$90 Billion Buried Smack Bang in the Middle of Taliban Country… — ASXnewbie.com
Weekly Ramblings of an Australian Stock Trader - incorporating ASXweekendtrader.com
Random header image... Refresh for more!

$90 Billion Buried Smack Bang in the Middle of Taliban Country…

Apart from Gold and Energy i.e. Coal Seam Gas ( more on this later)  The other area I am interested in is the rare earths sector. Here are a couple  of companies for you to research .  LYC  and KOR,  Now to Money Mornings article.

$90 Billion Buried Smack Bang in the Middle of Taliban Country…

China owns the rare earths market.

It has the world’s largest resource. Each year the ‘Middle Kingdom’s’ rare earths mines account for over 90% of all rare earths produced.

And last year, China cut exports of rare earths by 70%. It now only exports about 30,000 tonnes per year.

So, in order to gain access to rare earths, foreign companies have had to set up manufacturing facilities in China.

Last month the New York Times reported:

‘Companies like Showa Denko and Santoku of Japan and Intermatix of the United States are adding factory capacity in China this year instead of elsewhere because they need access to the scarce metals.’

The International Business Times reported ‘The Organisation for Economic Cooperation and Development has estimated that non-Chinese producers pay at least 31% more for raw rare earth metals than Chinese producers.’

But to counter the Chinese dominance, the market is changing.

Even though America has higher labour costs and tough environmental restrictions, it didn’t stop Molycorp [NYSE: MCP], from reopening its rare earths mine, Mountain Pass in California.Then there’s Japan. Last year it needed 25,000 tonnes of rare earths to use in the manufacture of hi-tech goods. But unlike America, Japan doesn’t have any mines it can reopen. In fact, the country doesn’t have any rare earth deposits at all.

So, like all the natural resources Japan uses, it has to import them… from wherever it can get them…

Welcome to Siberia

Japanese firms Mitsui & Co [T: 8031] and Sumitomo Corp [T: 8053], described by Russia Briefing, an online news service, as ‘Japan’s second largest and third biggest trading companies’, were recently in Russia, shopping for rare earths.

US government data suggest that Russia and Siberia have a combined 19% of the world’s rare earths supply.

This is expected to attract miners to Yakutia, located in the north-east region of Russia.

Governor of Yakutia, Yegor Borisov told the Financial Post, ‘Now there’s good reason to reconsider our position on rare earth deposits in Yakutia that were scheduled for development after 2030.’

Bloomberg News says Borisov is in talks with the Federal Subsoil Agency in Moscow about starting auctions for the deposits as early as 2014.

But this is just one of the many rare earths deposits available.

ChelPipe [RX: CHEP], a Russian steel pipe maker, paid $115 million for a 30% stake in a Siberian rare earth deposit, located in the Irkutsk region. It’s estimated the deposit holds about 25 million kilograms of niobium.

Niobium is used in guided missiles and medical equipment. So, why the interest from a steel pipe maker?

‘It is more like a financial investment for us, but it also can secure our position in the metals which we use in the production of large-diameter pipe production’, the company chairman told the Moscow Times.

That tells you something about the rare earths market: companies that previously had no interest in rare earths are seeking to secure deposits. The Yakutia governor called the regions rare earth supply a ‘strategic deposit’.

But Siberia isn’t the only country looking to cash in on rare earths…

The Taliban Option

The US Geological Survey just rereleased the results from an 18-month study of mineral deposits in Afghanistan.

It turns out the country could be sitting on a $1 trillion mineral deposit. That includes 1.4 million metric tonnes of rare earths. And it could be worth up to $90 billion.

The thing is, the metals are located in the Helmand province. Smack bang in the middle of Taliban territory!

Marc Grossman, a US Special Representative for Afghanistan and Pakistan said, ‘The potential that these findings have for the future well-being of the Afghan people is significant.’

In spite of the Taliban inhabiting the precious rare earth area, it might not take long to find a bidder. Australian company Buccaneer Energy [ASX: BCC] and the privately owned, Canadian Hunter Dickinson Inc. were both recently outbid for Afghan oil and copper by state-owned Chinese companies.

China Metallurigcal recently committed $2.9 billion to develop Afghanistan’s Aynak copper mine. And Indian and Chinese companies have eyed off 1.8 billion tonnes of high quality iron ore in Afghanistan’s Hajigak region.

‘Too risky’ becomes economically viable

Even so, high costs and political instability means Afghanistan’s mineral deposits have been neglected.

An easier bet is Russia. Private entrepreneurs already know about Siberia’s rare earths riches. But because most of the deposits are privately owned - and strategically stored - little has been done about them.

Yet both of these countries could become part of the global rare earths mining community.

And with China squeezing the market by cutting rare earth export quotas, it’s only a matter of time before new deposits are brought online.

Rare earth deposits that were once too risky, too hard to mine or too expensive to mine are now a priority.

In the long term, it will force rare earths price down. But only when new resources are proven and set for production.

Until then it presents a great chance for companies with a proven resource (such as Australian rare earths companies) to profit from the current record high rare earths prices.

Shae Smith.
Assistant Editor, Money Morning

This article is contributed by Money Morning. Click Here to Subscribe to their free newsletter.



There are no comments yet...

Kick things off by filling out the form below.

Leave a Comment