What Happened in Washington DC?
By Clint Cox
I apologize for the delay in getting this story posted!
Let me start by saying that Infocast’s Conference held October 20-22 in Washington DC entitled “Managing Supply Chain Risks for Critical & Strategic Metals: Rare Earth Metals, Minor Metals, Platinum Group Metals, Lithium” had quite a mix of attendees — end users, government, exploration companies, media, consultants, and first nations participants. Here are some pics of the signage and venue:
Holiday Inn, Georgetown
Conference Title and Sponsors
Conference Room, it was standing room only on DAY ONE
The Conference was wide-ranging and was split into separate subject matter for each day. Rare earths were definitely a focus for the Conference, and I heard a number of perspectives that I had not heard from the podium before.
There was plenty of talk regarding the stockpiling of strategic elements — both pro and con. Anthony Lipmann provided an in-depth look at the history of stockpiles, beginning with the Biblical Joseph and bringing us up to present day. Mr. Lipmann provided the following as the purpose of stockpiles:
- Fear of resource exhaustion
- Fear of price distortion
- Fear of resource wars
From the above, it is clear that fear seems to be the driving force behind stockpiling. Mr. Lipmann also gave evidence that the market can negate the need for stockpiling by recycling or utilizing new mining methods, but the essence of his talk was really, “Do stockpiles work?”
Dudley Kingsnorth made an excellent point that REEs are not commodities, but that they are customer specific. He also showed a slide of the major rare earth projects of the world and when they hoped to be in production.
We also heard from Gary Billingsley (Great Western Minerals), David Kennedy (Less Common Metals — owned by Great Western), Don Bubar (Avalon Rare Metals), and Dave Hodge (Commerce Resources).
Jim Hedrick of the USGS spoke about lower cost rare earths within China because of faster permitting, no export tariffs, cheaper labor costs, and subsidized fuel. He also listed alternate sources for REEs outside of China.
Chris Hartshorn of Lux Research gave a very different view of the markets for strategic metals. One of the most interesting things he said was that there will be no pressure on lithium as a result of hybrid or electric vehicle markets. In contrast, Yaron Vorona of the International Lithium Alliance stated, “If the future is electric then the future is lithium.”
Gregg Brandyberry of Wildfire Commerce (and former VP of Procurement in Global Systems and Operations, GlazoSmithKline) got us started on day two. He spoke about supply and demand and they “take care of themselves in the long term”. He highlighted four key issues influencing supply risk:
His statement that, “There’s never been a riskier time since we’ve been alive,” was striking and seemed to resonate with the audience. He went on to give some details regarding supply disruption, financial market collapse, corporate reputation, and brand image.
One of his most engrossing thoughts had to do with the newfound power of NGOs (Non-Government Organizations). As NGOs focus on human rights and sustainability issues, the mining industry needs to be very aware of trends in this regard and be prepared to proactively address them.
Ed Richardson of Thomas & Skinner had my favorite risk quote of the day: “If you manage risk you are typically successful, if you don’t — you typically fail.”
Darrell Rishel of Corning spoke about engineering around rare metals if they can’t guarantee supply. Rishel also emphasized the importance of understanding the entire supply chain for all materials used in production.
Stuart Burns of Aptium Global explained some of the evolving technologies for recycling REEs — including Prius batteries.
Jeff Green of J.A. Green & Company had an abundance of information regarding the government’s approach to the strategic metals. He stated that, “We need a secure supply chain”, and explained this in terms of four steps:
Green also stated that the government likes to talk with groups of companies that have come together with a common cause.
Ivan Herring, former procurement expert at General Motors, said that it was 5-10 times as risky to rely on by-product production for supply. I find this very interesting, as it shows that end-users view the market differently than exploration companies that tout by-product production on occasion.
Stephen Freiman of Freiman Consulting provided a fascinating slide showing the history of the use of elements from the periodic table in computer chips. In the 1980s, just 11 elements were used to make the delicious chips that serve our technological society. By the 2000s the number of elements had grown to 45 — of these, 15 are rare earths!
The last panel of the morning session was about investment opportunities within the sector. Dudley Kingsnorth moderated the panel with John Kaiser, Tracy Weslosky, and Dr. Philippa Malmgren participating.
Kaiser spoke about the difficulty in evaluating REEs, and that typical mining analysts have trouble applying the discounted cash flow method to get good, relyable numbers for REE companies. He also discussed the need to understand the difference between economic versus strategic logic.
Kingsnorth walked us through a timeline of steps that need to be undertaken for an REE exploration company. The basic steps included proving the resource, defining the process (to get the rare earths out of the ore and into the market), and pre-feasibility.
Weslosky highlighted the need for an effective valuation method for companies pursuing the REEs.
Dr. Malmgren spoke about the broader landscape of macro economics and its possible affect on the tangible assets and the rare earth sector. Is deflation or inflation coming next? Many larger funds are looking for inflation on the horizon, she argued (quite persuasively, I might add!). They will move from paper money to hard assets. She said to get ready for increased volatility — its coming.
The afternoon session on Day Three was sparsely attended, but interesting, nonetheless. John Kaiser and Ivan Herring each spoke at length about “Virtual Hedging”. Kaiser walked us through his 9 steps in Getting to a Mine:
- Target Generation & Drilling
- Discovery Delineation
- Infill Drilling
- Bulk Sample & Metallurgy
- Permitting, Marketing, & Feasibility
Herring explained the differences between “Virtual Hedging” and “Synthetic Hedging”. He had a number of approaches that I hadn’t heard, and some common solutions such as offtake agreements.
All-in-all, very worthwhile. Here is my parting shot: