The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
American Elements exec provides unique insight into country's strategy to leverage rare earth monopoly to import manufacturing
Leveraging its global dominance in the realm of rare earth elements, China has set in motion a strategy to gain supremacy in manufacturing the vast array of technologically advanced products that depend on these metals.
"China can exploit rare earths that they control all the way out to electric cars, wind turbines, whatever it is - and that is the grand strategy," American Elements Chairman and CEO Michael Silver told some 200 participants in the Alaska Strategic and Critical Minerals Summit held in Fairbanks in late September.
By levying steep export taxes, constraining overseas shipments and tagging additional upward pressures to the costs of rare earth elements leaving the Far East country - the Chinese government has driven an explosion in the prices western manufactures must pay for these high-technology metals. All the while, their counterparts inside China's borders can source these same materials for a fraction of the cost.
"China is on the road to creating a two-tiered structure in pricing," Silver explained. "They are using this strategy primarily to produce the added-value products in China, as opposed to selling rare earths at some astronomical price."
Silver, who founded American Elements two decades ago, is a firsthand witness of China's rise to dominance as the global supplier of REEs and continues to have a clear view through the opaque wall that stands between the United States and its source of the high technology metals.
"I have a sufficiently strong 20-year relationship with the Chinese officials for rare earths that I do not worry when I speak the truth. There is nothing that I am saying that they don't acknowledge to me in private," the American Elements leader told Mining News when asked if he worried about revealing China's strategy.
In order to avoid exporting its high-technology manufacturing jobs to China, Silver told the legislators, regulators, miners and members of the media attending the summit that the United States needs to get into the REE game - from mining the critical minerals through assembling the products that benefit from the unique properties of these "magical" metals.
It is a game in which the American Elements executive believes Alaska could play a significant role.
"Alaska certainly has an opportunity to be the pre-eminent U.S. producer of rare earths in the future," Silver told Mining News. "Good for Alaska, good for the country."
China gains monopoly
To paint a clear picture of China's long-term strategy to control the REE markets, the American Elements executive took the summit attendees back two decades.
At that time, there were two producers of these unique metals: Molycorp in the United States and Rhône Poulenc, a French company that sourced its material from China. American Elements bought rare earths from both companies and the duopoly served to keep the prices respondent to global supply and demand economics.
"Then China began making inroads into offering their rare earths outside of China at prices that were a tenth of what Rhône Poulenc and Molycorp were selling their materials," Silver said.
Within the space of about two months, the REE producers informed Silver they were shutting down, cutting off American Elements' source of the vital metals.
"I called my wife and said 'we're going for a long walk on the beach, our company is in trouble!" he reflected.
American Elements was not the only company in the West left without a reliable supply of REEs. Silver began to get calls from manufacturing giants General Electric, Honeywell and Siemens, who were desperate to secure a supply of the required REEs.
"I got on a plane and flew to Baotou, China, and said, 'does anybody want to talk to me?'" Silver recalled.
The meetings resulted in American Elements building its own processing facility in the famous Chinese REE province of Baotou, securing the company's position as a top supplier of the technological metals to the West.
Over the ensuing 15 years, China continued to supply the world with REEs at rock-bottom prices, maintaining its monopoly over the sector.
"Up to two years ago, the prices of rare earths were at this other number," Silver said, referring to China's low REE prices. "At this other number, many people in China got very, very, very rich. Money can be made at this other number in China. It is a profitable number, and it is a strong indication as to what the Chinese need to sell rare earths for internally, in order for them to at least break even."
Export quotas begin
During China's 15-year reign as the global low-cost supplier, REEs have become an increasingly important component of products such as terabyte hard-drives that fit in the palm of your hand as well as high-efficiency power generation and guided missiles.
"There are literally hundreds of uses for rare earths - they are unique materials, almost alchemistical magic," Silver observed.
These seemingly magical metals not only enhance the performance of high-technology products but also are integral to items that Americans use on a daily basis.
"Cerium is used by every light bulb manufacturer on the globe because it has this magical capability of keeping iron - which is always in glass - in the state that is clear as opposed to the state that is brown. It is the same material that is in every catalytic convertor you have ever used, because cerium has an incredible capability to remove both NOx (nitrous oxide) and SOx (sulfur oxide). When you grind it (cerium) into a powder, it is the best glass polish known to man. It is, in fact, used for polishing the ends of fiber optic cables - it can polish so finely. All the same material different properties," Silver said.
In the midst of an explosion in the number of green and high-technology applications made possible by the "alchemistic" attributes of REEs China began to put a squeeze on global supplies, driving up the prices of the metals.
"If you didn't get an export quota, you couldn't ship out of China," Silver explained.
With export quotas allocated to companies shipping REEs out of the country, the Chinese government has incrementally reduced the available export rations. This decrease is not only affecting the supply-demand economics in the open market but is causing companies to pay astronomical prices to purchase the shrinking number of quota allotments, adding to the price of getting the metals out of the country.
"In 2009, they began a process of what we now know as a two-tiered structure for rare earth pricing," Silver told a rapt audience.
Cerium prices in the West rocketed from US$4 a kilogram in 2009 to more than US$150 a kilogram earlier this year. The price of the glass polishing metal has since fallen to around US$55 per kilogram.
China's chokehold on global supply and excessive export taxes on REEs prompted the United States, the European Union and Mexico to file complaints with the World Trade Organization, charges the global commerce group upheld.
Citing environmental concerns - a way of sidestepping its commitments as a member of the WTO - Beijing said in late August that it will appeal the ruling.
Aggressive behavior
Though China's actions succeeded in driving REE prices through the roof, the country took more forceful action in 2010.
"Last year is when the real aggressive behavior began," Silver said.
The Ministry of Commerce of the People's Republic of China capped REE exports for the second half of 2010 at 7,976 metric tons, a 72 percent decrease from the 28,417 metric tons allowed during the same period a year earlier.
In addition to putting further constraints on global supply, the Far East country nationalized the REE processing facilities in China, including the American Element plant in Baotou.
"The Chinese nationalized our processing facility as of last year, so we can no longer process materials - but we still have relationships and are able to bring rare earths out of China," the American Elements CEO explained.
"The bottom line is that they now own all (REE) processing facilities of any size in China," he added.
China Daily, the country's national English-language newspaper, reported in mid-2010 that, according to its sources, the Far East country also was instituting a unitary price based on negotiation that will be published once a month to protect the natural resources from being depleted and to avoid cut-throat competition among the five provinces and regions known to be rich in the rare metals.
Shortly after the China Daily report, traders began complaining about a more insidious system of controlling the prices of REEs leaving the country, a method outlined by Silver at the critical metals summit.
"For the last six months, customs would do this really curious thing at their office in Tianjin," Silver said. "You would go in there and say, 'I have a container of neodymium oxide that I want to ship to the United States.' And they would ask, 'What price are you selling it at?' We would say we are selling it at US$230 per kilogram - astronomical numbers. They would say, 'well, you know, (another company) just sold a container for US$420 dollars, you should think about that,' and then they wouldn't give you the authorization to ship the materials. So, you come back at that other price and they would say, 'okay here's your pass."
The kilogram of neodymium that is being fixed at over US$400 sold for about US$18 in 2006.
"The numbers we are looking at are artificial; they have no relevancy to environmental issues in China, which they tried to raise as their reasons to get around the WTO restrictions on what they are doing; they have no relevancy to supply and demand," Silver said.
Since Silver's address in Alaska, China's largest REE producer, Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co. Ltd., said it will suspend separation and production of REEs for one month.
"In the circumstances of a continuing fall in prices, tepid demand and oversupply, Baotou will halt smelting and separation at its processing units from Oct. 19 to further stabilize the market and balance supply and demand," the Chinese REE giant said in a Oct. 18 filing to the Shanghai Stock Exchange.
"They are artificial figures created by China in order to get the numbers as high as possible in anticipation of the kind of world we are working in today," Silver said.
The world of which Silver speaks is one in which global manufacturing giants must move their facilities to China in order to source their materials at a reasonable price.
"We (American Elements) used to supply all of the cerium that went into General Electric's light bulbs - they have moved all of their glass plants to China because that is what China wanted," he said.
Mines to turbines
Drawing on his experience and insight into China's plan to control the REE supply-chain, Silver is urging the United States to get into the REE game.
"If we are going to be the country Thomas Edison, Henry Ford and all these wonderful people created, we have to do what they did we have to make things. And, in order to make things, we have to get back into the raw materials game," Silver said.
This drew a hallelujah from U.S. Rep. Don Young, R-Alaska, who sat to the right of Silver at the summit.
The American Elements CEO admitted that competing with a country that controls virtually an unlimited supply of REEs and has a socialist structure that allows it to control the industry within its borders will be tough.
"We are not going to nationalize our mines," he said.
Building mines and selling REEs into an artificially inflated market also is not a viable long-term solution.
"The only answer that I can come up with, is for the mining companies - the large ones that control the rare earth materials - to move up the supply chain," Silver said. "If you start making turbines, as a rare earth mine, all of as sudden the lowest cost rare earth is what's valuable to you - as opposed to the high cost that you would sell into this artificial price that China has created for the rest of the world."
Molycorp Inc., the largest REE producer outside of China, is already applying this stratagem of moving up the supply chain. In a plan called mines-to-magnets, the company entered into a cooperative agreement with Canada-based magnet maker, Neo Material Technologies Inc., to use REEs recovered at Molycorp's Mountain Pass Mine in California to produce metals, alloys and magnets.
Moving further up the supply chain - in what could be dubbed mines to turbines - Molycorp announced in September that it made a substantial investment in Boulder Wind Power, which has designed a rare earth magnet-powered wind turbine generator that can produce electricity as low as US4 cents per kilowatt-hour.
"Boulder Wind Power's innovative technology promises to dramatically accelerate the global deployment of high-efficiency, advanced wind turbines," said Molycorp President and CEO Mark Smith. "By effectively solving the dysprosium supply problem for the wind turbine industry, this technology removes a major hurdle to the expansion of permanent magnet generator wind turbines across global markets. This investment also furthers Molycorp's mine-to-magnets business strategy, and our commitment to manufacturing value-added green energy materials, by providing us with potentially large markets for the magnetic rare earth materials we will produce."
Molycorp re-opened Mountain Pass in 2009 by processing stockpiled material left from the historical operation. On Oct. 20 the REE miner said it will begin mining fresh ore by the end of the month in anticipation of an accelerated start-up of commercial production, which will enable it to produce 8,000 - 10,000 metric tons of REEs in 2012.
Alaska advantage
Silver said companies developing REE deposits in Alaska should consider applying a similar policy of moving the REEs well up the supply chain before shipping them out of the state - a stratagem that would provide more in-state jobs as well as make the operations competitive with China.
Debunking the idea that REE separation was a complicated process largely lost to the West, Silver characterized solvent extraction of the metals as easy as "salad dressing."
"It is very, very easy to separate rare earths," Silver emphasized. "The whole supply chain is extremely well-known, the technology is well-understood by just about everybody in my company."
Alaska Department of Natural Resources Commissioner Dan Sullivan asked Silver if it would be possible to make magnets in the state out of REEs mined here.
"It is not only doable, but I would like to see Alaska making electric motors and wind turbines," the American Elements executive replied. "Add value, build those facilities up here."
Ucore Rare Metal's Inc.'s Bokan Mountain project in Southeast Alaska is the most advanced REE deposit in the state. The project has a high percentage of heavy rare earths such as dysprosium and terbium; making it a complement to Molycorp's light REE-skewed Mountain Pass Mine.
Ucore President and CEO Jim McKenzie told the summit attendees that the in-situ value of the metals at Bokan at current REE prices exceeds US$3,000 per metric ton, pushing the total value of the deposit above US$10 billion.
Though Bokan is relatively early in exploration, Ucore believes it can have a REE mine in operation there by 2016. The proposed mine has advantages, including being small in scale and enjoying the support of both the Alaska Legislature and Congress.
Pointing to the logistically advantageous location of Alaska, Silver said, "Alaska is in a position where it can create a huge manufacturing base, based on rare earth. That is the best thing for the United States because all of a sudden all of the mines have to take a look at driving down their rare-earth production costs because they want to compete in the wind-turbine market globally with China."
"That way a free enterprise world can compete with a nationalized world in which they are artificially holding those prices down," he added.
Encouraged by Alaska's REE potential, logistical advantage and lawmaker support of strategic metals mining, Silver declared: "Jobs in Alaska are coming."
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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