Friday, March 25, 2011

Still Snoozing.....

How long will this go on before someone notices?  This article includes several very telling statements that highlight the severity of the shortage and the pain that lies ahead for the United States and Western Europe.

March 24, 2011 @ 4:42 pm In Feature Articles
By Damon van der Linde - Exclusive to Rare Earth Investing News [1]
[2]The US Department of Energy (DOE) is planning for the future availability of rare earth elements, focusing only on their growing role in clean energy technologies such as magnets used in wind turbines and hybrid electric vehicles. As with other critical materials, governments are now starting to look forward, trying to predict how much of these materials are going to be needed and whether there will be an adequate supply available.
“Clean energy's share of REE use is a very small part of the pie right now; but, when you go out to 2025, it is the majority of the pie, so that's what's really driving this issue and that's our concern,” said David Diamond, speaking at the PDAC Critical Metals Emergency Forum in Toronto. Diamond is a member of the US Department of Energy Critical Metals Taskforce, and co-author of the 2010 US DOE Critical Materials Strategy [3]. “Based on the projections, by 2015 there would have to be some kind of new delta in terms of supply or advances in material efficiency like recycling to reduce the demand.”
Diamond says that there is much speculation involved in determining what the supplies and demands will be for REEs in the future because it is largely based on emerging technologies. The DOE's forecasts range from a “business as usual” scenario where the demand for clean energy technology does not increase, to projections made by the International Energy Agency, which show much more aggressive growth scenarios. Diamond says that this is a more likely scenario as clean energy technology deployment increases in order to meet different climate change targets.
“A relatively small percentage of wind turbines deployed on the market now use REEs for their magnets, but looking into the medium term that percentage is likely to go up if the market share goes up, and it's going to drive overall market penetration,” said Diamond.
Topping the list of critical REEs for clean energy technologies is dysprosium, which in the short term has both the highest supply risk and is judged to be the most important to clean energy. Dysprosium is used in magnets in applications such as drive motors for hybrid electric vehicles, which can require up to 100 grams of dysprosium per hybrid car produced. Based on Toyota's projected two million units per year, the use of dysprosium in applications such as this would quickly exhaust the available supply of the metal. Other REEs critical to clean energy technologies include yttrium, europium, terbium and neodymium.
Diamond emphasized the need for addressing this issue early, if the United States was going to continue its move towards cleaner energy and transportation. He says this will have to be done not only through securing future REE supplies, recycling and sourcing possible alternatives, but by investing in research, education other “human capital.”
“They say that China has thousands of people working on this, the US has dozens; so, there is really a need to train the next generation of scientists for a broader commission of science and technology outreach,” said Diamond.

Thursday, March 24, 2011

Silver Futures

This afternoon the CME stepped in and raised the initial and maintenance margin requirements on silver again.  They have more than doubled it in less than 6 months.  Same goes for the Uranium contract but stay focused on the poor man's gold for now.

Margin requirements are important because they dictate how many contracts can be held by a trader.  When the requirement doubles, buying power is chopped in half.  This is a key tool in keeping control of prices on the exchange.  When something is overheated they can inch up the requirement to cool it off and curb speculation.  When they more than double the rate in less than 6 months there is a high likelihood that a major problem exists.

What could that problem be?  The quantity of silver sold onto the contract market is far greater than the physical supply of silver available for deliver.  Current contracts are trading at a premium to future contracts.  This has been discussed here in the past as a condition called backwardation and indicates fear of failure to deliver in the future.  This is definitely not a healthy condition in markets.

It should also be mentioned that when the exchange raises requirements and curbs trading it reduces revenue that goes along with that trading.  Surely this will begin to affect the exchange, although not as much as a widespread public notice of failures to deliver on contracts, which would send silver parabolic on the chart.

Finally, the margin requirement has been raised from $5,000 to $11,138 per contract since November of 2010........This is what it looks like when you try to stop a bull......

Rare Earth Elements

Notice the staggering neodymium oxide price increases mentioned in the 9th paragraph of the article below.  Phase IV of this bull market still waits ahead.  How long will it take the analysts at major brokerage houses to catch on?  Here is what will need to happen:

  • Identify junior miners with Heavy rare earth deposits in North America
  • Pick the ones that can profitably get to market before 2015
  • Locate a calculator in their desk drawer & multiply kg of 43-101 compliant reserves by the exploding spot oxide prices
  • Realize that the companies identified are trading at $0.05 on the dollar to proven reserves

Unfortunately, the mainstream brokerage industry is enslaved by fee driven investment banking activity instead of true economic curiosity so the above steps will probably not be taken.  Maybe you should take them yourself?

Again, the catalyst for the move to Phase IV will be one of the following events.  A sovereign government will not be able to attain elements needed for defense or a blue chip company will have to slow production of a needed product.  This will be the domino that falls and ushers in Phase IV.

China to impose rare earth resource tax   2011-03-24 17:38:12FeedbackPrintRSS

HOHHOT, March 24 (Xinhua) -- China will impose a tax on rare earth minerals starting April 1, according to a statement issued jointly by the Ministry of Finance and the State Administration of Taxation to rare earth producers.
Zhang Zhong, general manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., the country's leading rare earth producer, confirmed Thursday that the company had received the statement.
According to the statement, the tax rate of mined light rare earths is 60 yuan (9.1 U.S. dollars) per tonne, while that of medium and heavy rare earths is set at 30 yuan per tonne.
Zhang said the tax would increase the company's production costs by about 720 million yuan this year.
Zhang also said that measures, such as the resource tax, taken to protect the rare earth resources would benefit the company in the long run.
The company headquartered in north China's Inner Mongolia Autonomous Region is currently the world's biggest producer of rare earth magnets widely used for making electronic products like computer hard drives and cordless tools.
Yang Wanxi, director of a rare earth expert panel of the Baotou Municipal Committee of Sciences, said taxes of rare earth minerals were currently levied under the category of ordinary non-ferrous metals, whose tax rates were between 0.5 and 3 yuan per tonne.
Baotou Steel Rare-Earth does not pay tax to mine the minerals as its parent company Baotou Steel Group pays it along with other minerals such as iron ore, Yang said.
He said prices of rare earths have been soaring since February, sometimes by 10,000 yuan per tonne a day. The price of neodymium, a rare earth mineral used for making rare-earth magnets, has increased to 600,000 yuan per tonne this week from 300,000 yuan per tonne by the end of last year.
"The rising profits can help producers offset the increased cost from the resource tax," he said.
Meanwhile the government will use the tax to support research on rare-earth processing and application technology, set up environmental compensation funds or build rare earth reserves, Yang added.
The resource tax is one in a series of new measures unveiled this year by the Chinese authorities to upgrade the rare earth industry. China's Ministry of Environmental Protection announced earlier this month that tougher rules on emission limits for producing rare earths will take effect on Oct. 1 this year.
The rules are expected to drive small and medium rare earth enterprises out of the industry or force them to merge with big players, thus promoting industry consolidation.
Baotou Steel Rare-Earth (Group) High-Tech Co. announced this month that the company would markedly increase its market share of five major rare earth products including magnetic materials in the next five years, which included rare earth magnets, polishing materials and hydrogen storage alloys crucial to battery production.
Editor: Fang Yang

Wednesday, March 23, 2011

Precious Metals Update

Specific price predictions are a recipe for disaster as no one human can accurately and consistently predict how and when something will happen.  With that said, some clarity is appearing in the silver and gold charts.

Silver is clearly experiencing extreme demand.  The chart is technically unhealthy as pullbacks would build a stronger base.  The fundamentals could have been so warped by primary dealer shorting and abuse that they will not return until much higher on the chart.  At this time $40/oz or $31.50/oz seem to be the next likely targets before 6-1-11.  Extension higher is possible but a fall below $31.50 would be surprising.  This morning's print of $36.52/oz leaves the spot metal above all tracked moving averages.  Testing would occur at $35.50 and $35.08 but does not seem likely.  The physical metal seems unavailable and that could push us right up to $40/oz.

Silver mining shares should move today and throughout this next extension.  There is no need to chase the shares up as when silver eventually consolidates there should be another buying opportunity.  Market professionals have access to millions of dollars worth of resources and computers but still have not been able to fully comprehend the leverage that a well managed silver miner has to this current price.  Many bargains exist in this sector and a buy in the right name over the past 2 weeks should make for a nice Christmas.

Gold is much less exciting.  At this time the metal is trading in a strong range and continues to bump it's head on the top of that range.  This range can be charted by drawing a line connecting the early 2008 and late 2010 highs.  Breaking out of this range would appear unhealthy if it occurred before 3rd quarter of 2011 as an insufficient base would have been established.  For new readers this would be the equivalent of building a house on weak concrete during a housing boom in a rush to go vertical.  It might be fine, but waiting for a load test before building would make more sense.  If the price does break the channel it will run up as high as $1,900/oz quickly but will come back and test the top of the channel around $1,600/oz in a wild ride that inexperienced investors should avoid.

Prediction: More base formation between now and an early June low with steady summer strength building for a 3rd quarter explosion into a new range with a surprise high test near $2,000/oz between 11-1-11 and 12-10-11 before closing the year just under $1,800/oz.

Gold mining stocks are still not that exciting.  The favored small producers with less than 400,000oz/yr of production are not screaming to be purchased.  Silver miners remain the favored position in the hunt for appreciation.  In the gold space, prospect generators seem to offer the best value right now as the next phase will cause an acquisition spree.  Some prospect generators have market caps that could be quadrupled with one asset sale.  This represents the easy bet in the gold sector today.

Blue blood republicans and Wall Street Journal loyalists please log off now.

Prediction: Libya is being invaded in an effort to gain access to it's gold reserves.  Gaddafi will surrender in exchange for a lease agreement on his gold stash.  While the problems in the physical gold market differ from those in silver they are still creating waves.  This ties in perfectly with the predicted price action in gold discussed above.  Roughly 150 tonnes of gold added to the physical market will buy the bullion banks some time delaying the ultimate reality.

Tuesday, March 22, 2011

Rare Earth Elements Update

As we continue to shout the facts about rare earth elements and the economics driving their market we wonder if the batteries are dead in our megaphone?

Phase III "Denial" is still our reality.  This phase is so frustrating.  The following article courtesy of Reuters is one of many that state the facts to an unaware mass.

China rare earth prices explode as export volumes collapse

4:53am EDT
By Tom Miles
BEIJING (Reuters) - China's exports of rare earth metals burst through the $100,000-per-tonne mark for the first time in February, up almost ninefold from a year before, while the volume of trade stayed far below historical averages.
China's squeeze on rare earths, which are used in a wide range of hardware including precision-guided weapons, hybrid car batteries and iPads, has forced prices up dramatically since July last year, when each tonne fetched a mere $14,405 on average.
The apparent price rises have averaged $10,000 per tonne per month but accelerated in February, galloping ahead by $34,000 per tonne, according to Reuters calculations based on data from China's Customs office.
Last month each tonne of exports was valued at $109,036, including the cost of insurance and freight, almost half as much again as the average value in January.
The explosion in export values has coincided with a collapse in volumes coming out of China, the source of almost all the world's rare earth supplies, which has cut export quotas of the 17 rare earth metals and raised tariffs on exports.
China's actions have infuriated its trading partners but lifted the shares of the few mining and prospecting companies outside China that are well-placed to capitalize on the constriction of Chinese supply.
But those firms' share prices have been under pressure this month because Japan's earthquake and tsunami are expected to temporarily slash demand from China's biggest customer. In February, 281 tonnes of Chinese exports went to Japan, valued at $38.9 million or $138,406 per tonne.
China exported a total of 750 tonnes in February, slightly more than the 647 tonnes shipped in January but otherwise the lowest monthly volume since February 2009, when demand was hit by the global financial crisis.
China's Customs office changed its method of presenting rare earths exports in its headline data this year, boosting the reported volume by including products made from rare earth metals in the total.
By that method, exports were 2,976 tonnes in February, up by 132 percent from a year before, when the figure did not include rare earth products.
As we await Phase IV we can only dream about what the catalyst might be.  Again, at the risk of boring our readers, a sovereign supply shock or a major production shutdown caused by a lack of available material continue to stand out as the most likely catalyst.  Which will it be?

Based on the chart action in our positions we can now estimate that this next phase, Phase IV "Acceptance", will at a minimum double the market capitalization of our positions in 11 months.  300-500% gains would not be a surprise in some positions but guessing which ones can be too difficult.  If our basket more than doubles we have chosen wisely with the odds of success in our favor.

A quick review of the economics in this space could be helpful in sifting through the media's weak attempt to expose the truth.

World demand in 2010 was approximately 100,000 tonnes.  If the price in this article is used for a simple calculation the total market value would be $10,000,000,000.

Monday, March 21, 2011

What Is A Contrarian?

Add star con·trar·i·an Adjective   /kənˈtre(ə)rēən/   /kän-/
  • Opposing or rejecting popular opinion; going against current practice
    • the comment came more from a contrarian disposition than moral conviction

This term has gained popularity recently.  Many people fancy themselves contrarian thinkers or investors but have little knowledge of what this means.  As you become truly committed to a contrarian trade you spend more and more time alone.  Collective thinkers travel on paved highways; contrarians travel alone in the wilderness.  At some point they have become convinced that an undiscovered destination justifies this journey.

Last week we wrote at length about the fundamentals of the uranium market.  The news coming from Japan had some of our junior uranium miners selling for the value of their cash alone effectively giving us an equity stake in their projects for free. This was an absolute overreaction characterized by a herd trampling everything as it runs to perceived safety.  The market fundamentals and pure economics were difficult to follow but Wednesday morning we took advantage of discounts in several uranium, rare earth and silver miners.  As a reminder you should rely on the advice of your broker or financial planner when making decisions.

As previously mentioned, do not think for one second that there is any popularity waiting for you on the contrarian journey.  In fact, prepare to be ridiculed and shunned constantly.  There is no need to worry though, many of these people who emotionally attack you were never allies to begin with and they merely tolerated you because you did not disrupt their personal agenda.

As you read the article below try as hard as possible to be completely objective.  If possible, imagine that you are from another world and are trying to get only the news in order to find your bearings in this society.  See if you then can notice the hostility and aggressive tone used by the people who have been selected to respond to this issue.  

Legislator says the state needs its own currency

 - Staff Writer
Published in: Wire

Related Images


Bradley wants gold standard.
 Cautioning that the federal dollars in your wallet could soon be little more than green paper backed by broken promises, state Rep. Glen Bradley wants North Carolina to issue its own legal tender backed by silver and gold.
The Republican from Youngsville has introduced a bill that would establish a legislative commission to study his plan for a state currency. He is also drafting a second bill that would require state government to accept gold and silver coins as payment for taxes and fees.
If the state treasurer starts accepting precious metals as payment, Bradley said that could prod the private sector to follow suit - potentially allowing residents to trade gold for groceries.
"I think we're in the process of inflating a dollar bubble that could be very devastating," said Bradley, a freshman legislator elected in November's GOP tide. "The idea is once the study commission finishes its work, then we could build on top of the hard-money currency with an actual State Tender Act that will basically [issue currency] in correspondence to precious metals stored in the state treasury."
Bradley's bill has yet to attract any co-sponsors among his fellow Republicans.
Mike Walden, an economics professor at N.C. State University, said the notion of North Carolina reverting to having its own currency is outlandish.
"We dealt with this issue about 100 years ago when the Federal Reserve was established," Walden said. "If North Carolina were to have its own currency, that would put us at an extreme competitive disadvantage vis-a-vis other parts of the country and other parts of the world."
State Treasurer Janet Cowell joked that Bradley's precious metals proposal could increase efficiency in state government by providing a good use for her department's old basement vault, which is currently used for storage.
"I look forward to engaging in an important public policy debate about whose face should be on the gold coin," quipped Cowell, a Democrat.
But Bradley predicts that world events could soon prove him prescient.
"I don't necessarily believe [the Federal Reserve] is about to collapse right now," said Bradley, 37. "There are still a few things they can do with qualitative easing to sort of extend their survival. It's just a question of how long. Right know we have a lot of sovereign debt going to China and Japan. When that debt stops being purchased by foreign countries, that currency is going to flood back onto American shores, potentially creating hyperinflation and bursting the currency bubble we have coming in Federal Reserve notes today."
The Austrian School
Bradley, a self-employed computer technician and former Marine, attended Southeastern Baptist Theological Seminary in Wake Forest until he could no longer afford tuition, he said. While he has not taken any in-depth classes in economics, Bradley described himself as a devotee of the Austrian School, a branch of economic thought that originated in Vienna and was influential before World War I.
Back then the value of most of the world's currencies were tied to the amount of the gold amassed in their national treasuries. The United States abandoned the gold standard in 1933, after it was blamed for worsening the Great Depression.
Though the ideas of the Austrian School have been rejected by mainstream economists for much of the last century, they are in vogue with Libertarians and some supporters of the tea party movement.
The language of Bradley's House Bill 301 predicts a dire future for the U.S. economy.
"Many widely recognized experts predict the inevitable destruction of the Federal Reserve System's currency through hyperinflation in the foreseeable future," the bill declares. "In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System, for which the State is not prepared, the State's governmental finances and private economy will be thrown into chaos. ..."
Asked who are the "widely recognized experts" to which his bill refers, Bradley cited U.S. Rep. Ron Paul of Texas and Peter Schiff, a precious-metals dealer and investor who regularly appears as a commentator on Fox News.
Walden, the economics professor, said the views espoused by adherents of the Austrian School are well outside the mainstream of modern economic thought.
Bradley's ideas for taking the state back to the Gilded Age don't end at economics.
About Commerce Clause
A strict Constitutionalist, he has also introduced bills to exempt North Carolina agricultural products and firearms manufactured in the state from federal regulation as long as they are not sold or exported across state lines, measures that fly in the face of more than a century of U.S. Supreme Court rulings interpreting the Commerce Clause of the U.S. Constitution.
"They're wrong," Bradley said confidently of generations of justices. "The 10th Amendment is quite clear that those powers not reserved in the Constitution for the federal government are reserved to the states. It's doesn't take a high-priced lawyer to interpret the Constitution."
Rep. Becky Carney, a Charlotte Democrat, said she found Bradley's currency bill "perplexing."
"There has absolutely been no indication of the collapse of the Federal Reserve system," said Carney, who serves on the House banking committee. "It sounds like the Chicken Little story about 'the sky is falling.'"
The office of House Speaker Thom Tillis declined to say whether the GOP leadership supports Bradley's proposal to create a state currency. His bill has been referred to the House rules committee, where legislation is sometimes sent to die.
"There are a lot of diverse opinions and diverse views in our caucus," said Jordan Shaw, Tillis' spokesman. "I don't think we're going to forecast what will happen."