Rare Earths Ltd,Uranium Corporation of India,Bharat Gold Mines.Note Steel companies like SAIL,Tata Steel and others have big captive mines of chromite,coal and iron ore which they use for their captive consumption.

China found to be Illegally Hoarding up on Minerals by WTO

18 Feb, 2011

China

China has come under a lot of fire for its protectionist trade policies from multinational corporations like Siemens,GE,Google as well as its major trading partners.One of the bones of contention is its export restrictions on crucial minerals like zinc,lead,cadmium, gold, indium, iron ore, lime, lead, manganese, mercury, molybdenum, phosphate, salt, tin, tungsten, vanadium and zinc.China is surprisingly the biggest producer of these minerals and has been hoarding these minerals.Note China is the biggest importer of minerals like copper,coal,iron ore etc. so its hoarding is surprising.This action by China came under the scanner when it restricted the export of rare earth minerals over a small dispute with Japan.This resulted in alarm bells ringing in Europe,USA and Japan.These countries scurried for alternative sources of these crucial REE in other places as China controlled more than 95% of the world’s supply.

Now WTO is set to rule against China for its policies on these minerals through which it encourages the growth of local industry.China has claimed environment destruction as the reason for restricting exports of minerals.However that does not explain why it continues to produce the minerals as they should logically curtail production .This results in discrimination against foreign users and refiners of minerals.It will be interesting to watch how China responds to this WTO ruling.Note China is already facing a huge problem with most of its trading partners accusing it of currency manipulation.

Trade Judges See Flaw in China Policies

The World Trade Organization on Friday will issue a preliminary report concluding that China has no legal right to impose export restrictions on nine raw materials, say trade diplomats and lawyers familiar with the case.

The quotas, license requirements and other measures on industrial ingredients such as zinc and coke, many vital for making steel, have been a key irritant in China’s simmering trade tensions with trading partners.

The U.S. and other complainants in the raw-materials case alleged that quotas and other measures were a protectionist move that illegally keeps prices high and discriminates against other nations. Buyers of raw materials were also upset. Because of China, “they have no influence on 75% of their input cost,” says Christian Obst, a Munich-based analyst at UniCredit Bank, who covers steelmakers such as ThyssenKrupp AG. China’s main goal, he adds, “is self-sufficiency.”

For now, however, the restrictions appear to have remained in place. For the first half of 2011, China has licensed only 32 companies to export rare earths, compared with 47 in 2006. It also cut the quota to 14,508 metric tons for the first half of 2011, down 35% from the period in 2010.

US vulnerable to Rare Earth Supply Disuptions even as China raises 2011 Export Tax on REE

15 Dec, 2010

China,Japan,USA

Rare Earth Metals promise to be a continuing geopolitical drama for the coming few years as Chinese monopoly over these crucial raw materials continues.Japan has already been at the receiving end of a Chinese exports embargo once and has its companies scattering to secure rare earth mineral resources in varied places like India,Mongolia, Kazakhstan, Vietnam.Hitachi is looking to increase recycling of rare earth minerals while other companies too are looking to optimize and reuse these metals.USA is currently less susceptible to rare earth disruptions as its requirements are quite low and anyway it imports most of the products using rare earth in finished form.

However rare earth minerals are crucial to the Defense Industry as well as the Green Industry.An Energy Department report has warned the government about this vulnerability even as China has severely reduced export quotas.The Chinese are even going to raise the export taxes on rare earth metals along with a host of other commodities.Unlike other countries,China’s policy making is centralized and strategic in nature and it wants to preserve commodities.This helps in promoting the exports of value added products as compared to raw materials.

U.S. at risk of rare earths supply disruptions

The United States risks major supply disruptions of rare earth metals used in clean energy products unless it diversifies its sources of the minerals, the Energy Department warns in a report due to be released later on Wednesday.

“The availability of a number of these materials is at risk due to their location, vulnerability to supply disruptions and lack of suitable substitutes,” U.S. Energy Secretary Steven Chu said in a report, due to be unveiled on Wednesday at a rare earth metals conference at the Center for Strategic and International Studies.