TABLE OF CONTENTS
U.S. DOE: Critical Minerals Strategy Report
Arcelormittal Raises Baffinland Offer to Match Rival Bid
Anglo American to Invest $525M in Minas Rio Iron Ore Project
Montanore Silver-Copper Project in Montana Robust
Baosteel and China Steel in Iron Ore Move
New Indonesian Regulations Allowing Underground Mining
SE Asian Gold Mines Sold by Avocet for $200M
Big Iron Ore Expansion for Rio/Mitsui JV at Robe River and Cape Lambert
A new U.S. Department of Energy report concludes it is in the United States' economic interests to improve the capacity to finance and mine domestic critical minerals projects.
In a long-awaited report, the U.S. Department of Energy has recently released its Critical Minerals Strategy, which advocates ensuring reliable access to critical materials to help the U.S. lead in the new clean energy economy.
The strategy identifies five rare earths metals (dysprosium, neodymium, terbium, europium and yttrium) as well indium as the most critical elements based on important to clean energy technologies and supply risk.
It also explores eight policy and program areas that could help reduce vulnerabilities and address critical materials needs, including research and development, information gathering, permitting for domestic production, financial assistance for domestic production and processing, stockpiling, recycling, education and diplomacy.
The Rare Earths and Critical Materials Revitalization Act of 2010, H.R. 6160, passed the House of Representatives on September 29th and now awaits action from the lame duck Senate.
MAIN CONCLUSIONS
The DOE report suggests several clean energy technologies-including wind turbines, electric vehicles, photovoltaic cells and fluorescent lighting-use materials at risk of supply disruptions in the short term. The risks will decrease in the medium and long-term.
The document noted clean energy technologies currently constitute about 20% of global consumption of critical materials.
"Sound policies and strategic investments can reduce the risk of supply disruptions, especially in the medium and long term," the study suggested.
The researchers noted that "data with respect to many of the issues considered in this report are sparse."
The agency's strategy with respect to critical materials rests on three main components.
· First, global supply chains are essential. "This means taking steps to facilitate extraction, processing and manufacturing in the United States, as well as encouraging other nations to expedite alternative supplies."
· Second, substitutes must be developed.
· Third, recycling reuse and more sufficient use "could significantly lower world demand for newly extracted materials," the report suggested.
The DOE determined that permanent magnets used in wind turbines and electric drive vehicles; batteries used in vehicles with electric drive trains; thin films used on photovoltaic cells; and phosphors used in fluorescent lighting necessitate priority attention.
Each relies on critical materials, including rare earth metals, and the demand for each may grow significantly in the short and medium term.
As well as examining rare earths, the DOE also studied minerals critical to domestic manufacturing such as lithium.
Rare Earths
China has around 36% of rare earth reserves, Russia and other Commonwealth of Independent States members hold 19%, the U.S. has around 13% and Australia has 5%, the DOE said.
"In general each rare earth orebody is unique and requires a site-specific processing system," the DOE noted. "As a result, production costs vary from deposit to deposit based on ore content and mineralogy."
China currently produces at least 95% of global REE, and dropped its exports by 40% in July. The country now exports 30,238 tonnes of Rare Earth Oxides, while world demand is 48,000 tonnes this year.
The U.S. was responsible of around 12% of global rare earths demand in 2009. The country relies on import, but also has become a net exporter of REO equivalents.
Lithium
Currently economically viable lithium resources are found mainly in South America. "Globally it is more economical to extract lithium in continental brines than in hard rocks or spodumene deposits," the DOE advised.
In 2009 Chile, Australia and China accounted for 78% of global lithium production. The U.S. has only one active lithium brine operation, which is located in Nevada.
The U.S. has been mostly dependent upon lithium imports coming mainly from Chile and Argentina.
Cobalt
Currently most cobalt is produced as a byproduct of nickel and copper mining. The Democratic Republic of the Congo produces 40% of global cobalt as a byproduct and holds about half of the world's identified cobalt reserves.
The leading global producers of refined cobalt are China (39%), Finland (15%), and Canada (8%). The U.S. has not mined cobalt since 1971 and has not refined cobalt since 1985. The country is currently about 75% import dependent upon cobalt coming from Norway, Russia and China.
Several projects are under development that will produce cobalt in this country including the Idaho Cobalt Project, the Eagle Project nickel-copper mine in Michigan, and the NorthMet Project copper-nickel-PGM mine in Minnesota.
Gallium
World resources of gallium in bauxite are estimated to exceed 1 billion kilograms and the DOE suggests "a considerable quantity could be present in world zinc reserves." However, only a small amount of this metal is economically recoverable globally.
The DOE observed that the U.S. represents about 25% of the global annual consumption and gallium, which it imports from Germany, Canada, China and the Ukraine.
U.S. bauxite deposits contain 15 million kilograms of gallium, while some domestic zinc ores also contain as much as 50 ppm gallium, which the DOE suggested may be a significant resource.
Indium
Global primary production is indium is widely distributed because it is a byproduct of a number of industrial minerals. Indium is recovered almost exclusively as a byproduct of zinc production. The U.S. has been 100% dependent on imports for indium since 1972, with current indium imports coming from China, Japan and Canada, the report noted.
Half of indium refined takes place in China, followed by South Korea and Japan. China is expected to continue to tighten its indium exports to meet growing domestic demand.
Tellurium
Used in the production of high-performance solar cells, the demand for cadmium telluride solar cells continues to increase. The United States' principal tellurium import sources are China, Belgium and Canada.
U.S. MINING AND MINERAL PRODUCTION
The Department of Energy advised, "The United States has a strong national interest in enhancing capacity for domestic production and manufacturing of critical materials, which will help diversify the supply chain for certain materials.
In their report, the DOE noted that obtaining the permits necessary to open a U.S. takes on average 7-10 years, the longest among the top 25 mining countries. In contrast Australian approvals average 1 to 2 years.
"Since the permitting processing is often cited as one of the principal barriers to new mining ventures in the United States, a more coordinated and predictable regulatory process could encourage investment in new mines and eventually contribute to diversifying the global supply chain," the DOE advised.
Meanwhile, the agency suggested that if there is a national interest in developing U.S. capacity to produce rare earth metals and other critical materials domestically, "it may be worth analyzing whether some type of price support system is appropriate."
Interestingly, however, the DOE Strategy advised against U.S. stockpiling of critical materials for potential use in commercial clean energy technologies at this time. Instead, the agency said it can encourage industry to increase private stocks and inventories.
The DOE also suggested that, to help improve transparency in markets for critical materials, it may require sustained U.S. diplomatic engagement with other countries.
"It is in the interest of both China and the United States to promote globally diverse, sustainable and economical supplies of clean energy materials for future use by both countries," the agency asserted, adding the DOE intends to work with China and other countries on these issues.
To read the comprehensive Department of Energy's Critical Minerals Strategy, go to www.energy.gov/news/documents/criticalmaterialsstrategy.pdf
All but one of the base metals markets in Europe ended higher for 2010, with copper hitting a new record on 12/31, while copper and tin were expected to attract new investment and reach new highs in 2011, Reuters reported.
Benchmark copper on the London Metal Exchange ended ring trading bid at $9,960 a tonne, compared with $7,375 a tonne at the close on Dec. 31, 2009. It earlier reached a record of $9,675.
In its December forecast, Goldman Sachs said it expected prices to hit $11,000 this time next year.
The commodities sector - particularly copper and gold - has been a standout performer in 2010, outperforming bonds and European shares. In the base metals markets, the biggest gainers were copper, tin and nickel. The only metal to finish down for the year was zinc.
Copper is expected to steam further ahead next year on solid fundamentals of declining ore grades, a lack of new big mines and respectable growth in demand from top consumer China.
The price of cash copper moved into a premium - or backwardation - against the benchmark in early November, signaling a lack of immediately available supply.
Among other base metals, tin was the outperformer for the year, with prices up by nearly 60 percent. Constrained supply from top exporter Indonesia is expected to drive prices to new records, having reached $27,500 a tonne in November.
LME tin ended the year at $26,870 in LME rings, up 59 percent from end-2009.
Nickel was up on Friday at $24,950 in LME rings, up some 35 percent for the year.
Prices have rallied in anticipation of a pickup in stainless steel demand, despite ample stockpiles. LME nickel stocks hit a a record of 166,476 in February, and have since declined some 20 percent.
LME zinc rose slightly on the day to finish the year down 5 percent at $2,440 per tonne.
Battery material lead also rose on the day to $2,560 a tonne, up 5 percent for the year.
LME aluminium ended at $2,467 rings, up 11 percent for the year.
ArcelorMittal sweetened its offer for control of Baffinland Iron Mines to C$1.40 a share, matching a rival offer from Nunavut Iron for the vast iron ore deposit in the Canadian Arctic.
Nunavut Iron had earlier upped its offer to C$1.40 a share for 60 percent of Baffinland's shares, valuing the company at about C$550 million ($550 million) and challenging ArcelorMittal's friendly bid of C$1.25 a share for all of the shares.
For ArcelorMittal, which aims to be about 80 percent self-sufficient in iron ore supply, a successful bid would mean more direct access to the key raw material -- a significant issue given tight global supplies and healthy demand from Chinese steel mills.
"ArcelorMittal's increased offer of C$1.40 per share provides demonstrably superior value and certainty for Baffinland shareholders, compared to Nunavut Iron Ore Acquisition Inc's revised coercive partial offer," Peter Kukielski, head of mining and a member of the group management board of ArcelorMittal, said in a statement.
"Our offer ensures shareholders receive 100 percent cash for all of their shares, rather than cash for just some shares and diluted value for the shares not taken up under the Nunavut offer."
At stake is Baffinland's huge iron ore deposit on Baffin Island in the northern Canadian territory of Nunavut. While developing the Mary River mine will be a major logistical and environmental challenge, the deposit is believed to be large enough to meet all of Europe's needs for many years.
Miner Anglo American Plc said it secured a 25-year port tariff agreement for the Minas Rio iron ore project in Brazil and will fund a greater share of the development cost of the first phase of the port, according to Reuters.
Anglo expects to spend an additional $525 million relating to the port, taking the miner's total share of development costs to about $1.2 billion.
Initial works on Minas Rio, one of Anglo's biggest growth projects, is expected to begin in March after being hit by delays and cost increases.
A Preliminary Economic Assessment for the Montanore silver-copper project in northwestern Montana indicates annual silver production of 6.4 million ounces and copper production of 51.1 million pounds over a 15-year mine life.
Spokane, Washington-based Mines Management (NYSE-Amex: MGN, TSX: MGT) recently announced the results of the PEA, which estimates a project capex of US$552.3 million for Montanore. The mine plan is based on a measured and indicated mineral resource of 81.5 million tons of material grading 2.04 ounces per short ton silver and 0.75% copper.
Output over the 15-year mine life indicates a total production of 96 million ounces of silver and 767 million pounds of copper.
Project economics indicate a direct operating cost of US$4.58 per silver equivalent ounce.
"The PEA indicates a financially robust underground mine utilizing conventional grinding and flotation processing techniques at a nominal throughput of 12,500 short tons per day," the company said.
In a statement, Mines Management CEO Glenn Dobbs said the document "indicates the Montanore mine plan may be quite profitable in today's commodity environment and could operate at metals prices significantly below current levels."
The deposit was discovered in 1983 by U.S. Borax and sold by a consortium led by Noranda Minerals. The property was then quitclaimed to Mines Management.
Mine Management is currently working toward completion of supplementary draft and final impact studies. An evaluation drilling program is also underway to provide information needed to advance engineering development of the project.
Anglo American has agreed to sell a large portion of Scaw Metals, its South Africa-based steel business, for almost $1bn. The multinational mining company, which over a year ago decided to divest Scaw and several other non-mining-related businesses agreed to sell two Scaw subsidiaries to Australia’s OneSteel for $932m.
Alta Steel and Moly-Cop, the two Scaw units to be sold, represent the North and South American operations of Scaw. Based in Canada and Chile, respectively, Alta Steel and Moly-Cop specialize in making grinding balls used in mining and other heavy-industrial applications.
They generated revenues of $319m for Anglo in the first half of 2010, compared with Scaw’s total interim revenues of $767m.
The sale would leave Anglo with the South African core of Scaw, which is based around steel rods and steel castings.
The deal, which awaits regulatory approval, would mark $3.2bn in divestments for Anglo since October 2009. Anglo sold its entire zinc business to Vedanta, the Indian miner, for $1.3bn in May, and earlier sold a portion of Tarmac, the construction materials company.
Some of the Anglo businesses that remain to be sold are the UK core of Tarmac as well as Copebrás, a Brazilian fertilizers business. However, the sale of part of Scaw would mark the completion of selling the most valuable parts of Anglo’s non-core assets.
Alta Steel and Moly-Cop generated $72m in earnings before interest, tax, depreciation and amortisation in Anglo’s 2009 fiscal year, on revenues of $642bn.
Taiwan’s China Steel and China’s Baosteel are planning to invest jointly in overseas iron ore mines.
The move is a rare example of companies from Taiwan and mainland China co-operating overseas, which in the past has been largely restricted to offshore oil drilling.
The alliance, which the Taiwanese company confirmed recently, will be a first for cross-Strait steel industry co-operation. This in part reflects new business opportunities deriving from the political detente and economic liberalization between mainland China and Taiwan over the past two years. The move also comes as pressure increases for steel companies to secure their own supply of raw materials.
But the partnership may also prove sensitive because the Taiwan government still owns about 20 per cent of China Steel. Despite the warming of relations, Chinese investment into Taiwan is still heavily regulated and there is wariness on the democratic island over becoming too economically reliant on communist China.
Baosteel was a natural partner because the two companies have already co-operated on technical issues in the past and Baosteel does not yet have its own iron ore mines.
The co-operation also highlights the pressures that volatile iron ore prices impose on mid-sized steel mills. In recent months, this has led to a number of iron ore mine acquisitions by steel companies, as well as a new pricing system for iron ore this year.
Tsou Jo-chi, China Steel chairman, has previously said he hoped to increase his company’s self-sufficiency in iron ore from 2 per cent to 30 per cent within five years. China Steel uses about 20m tonnes of iron ore a year.
Indonesia is expected to sign new regulations allowing underground mining in its protected forests. This is expected to boost exploration for gold, nickel and coal in particular.
Indonesia will soon issue regulations to allow underground mining in protected forests, the government said recently, a move likely to attract more investment but alarm green groups.
Indonesia has some of the world's largest reserves of minerals and is keen to increase revenue from the mining sector, which hosts international firms such as Newmont Mining Corp. (NEM.N) and Rio Tinto (RIO.AX).
The country also boasts some of the world's largest and most pristine rainforests, but conflicting mining and forestry regulations have resulted in confusion over which areas may be exploited.
President Susilo Bambang Yudhoyono is expected to sign the new regulation "within weeks", said forestry minister Zulkifli Hasan, and it is likely to kickstart projects that have stalled because of tight forestry policy.
The regulation will clarify a law issued in 1999 that prohibited open-pit mining in protected forests but did not specify whether underground mining was allowed.
Currently 13 mining companies are allowed to carry out open-pit mining in protected forest areas because their projects were in advanced stages before the practise was prohibited.
Hadi Daryanto, the secretary general of the forestry ministry, did not give details of which companies would start underground mining, but said several could start exploring for coal, nickel and gold next year.
Indonesia has reserves of 546.8 million tonnes of nickel, 112 million tonnes of bauxite and 42.85 million tonnes of copper (measured in copper metal), data from the mining and energy ministry showed.
Mineable reserves of tin stand at 338,911 tonnes, measured in terms of refined tin, while gold reserves were 4,341 tonnes measured in terms of gold ingot, it said.
Gold miner Avocet Mining is to sell assets in Malaysia and Indonesia for $200 million to private Indonesian mining fund J & Partners, to focus on expanding its West African mines.
Avocet is to sell the Penjom mine in Malaysia and the North Lanut mine Indonesia in a deal due to be completed in the second quarter of 2011 and resulting in a pretax profit of about $100 million.
At some point, Avocet might be in the market for acquisitions, but the time was not right, according to an article by Reuters.
The divestment is subject to a right of first refusal by Indonesian group PT Lebong Tandai, which owns 20 percent of the North Lanut mine in North Sulawesi. It can buy out Avocet's stake for $120 million in cash.
In that case, the deal with J & Partners would be cancelled and Avocet would seek to sell the Penjom mine separately.
The ageing Asian mines have been hit by weaker output and higher costs. Output at Penjom fell 19 percent to 39,150 ounces of gold during the first nine months of the year, while production at North Lanut fell 2 percent to 34,865 ounces.
The advisers for the deal were Standard Chartered Bank for Avocet and Macquarie Capital for J & Partners.
Japanese trading house Mitsui & Co said recently it will spend 100 billion yen ($1.2 billion) to help increase shipments of iron ore produced by a joint venture with Rio Tinto.
Iron ore shipments will rise to 133 million tonnes a year from 80 million tonnes, Mitsui said in a statement.
The investment will expand a port in Cape Lambert in Western Australia that is used to ship iron ore produced at the Robe River joint venture.
Rio Tinto owns 53 percent of the venture and Mitsui 33 percent.
The total cost of the planned expansion is 300 billion yen and the joint venture participants will share the cost on pro-rata basis. It is due to be completed by the end of 2013.
"Through this expansion, we hope to meet rising iron ore demand in the medium to long term," Mitsui said in a statement.
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