1. 2011 Critical Metals Investment
Symposium
Vancouver, Canada
January 21, 2011
Presented by John Kaiser
Critical Metals Overview
www.KaiserResearch.com
2.
3. Issues with Critical & Strategic Metals
Supply Concentration vs Diversity:
Economic logic coupled with a
skewed natural geographical
distribution of deposits encourages
the concentration of production
into a small number of national or
corporate producers which in turn
creates opportunity for supply
disruption.
6. Issues with Critical & Strategic Metals
Government subsidies through lax
environmental regulation encourages
supply concentration with disruptive
consequences when such policies
are reversed:
China’s historical tolerance of
multiple small scale production and
absence or lack of enforcement of
emission controls has enabled it to
marginalize mine supply from
elsewhere in the world.
7.
8. Wakeup Call for the Rest of the World:
China to stockpile key metals, consolidate
production & restrict exports as it focuses on
security of supply.
Molybdenum Indium
Tungsten Tantalum
Rare Earths Germanium
Tin Gallium
Antimony Zirconium
China has become very concerned about resource depletion
and the negative environmental and human impact of its
historical mining practices that have underpinned its supply of
cheap metals to the rest of the world.
9.
10.
11. Issues with Critical & Strategic Metals
Supply concentration allows cartel
style supply management geared
toward serving domestic agenda:
China is now using export quotas
and duties to prevent itself from
being just a raw material exporter.
Other nations have no choice but
to be primarily a raw material
producer and will use royalties
and carried interests to minimize
exploitation.
12. Why has China become anxious about its
heavy rare earth supply?
Once this 15-20 m thick “skin” of heavy rare earth
15-
bearing clays is gone there is nothing to be found by
drilling into the third dimension!
Recent estimates have reduced China’s HREO
resource life from 20-30 years down to 15-20 years.
20- 15-
R&D into the properties of the heavy rare earth
elements are creating the possibility of new
applications that can become major demand drivers –
ie “smart dust” and the brave new world of sensors.
Export Restrictions & Sector Consolidation: Can China
be blamed?
13. What if the crackdown closes the smuggling gap?
17. Export Quota Reduction encourages end users to
shift advanced component production to China and
risk transfer of intellectual property.
18. Issues with Critical & Strategic Metals
Free Market Crisis for Just in
Time Procurement:
Free markets in which metals go
to the highest bidder will become
thinner and less reliable for just-
in-time procurement strategies,
particularly if high risk
development funding is linked to
off-take agreements.
19. The Rise of China in the Age of Globalization
Central command economy with outsourced production
Cheap Labor – urbanization of 1 billion rural Chinese unleashed by the end of orthodox communism
No Health & Safety for Workers
No environmental emission controls
No Unions to secure medical or pension benefits
US Dollar Peg: the devil’s bargain of maintaining an undervalued renminbi by bankrolling the US trade
deficit through the accumulation of US treasury debt
FDI: foreign direct investment and technology transfer
24. Issues with Critical & Strategic Metals
Policy can drive future demand
of critical metals: Efforts to
implement long term clean
energy policies that reduce
CO2 loading of atmosphere
and dependency on crude oil
as a transportation fuel impact
critical metal demand.
26. The World in 2099
Source: New Scientist Feb 25, 2009
27.
28. Transforming the Energy Foundation of the World
Footprint Reduction Footprint Transformation
Strategies Strategies
Quality over quantity
Reduce
Durability
Re-Use
Efficiency
Repair
Miniaturize
Renewables
No more cost dumping
Recycle
Short term sacrifice for long
Rethink term legacy
Relearn Leveraged giving
31. It’s not the rare earth demand growth in the next 5 years
that is the critical issue today, but the demand growth 5
years and beyond when clean energy really scales up.
Source: Mineral Resource Research Group
32. Issues with Critical & Strategic Metals
State controlled capital investment:
Chinese trend is for state
controlled entities to make
investments in raw material supply
around the world which often go
hand in hand with parallel
infrastructure investments guided
by long term security of supply
rather than profit goals.
37. Security of Supply for Critical Materials is becoming
an issue for Europe, Japan and the United States as
China moves to secure its own needs.
Source: EC Commission – The Raw Materials Initiative
38. GAO Conclusions
While rare earth ore deposits are geographically diverse, current capabilities to
process rare earth metals into finished materials are limited mostly to Chinese
sources.
The United States previously performed all stages of the rare earth material
supply chain, but now most rare earth materials processing is performed in
China, giving it a dominant position that could affect worldwide supply and
prices.
Based on industry estimates, rebuilding a U.S. rare earth supply chain may take
up to 15 years and is dependent on several factors, including securing capital
investments in processing infrastructure, developing new technologies, and
acquiring patents, which are currently held by international companies.
39. Issues with Critical & Strategic Metals
Innovation vs Implementation:
New applications invented
through innovation cloud the
demand outlook worsened by
the gap between upstream and
downstream.
40. Issues with Critical & Strategic Metals
Strategic Logic – measuring profit in
terms of what security of supply for
incremental upstream inputs implies for
downstream products: profits will reside
in the downstream products for which
metals are a critical but incremental input,
not in the margin between mining cost
and market price
What is your opportunity cost because you
cannot commercialize an innovation?
41. Dodd-Frank Financial Reform bill will
require end users to document the source
of their tantalum supply for their Ipods
and cell phones among other consumer
electronics gadgets.
What is the
opportunity
cost of being
tainted by
blood tantalum
versus a higher
cost for clean
tantalum?
42. Would a rare earth price shock reduce demand?
Jevons’ Paradox:
Scarcity results in higher prices for
raw material inputs, which should
result in lower demand through
substitution, but when substitution is
not possible, a push for more efficient
utilization of inputs is undertaken,
which, if successful, will stimulate
total demand growth, which in turn
enables raw material supply
expansion without glutting the market
and triggering a price collapse.
Rare Earth elements lend themselves well to R&D
aimed at developing more efficient utilization.
43. Issues with Critical & Strategic Metals
Long term Cost Volatility &
Spot Price Opacity: Volatility
in currency exchange rates
and energy/chemical costs
rule out long term price
based contracts while lack of
transparency and poor price
discovery mechanisms make
spot market pricing unreliable
44.
45. Issues with Critical & Strategic Metals
Mainstream Mining Sector’s
aversion to uncertainty:
Mainstream mining companies
are unlikely to invest in
primary specialty metal mines
such as rare earth deposits
because they cannot predict
demand driven by policy and
innovation. At best they will
add circuits for by-product
recovery.
46. Issues with Critical & Strategic Metals
A new upstream role for end-
users: End users with large
downstream markets at stake
will need to make upstream
equity and/or debt investments
in resource juniors which raise
risk capital to acquire and
advance specialty metal
deposits.
47. Issues with Critical & Strategic Metals
A new downstream role for
producers: Critical metal
producers not owned and
operated by a consortium
of downstream users will
need to own downstream
operations which add value
to the mined raw materials.
48.
49.
50. How do we get to a mine?
Stage Exploration Cycle Objective Time
Stage Required
1 Grassroots Conceptual, land acquisition 1 year
2 Target Generation & Filtering for drill targets 1-2 years
Drilling
3 Discovery Defining the limits of a discovery - 1-2 years
Delineation tonnage & grade
4 Infill Drilling Producing a mineral resource estimate & 1-2 years
scoping study
5 Bulk Sample & Evaluating recoveries and optimal 1 year
Metallurgy processing method
6 Prefeasibility Produce a mineable reserve, establish a 1-2 years
mining plan and associated costs
7 Permitting, Securing approval, negotiating offtake, 1-3 years
Marketing & making a production decision
Feasibility
8 Construction Building the mine 1-3 years
9 Production Mining cash flow 10-20 years
