Very Rare

Japanese Anime

Control these Rare Earths and you control the energy technology and economy of the 21st century

Without these rare earths, there would not be much of an alternative energy industry … as there would be no magnets for the next-generation wind turnbines in our wind farms needed to generate electricity nor batteries for hybrid electric cars that would zip down the freeway.

 

Without these rare earths, we can say goodbye to space launches and satellites … as there would be no magnets for miniaturized guidance systems nor titanium or ceramics for lightweight rocket engines or nose cones.  As such , there would be no weather satellites, and weather monitoring and forecasting would decline, and there would be no navigation systems in our cars because there would be no GPS (global positioning system).

 

Without these rare earths, our modern high-tech lifestyle will go away as there will be no TV screens, no iPods, no cell phones, no digital cameras, and no ultra scan as there will be no medical imaging devices.

 

Demand for these valuable and most critical rare earth metals on the face of the planet is soaring yet supply is not.  So why is demand increasing and supply not soaring creating an imbalance and alternative investment opportunities?

 

Steve Forbes likes to say “more financial education, and the resulting financial literacy and empowerment, will open our eyes to alternative investment opportunities and be the key to a recovery from this financial crisis.”

 

In that spirit, I am going to use this article to briefly introduce the rare earths, provide some examples of why they are key to the energy technology and economy of the 21st century, and highlight the drama being played out on the high seas which is a future supply-demand imbalance with key players in Denver, Mt Weld, WA (Western Australia), and The Middle Kingdom.

 

Why the Middle Kingdom?  China’s national leaders study these elements and know that without these elements much of the modern economy will just plain shut down so they are trying to control and limit supply (more on this in a minute).

 

The rare earths are 15 elements in the periodic table called lanthanides.  As depicted in the opening paragraphs, we are addicted to these rare earths for our modern lifestyle and the energy economy of the 21st century, as much as we are addicted to oil.

 

These elements are rare because while they are found on the earth’s surface, you need to find deposits that are significant in size in order to justify the economics of mining, milling, and processing.

 

However, the only people that study these elements are MS / PhD level chemists, and solid-state physicists, and of course national leaders in places like China.

 

Deng Xiaoping ruler of China in 1980s/1990s said “while there is oil in the Middle East, there is rare earth in China.”  In 1999, the leader of China was Jiang Zemin and after a visit to the “rare earth” region of Mongolia, he declared a national goal to achieve “economic superiority” by leveraging China’s large resources of rare earths.  They are building industrial cities in the Mongolian mineral district called the “mother lode” of rare earths with over 15,000 PhD level scientists and engineers dedicated to work in the world’s most modern rare earth facilities … the West has nothing remotely similar.

 

So, as China is developing their middle class, they are consuming more, exporting less, and trying to control the market with acquisitions and trade practices.  For example, if you want to have access to these minerals from China, or Chinese owned mines elsewhere on the planet, then you must move your manufacturing facilities to China … which of course provides jobs for their emerging middle class.  At this time, China produces 95% of the world’s supply of rare earths.

 

Now, here is where the situation gets interesting.

 

The US has one mine that contains the world’s highest grade rare earths ore located at Mountain Pass, CA which is east of San Bernardino and Palm Springs … still in California but almost to the Nevada and Arizona border.  It is owned by MolyCorp based in Denver.

 

Previously, Molycorp was owned by Unocal (Union Oil of California) and in 2005, the Chinese tried to buy Unocal … while the Chinese said they wanted access to oil, many believe that reason was a smoke screen, as the Chinese really wanted to get access to the USAs only rare earth deposit located in California.

 

There are no processing facilities in the USA so all the iron ore has to be crushed into powder sent overseas for final manufacturing into material for magnets, batteries, lightweight steel, ceramics, and so forth.

 

Also, these metals are very toxic and have environmentalists hovering around threatening action to shut down mining operations.

 

Now for the third leg of this 3 legged stool.

 

In Australia there is a company called Lynas Corp, based in Sydney that controls what is believed to be one of the largest rare earth deposits ever discovered on this planet, in Mt Weld of Western Australia.

 

Recently, China made an offer to purchase Lynas Corp.  A few days ago, the Foreign Investment Review Board of Australia, while late to the party, issued a ruling that would not allow majority ownership of Australian resource firms by companies or governments outside of Australia, as these rare earth resources have been declared strategic assets.

 

China’s monopolistic practices (dropping prices to effectively shut-down new start-ups), its attempts to purchase and therefore limit supply, and its lax rules on environmental safety, are putting the Middle Kingdom in the driver seat for 21st century energy technology … creating another example of shift of wealth and power from the west to the East (see my recent article on one of the 5Es of the “5E-Valuation framework”) and setting the stage for more drama on the high seas, so to speak.

 

I trust this article has introduced you to the importance of rare earths to the energy technology and economy of the 21st century.  For the past 200 years, the West has been able to industrialize and grow based on an abundance of energy and resources.  As we enter an era of scarcity, we need to increase our education, improve our literacy, and monitor and pursue alternative wealth creating opportunities as a way out of this economic crisis.

 

In previous articles, I wrote that many of us are evaluating alternative wealth creating strategies outside of the US Dollar … outside of dollar-denominated assets … perhaps emerging markets … perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

 

I trust this article provides a little more insight as to why emerging markets with a demand for things that are in short supply (such as oil, food, water, precious metals, rare earths, and potash mines) represent alternative wealth creating strategies.

 

In addition, a good book to read would be “Global Paradox” by John Naisbitt where he provides some insight and clues to the likely winners and losers in the global marketplace as new rules for the world economy emerge that will determine standards of political and business behavior from Tokyo to New York to Sydney to Shanghai.

 

I will continue to monitor developments in rare earths and the worldwide resource marketplace and report on alternative wealth creating strategies in future articles and updates at my blog which is at http://aspenIbiz.blogspot.com . 

About the Author

Early in his career, Mike was an engineer with a large aerospace company. For many years, he was with a “marquee” consulting firm where he worked extensively with clients all around the world and became know as an American globalist. Most recently he has been providing technology, business, and management advisory services as a self-employed entrepreneur.

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