LAS VEGAS (ResourceInvestor.com) -- I am going to define "peak metals" by an analogy to peak oil. A peak metal is a specific answer to the question "Are there any metals the current new production of which are either now at their maximum attainable or which may soon be at that point?"
In addition, if this production maximum has occurred for a specific metal, or may occur soon, will our standard of living, safety or health be impacted? Even if so, are there still good investments in the production of such metals now, and do such investments have a time window of opportunity?
Before answering these questions, let's study their background a little: The word "strategic" comes from the classical Greek word strategos, a (military) general officer, and the concept of strategic metals has much more recently been derived from the idea that there are substances without which we cannot plan to defend ourselves against an enemy who is equipped with them if we are not so equipped. Tungsten is one such metal - it is critical to the production of armour and ammunition, which will be as effective as that of any potential enemy who has access to tungsten. Its possession by us along with our level of manufacturing technology assures a level paying field in a non-nuclear conflict with a similarly equipped enemy, so it is truly today a strategic metal.
Critical metals are defined as those without which we simply cannot build certain things. The reason may be that the thing won't function with them, such as an automotive emissions control catalytic converter which won't function without rhodium. The only way known so far for a catalytic converter to meet its legally mandated emissions reductions of nitrogen oxides back to the naturally occurring nitrogen from which they formed in the first place is by passing the hot exhaust gases over finely divided rhodium. Without such existing functionality, as provided by the rhodium in a catalytic converter, a car may not be sold in the U.S., Europe or Japan legally.
The American OEM automotive industry, just for the single use discussed above, accounts by itself for the demand for the overwhelming majority - more than three-fourths - of the 1-million ounce supply of newly produced rhodium annually. It is therefore obvious that as world car production increases from a total of 75 million units per annum in 2007 to a projected 100 million vehicles in 2012, there could be - if the usage of the internal combustion engine does not dramatically decline or switch over to hydrogen as a fuel - a growing rhodium deficit.
The U.S. federal government's war and defence departments have published lists of strategic metals just before, during and just after all of the wars of the 20th century. The word strategic has thus come to be entangled commonly with the concept of a military necessity, although it should today just as well be applied to the survival of the civilian sector of the American economy as well.
Twentieth century wars, hot and cold, up until Desert Storm have also always caused Congress to legislate rules and appropriate federal funds to assist in the discovery of and mining of strategic metals to be stockpiled against shortages and potential interruption of supply.
Up until now, however, there has been reluctance on the part of political America's leaders and national planners, in particular, to associate the selection of strategic and/or critical metals, even for stockpiling, with the idea of peak metals.
This is because such an association goes against the grain of the thinking of America's financial class on Wall Street - because it goes against the grain of the theory and practice of free market capitalism as taught particularly in America's business schools.
That theory with respect to strategic and critical metals is based on a misunderstanding of the practical impact and meaning of the results of the study of the elemental composition of the earth's crust. The latest measurements of the concentrations of metals in the earth's crust, the 20- to 40-kilometre thick "solidified" layer of rock upon much less than 30% of which we all live and mine, shows clearly and indisputably that the total amount of even the least common metals and minerals in just the crust is, from the human use point of view, infinite.
So, while it is true that the domestic American "accessible" high grade ores of many commodity metals, such as Mesabi Range iron in Minnesota and Michigan upper peninsula copper, have been mined out, the demand and therefore price increases have stimulated the development of new technology to recover the metal values from progressively lower grades of ore, although demand and new technology developments have not been in lockstep nor are new supplies, even of lower grade ores, all in the same or expected places.
This demand increase followed by new technology is supposed, by Washington and Wall Street because of the infinite amount of metals in the earth's crust, to be a progression which will and can never end. Wall Street then believes that Washington should fund discovery because Wall Street is reluctant to do so, probably because, although according to infinite supply theory there will always be an ore grade somewhere for which an economical extraction technology can be found, there is still a very low probability, and thus a high risk for failure, of just any prospector coming across the ore body.
The practical aspect of free market economics (fme) theory that arises from the theory of an infinite amount of material and the ultimate discovery of an economical extraction technology is the belief is that 1.) The more you offer to buy of a substance, the cheaper should be its price, and 2.) If you have enough money you can always ultimately find the item to buy. It is this belief that most buyers in the markets of nations that follow fme operate by.
The infinite amount school loves hype. Given even that the adherents of this school know that discovery of ores and technological smelting and refining innovation to make them practical do not happen simultaneously, they just assume that the one will follow the other reasonably soon, and that it can be made sooner through hype. The infinite school also likes to ignore the fact that political issues of land use as well as of the political and health issues of environmentalism can stop even the most dramatic technological innovation in its tracks.
It is now common for environmental groups to refuse to listen to or study the results of geo-scientists who point out with facts and figures that a mining operation will not only be safe but may return air and water and the land around the mine in better condition for human, animal and plant safety than it was to start with.
Even given that so far such discovery and innovation have been keeping pace, the lag between discovery and implementation today inhibited mostly by political issues can and has now actually produced some peak metal situations.
I'm going to mention one more issue that contributes to the creation of a peak metal situation: The probability of a metal becoming a peak metals is highest among those strategic and critical metals that are themselves secondary, or by-products, of the mining of other metals. The financial community has no theory or practice to deal with these at all, and end users of such metals are frequently completely unaware of the linkage of their supply of such a metal to the supply of another metal, which they may not even use.
Gallium, for example, is critical to many modern electronic applications and there is no substitute for it which is anywhere near as effective. But gallium is only produced as a by-product, a secondary material, of aluminium production from bauxite. Global production is less than 100 tonnes a year. The U.S. imports 100% of its needs, around 40 tonnes in 2006, according to the USGS, and 97% of that goes into electronics production. Gallium is not recovered from scrap economically because its content in the scrap flow is miniscule.
Gallium first became a strategic and critical metal in the 10 years after World War II, because it was a necessary component to stabilize an alloy (of gallium and plutonium) which made the most effectively reliable atomic bombs. Therefore the U.S. government invested a fortune to subsidise the development of processes by aluminium producers to separate, recover and refine gallium that otherwise would have never been developed.
Today gallium for nuclear weapons - at least in the U.S. - is plentiful; it is recycled from the program to reduce the number of nuclear weapons. Such gallium as is recovered from this program, however, is not suitable for electronics use due to radiochemical issues; even the tiniest amount of intrinsic radioactivity can "poison" a semiconductor device.
Gallium's current strategic and critical importance arises from its use to make high speed electronic switches, solid state lasers and optoelectronic sensors. The gallium for electronics, which is still produced as a secondary product of aluminium production and not recovered from scrap, is probably today at peak production, and that production is using those same technologies that were subsidised in their development by the U.S. Defense Department a half century ago. Aluminium production may be increasing, but not all aluminium is produced from bauxite, and not all bauxite contains enough gallium to be recoverable.
The military and civilian end uses for gallium in electronics are growing rapidly with most of the new demand coming from China's booming civilian electronics and military hardware industries as well as from a rearming Russia. In addition, there is a misguided attempt by the solar power industry to promote photovoltaic cells dependent on gallium, indium and selenium in place of "expensive" other cells. It has been calculated
I therefore today classify gallium as a peak metal, because until and unless electronics technology finds a substitute that is as effective, we will be running out of gallium.
Gallium went from a 75-year long run of being a scientific curiosity to being a strategic metal in the 1950s when its critical use in the manufacturing of atomic bombs was discovered, but its identification as a peak metal resource came only after another 50 years when its increased critical usage finally exceeded its supply and no further discoveries or technical innovation could increase that supply. At any given time the factors of contemporary utilization technology, lack of innovations in extraction, smelting, and refining, cost and availability of energy and politics may act together to exhaust a resource.
In a 1981 article in Science, the Journal of the American Association of Science, the following metals were all identified as strategic, but not all as critical metals:
- Platinum, not PGMs
This year's list, selected by my colleague Ivan Herring to the National Academies for its Critical Minerals for Industrial Use study group, begun last March and are to conclude and be published next month, were:
- Rare Earth Metals
Which critical metals from the above lists may today already be classified as peak metals? I think only rhodium, a secondary product of platinum mining, has that honour, and that situation will persist so long as internal combustion engines use petroleum hydrocarbons for fuel, and we use internal combustion engines for general motive power for vehicles.
Should vehicular propulsion change over completely to batteries and fuel cells the need for rhodium will end, and it no longer will be a peak metal.
So I today announce my first two choices for peak metals: gallium and rhodium.
These choices, through real, are contingent upon either their continued usage for the purposes for which they are used today or the critical need for these peak metals in any new "important" process. Should either be substituted or a major present use be discontinued, they will fall from my first peak metals list.
Next week I will expand this first peak metals list by three to a total of "The Top Five," as I report on a presentation made at the Hard Assets Conference by Herring on the future usage of molybdenum and some other strategic and critical metals.
I hope then also to give some answers to the first question I had at the conference after I made my presentation: "What's the play in gallium or rhodium?"
Jack Lifton spoke on this topic at the 2007 Hard Assets Conference in Las Vegas. to read more coverage of the event.