Anthony Marchese of Texas Rare Earth presents at the Technology Metals Summit - InvestorIntel

Anthony Marchese of Texas
Rare Earth presents at the
Technology Metals Summit
Watch Anthony Marchese, Chairman of Texas Rare Earth Resources
Corp. (OTCQX: TRER) present being one of the lowest cost
technology metal projects in the world during the
InvestorIntel Technology Metals Summit on October 14, 2015 in
Toronto. Explaining how the Texas Rare Earth Resources’ model
is profitable “even today”, using internal Chinese prices, he
explains how the project risk is mitigated by non-REE by-
product opportunities. Probably of greatest interest to our
audience, Anthony describes how the DLA contract both
validates the project and provides potential major offtake
potential.

                                          Anthony Marchese: First
                                          of all, thank you Tracy
                                          for putting on the
                                          conference and allowing
                                          me to step in at the
                                          last     second     and
                                          describe Texas Rare
                                          Earth Resources. I’m
                                       going to go through
                                       this very quickly. It’s
                                       a     much      longer
                                       presentation than 10
minutes, but in any case the story of Texas Rare Earth
Resources is quite simple. We are a massive low-grade deposit,
highly economic, multi polymetallic rather, about 80 miles
southeast of El Paso, Texas. We are near a major metropolitan
area. Easy extraction, I think, even at today’s China
economics.   We’re   still   a   very   profitable,   potentially

profitable enterprise. We have 41 million shares outstanding,
market cap ridiculously low at $9.1 million. We have a lot of
skin in the game, insider ownership about 38%. Institutional
ownership about 12% and a fair amount of float so there are
plenty of shares to trade. Our PEA from several years ago,
that will come down as a result of our association with K-
Technologies and I’ll let them talk about what they do.
They’ll be presenting I guess later on. Originally we thought
about $290 million, incredible economics; IRR of 67%. That was
based at the time on China internal prices. Substituting China
internal prices today, that number probably is in the mid-
teens. It shows you how much it’s dropped, but still if you’re
showing positive economics, I believe, in today’s environment
then you have a reasonable chance of doing fairly well if you
get into production. Enormous — That was based on a 20-year
mine life. Realistically we have about 105-year mine life and
that’s only the first of three mountains in the area, I’ll
talk about that a little bit more, primarily heavy rare earths
about 72%, in addition to a number of byproducts, which I’ll
describe in a moment. Board of directors, Amanda probably
knows Eric Noyrez, former CEO of Lynas, is on our board. Jack
Lifton who is one of the featured moderators joined our board
a couple of years ago. I don’t think there’s a day that goes
by that I don’t speak to or email Jack several times a day. We
have a working board. We are very active in managing the
company. We have a lot of experience. Our project, again, 80
miles southeast of El Paso, Texas. I’ll describe. This is the
deposit. This is the mountain. There’s no overburden. You come
in, dig it out, we’ll be heap leaching it. And I’ll just talk
about our contract with the Department of Defense in a moment,
but we can sell our output 100 times over just to the defense
industry. This is a very interesting study that no one ever
mentions…to access the full presentation, click here

Argentina Unshackled
Observers from outside Argentina have gone on a frenzied romp
of self-congratulation hailing the change in the Argentine
Presidency in last week’s elections as something akin to a
Revolution. Once again though we find that simplistic formulas
are being used and the nuances of what has happened being
ignored. The situation still has the potential to be a wild
ride for investors.

For a start the victory of Mauricio Macri is being hailed as a
“right-wing” victory. To put that in context, firstly he leads
a Rainbow Coalition that stretches from the Left across to the
Right and the party he beat, the Frente Para la Victoria, is
in   fact   the   old   Peronist     Party,   which    was   a
fascist/corporatist construct in its original roots. So to
claim that a wealthy businessman (in fact I would venture one
of the five wealthiest in the country) that leads a Coalition
including the Left is a “Right-wing” victory is stretching it
a bit.

Secondly we would note that the victory was surprisingly
narrow. While the first votes in showed a 9% lead for Macri,
as the night wore on the margin slipped and it ended up being
51.4% for Macri and 48.6% for his Kirchnerite opponent, Daniel
Scioli. It should also be noted that the first round of
elections last month delivered stinging losses to the
Kirchnerites but they just barely hung onto control of the
Senate meaning that, if they stay cohesive, they still have
potential to block reforms. That said, with their patroness
gone, the rats tend to disperse into the woodwork to regroup.
We may end up seeing the phenomenon apparent under the De La
Rua government in the late 1990s of Bribes for Votes when a
hostile majority in the Senate had to be paid off, literally.

The New Lay of the Land

As we have repeated endlessly mining is controlled in
Argentina by the provinces, in much the same way as it is in
Canada or Australia. The national government in Argentina has
NO approval or denial power over mining projects. So
everything you have heard of “Cristina Kirchner blocked our
project” is a load of codswallop. In all cases blockages
occurred because of ornery provincial governments.

It is interesting therefore to look at the map of the
electoral results. The blue areas are provinces that voted for
the Kirchnerite candidate. The yellow are those that voted for

the winning Macri-led ticket. Oops, for those who know the
only province with mining of note (Silver Standrad’s Pirquitas
mine) that voted for Macri was Jujuy. La Rioja has been an on-
again, off-again mining favorable area and La Pampa and
Mendoza have been graveyards for miners.

The provinces where mining is currently active are Catamarca,

Santa Cruz (the Kirchnerite province par excellence now run by
the outgoing president’s daughter), Salta and San Juan.

If there is anything to be read from this map it is that the
marginalized distant provinces with the smallest populations
(excepting Buenos Aires which was only won       marginally by
Scioli and that was because of the sprawling urban slums
voting for him) supported the Kirchnerite program which gave
them a greater share of the goodies. The provinces that
trended for Macri where those with the largest populations
(and strong agricultural export economies) that were actively
persecuted and discriminated against for the last 12 years.

Implications for Mining

Having said that mine approvals are in provincial hands, some
matters are still in the Federal purview. Amongst these that
have relevance are foreign exchange allocations. Miners have
been griping for years now that they could not bring in the
capex items they wanted in an unrestricted way due to import
restrictions and could not remit profits or dividends as and
when they wished. These restrictions were part of the
increasingly draconian and bizarre forex rules that the
Kirchnerite regime was imposing as Argentines tried to head
for the exits and buy dollars to protect themselves against
the rapidly deflating peso.

Moreover to say the forex regime was complex was an
understatement. Here is the table of exchange rates for today
for a leading Buenos Aires newspaper, La Nacion:

So on the left we have the official rate, on the far right is

the so-called Dolar Blue which is the back-alley rate. In the
middle are various official rates administered by the Central
Bank for different purposes. Dolar Ahorro is a savings rate,
Dolar Tarjeta/Turista is the rate that locals can use credit
cards for (when travelling abroad) and that bona fide tourists
within the country can use to change money. The Dolar Soja is
the very prohibitive rate forced upon farmers selling their
crops (effectively a 30% tax on the official rate and a 150%
tax on the unofficial rate). Finally the Dolar Bolsa is a
conversion rate for transactions in the Stock Exchange.

Byzantine is obviously not too strong a word to describe this
bizarre system. Miners will be hoping that this system loosens
up, though the new government will be wary of letting this go
too soon or there will be a dollar buying spree that will
decimate Central Bank reserves. One suspects that Dolar
Turista and Dolar Soja will be the first to go. The government
will then aim to draw the Dolar Blue and the official rate
together somewhere in the middle. Who knows? Maybe the
wonderful Convertibility regime of the 1990s might be
revived.. Certainly Argentina had never experienced such good
times since the 1920s as under that arrangement.

Despite the mining provinces largely being of the Kirchnerite
ilk, they are the provinces that have shown themselves to be
most pro-mining. With less subsidies coming from the Federal
government more of the provinces will have to look to mining
to keep their local economies buoyant.

If one wants to muse with some names in Argentine mining those
to consider are:

     Patagonia Gold Plc (AIM: PGD)
     Hochschild Mining (LON: HOC)
     McEwen Mining Inc. (NYSE: MUX | TSX: MUX)
     U3O8 Corp. (TSX: UWE | OTCQX: UWEFF)
     Pan American Silver Corp. (NASDAQ: PAAS | TSX: PAA)
     Silver Standard Resources Inc. (TSE: SSO)

Yamana Gold Inc. (TSX: YRI | NYSE: AUY)
     Argentex Mining Corporation (TSXV: ATX | OTCQB: AGXMF)
     Orocobre Limited (ASX: ORE | TSX: ORL)
     Western Lithium USA Corporation (TSX: WLC | OTCQX:
     WLCDF)
     Galaxy Resources Limited (ASX: GXY)

One might also see those who have downplayed their Argentine
prospects dusting them off or racing back to restake them.

What Next

After exchange rates there are a vast swathes of regulations
constraining all aspects of economic life that could be cast
into the dustbin of history. Some of these measures being
rescinded should help miners. One that might not though is the
bizarre fuel subsidies. These were introduced after the
collapse of 2000/1 and the spike in inflation. To “protect the
poor” massive subsidies were introduced which have bled the
Treasury dry. They have been reduced and some have been made
to pay world parity prices for oil but many have not. This
could be the big budget winner but also a tough policy to bite
on first.

One could see a strong inflow of FDI though and this might
actually reverse the exchange rate so delays in freeing
remittances might actually work out better for miners when
they are eventually freed.

The whole construct of Kirchnerism was so bizarre and
distortive that untangling it is akin to unraveling the
Gordian Knot. Like Alexander the Great, sometimes it’s better
to just draw one’s sword and chop the knot in one fell swoop
than spend years testing one’s Boy Scout skills trying to
untie it..

Conclusion

After 12 years of Kirchnerite “policies” (more like populist

bootstrapping) the Argentine economy is emerging from a long
dark tunnel into the glare of daylight. Frankly it’s better
out of the tunnel rather than being in it and foreign miners
for better or worse face a brave new world. We can say with
confidence that the rules will NOT be more onerous and the
forex regime WILL be more flexible. Growth should kick up and
frankly Argentina looks like a better bet than the deeply
troubled Brazil these days.

As a New Yorker would say “What’s not to like?”

Technology Metals: Can they
boost the wider economy?
                                   There is talk in the
                                   British newspapers about
                                   the manufacturing sector
                                   growing again, albeit
                                   slowly. But then you read
                                   that two steel plants, one
                                   employing more than 2,000
                                   people, are closing (due
                                   to the collapse of the
                                   steel price, thanks partly
                                   to China exporting its
                                   growing steel surplus).
                                   For Western economies,
from Europe to North America, some more dramatic solution is
required.

Meanwhile, the latest issue of the magazine New Statesman has
a special section on industry (one headline reading

“Manufacturing Matters”, as if anyone said it did not).

Then London’s Sunday Telegraph devotes a full page to how Elon
Musk and Tesla are taking on the Japanese car manufacturers –
who are betting big on hydrogen as the fuel of the future –
but with Musk sticking by batteries as his power source. And
then there is the growing trend of acceptance that batteries,
particularly lithium-ion ones, are the key to the future of
renewable energy, the importance of storage being shown by
news from Britain today that the country’s wind farms have a
total capacity of 13,000 megawatts but the lack of wind
recently has seen them generating only about 400MW.
(Incidentally, I am writing this from Paris, after having
travelled from Tokyo aboard a Boeing 787 Dreamliner, itself
employing lithium-ion batteries in its power system.)

When it comes to technology metals, we might (or should) be
talking about the downstream, too. In fact, these metals may
be a story far bigger than finding them, mining them, refining
them: they could hold the key to a kick-start for Western
economies, which badly need to reverse the export of their
industries to low cost jurisdictions.

We have seen an example of what possibilities might be with
the Australian graphite company Talga, which started out by
planning to process its Swedish graphite into graphene in
Germany and has, more recently, joined the €1 billion European
Union Graphene Flagship program.

When we look back at the rare earth industry at the height of
its market appeal (in 2011) one recalls that there was much
talk of the downstream end of the business. Companies were
quick to boast if they had plans for a manufacturing arm as
well as a mining one; others argued this was a mistake, that
finding and mining rare earths involved skills a million miles
from those required for the processing of those same rare
earth metals into finished items. Today, we see emerging REE
producers sticking to their knitting, and letting someone else

do the value-adding. In graphite (as well as other technology
metals) we see a similar trend.

Oh, but that’s the market, people will argue. Japan and China
have the established manufacturing infrastructure.

This is not a view proposed in the New Statesman (a left-
leaning but venerable magazine) by Vince Cable, who was
Britain’s Secretary of State for Business, Innovation and
Skills until he lost his seat in the general election earlier
this year.

He makes the point that manufacturing is the main generator of
research and development, including the creation of
intellectual      property;     the   sector     contributes
disproportionately to productivity growth and standard of
living; and is a major contributor to export income where it
exists.

He allows that the market must work in its own way. But he
also argues that governments must not be passive (as shown by
Japan and South Korea where business and government work in
tandem).

Cable is talking generally in terms of the manufacturing
sector.

But Musk, if he succeeds with his gigafactory, will have shown
that it is possible for Western economies to re-establish
manufacturing growth by harnessing the potential of technology
metals, just as Talga is seeking to do in Germany.

Technology metals are helping transform the mining sector:
just 10 years ago there was scant talk (other than in
specialty publications) about rare earths; even less about
graphite which was then seen as mainly an industrial material.
This has changed: now investors are quite savvy about these
issues.

But perhaps it’s time to take this all a step further: to go
beyond the discovery and mining, and see how these metals
might restore and transform our industrial base.

Commodities in the “Year of
the Booby Trap”
                                  Looking at the headlines
                                  today of news items covering
                                  the resources industry, I
                                  was struck by how many
                                  unexpected, or unwelcome,
                                  developments are coming out
                                  of the woodwork. Yet, just a
                                  few hours earlier, I had
                                  been reading yet another
                                  analyst note saying that we
are at the bottom of the commodity cycle, and things are about
to pick up. Indeed, this is a line that I have begun running
with in recent weeks; after all, the cutbacks in production
(especially zinc) seemed in the past week or two to have put a
floor under prices.

Just last week a early stage graphite explorer, Ardiden
(ASX:ADV) had seen a capital raising oversubscribed (it has
its project in Canada). This was just one of many examples
occurring in recent weeks where exploration announcements had
seen investors piling into certain stocks. This was, I
reasoned, not at all like the gloomy time in 1999 or the post-
GFC period when you couldn’t sell a story – any story – to try
to get get some interest in the market.

But then, again and today, there came another avalanche of
gloom. How to explain this commodity dichotomy?

Then I picked up this morning’s newspaper, turned to the
business section, and there it was: 2015 is the Year of the
Booby Trap. This insight came from an interview in the
newspaper with Ashok Jacob, who runs the A$4 billion Ellerston
Capital fund.

And the booby traps? Well, there was the devaluation of the
Swiss franc, the collapse of the oil price, the Volkswagen
scandal and most importantly the devaluation of the Chinese
yuan. I would add the European refugee crisis which could
impede that continent’s economy recovery if the alliance
fractures; the battle of the behemoths as the big iron ore
makers ramp up production to try and crush the smaller
players. And how’s that shale oil and gas revolution going?
Oh, and then there was Molycorp.

And now here is today’s news, which underlines Jacob’s
predictions there will be further booby traps sprung on a
fragile global economy before the year is out.

Item # 1: China’s GDP growth slowed to 6.9%. While this
reflects the transformation from industrial growth to widening
of the services economy (a natural progression as economies
mature) it is terrible news for commodities. This undoubtedly
signals a weaker commodity demand environment in China – and
that means everything from iron ore to technology metals.

The impact was immediate: after the Chinese figures came out,
aluminium fell 1.7%, copper was down 1.8%, lead down 1.3%,
nickel by 2% and zinc was off 0.5%. Only tin defied the mood,
rising 0.2% to $15,987/tonne, still not nearly enough to tempt
any new producers to start up a mine.

Item # 2: The normal economic response to low prices and
oversupply is for mining (and oil) companies to cut back
production, at which point prices can begin rising again as

supply starts to lag supply. But this is not happening, and
most spectacularly in the case of the iron ore companies.
Today we read that Brazil’s Vale had a record output in the
September quarter of 82.2 million tonnes. This comes as
Australian mines run by BHP Billiton and Rio Tinto continue to
ramp up production, too. The iron ore price has fallen to
$52/tonne from a 2011 high of nearly 2011. Also, it is
estimated by London-based Wood Mackenzie that 55% of the
world’s nickel is now being produced at a loss, but no one
wants to cut back: so far, only 30,000 tonnes of capacity has
been idled. The economic mechanisms are simply not working.
(And, on the iron ore front, the Indian state of Goa has
resumed shipments to China after the local mining ban was
lifted.)

Item # 3: News agency reports say Saudi Arabia is delaying
payments to government contractors as the slump in oil prices
pushes the country into a deficit for the first time since
2009. Companies working on infrastructure projects have been
waiting for six months or more for payments as the government
seeks to preserve cash. Did anyone expect the Saudis to have a
cash flow problem?

Item # 4: Iran is planning to add to the commodity glut.
Bloomberg reports that President Hassan Rouhani will visit
France and Italy in November to find foreign bidders for 15
projects. The country wants to boost its output of gold, iron
ore, steel, chromite, aluminium, bauxite, copper and zinc.
Just what the world needs!

Ashok Jacob makes the point that all the money printing we
have seen from the Fed and European, Chinese and other central
banks was meant to have removed the risk of booby traps, but
it hasn’t; and I would add that it was also meant to restore
the globe’s appetite for commodities, which it has patently
failed to do. Its main legacy has been to encourage the
raising of trillions more dollars of debt.

OK, so QE hasn’t worked. Anyone got any other ideas before we
trip over another booby trap?

Blue Jays, Lithium, Uranium
and Pot
Back in April, the smart money
picked the Washington Nationals
to win the World Series, and
with good reason, but as the
season played out and Jonathon
Papelbon reverted to old school
choking, the Nats failed to
make the post-season. No
playoffs for you! The “experts”
were wrong.

There were also pre-season picks like St. Louis and the
Dodgers, who did in fact have very good seasons. The experts
were right.

No one picked the Blue Jays to be a team verging on greatness.
Mid-season changes and players having career-years propelled
the organization to an expectedly giddy post-season. The

experts couldn’t have been expected to see that one coming.

Making calls on public companies is similar to picking teams
in the pre-season. Some calls look easy, but they don’t pan
out. Others do. Some surprise everyone. And against that
background we’re going to re-visit some of our 2015 picks.

We started the year with Integra Gold – we call that one a
win. Our first article of 2015 said Integra was a likely
takeover target. It had just released its Preliminary Economic
Analysis on its Lamaque properties in Quebec, form which we
observed, “…Integra cut its cash needs, reduced the lead time
to production by 25%, crammed down its all-in sustaining costs
and provided visibility on the key metrics for success. They
significantly de-risked the company and as a result made it
very attractive to larger companies with stronger balance
sheets.”

In August, 2015 Eldorado Gold Corporation (“Eldorado”)
invested $14.6 million into Integra by way of a non-brokered
private placement of common shares, resulting in Eldorado
holding 15% of Integra’s voting common shares. In a widely
held company like Integra (and despite it being under the 20%
threshold), that gives Eldorado control.

Integra continues to report strong results and is running a
$1M Gold Rush challenge aimed at crowd-sourcing brainpower to
find the next gold prospect on its property. We expect more
good news from Integra over the next several months.

Copper Mountain Mining – unfortunately, we were right here,
too. The full story of Copper Mountain’s shame can be found
here, and the links in that article can be tracked backwards
to the sorry beginning.

In July we called it a “slow-motion disaster movie”. We have
been highly critical of the board and management, not only for
the poor operational results but mainly for the non-compliance
with disclosure obligations. Copper Mountain misled the market

for over a decade, seriously harming the holders of the NSR on
the property.

Copper Mountain continues to disappoint. From a year high of
over $2.30 down to its current price of roughly $0.55 a share,
CUM shows what leverage does to a producer on the way down.
With copper treading around $2.40 a pound, it’s unclear
whether Copper Mountain will be able to continue as a viable
operation. If it can hang on for another year or so, a supply-
demand imbalance in copper might get leverage working upwards
for the shareholders.

In April we looked at two companies exploring in Brazil. Since
then, one (Cancana Resources – manganese) has established a
strong path to success while the other (DNI Metals – graphite)
is still trying to find a way.

Back then we said, “Cancana’s business model is to start with
the known knowns. Develop the known manganese fields,
consolidate title to the local boulder fields, and bring
processing into one central plant. This should result in short
term revenue, high plant usage, low downtime, and higher
margins. Combining this with organic growth through the drill
bit (scheduled to commence in May, 2015), Cancana has the
opportunity to supply the global          steel   market   while
maintaining its premium charges.”

Cancana has delivered on these goals. It has expanded its
footprint, reported good exploration results, made progress
with mining engineers Ausenco on centralizing the processing,
begun selling product, and increased efficiencies. We like
this narrative and expect more positive news from Cancana over
the next 18 months.

DNI   Metals is still trying to execute on its business plan. It
had   a hard time closing on its announced private placement,
and   eventually had to change the terms of the offering to get
the   minimum amounts in the door. But close they did, and

management deserves credit for that. They have put the funds
to work in Brazil and in Madagascar. The stock has drifted
down significantly from its opening and finance price – time
will tell if management can deliver. DNI’s season had a rough
beginning but isn’t over yet.

In a somewhat confusing move, DNI also recently announced it
is acquiring a lab in the Greater Toronto Area to carry out
testing and metallurgic work for itself and for third parties.
We don’t like this acquisition. A junior exploration company
needs focus to survive, and this acquisition is an unneeded
deviation from the business plan.

A company that is sticking to its business plan is Carube
Copper, who is exploring assets in Jamaica. We’ve looked at
them twice, once briefly and once in greater detail. We
recently met with management for an update and are
enthusiastic about its chances for success.

Carube, in addition to the Jamaican assets, holds the British
Columbia gold-copper assets puppied out of Wallbridge Mining
in 2010.

Carube has had considerable success staying on path. This is a
strong deal with considerable upside offered by the assets
themselves, the high quality management team and the
partnership with OZ Mining, an Australian mining company with
a billion dollar market cap. So far, Carube is having a good
season and we expect that to continue.

Another company we looked at who has ties to a much larger
company was Contagious Gaming. At the time Contagious was
operationalizing its English gaming assets and earning revenue
in North America from its software platforms. Since then,
Contagious has announced two large deals, made a serious
disclosure gaffe, and is generally a puzzling company. The
board and management have not done a good job engaging the
shareholder base, but closing on either of the large announced

deals on accretive terms would be similar to the Blue Jays
roster makeover halfway through the season. A failure to close
on either deal would likely see the management team get
demoted. Watch the news flow to judge management’s success.

Also on the high tech front, in July we looked at Seair Inc.
and its SWEET technology, aimed at oil / water separation in
the oil patch. SWEET’s passive technology creates microbubbles
in the oil, which lowers the cost of operation. Seair can
separate more oil at a lower cost than any competing process.
Customer payback ranges from only 3 – 6 months, an astounding
short period of time.

At that time we referred to Seair’s formal exclusive strategic
partnership with Renewable Fluid Services (RFS), a U.S. based
process and product development company. Seair will provide
SWEET to RFS to use in RFS’ oil recovery process. This
relationship has borne fruit. In late September Seair
announced it had signed a confidentiality agreement with
Petroleum Development Oman (PDO) with the intent to run a
SWEET major field trial in a large polymer flood operation.

Seair’s new management team is clearly focussed on taking what
had been benched technology and commercializing it. We expect
more good news as SWEET undergoes more field trials.

Also in July we looked at the Fission – Denison proposed
merger. At the time we liked the combined uranium portfolio of
exploration and development properties, the cash flow from
toll-milling at the Cigar Lake Mine and management fees from
Uranium Participation Corporation, and the strength of the
proposed leadership team. We also acknowledged weaknesses in
the deal, which goes to Fission’s shareholders for approval
next Wednesday, October 14.

Some of those shareholders are strongly opposed to the deal.
At a town-hall style held by Fission in Toronto on Oct 6,
those shareholders made their voice heard. It’s going to be a

close call whether the deal is approved. Expect major
consequences if the shareholders vote down the merger.

And speaking of voting, we’re still waiting on the Allard
decision and on the federal election before we make any medium
term call on the marijuana industry. The Conservatives have
made their anti-marijuana stance very clear – if you have any
financial interest in the Canadian cannabis industry then a
vote for the BigC is a self-inflicted wound. Purely from a
cannabis viewpoint, the best result would be a Liberal
government with the NDP having enough seats to make a
difference. Cast your ballot accordingly.

Last, we closed the season with a short piece that asked,
given its poor energy density ratio, how did lithium become
the metal of choice in the battery industry? How did this
minor leaguer come to play in the big leagues? That simple
question sparked an incredible amount of debate. My inbox was
filled with conflicting commentary, opinions and science as to
lithium’s properties when compared to other metals.

Lithium’s continued use by electric vehicles and power tool
manufacturers could be increased by better technologies for
extraction and processing (see our piece on Pure Energy), but
is at risk by commercialized research that empowers other
metals to economically take lithium’s place.

We will be moderating a panel at the Technology Metals
conference in Toronto on Oct 13 and 14 at the King Edward
Hotel. Chris Reed of Neometals Ltd. will lead a separate panel
looking at lithium’s role and future – we intend to be there.

Play ball!

Post Nuclear                     Germany             –     a
Green Myth?
In the wake of the Fukushima nuclear disaster in Japan, Angela
Merkel managed to transition from being a Centre Right
politician loathed by the European Left to being a darling of
the Green Movement. The deed that achieved this transformation
in sentiment was the precipitate announcement that Germany
would phase out all its nuclear power plant fleet by 2022. It
would be replaced by alternative energy sources such as solar,
wind and tidal power, combined with energy consumption
savings, under an initiative known as the Energiewende, or
energy transformation. This sudden decision to phase out the
nuclear plants also involved adherence to the pre-existing
goal of reducing national CO2 emissions to 4% below 1990
levels by 2020, and by 80-90% by 2050. Easily said by a
politician who won’t be around in 2050 to face the music on
non-compliance!

All this sounds like, as they would say in the US, a “mom and
apple pie” issue. Who wants to complain about all this good
stuff going on? Well, the slight wrinkle in this plan is that
to achieve this Quixotic goal, Germany is now burning more
lignite coal than before Merkel made her shock announcement.
Yes, in the age of reducing carbon emissions and after the
acid rain scares of the 1980s (largely created by East German
lignite being burned by power-generators) we now have Germany
pumping out more of this stuff to reduce its dependence on
nuclear.

While those of Green sympathies in Germany may be cognizant
(and acquiescent) of this fact, more of the environmentally-
aware in other places are environmentally-unaware that the
price they pay for less of the clean energy of nuclear is more
of the same old, same old carbon pollution that the EU has
been hot and heavy for decades against.

In any case, the potential removal of German demand from the
Uranium market has been one of the things weighing upon the
price of the metal. The return to production of Japanese
generators has helped change the mood for the better, but
Germany is still a key part of demand and so I shall look here
at how this situation evolved and how Germany’s renunciation
of nuclear is a blow for clean-tech.

The German Nuclear Scene

In her first flurry of panic, Angela Merkel shuttered eight
reactors, reducing the country’s capacity to nine reactors
with 12,003 MWe capacity, and then to eight reactors with
10,728 MWe. The country’s 17 nuclear power reactors,
comprising 15% of installed capacity, formerly supplied more
than one quarter of the electricity (133 billion kWh net in
2010). Many of the units are large (they total 20,339 MWe),
and the last came into commercial operation in 1989. Six units
are boiling water reactors (BWR), 11 are pressurised water
reactors (PWR).

According to the Frauenhofer Institute, German generating
capacity in April 2014 was 169.6 GWe comprising:

     1   GWe   nuclear
     6   GWe   hydro
     7   GWe   wind (0.6 offshore)
     9   GWe   solar, 28.2 GWe gas
     2   GWe   lignite
     3   GWe   hard coal
     6   GWe   biomass

In the first half of 2014 wind and solar PV had capacity
factors of 18% and 11% respectively, compared with 85% for
nuclear. In 2011 Russia provided almost 40% of the natural
gas, followed by Norway, Netherlands and UK, while only 14%
was produced domestically.

Some outside Germany perceive that the actions were taken due
to some legacy issue with Soviet-era facilities, but when
Germany was reunited in 1990, all the Soviet-designed reactors
in the East were shut down for safety reasons and are being

decommissioned.

The Coal Splurge

Lignite is the cheapest source of electricity from fossil
fuels, and Germany has the world’s largest reserves of it. But
lignite causes the highest CO2 emissions per ton when burned,
one-third more than hard coal and three times as much as
natural gas. The three German coal-fired power plants are
among the largest point-sources of CO2 emissions in the world.

Germany’s CO 2 emissions have started to show a retrograde
trend:

      1,051m metric tons in 1990
      813m tons in 2011
      841 m tons in 2012 and 2013

As a result, Germany could very well fall short of its 2020 CO2
target by five to eight percentage points.

Perversely for industrial users, Germany has become a source
of cheap electricity, but not for private consumers in
Germany, who have had to foot the bill for the renewable power
sources putsch, as a result of German feed-in tariffs.

In 2014, the German government parties passed the Climate
Action Program 2020, a rather idealistic strategy to reduce
emissions by around 70m tons annually by 2020, in light of the
fact that they are increasing, rather than decreasing the
burning of coal! The hefty cost of this policy: US$2.2bn to
$3.3bn per year, will be divided half and half between the
federal government and private consumers who have to pay more
for their electricity.

The overall share of coal in German electricity production has
shrunk from 56% in 1990 to 43% in 2014. During the same
period, the share of renewables in electricity production has
risen from 4% to 26%.

Conclusion

It is ironic that Germany comes across to the outside world as
one of the most “green-conscious” nations in Europe, if not
the world, but few seem to have realized that its precipitate
disavowal of nuclear energy has plunged many neighbouring
countries into a zone of heavier carbon emissions than would
otherwise be the case, while making a mockery of global
warming and lower emissions concerns.

While Germany continues to expand solar and wind power, the
government’s decision to phase out nuclear energy means it
must now rely heavily on the dirtiest form of coal, lignite,
to generate electricity. The result is that after two decades
of progress, the country’s CO2 emissions are rising. The Merkel
administration seems to have been given a “free-pass” by the
environmentalists because the quid pro quo for this move has
been the eventual removal of nuclear power from the country.
This is a Faustian bargain indeed.

With Japan reopening its nuclear plants and most other nations
unfazed by nuclear power, Germany is the odd man out in
eschewing an energy source that is carbon-neutral. There are
limits to how much solar or wind power that can be installed
and some nations are starting to run into the buffers,
particularly with regards to offshore wind farms.

The remarkable consensus from both sides of the German
political fence towards the self-defeating retreat from
nuclear energy, makes most think that the 2022 shutdown is
inevitable. Frankly the pressure should be coming from EU
partners baulking at the emissions raining down on them. That,
plus a failure of alternative energy sources to reach the
sufficient level of participation to replace nuclear, might
just prompt a rethink. The share that coal possesses even now
is massive compared to that of nuclear. Remove the nuclear and
do not reduce the coal-fired and you have actually seen a
deterioration of the share from clean-tech.

Bromby: Let’s give                                China
credit for its rare                               earth
dominance
                               (And, while we’re at it, let us
                               also allow some kudos for the
                               Carter administration over its
                               strategy for acquiring Chinese
                               strategic metals.)

The bottom line is that China did something that laissez-faire
Western governments cannot seem to manage: setting an economic
target and getting there.

This post is, to some extent, a follow-up to Jack Lifton’s
yesterday on China and rare earths, in which he remarked that
“I think that a specter is haunting global capitalism: the
specter of the success of a uniquely malleable capitalism with
Chinese characteristics”.

I recently re-read a 2010 paper by a U.S. Army analyst Cindy
Hurst published by the Institute for the Analysis of Global
Security. The paper, China’s Rare Earth Elements Industry:
What Can the West Learn? shows how the West lost the plot. She
says that in its early years Mountain Pass in California was
the largest rare earth mine in the world. During that time
American students and professors were greatly interested in
learning about the properties of the REE. Then, as China began
to gain a foothold in the industry, interest seems to have
waned. Why? According to one professor she quoted, students

tend to move to what is “hot” at the time, as there they can
make the most impact both as students and later in their
careers. In this case, advanced biofuels seemed the new “hot”
thing.

In China, as Hurst pointed out, things were quite different.
Nearly 50% of graduate students who were coming to study at
the Department of Energy’s Ames National Laboratory were from
China; and each time a visiting student returned to China, he
or she was replaced with another Chinese visiting student.

In 1986 the Beijing government approved the National High
Technology Research and Development Program, known as Program
863. A good deal of the money for the program went to rare
earths technologies.

Eleven years later, in March 1997, Hurst describes how China
announced Program 973, then the largest basic research program
in China, which also covered rare earths.

And, talking of students, Xu Guangxian attended Columbia
University from 1946 (when Chiang Kai-shek’s Kuomintang was
still in power) until 1951 and he received a Ph.D in
chemistry. Hurst tells how he returned to take up a post at
Peking University and he was later caught up in the Cultural
Revolution and went to a labour camp. After his release in
1972, Xu began the study of praseodymium, then in the 1990s
launched several rare earth programs, many of which were vital
to China gaining dominance in this industry.

But, as Hurst points out, since the 1960s China had been
deploying teams of scientists to research more efficient
methods of extracting rare earths (although, as Baotou
attests, there is still someway to go).

Between 1978 and 1989 China managed to increase rare earth
output on an average of 40% a year, according to Hurst. The
end result, as we know, was that China started exporting
(comparatively) large quantities of REE, causing global prices

to plunge.

And, in more recent times, China has moved to become the
dominant force in magnet technology.

As Harry Lime (played so memorably by Orson Welles) said in
that classic movie, The Third Man, “in Italy for 30 years
under the Borgias they had warfare, terror, murder, and
bloodshed, but they produced Michelangelo, Leonardo da Vinci,
and the Renaissance. In Switzerland they had brotherly love −
they had 500 years of democracy and peace, and what did that
produce? The cuckoo clock”. Likewise with rare earths, it
seems − and which takes us full circle back to Jack Lifton’s
point about how Chinese capitalism has evolved.

The West has known since (at least 2009) that China was going
to restrict rare earth exports, by one means or another. Six
years on, what has the West achieved to secure its own sources
(as opposed to the rare earth explorers who have persevered
without the back-up their Chinese competitors received)?

Meanwhile, it seems the much-maligned (at the time and even
now) Carter administration had a few clues about how to manage
to the strategic metal needs of the United States. In 1981 the
Los Angeles Times reported that the U.S. was the main buyer of
the increasing tonnages of strategic metals (tungsten,
uranium, molybdenum, vanadium and germanium) being exported by
China. The newspaper quoted Chinese officials saying, in the
1979 when the U.S. agreed to sell China technology with both
civilian and military uses, the Carter administration talked
the Chinese (in return) into increasing their exports of the
rare metals needed by American industry.