Scarce, and getting scarcer

Could the looming scarcity of so-called rare metals put the brakes on the clean energy revolution – or generate new opportunities for recyclers?

By Lydia Heida

“You want to go on the path to a green future? That path starts at a mine,” says rare metals expert Jack Lifton, who undertakes due diligence for investors looking into opportunities in the metals sector.

Wind turbines, solar panels, the transport and storage of green energy: they all depend upon a range of metals – and some of those may not be available in the quantities that many manufacturers and investors assume.

A worldwide transition to renewable energy will rely on substantial amounts of metals such as neodymium, tellurium, indium, silver, copper, tin and zinc.

René Kleijn, assistant professor of industrial ecology at Leiden University in the Netherlands, has investigated reserves of indium, a key raw material in thin-film solar panels.

Were the world to pursue an aggressive build-out of solar energy capacity, the reserves would meet just 1% of demand. Although demand for indium is growing fast, supply is not keeping pace, because the metal is a byproduct of zinc and lead production.

Not keeping pace

Because only tiny amounts of indium are extracted from zinc and lead production – around 28 grams of indium can be recovered from 1 tonne of zinc ore – dramatic increases in indium prices have little impact on the economics of zinc and lead production.

Between 2003 and 2006, the price of indium rose from $100 to $980 per kg, but mining companies hardly stepped up their production.

‘There is no economic driver for increasing the production of byproducts since companies earn much more money mining the base metal.’

“There is no economic driver for increasing the production of byproducts since these companies earn so much more money mining the base metal,” says Lifton, whose consultancy, Technology Metals Research, is based in Carpentersville, Illinois.

This goes for many of the metals needed for renewable energy, such as gallium, tellurium, cadmium, germanium and cobalt, which are used in thin film solar cells, fibre optics (the basis of a smart grid), fuel cells, the permanent magnets used in wind turbines, and lithium-ion batteries. Shortages of tellurium, indium and gallium are all expected within the next five years, according to the UN Environment Programme.

Hoover up

First Solar, a US based producer of cadmium telluride photovoltaic modules, is the market leader in this sector. By 2012, the company will have expanded its production capacity to about 2GW, according to a spokeswoman, which would consume 182 tonnes of tellurium.

Although there are no official data on the production of tellurium, estimates range from 200 to 640 tonnes a year. At the lower end of the range, First Solar could potentially hoover up almost the entire global production of tellurium, leaving manufacturers of memory chips, flash memory cards and thermoelectric cooling devices fighting over the remnants.

Moreover, some experts warn that the base metals of most byproducts are also becoming scarce. Analysis of the United States Geological Survey data on reserves by André Diederen, senior researcher at the Dutch technological institute TNO, shows that 2% economic growth a year will see metals such as copper, nickel, zinc and lead depleted in about 30 years.

Grim picture

Research into the reserve base – that subset of resources that is proven but not yet economically viable to extract – is showing an equally grim picture, according to Harald Sverdrup, a professor in chemical engineering at the University of Lund, Sweden, based upon his comparison of several reserves databases.

“Zinc will become scarce within 30 years,” Sverdrup claims. For copper, lead and nickel, that timescale is within 100 years, he says.

But this is a heavily debated topic. Some experts say reserves data is inadequate; it is expensive to prove reserves because it requires the drilling and testing of ore for extraction rates.

Charles Kaplan, institutional broker and adviser on economic trends and market conditions at du Pasquier Asset Management in New York, adds: “The mining industry will develop new technologies for milling, refraction and separation. It has creative, brilliant engineers.”

Others, such as Diederen and Ugo Bardi, professor of chemistry at the University of Florence, Italy, claim that the mining of metals will fall victim to ‘peak oil’. In their opinion, resources will not be turned into reserves because energy will be too expensive.

Production monopoly

Another cause for concern is the production monopoly held by some countries over certain metals, such as Australia on tantalum and South Africa on platinum.

Due to the economic recession, prices of tantalum dropped sharply, which forced Australia-based Talison – responsible for about a third of total global production – and two other major Australian mining producers, to stop production. In 2008, these closures led to a 40% cut in global tantalum production.

Recently, the passing of the ‘conflict minerals’ bill in the US has spiked interest in tantalum mined outside the Democratic Republic of Congo. The price of the metal has now skyrocketed by 50%, to $80 a pound.

One example where rare earth metals have become indispensable ingredients is permanent magnets, which are needed for the latest generation of direct-drive wind turbines.

China has a production monopoly of 95% of rare earth metals and is reducing its export quotas every year.

“There is an increasing demand from our customers as this is becoming the market standard,” says Michael Holm, a spokesman for Vestas of Denmark, the leading wind turbine manufacturer.

But China has a production monopoly of 95% of these metals and is reducing its export quotas every year. Were China to target 150GW of wind energy capacity by 2020 – as anticipated by the renewables policy network REN21 – it would consume almost 30,000 tonnes of neodymium, the equivalent of well over a year’s production of the metal at the rate it was mined in 2008.

(Each 1.5MW wind turbine generator will require one tonne of rare earth permanent magnet alloy, which contains 28% neodymium.)

“The Chinese plan may throw the rest of the world’s attempt to build this type of wind generating capacity into chaos,” observes Lifton. The importance of obtaining scarce metals is already influencing business strategies.

Closed-loop systems

Several companies are developing what are described as closed-loop systems, taking back end-of life goods for recycling. Japanese companies are ahead in this field, driven by a lack of indigenous resources and an economy dependent on high technologies.

An established giant is the Dowa Group, which mines and refines a wide range of metals – platinum, palladium, gallium, indium, zinc and silver among others – which are then manufactured into products and recycled again by different subsidiaries.

Last year, Mitsui Metal Mining – which digs up about half the periodic table to change it into all sorts of products – announced that it would build a nickel, cobalt and rare earth recovery plant, aimed at recycling discarded nickel metal hydride batteries, as an addition to its existing recycling facilities.

As for First Solar, new mines that are specially focused on tellurium are opening up and First Solar is understood to be involved in at least two of them.

First Solar has set up recycling facilities at all manufacturing plants to enlarge its supply of tellurium.

Apollo Solar Energy, a Chinese refiner and producer of tellurium, tellurium-based compounds and other metals for the solar photovoltaic industry, announced plans to build a 10GW solar farm by 2020 in Anhui province, China. The company will exchange tellurium for First Solar’s panels.

Meanwhile, Mexivada Mining Corp has stated on its website that its “AuroTellurio project … was staked to surround a new tellurium-gold mine [in Mexico] reportedly under construction by World Industrial Minerals, an offshoot of First Solar”.

Moreover, First Solar has set up recycling facilities at all manufacturing plants to enlarge its supply of tellurium.

Last but not least, Neo Material Technologies (NEM) – a manufacturer of magnetic materials such as neodymium alloy and other high value niche metals or compounds – has not only signed a letter of intent with Molycorp, which owns a large deposit of rare earths, but will become involved in the actual mining too. Rare earths will be extracted from xenotime, a mineral found in the waste stream of an already operating tin mine.

Also, NEM is looking at the other end of its production line. In 2009, the company acquired Recapture Metals, a producer and recycler of rare metals such as gallium and indium. This year, NEM has taken a 50% stake in Buss & Buss Spezialmetalle, a German company that specialises in the recycling and recovery of tantalum, gallium, indium and germanium.

Price volatility

However, the price volatility of metals makes investing in any part of this sector – whether it concerns mining or recycling companies, the physical metal, or futures and options – a risky business, according to experts.

Demand can suddenly collapse, due to the invention of new technologies or substitutes for metals, while supply can skyrocket, leading to gluts. In October, Australia-based Arafura Resources announced that it is in talks to raise $964 million to develop its rare earth mine – one of five companies that are seeking money to develop mines.

“This means that there are already too many new entrants, and if all of them raise the necessary capital they believe they need, then some strategic investors will never see any profit,” says Lifton in a recent research note.

Kaplan observes: “When the electric automobile comes in, there will be no need for catalytic converters anymore and demand for platinum will drop sharply. In the next 10 years, you may see the pop of the speculative price bubble” in that metal.

And he concludes, after naming several other examples, such as silicon: “As for banking on this in terms of a long-term profitable investment, I wouldn’t count on it.” Metal prices are also greatly determined by economic cycles.

More recessions

Bob Doll, US-based chief equity strategist at asset management giant BlackRock, states in a forecast for the next decade that recessions will occur more often than in the past 20 years, probably closer to about once in every 3.8 years, the average number for the last century.

This could have a big effect on recycling companies. “Recycling is an industry that only makes money during the height of economic activity,” says Kaplan, arguing that they often lose more in the down cycle than they make in the upswing. “That is what knocks them out of business. So I’m not that bullish about them.”

‘Recycling is an industry that only makes money during the height of economic activity.’

However, there are investors that see this differently, such as London-based clean-tech investor Frog Capital, which saw a return of “a three-times multiple on its investment” by selling its stake in SiC Processing, a recycler and supplier of the wafer cutting fluids used to produce silicon wafers for solar panels and semiconductors, to Nordic Capital.

Furthermore, Boliden, the third largest copper and zinc supplier in Europe, is expanding its electronic scrap recycling facility, supported by a loan of about $82 million of the Nordic Investment Bank.

Once the expansion is completed, the facility will nearly triple its capacity and process 120,000 tonnes of electronic scrap a year. This is another step in realising the company’s vision for the future: “Recycling – tomorrow’s gold mine.”

Rising prices

Metals that are vital to low-carbon energy generation include cadmium, gallium, germanium, indium, cobalt, copper, lead (for its byproducts), nickel, manganese, molybdenum, platinum group metals, rare earth metals (especially neodymium, dysprosium, praseodymium, terbium and europium), selenium, silver, tantalum, tellurium, tin and zinc.

Demand for these metals is growing – at times rapidly – since they are also wanted for all sorts of high-tech and defence applications, ranging from hard disk drives, liquid crystal display screens and mobile telephones to missile guidance systems and smart bombs.

Since 2004, the price of neodymium has soared more than 10 times, from $8 to $90 per kg. In the past two years, the price of gallium fluctuated between $400 and $600/kg, to reach a current height at $650. Between 2005 and 2010, the price of platinum ramped up from about $1,000 to $1,700 an ounce.

Published: November 2010 in Environmental Finance.

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