The Critical Metals Report: There's a lot of confusion about the future supply and demand equation for critical metals, which we've defined as rare earth elements (REEs), minor elements and strategic metals. What do you consider the most important minerals and why?
Jim Powell: In terms of investment options, I'd focus primarily on electrolytic manganese metal (EMM), fluorspar, graphite, tungsten and rare earths.
TCMR: Why is that?
JP: A lot of these are controlled by one supplier-China-in most cases. The overall EMM market isn't huge, but it's large enough to leave room for other suppliers. At this time, China supplies more than 98% of that market.
Fluorspar is used in acids and fluorine-based chemicals, so a lot of chemical companies need it, as do steel and aluminum manufacturers. Fluorspar is more than 50% supplied by China.
TCMR: How about graphite?
JP: Graphite's another mineral that's also controlled largely by China. There used to be a fair number of producers in North America and Europe, but most of them shut down over the last 10 years as China outpriced them in the market. Graphite is a refractory used primarily in nuclear reactors and batteries. Actually, there's more graphite than lithium in lithium-ion batteries.
Tungsten is somewhat underappreciated for what it does. It's widely used in tooling, in the mining industry-even in products, such as the Blackberry. Those little vibration elements used in the Blackberry are made of tungsten. China currently produces in excess of 80% of the global supply of tungsten with a handful of minor suppliers in Canada and Russia sharing the rest.
Of course, China also dominates the supply of rare earths, which are pretty mainstream because even though it's a very tiny market, REEs are very critical elements. There are lots of investment options there-almost too many.
TCMR: You've mentioned batteries, manufacturing, tooling and electronics. Where is the major demand for these elements? Is it technology for alternative energy? Is it magnets? What's driving the demand?
JP: A lot of it's technology-related; the bulk of the rare earths go into technology-type applications. As I said, batteries use graphite and a variant of electrolytic manganese-EMD, electrolytic manganese dioxide. The current generation of batteries for cars, such as GM's Volt, is manganese-type batteries. So, there's another clean-tech focused use.
Industrial use is also important. Tungsten is pretty much all industrial use, and so is fluorspar. EMM is used largely to manufacture stainless steel and aluminum.
TCMR: You said that China dominates the market for the EMM that's used in the new batteries?
JP: Yes, and probably the biggest issue with that is what happens if China uses it all domestically. If it can, it will. We're seeing that with the export quotas China has on rare earths, and that could start with some of these other minerals as China runs out of internal supplies. The carbonate deposits from which China mines EMM are running low, and it might just decide not to supply the rest of the world anymore. As a result, we have a somewhat unreliable supplier-one that may at any time just use it internally to satisfy its own demand.
TCMR: Are you following any companies that have the potential to create EMM supplies outside of China?
David Fuller's view Veteran subscribers are no strangers to
mining shares, including rare earths which Eoin and I have discussed on a number
of occasions (search the Archive if interested via link in upper-left menu,
fourth item down - 54
results for rare earth). They are crucial to many cutting edge technologies,
not least industrial batteries.
The sector became extremely interesting when China dramatically reduced its exports, causing prices to soar. There are three rare earths miners - Lynas, Avalon and Quest - in my personal portfolio which I will review imminently. The one thing we can guarantee about rare earths miners is that they are exceptionally volatile, not least because although interest is high, they are currently development plays with little or no production or earnings. Consequently they are highly speculative. At Fullermoney, we believe such shares are best purchased incrementally following sharp setbacks and sold when they soar above rising 200-day moving averages.