Thorium Energy Inc.: An economic overview of a pioneering company

A low-key but growing and deliberate (re)turn to the development of thorium-based nuclear reactor fuel is underway globally. The legislative branch of the United States government has now joined in promoting this project as it begins to look like the development and implementation of the use of thorium-based nuclear reactor fuels may well turn out to be the ideal exit strategy for those committed to the replacement of the burning of fossil fuels as the principle method of generating electricity by sustainable and/or renewable sources of energy. Many of them have already realized that wind, solar, biomass, geothermal, tidal and the old standard, hydroelectric, cannot hold an economic candle to the proven success and safety -- yes, safety -- of nuclear.

Even so, many Americans are still concerned that the possible military applications of uranium- or plutonium-fueled reactors outweigh the positive effects of the total elimination of greenhouse producing gases and the reduction, but not elimination, of the need to rely, in part, on foreign sources for uranium. The use of thorium is the answer to these concerns.

Thorium has three main advantages over uranium as a source of nuclear fuel:

  1. It can be used to make a reactor that produces only a small fraction of the "waste" today produced by uranium/plutonium reactors.
  2. It can be used to build a reactor from the operations of which it is difficult and even impossible to extract anything useful for manufacturing an explosive-type nuclear weapon.
  3. Thorium can be produced immediately and in large enough quantities, in the continental United States, to make the country completely independent of any reliance on foreign sourcing while producing electricity In sufficient quantity so as to make the burning of fossil fuels for that purpose unnecessary.

Just as I am writing this, which is an updated version of a report I originally drafted on Nov. 17, 2008, "The Reasons to Invest in Thorium Energy Inc.," the United States Geological Survey (USGS) has released a mus- read report, dated March 25, 2009, for those interested in a safe and secure America independent of reliance on foreign sourcing for oil to generate electricity. The report, entitled "Thorium Deposits of the United States-Energy Resources for the Future?" is available at no cost on the Internet at http://pubs.usgs.gov/circ/1336/pdf/C1336.pdf. Download and read this report, and if you have any questions, please email me at jackLifton@aol.com. I will be glad to answer them. The USGS scientists provide the data to prove the validity of the third advantage, stated above, of thorium as a power metal for generating electricity in the United States.

On March 16, 2009, a bill, HR 1534, was introduced into the U.S. House of Representatives "To direct the Secretary of Defense and the Chairman of the Joint Chiefs of Staff to jointly carry out a study on the use of thorium-liquid fueled nuclear reactors for naval power needs, and for other purposes." In the Senate a bill, S 3680, "To amend the Atomic Energy Act of 1954 to provide for thorium fuel cycle nuclear power generation," which is officially to be cited as the "Thorium Energy Independence and Security Act of 2008" was introduced originally on Oct. 2, 2008, (110 Congress 2nd session) and we believe will be reintroduced into the new session of Congress (111 Congress 1st session) for 2009. Thus, for the first time in history, both houses of Congress are considering bills to authorize, fund and require the study of thorium fuel technology.

It is important to note that since the United States does not recycle nuclear fuel, no new fuel technology can be implemented without a complete study of its disposal. Because all known thorium reactor fuel cycles are believed to produce significantly less waste than uranium and/or plutonium fuel cycles, that the complete cradle-to-grave management of thorium fuel cycles is to be funded and mandated for study is an indication of a possible revolution in nuclear fuel technology. Once the waste management differential has been publicly quantified, it will be a powerful impetus to the use of thorium.

Thorium as a reactor fuel component is already being studied actively in India, because India's government believes that India has significant deposits of thorium, whereas it is clear that India does not have very much domestic uranium. China is also beginning to study thorium-based nuclear reactor fuels, and China does have significant amounts of thorium associated with its very large and currently exploited -- for rare earths -- deposits of monazite and bastnaesite.

However, China has only now begun to sequester the thorium-enriched residues from rare earth processing that until now were largely ignored. Both India and China want to develop thorium as a nuclear fuel component to conserve uranium and reduce their demand for foreign sources of uranium, as well as to take advantage of an asset that has been overlooked as an energy resource that is non-polluting and domestically available. These are exactly the same reasons that the United States is now looking at thorium. If the thorium programs in India, China and the United States are successful, each nation will be a customer for technology and thorium from the others, and it looks like the United States has more thorium than either of the other two major "competitors," and perhaps as much as both of them put together.

A recent press release by Canada's world-class nuclear reactor engineering and construction company, AECL, Atomic Energy of Canada Ltd., headlines "AECL Formalizes Strategic Agreement with China to Extend Nuclear Fuel Resources." This press release contains the pregnant sentence "AECL has tested thorium-based fuels in its test reactors and in the Rolphton, Ontario NPD 2 CANDU power reactor." There are also indications, in agreements and announcements, that Europe and the Middle East are actively exploring thorium-based reactor programs for the non-proliferative generation of electricity.

Thorium Energy Inc. is one of the first U.S.-based companies to participate in the mining of Critical Metals For The Core Areas Of Economic Growth Of The Twenty-First Century, Energy And High Technology.

Summary
The production and supply of the rare earth metals, and of a small amount of byproduct thorium, as of March 31, is under the absolute control of mining operators under the strict control of the government of the People's Republic of China. The demand for the rare earth metals as well as their supply, from the PRC, has been steadily growing from the beginning of the 21st century as more efficient, economical and environmentally friendly uses for the rare earth metals have caused them to be substituted for older, less-efficient base metals and also to be used ab initio as the critical basis -- it cannot be done without them -- of new technologies. Thorium, the use of which was much greater at the beginning of the 20th century than at its end, has now turned a corner as the world stands on the threshold of a new age of nuclear power generation, which includes thorium-fueled reactors that have less waste, almost no weapons capability, and a larger resource basis by many times than uranium.

Thorium and the rare earths are almost always found together for reasons of geochemistry. China, in fact, is where the world's still small supply of thorium is produced today, in conjunction with China's dominant role in the production, today, of the rare earths.

A supply crisis is looming for both thorium and the rare earths. To put it simply; China's industrialization is demanding increased tonnages of the rare earth metals at a growth rate of 15% a year. It is calculated that in 2008 China utilized, domestically, 80,000 metric tons of its estimated production, for 2008, of 132,000 metric tons of rare earths. This is 60% of the world's supply. At a growth for demand of 15% per annum China's domestic demand is calculated to exceed its production of the rare earths by the end of 2013 in which year China's production and domestic demand will reach just over 150,000 metric tons per annum.

A recent highly regarded study calculates the global demand for rare earths in 2013 to be more than 200,000 metric tons per annum, so that unless at least 50,000 metric tons per year of new production is established outside of China, then China will simply have total control in 2013 of all technologies and industries critically dependent on rare earth metals.

China, just this last summer, ordered its rare earth mining and refining industries to halt the bulk disposal of thorium and to accumulate it for a "future use." Miners have now been ordered to hold thorium-rich concentrates until notified by the central government as to their disposition. It is therefore also the case that unless rare earth production outside of China can grow to fill in non-Chinese demand for the rare earths, then there can ultimately be no large-scale thorium nuclear reactor revolution without Chinese acquiescence and thorium supply.

To resolve both crises of supply -- that is, that of the rare earths -- in the near term, and of thorium, for the long term, the ideal mining opportunity outside of China then would be one that has the best combination of thorium and rare earth deposits.

Thorium Energy Inc.
Thorium Energy Inc. presents an outstanding opportunity for U.S. involvement in the global economic development of the 21st century. The company controls one of the world's best sources of accessible epigenetic high-grade thorium for the coming future of non-proliferative nuclear (electric power) reactor fuel and simultaneously controls of one of the largest and most accessible deposits, as of yet undeveloped, in the world of the light rare earth elements (LREE). Thorium Energy. Inc.'s mineral deposits are all located in the western United States in Idaho, Montana and Colorado and are within, or close by, well-developed infrastructures of good roads, ample electric power and water. They are thus minable.

The thorium and rare earth deposits now owned by Thorium Energy Inc. were first discovered and surveyed just after World War II by major power utilities and industrial companies answering the call of the Federal Government to map America's critical resources for a future then envisioned to be powered by electricity generated by nuclear reactors, fueled with not just uranium but also with more abundant thorium. It was also to be an immediately optimistic future filled with labor saving and health improving technologies based on innovations derived from the properties of America's abundant domestic resources of minor metals and rare earths.

Companies like Idaho Power and Tenneco spent the current inflation-adjusted equivalent of tens of millions of dollars to survey and analyze the Lemhi Pass and Diamond Creek regions of Idaho, and the Idaho geological Survey and the then Bureau of Mines division of what is now The Bureau of Land Management. What is now the USGS sent professional geologists to validate and resurvey every square yard of these privately surveyed claims to create a verified inventory, for the future, of important and critical to-be-developed natural resources. Beginning in 1988, when the first phase of mineral discovery and banking had run its course, Thorium Energy Inc.'s predecessors began mining the accumulated data and using the information thus obtained to acquire the richest claims from the first wave of post World War II mineral inventory building.

America and the world entered into a second phase of mapping strategic natural resources just after the fall of Communism in the late 1980s, when it became clear that the geopolitical upheaval and the crescendo of new technological developments would combine to produce a wave of Asian development that would first create an infrastructure built upon base metals and then following that begin a massive development of demand for the minor, technology and power, metals such as the world had never before seen. Indeed, this development of Asian economies occurred and grew faster than anyone could have or did predict. At this moment, in Spring 2009, the Asian juggernaut is taking a breather; it will resume its furious expansion shortly, because it has no other direction to go in the face of an immense population now aware of and exposed to the largest and most rapid expansion of their standard of living and quality of life in history.

America has so-far squandered its great opportunity, not only to become a global provider of natural resources but even to remain self sufficient and independent. The United States, however, remains the engine of the world's economy, but consumption rather than production of resources has transformed the United States into a massive debtor, and so, when the economy finally overheated and sank beneath the weight of overextended borrowers and a vanishing industrial base from which to create wealth through exports, the global economy caught a cold.

China's growth, in late 2008, is predicted to be only 8%-9% in 2009 rather than 10.5%, and this is somehow considered a catastrophe even as it allows a China holding $2 trillion of U.S. Treasury debt to force down the prices of all commodity metals sold to China, thus enabling China to reduce the prices of its exports of durable goods and thus be able to recover earlier than the U.S. economy. In this current pause in the 21st century economic development of Asia, as the world catches its breath, Thorium Energy Inc. offers a once in a lifetime opportunity for investors to acquire the ownership of a domestic American resource base of thorium, the nuclear fuel of the future, and of the rare earths, the premier technology metals, used critically, for environmental control, shale and tar oil catalytic conversion to liquid petroleum, magnets for small powerful electric motors, and batteries for hybrid vehicles.

In 2008, TEI released the results of the company's thorough review of the existing mineral data for its claims combined with its own commissioned re-surveys and analyses of key properties identified by its consulting geologists. The information presented at the SME annual meeting in Salt Lake City in February 2008 has now generated a revision in the statements and estimates of reserves and resources of both thorium and of the rare earths by the USGS. The revised Thorium, 2008, Commodity Mineral Review (http://minerals.usgs.gov/minerals/pubs/commodity/thorium/mcs-2008-thori.pdf) has already been published and can be read on the Internet. The Thorium section of the USGS 2007 Minerals Yearbook can be found here: http://minerals.usgs.gov/minerals/pubs/commodity/thorium/myb1-2007-thori.pdf.

The Lemhi Pass, Idaho holdings of Thorium Energy Inc., is mentioned prominently in this latest revision of the USGS Mineral Yearbook as major locations for thorium ores. The same USGS publication also refers to and validates the resources and reserves of rare earths associated with the thorium in the Lemhi Pass deposits. This will be expanded and elaborated upon by the USGS separately when the revision of the USGS Rare Earth reserves and resources survey for 2008 is published.

It should be noted that the discovery of major resources of thorium and the rare earths at Diamond Creek, Idaho, by Thorium Energy Inc. were reported too late in 2008 for inclusion in the above USGS reports. The Diamond Creek discoveries along with two more in Colorado were publicly disclosed at the SME in Denver, Colo., in February 2009 by Thorium Energy Inc.'s geological survey team and publishable figures will be available shortly.

The significance of the revised surveys is that a key event for the revision of both was the release of its data analysis and continuing survey data by Thorium Energy Inc. It should be noted also that even as the latest USGS Thorium Review (2008) went to press, the company is continuing to discover additional resources and reserves of both thorium and of the light rare earths on the claims it has staked in Colorado as well as in Idaho.

The USGS came to the conclusion that it was time to update its surveys of both thorium and of the rare earth metals because the rapidly accelerating interest in the industrial use of both types of resources has made both of them into prominent strategic resources for the economic health not only of the United States but also of the world. The most important uses for these resources are nuclear power generation using thorium, reformation of heavy crude oil into usable forms, the manufacturing of high power small permanent magnets that make powerful and efficient electric motors possible, and the manufacturing of rechargeable batteries for use in hybrid vehicles and to store the electric power generated by wind, solar and geothermal electric generators using the light rare earth elements.

The above uses were all discovered in the past, immediately generated intense interest in the critical resources to make them happen, and then faded from the hype of sound-bite prominence as their long technological developments took place. Today, thorium and the REEs are entering into their industrial growth phase so that the technologies developed around them can be realized and put into mass production. This has already occurred for the REEs and thorium is now poised to enter its first period as an industrial power metal.

The data and analyses that follow show that TEI is the best possible investment for the near future, because that future will be defined by thorium and the rare earth elements.

To calculate the gross revenue potentials from the resources and reserves of thorium and the rare earths already discovered and, for the resources validated on the Thorium Energy Inc. properties, it is of course necessary to predict the prices of the metals to be recovered.

The problem with predicting the prices of thorium and the rare earth metals is that you need a base from which to start. There is no exchange on which one can trade these metals, which means simply that all purchases and sales of thorium and rare earth metals are by negotiation. This means, as with the case of any item that is not traded on an exchange, that the prices of the metals are not at all transparent. They are not readily found or guaranteed, so that you cannot manage the risk of price volatility in these metals by simply buying an option contract guaranteeing the delivery of a specific amount at a specific time in the future at a price fixed now.

The primary practical reason that no options contract exists on an exchange for thorium or any or all of the rare earth metals is that their chemical reactivity when pure does not allow for the easy storage of any of them in a simple way. This means that it would be difficult and expensive to warehouse such metals so that they could be delivered to fulfill an options contract in a specific physical form and grade of purity as are gold, platinum, palladium, copper, zinc, nickel and tin from warehouses operated by the London Metal Exchange. In addition, the prices of these metals up until fairly recently, were low, so that in the year 2003, for example, a ton of exchange-traded palladium was worth as much as $7.5 million, so that the total production of palladium that year, around 225 tons had a value of nearly $1.7 billion. By contrast, the entire value of all of the 80,000 tons of rare earth metals produced and marketed that same year was $500 million, and most of that value and tonnage, 85%, was due to just three -- lanthanum, cerium and neodymium -- of the 17 rare earth elements.

Another reason -- this one economic -- that thorium and the rare earth metals do not lend themselves to being warehoused for delivery is that there is neither a surplus of them nor a large enough number of producers or traders of them -- at least not enough well-financed producers and traders of them -- to support the expenses of an market on an existing exchange. This could change in the future, but not until the supply base is much more diversified with the addition of producers with large resources and reserves of thorium, LREEs or both.

In the following discussion we will use the thorium prices obtained by the USGS as published in its above-mentioned and linked surveys.

The prices of the metals we are looking at today are found by locating the existing producers, traders and end users and polling them on the prices that they either charge or receive for their metals. This is how the USGS establishes prices, and it is also how the best professional metal news reporting services, such as American Metal market, Metal-Pages Ltd., Asian Metal-Pages Ltd. and Metal Bulletin Ltd. discover prices. Of course, it is necessary when using such a method of price discovery to take into account the veracity of such data, as it impacts competitive advantage. Nonetheless having taken into account the shortcomings of an opaque market, well-known rare earth metals' consultant and analyst, Dudley Kingsnorth, has charted the history and current values of the REE prices as shown in the following table:

The above table was prepared in August 2008. The data for 2009 are not yet available as of this writing, but it is clear that the rare earth metals have not suffered the loss in value that the structural base metals, such as copper, iron, aluminum and zinc, have. The rare earth metals appear to have achieved a secular demand that is constant and growing. The rate of growth may change due to global economic conditions, but there has developed a constant base.

Before projecting where we think the prices for thorium and the rare earth metals will be in 2012-13, by which time it is believed that the economy will be well into a global recovery, let's look at an estimate of the value of Thorium Energy Inc.'s resources and reserves today. The supporting data for the calculations below are available from Thorium Energy Inc. upon request in the form of three extensively detailed reports prepared by Rich Reed, PE, PG labeled Appendix A (Lemhi Pass detail for Thorium), Appendix B (Diamond Creek), and Appendix C (Lemhi Pass detail for Rare Earth Elements). I am starting my calculation for thorium with the 2007 price for 99.9% ThO2 of $200/kg, as reported by the USGS Thorium 2008 Commodity Mineral Yearbook cited and linked above. I realize that this price is unrealistic because it is based on the small production of refined thorium currently carried out. Even if we factor in the large scale mining of thorium as a factor in reducing its price, we must take into account that the only metal with which we can compare thorium is uranium, which is today mined in fairly large quantities and which has sold recently for as much as $100/lb. Considering that deposits containing accessible amounts of thorium are in fact more common than those of uranium by a factor usually cited as three or four times, I am going to use a figure for thorium as a base for nuclear fuel of $25/lb.

For the rare earths today, it is not the price of the individual metals that is important in the table below but rather their distribution, and this varies according to whether or not the ore body reports mainly the low-weight rare earth elements (LREEs) or mainly the heavyweight rare earth elements (HREEs). The table above showing the comparative values of the various distributions in one of the currently known deposits in Canada, and of the Lemhi Pass ores of Thorium Energy Inc. offer valuations from $16,000 to $33,000/ton, which is to say from $7.30/lb to $15.00/lb based on February 2008 pricing for the concentrates of mixed rare earth oxides (REOs) sold or that would be produced and sold from the various distributions in the ore bodies at the two sites. I will use $10/lb as an average price for the REO concentrate that could be produced by Thorium Energy Inc. This figure is very conservative.

Metal Oxide

Location

Indicated + Inferred
Reserve or Resource

Valuation

Thorium Lemhi Pass (Id, Mt) 273,000 tons $13,650,000,000.00
Rare Earths Lemhi Pass 354,000 tons 7,800,000,000.00
Thorium Diamond Creek (Id) 11,000 tons 550.000, 000.00
Rare Earths
Diamond Creek (Id)
57,000 tons
1,140,000,000.00

Thorium Energy Inc. is not finished exploring its claims in the Lemhi Pass and Diamond Creek regions, and fully expects that the above statements of the total of indicated resources and inferred reserves to be conservative.

It is apparent that the Thorium Energy Inc. indicated resources and inferred reserves may well constitute the largest such deposits in North America for the rare earth elements and certainly are the largest deposits of high-grade thorium in North America, if not in the entire world.

This company also has a large additional body of claims in Colorado, on which substantial deposits of thorium and the rare earth elements have been verified. The company is now in the process of establishing the indicated reserves and inferred resources of both thorium and the REEs on the company properties based on the results reported at the SME in Denver, Colo., on Feb. 26, 2009.

As to future pricing of both thorium and the rare earth elements, it is clear that no matter what projects are advanced to production or begun outside of the PRC, it is the pricing established by the PRC that will dominate the thorium and rare earth space for the foreseeable future. It is clearly reasonable to assume also that both of these materials will be priced directly in renimbi rather than dollars in the near future so that not only will market fundamentals determine the future prices of both types of materials but also foreign currency exchange rates. Thus, the rumblings by China that it may not use the U.S. dollar as a benchmark or reserve currency are, in fact, positive for those who hold natural resources, which are priced by the Chinese through their dominance of a market.

The experts forecast that by 2013 the prices of thorium and the rare earth elements, in U.S. dollars, will have doubled from their 2008 levels. Thus, the contained value of the indicated resources and inferred reserves of thorium and rare earth elements bin -- just the claims in the Lemhi Pass and Diamond Creek regions -- would be approximately $45,000,000,000.

Each percent of the total value of Thorium Energy Inc.'s indicated resources and inferred reserves would be $450,000,000.00.

The company believes that an independent verification of the resources and reserves and the application of known methods of mining and concentrating the currently known grades of ores would result in a high percentage of the total resources and reserves being judged accessible and economical. Even if this proved to be only between 5% and 10% of the total the Thorium Energy Inc. claims would have a value now of as much as $2 billion now and $4 billion by 2013.

If you have questions or want to request the detailed data for TEI's claims, indicated reserves and inferred resources, please email kennedy200@sbcglobal.et, the company's communications coordinator. Note that at the moment TEI is a closely held private company.

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.

About the Author
Jack Lifton

Jack Lifton is a leading authority on the sourcing and end use trends of rare and strategic metals. He is a founding principal of Technology Metals Research LLC and president of Jack Lifton LLC, consulting for institutional investors doing due diligence on metal- and material-related opportunities.

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