David Trueman: The Ups and Downs of Minor Metal Investing
Source: Sally Lowder of The Critical Metals Report (7/5/11)
The critical metals space is shifting. In this exclusive interview with The Critical Metals Report, Dr. David Trueman, a consulting geologist, points to opportunities in global mining, processing and recycling of -um metals for growing electronic applications.
The Critical Metals Report: You started your geological career as a smelter mechanic in Thompson, Manitoba in 1962 before moving into academia, government, industry and latterly, consulting. The New York Times, the U.S. Government and investors have suddenly woken up to the importance of critical metals-minor, strategic and rare earth elements-for everything from miniaturization of motors to high-powered magnets for alternative energy and military applications. Has your background given you a deeper understanding of the explosion of interest in these materials?
David Trueman: Every geologist should have some metallurgy background in the same way geologists should spend time in mining-to see what's involved in the winning of metals. In the otherwise small business of rare metals, it is important to be conversant with all the processing steps, from exploration to markets.
TCMR: Many of these -um metals that you refer to are not well known to the typical lay person. But the products they are used in-cell phones, miniature motors and computer chips-comprise almost everything that plugs in. One area that hasn't had as much attention is minor metals. I believe you call them smokestack metals or refinery metals. What is the investment potential for this class of metals?
DT: We have moved into an electronic and a green age. The upside investment potential is large, but as specialized as some of the metals themselves. Some of these metals are mined, concentrated and purified through chemical processes. Others, such as some of the electronic metals, are recovered from smokestack emissions before refining. In some ways, their winning seems counter-intuitive.
TCMR: Are these metals usually mined as a pure play or could we get all of these metals through recycling or as byproducts of other mining process?
DT: Some of these metals, such as tantalum or zirconium, could be considered pure plays. They are concentrated, perhaps taken into solution, refined or separated and end up being used in near pure form. Others, such as tellurium, germanium and indium-what I call the smokestack metals-may occur with copper, zinc, lead, and tin deposits where the base metal is the primary product. These minor metals occur in very small, parts per million (ppm), amounts and they're recovered as byproducts, demand and price permitting. Gallium, a different example, is recovered as a byproduct of aluminum processing. It's very much in demand, but to get exposure to gallium, you would have to invest in an aluminum company. Quite a different investment from that in a junior miner. There is not a lot of leverage.
TCMR: If demand for gallium were to skyrocket, wouldn't aluminum companies become much more valuable?
DT: You would think it would report to the bottom-line, but in the bigger picture it's probably a very minor component. If you were to find a gallium pure play company you'd have quite a bit of leverage. There are juniors out there that have gallium deposits containing hundreds of ppm gallium. In contrast, the bauxite ores that gallium is extracted from may run 10, 12 or 14 ppm gallium levels.
TCMR: What is gallium used for?
DT: Gallium is used in gallium arsenide computer chips and solar cells. It has also been looked at as a substitute for mercury in dental fillings. Gallium, like mercury, is liquid at room temperature. It can be used for improved thermometers, providing a wider temperature range than a mercury device. But the application is limited because the supply is so limited. About 25 years ago, I received a phone call from an engineer looking for 40 tons of gallium. In his naivety, he was asking for 3.5 years of the world's gallium supply. It would have stressed the price enormously.
TCMR: In addition to gallium, what are some of these other minor metals that have interesting technology applications?
DT: Indium is a good one. Its first usage 100 years ago was to depress alloy solidification temperatures-or eutectic point-in lead crankshaft bearings for example. Today, it is in demand for applications such as mobile phone touch screens, video displays and phosphors in light-emitting diodes.
TCMR: Are there any primary indium mines? I know of some indium-silver mines in South America, but are there any pure indium juniors out there?
DT: There are no primary indium producers. A large supply of indium comes from treating zinc ores and tin ores. If a company were to find a silver or zinc deposit with indium or germanium in it and ship the ore to a smelter, it might even be penalized for the minor metal contents, let alone receive compensation. The processing could be considered metallurgically bothersome rather than a credit. These are things that would certainly have to be addressed by a junior mining company in valuing an ore.
TCMR: You would think that the presence of a substance such as indium, which is used in all these high-tech devices, would add a lot of value to a junior mining company's asset mix.
DT: Yes, it would certainly add significantly to a junior mining company's revenue stream; it would really leverage the value of the ore deposit if the ore can be processed and those metals recovered. As demand goes up, more pressure will be applied for a credit on those contained metals if the ore were to be toll processed or custom treated. Historically, there has been only one primary gallium-germanium mine that I am aware of and it treated its own ore with solvent extraction processing.
TCMR: Are indium, germanium, gallium and tellurium similar in their chemical composition and applications?
DT: I like to call these electronic metals. Their chemistry is different as they are different elements, but they all do similar good things to computer chips and solar cells. Their functions aren't new. One of Einstein's hobbies was playing around with photo emissive devices. However, they've just come into their own in the past two decades or so. About 20 years ago, the price of gallium was running around $400/kilo and germanium was $200/kilo. Ten years ago, someone developed a faster computer chip using germanium and the price immediately flip-flopped. Germanium took off but gallium halved in price.
TCMR: We haven't heard much about these minor metals as investment plays. Is it because they are required in such small amounts that companies are able to acquire them readily through byproduct processing? Are there supply and demand issues?
DT: Until very recently, no one in the end-use arena knew anything about them. Those in the manufacturing sector deal with many of them on a daily basis. At the moment, indium and germanium are in equilibrium. Gallium is always verging on being stressed and tellurium is a big problem at the moment. Historically, tellurium has occurred in quantities of about 1oz. of tellurium:1oz. of gold. Gold is pretty rare, and in fact there is no primary tellurium production and most is recovered from base metal processing.
TCMR: What is tellurium used for?
DT: Tellurium is used in solar panels and solar cells because of higher efficiencies over other technologies.
TCMR: What are some of the other interesting metals for investors?
DT: I think hafnium is one to watch. Hafnium was largely considered a contaminant until recently. For decades hafnium was recovered and used exclusively by the U.S. Navy in nuclear submarines and aircraft carriers for reactor shielding. It has now found its way into computer chips and superconductors. Hafnium occurs naturally at about 1or 2 ppm hafnium:98 ppm in zirconium minerals. Hundreds of thousands of tons of zirconium are processed in the world each year, but the amount of hafnium produced would be in the 10s of tons/year.
TCMR: How can investors track minor metals prices when none of them are traded on the London Metal Exchange? How do investors get a sense of the supply and demand dynamics?
DT: That is difficult. Even using the most liberal rare metal definitions, for many, their annual consumption may be about 100 tons or less, per year. So, these commodities are traded as you or I might buy or sell a house or car. We agree on a price and that price may or may not be posted. So, it's very difficult to find out what deals are taking place and hence, the value of the transaction. You could start with things like the U.S. Geological Survey Commodity Reports. The historical prices going back a few years are fairly accurate. For current data, there are publications like Metal Pages or Asia Metals where price changes are noted daily.
TCMR: What is your advice for investing in tantalum or niobium juniors? Are these metals impacted by demand from electronic devices?
DT: Tantalum, for example, has the highest dielectric constant of all of the elements. That allows its use in electronic capacitor miniaturization. It's a valuable metal, about 40 percent of which is consumed in electronics. We've been watching the price rise from $30/lb. to several hundred dollars over the past year as sources of supply from African countries are being cut by legislation against conflict sources. Interesting things are happening in the tantalum business as a result. On the other hand, niobium, which also has a high dielectric constant, is much more susceptible to temperature ranges so it isn't suitable for many military or automotive uses. It is also much more readily available.
TCMR: What tantalum and niobium companies are interesting?
DT: More than 80% of the world's niobium has come from the Araxá Deposit in Brazil. More recently about 70% of the world's tantalum was coming from the Greenbushes and Wodgina deposits in Australia. That is changing.
The tantalum business is in turmoil as new supplies are being identified in Africa, although some of that may become contraband material or what's called blood tantalum. Small mining companies are popping up in Mozambique, Tanzania, Australia and Brazil. It's an interesting field and a myriad of small players offer exposure to a tantalum pure play. At the same time, large, low grade tantalum mines have been having, or are having problems coming on line.
Perhaps the best source of information on tantalum and niobium, and a good place for a new investor to look, is the Tantalum Information Center.
TCMR: Is there a chain of custody so electronics manufacturers can mark some of these minor metals to ensure that they are produced in a humane matter?
DT: It is an important issue. Tantalum is often a byproduct of tin smelting. We have been seeing tantalum-or tin concentrates-coming out of Africa being smelted in Thailand or Malaysia and losing its fingerprint. The source is erased, if you will. From there it could enter the tantalum markets, be put into capacitors and sold to computer manufacturers.
TCMR: Are HP, Dell and Microsoft concerned about the human rights implications on behalf of customers?
DT: Yes. Computer manufacturers and other electronic suppliers are actively supporting NGOs such as the Electronic Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI) to ensure that electronic metals are not coming from conflict sources.
Another problem is that because of the small annual tonnages, prices can be manipulated. As far back as 1980, tantalum prices were run up artificially from $12 to $110 before collapsing. Rumors of a shortage for Nokia phones and Sony PlayStations in 2000 drove the price of tantalum ballistic. We're now seeing perhaps as much as 40% of the supply of tantalum being squelched by the identification or tagging of contraband tantalum concentrates-and the price of tantalum is starting to reflect that.
TCMR: Of all these minor metals-indium, germanium, tantalum and gallium-which ones do you think have the most investor opportunity?
DT: All of them. We are competing with China for all of these metals. They would rather sell you a finished flat screen television than the metals to make your own. They are going to be major consumers of all of these metals.
TCMR: Are they using these materials in manufacturing products for their own use or for export or both?
DT: Both for internal consumption and for export purposes. I think all of these metals have a terrific demand upside coming. We're just getting started, if you will, in the electronic age. Miniaturization or substitution are perhaps threats to an investor. Certainly, substitution could blindside investors in a lot of these metals. Nanotechnology may also cut volumes required.
TCMR: Well, one thing that we are sure of is that the consumer demand for the latest, greatest gadget is insatiable.
DT: Which brings up recycling. Consumers want the latest handheld device and throw away the old ones. Recycling is certainly green and laudable, but it's not without its hazards. Companies entering into, or entertaining recycling should be aware that some of these electronic devices may contain beryllium alloys or, for example cobalt samarium alloys. We are all familiar with silicosis, or asbestosis, but few are aware of berylliosis or cobalt-related diseases that could arise through lack of precautions.
TCMR: Aren't the Chinese and Indians doing a lot of recycling, possibly using child labor? Even though we aren't recycling inhumanely, aren't we shipping most of our recycled electronic products to third-world countries for processing?
DT: Yes we are. When I visited China for the first time in 1983, it was the largest ship-breaking nation in the world. They were doing it solely to recover the copper in wiring. I think that role has now gone to India and they are exposed, for example, to asbestos from insulation. There are reports of recycling of those castoff e-devices, but I don't think, outside of scrap from the original manufacturing stages, that any of it is re-entering the markets. Most of the research I encounter for recycling of the more exotic metals is conducted in Japan. Elsewhere, I have seen large tonnages of stockpiled neodymium iron boron and cobalt samarium alloys that would cost more to ship to a recycling facility and process, than the value of the contained metals that would be recovered.
TCMR: So, do you see a potential business opportunity for a company in North America to get seriously into the electronic recycling business?
DT: Yes. I think there is a terrific opportunity there. It is a business that will grow.
TCMR: You've given us a lot to think about. Thank you very much for your time and your thoughts.
Dr. David Trueman started his geological career as a smelter mechanic in Thompson, Manitoba in 1962, the year Inco blew in its new converters. In the intervening 49 years, Dave has spent time in academia, government and industry-the last 37 years specializing in the rare metals field.
Dr. Trueman's interest in rare metals stemmed from examination of geological structural controls of granitic pegmatites and in 1977 he joined Tantalum Mining Corp. of Canada (TANCO) which at that time was producing about 70% of the world's newly won tantalum. He entered the junior mining sector in 1983 and the rare metals have since taken him through the Arctic in Canada, Greenland, the US and Russia, to Australia, Namibia, South Africa, India, the People's Republic of China, Brazil, Saudi Arabia, Spain, France, Wales, Denmark, Germany and throughout North America. His work has focused on beryllium, tantalum, niobium, lithium, rubidium, cesium, the lanthanide and rare earth elements, indium, gallium, germanium, tellurium, zirconium, hafnium, chromium, vanadium and titanium.
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1) Sally Lowder of The Critical Metals Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: None.
3) David Trueman: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None.
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