The New York Times reported on March 20, 2009, that "The Department of Energy (DoE) has tentatively awarded its first alternative-energy loan guarantee, breaking a four-year logjam in the federal loan program." What wasn't reported was that this was one of the most short-sighted -- and harmful to the domestic American natural resources industry -- decisions in history, and that it makes no sense at all if the purpose of such loans is to reduce greenhouse gas emissions and stimulate the American economy to produce not only jobs but new wealth.
In effect, the DoE is adding value to Chinese production of the base metals aluminum, zinc, and copper by making the recovery of select technology metals, which can be, if in demand and/or priced sufficiently high, byproducts of the production of those base metals.
It seems that anyone at the DoE with the skills to look at the long-term consequences of decisions and actions involving the demand for technology metals has left the department.
The DoE and its supporters in Congress are patting themselves on the back for "breaking the logjam" of applications for Federal subsidies for sustainable energy with this "loan" guarantee. These market-ignorant, myopic bureaucrats are proud of themselves for deciding, in fact, to mis-use more than $500 million of the taxpayers' money. They are requesting that an application by a thin-film photovoltaic solar cell manufacturer to develop the mass production of a product based on a technology called CIGS be approved forthwith without any independent verification of claims made by the applicant that the critical raw materials are "earth abundant" and available in the marketplace. Applause, please.
But has any one of the DoE bureaucrats or temporary appointees of the current administration noted that CIGS technology is critically dependent on the supply not only of (C) copper, but also of (In) indium, (Ga) gallium and (Se) selenium? Has any of them noted that the United States is today a net importer of copper, and that the United States is totally dependent on foreign sources for indium and gallium, and that they, along with selenium, are only produced as byproducts of zinc, aluminum and copper base-metal production. All of them also -- the byproduct metals, that is -- are only present in newly mined base metals. Even then, they are only recovered if and when those metals are processed, at added costs, to separate out these byproducts, which are part of a group of the minor metals that I call the technology metals without the products of which no country can maintain itself as a high-tech economy.
The U.S. Congress funds the budget of the Department of Commerce, the Bureau of Land Management (BLM), and the BLM funds the U.S. Geological Survey (USGS). At www.usgs.gov, you'll find the updated "2009" commodity mineral surveys for copper, gallium, indium and selenium. These surveys note the world production of these metals, their sources with regard to the producing nations, the amounts currently used in the United States and the percentage of those amounts that are imported.
Here you can find data on import reliance as a percentage of total American domestic demand: www.nma.org/pdf/m_reliance.pdf. This includes a table produced just a month ago by the National Mining Association, a lobbying group in Washington. You will note that America's import reliance on gallium is 99% and for indium is 100%; for copper our reliance is only 32%. Selenium is not listed because domestic production and use are not well enough known.
Note that the USGS data indicate that for gallium world production in 2008 was estimated at 95 metric tons and U.S. consumption at 48.4 metric tons, more than 50% of the world's production! For indium, the figures are 568 metric tons total production and 160 metric tons U.S. consumption. In other words the United States consumed nearly one-third of the world's new production of indium just last year.
Gallium, indium and selenium used for new production by the DoE's loan applicant will need to come from new production of gallium, indium and selenium because the existing supplies are not known to be in surplus, and, in any case, are all byproducts that are only produced if and only if the base metals in which they are found are produced and processed to recover them.
The use of gallium in existing applications in the United States, as just one example, has tripled in just the last four years. The production of the base metal from which almost all of the gallium is obtained, aluminum, has in the same time period risen, though only by 20%, since 2004, to 40 million metric tons (see http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2009-alumi.pdf). Clearly, the increase of the recovery of the byproduct gallium has risen far beyond the rate of increased production of aluminum, but we do not know which aluminum smelters are now producing how much gallium, and we do not therefore know if the world recession that has already caused a sharp reduction in the production of aluminum may have caused a disproportionately large decrease in the production of new gallium.
The same arguments may be made for our knowledge of the present and near future production of indium, from zinc, and selenium, from copper.
The demand for the technology metals such as gallium, indium and selenium has little in common with the demand for their source base metals, aluminum, zinc and copper, but the supply of those technology metals is completely dependent on the supply of those base metals. Has the DoE taken this into account?
The production of thin film photovoltaic solar cells using CIGS technology will increase the demand for gallium, indium and selenium.
Will it be possible to satisfy that demand? Is it possible today to determine if it is possible to satisfy that demand? Is it significant that the largest producer of gallium, indium and selenium is the People's Republic of China, PRC? Is it significant that the PRC has been reducing its export allocations and raising its export taxes on these and other technology metals steadily for the last five years? Is it significant that the PRC openly admits that it plans and wants to be the world's source of high-technology finished goods, which will require in the foreseeable future all of its current and projected supply of the technology metals to meet its domestic demand?
The United States has a greater variety of mineral resources than any other nation in the world. Yet because of activist pressure, the United States does not produce most of the technology metals, which it could produce in quantities that could make America's high-tech industry self-sufficient and secure the U.S. economy.
The same activists turn a blind eye to mining and refining in America being the cleanest and safest in the world, and prefer that we obtain metals such as gallium, indium and selenium, as much as we still can, from the PRC, which utilizes low-paid labor in appalling conditions and produces many times more pollution in their production than we can ever eliminate in their use.
I would ask if the DoE has taken into account any of the above data or analyses in their decision to grant a $500 million loan guarantee to an applicant that cannot prove it can economically utilize the facility it is planning to construct because it cannot prove that its production capacity will be not be limited by the availability and rate of production of its critical raw materials, which will entirely need to be imported?
Jack Lifton is a featured contributor to the new Resource Investor. With 35 years experience in the OEM electronics and automotive supply industries, he is today a metals sourcing consultant for OEM heavy industry and offers due diligence analysis for institutional investors. Lifton is a prominent speaker on the market fundamentals of minor metals and their end-uses and travels the world on behalf of Fortune 500 and Global 1000 corporations. Reach him directly at JackLifton@aol.com.