richard karn - resources & energy symposium 2012

Change We Can Believe In

Richard Karn Managing Editor

The Emerging Trends Report Anchorage, Alaska

What is the fundamental difference between these elements?

GEOLOGY FOR LIBERAL ARTISTS elements having a higher atomic number than iron (Z>26) cannot be formed by nuclear fusion processes in stars originate only by neutron or proton absorption of already existing bigger nuclei. these capture processes with extremely high fluxes of neutrons and protons occur exclusively in massive stars during the end of their life cycle a supernova explosion both creates these elements and distributes them through space as 'ash' in an interstellar cloud solar system formed by condensation, contraction and subsequent collapse of an interstellar cloud > 99% of the matter of the solar system was concentrated in the sun the rest is contained in planets, meteorites and comets

Planetesimals were formed out of dust and ice particles; consequently, planets were built up by collisions of planetesimals.

The material remaining outside the sun has undergone one or more of the following processes: oxidation, accretion, melting, segregation, and fractional crystallisation.

Various transportation and concentration mechanisms over countless cycles create accumulations of these elements in compounds that sometimes are economic to mine—most are not The probability of elements > 26 forming then, is low--as is their relative abundance

Source: USGS

Specialty Metals Experiencing Supply Threat

48 Specialty Metals Experiencing Supply Threat (number of threats)

8

antimony (5) beryllium (3) bismuth (3) cobalt (3)

fluorspar (2) gallium (3) germanium (3) graphite (3)

hafnium (2) indium (3) lithium (2) magnesia (3)

manganese (2) molybdenum (2) niobium (4) 6 PGMs (5)

15 REEs (4) rhenium (3) scandium (3) selenium (4)

silicon (2) silver (3) tantalum (2) tellurium (4)

tin (3) titanium (2) tungsten (3) vanadium (2)

zirconium (3)

Sovereign Risk Scarcity No Substitute By-product Dissipative Use

Specialty Metal Demand Drivers Endless pursuit of higher quality, ever more efficient devices at ever

lower prices

Technology-enabled explosion in material science R&D

Unique performance characteristics in tech alloys

Limited substitution + trace amounts used = price inelastic

Scarcity or byproduct sourcing = supply inelastic Many have dissipative uses but no recycling protocols

Specialty metal demand trajectory is discovery-driven and largely

independent of GDP (unlike oil, base metals, lumber etc)

…cycle back to top and repeat—faster.

www.emergingtrendsreport.com

Ruthenium HDD example

Note that the vertical axis is logarithmic, so the ‘fit’ to reflect growth in HDD capacity reflects exponential growth.

The Great Stabilizer: - 3G and 4G super alloys (Ni, Co, V, W, Mo + Re) - perpendicular bit stacking HDDs - artificial photosynthesis - nano-lattice for targeted drug delivery

HDD Capacity Growth

Scandium: Industry-Changing Potential

Scandium (Sc) in aerospace: • Scandium is the most potent grain-refining agent known for aluminium (Al) • 98% Al : 2% Sc super-alloys have the highest strength-to-weight ratio in use today • Significantly improves strength, durability, plasticity, and corrosion resistance • Renders aluminium weldable without heat cracking (rivet-free aircraft) • Reduces weight and build-cost, improving fuel efficiency and aerodynamics

Scandium in Solid Oxide Fuel Cells

• > 12 Patents replace Y in Yttrium Stabilized Zirconium electrolytes with Sc • Lower operating temperature extends fuel cell life and makes housings cheaper • Critical for fuel cell dynamics and economics

Scandium in Lighting • Scandium combusting on the sun is what gives us ‘sunlight’ • Widespread use in film set and stadium lighting to replicate daylight • New environmentally benign incandescent replacement

Closest analogue is the Niobium market in 1970’s (today worth US$5-7B

annually from single supplier)

Scandium: Demand is there, Supply is lacking Global Sc production +/- 8 tons per annum (tpa) sourced primarily as a by-

product from China (REEs), Russia, Ukraine, Kazakhstan (U)

Aerospace industry and Bloom Energy alone would like to see stable supply of 300 and 30 tpa respectively of Sc production before retooling

USGS-quoted price for Sc2O3 is US$1400/kg ($1.4M/ton); anecdotal market price is US$2,000 – 5,000/kg—when you can get it

Known Australian JORC-compliant Sc resources:

– Metallica Minerals Ltd: 16.8 Mt @ 130 g/t Sc (2175 t Sc metal/ 3200 t Sc2O3)

– Jervois Mining Ltd: 12 Mt @ 261 g/t Sc (3100 t Sc metal/4700t Sc2O3)

– Platina Resources Ltd: 10.1 Mt @ 340 g/t (3400 t Sc metal/ 5100 t Sc2O3)

Combined, a 90% recovery rate indicates Australia has enough Sc to supply global markets with 390 tpa of Sc metal, or 630 tpa of Sc2O3, for 20 years without further exploration success

Why is the Bull Market in Specialty Metals Being Overlooked?

Not easy to invest in: mis- & disinformation Murky pricing: few are traded on an exchange Off-exchange traded metals are unhedgeable Many are by-products and sold forward Pricing is discovery-driven, not GDP-correlated

Free Marketeers in denial about Neomercantilist intentions

Troubles in the EU, USA and Japan—and increasingly in the BRICS

www.emergingtrendsreport.com

Specialty Metals in Electronics

Hageluken, Christian:”Sustainable metals recycling from waste electronics”; South Pacific Regional E-waste Workshop; Brisbane, QLD, 21.07.2010.

www.emergingtrendsreport.com

Underappreciated but Critical Driver: eWaste

321m computers sold globally in 2010-- 98m in US alone 1.3b cell phones sold globally in 2010; number in use surpasses 5.0b

(Gartner)

123,000 computers are discarded every day in the US--19% are recycled

402,000 cell phones are discarded every day in the US--13% are recycled (EPA)

200 g/t Au in PC motherboard scrap;

mobile phone scrap: 340 g/t Au, 3500 g/t Ag, 140 g/t Pd, 130 kg Cu (EPA)

...another is the US

www.emergingtrendsreport.com

In 2011, the US...

produced 23.0 trillion cubic feet of natural gas (#1)

produced 5.67 million barrels of oil (#3)

oil reserves worldwide have grown from 642 billion barrels in 1980 to more than 1.3 trillion barrels in 2009

has the richest oil shale deposits in the world—estimates are there are about 1 trillion barrels of recoverable oil (4 x Saudi Arabia)...and now Canadian oil sands are considered the second largest

Paired Trade: long North American chemical and fertilizer companies, short everyone else

Combined crude and product pipelines: 148,622 miles/238,000 km Combined nat gas transmission and gathering pipelines: 321,944 miles/515,000km

(including distribution mains: 1,539,911 miles/2,463,850 km) Source: BTS, 2009 data

1. less joy-riding/cruising + increasing use of public transit 2. more on-line and purposeful shopping 3. less gasoline stored in car gas tanks as people only buy for their immediate needs (254m cars & trucks averaging 20 gals per = 5 B mobile storage) 4. improved fuel efficiency 5. alternate energy fuels, esp. nat gas (Clean Energy Fuels), fleets of municipal buses and delivery vehicles (UPS) and taxis are growing, far outpacing sales of hybrids and EVs ...but since 1980, the population has grown from 234m to 313m: so a 34% increase in population was attended by a 47% drop in retail gasoline deliveries--25% of the drop of which occurred in the second half of 2011 alone. Sustained high price reflects refineries closing along the eastern seaboard

“The addition and withdrawal of intermittent electrical generation to the grid, such as that from solar and especially wind, have contributed to the decline in the reliability of the North American electrical grid.”

"Beef prices have climbed about 30% over the past two years and roughly 10% from February 2011 to February 2012," said J. Pawlak, restaurant research and consulting firm. (WSJ) ...and then there is ethanol.

How sustainable is this?

Since 1980, the US has created more than 160,000 laws but has repealed only 79

The longest document ever written is... The US Tax Code (85,000 pages and growing annually)

The number of US Federal government employees has doubled over the last decade (14:1 tax receipts: Fed employee salary)

Small Business Administration (a government body): "regulations in general add $10,585 in costs per employee per year."

...Peak Government

...the end of the Welfare State

...Thatcher Moment

"When you out-go exceeds you income, your upkeep becomes your downfall."

“Something that can’t go on, won’t”

"Only in America could the rich people who pay 86% of all income taxes be accused of not paying their ‘fair share’ by people who don't pay any income taxes at all."

Change We Can Believe In

Reform is in the air: ‘12 & ‘14 elections

Smaller, less intrusive gov’t

Just enforce the regs and laws we have

Major O&G pipeline RR&E, electrical grid + storage, water & wastewater treatment

Infra rebuild: cheap, creates jobs, expands productive side of economy

Spec Mets are leveraged to the massive demand on the horizon