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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Could China Make Your Smartphone Disappear?

Commodities / Rare Earths Jul 13, 2014 - 04:37 PM GMT

By: Money_Morning

Commodities

Oil and Energy Investor Staff writes: The mines where iPhones are born – along with Toyota Priuses, wind turbines, lasers, disc drives, automotive catalytic converters, and many other indispensable elements of modern technology – may look like giant craters.

But they’re really battlegrounds in the geopolitical power grab known as the “Great Game.” And just as the balance of power among the U.S., China, the Middle East, and other nations is continually shifting in the energy industry, so, too, are there power struggles over the minerals we call rare earths: the elements critical to thousands of high-tech devices.


One country controls over 90% of global rare earth production.

And it’s a country that wants to bring the U.S. to its knees…

Critical… But Not So Rare

The 15 to 17 elements classified as rare earths are neither rare nor earth. But they’re integral parts of modern technology. An iPhone, for example, won’t work without eight of them.

And, just as the dominant players in the energy industry have shifted, so have the nations that control rare earths.

Scandium, Cerium, and the other rare earths may not be well known, but they aren’t particularly rare. Cerium, for example, is about as common as copper.

The problem isn’t their rarity, but the environmental costs in mining and extracting them. Many of the quarries where rare earths are mined are toxic messes.

The reason is simple: rare earths make up, at most, 8% of the matter extracted from a mine. The remainder is slightly radioactive and loaded with toxic chemicals used in the extraction process. The mines are an environmental nightmare.

Rare earths are distributed around the globe. But because of the financial and environmental costs involved in extracting them, countries that were once large producers of these critical materials have mostly closed up shop.

Until 1948, for example, most of the rare earths were sourced from mines in Brazil and India. Production shifted to South Africa in the 1950s when large veins of monazite were found. When the new invention of color television needed rare earths for its screens, production shifted to California, which was the leading producer of rare earths until the 1980s.

Then China entered the game.

The Chinese recognized the importance of rare earth elements early on. Back in 1992 Deng Xiaoping, the former leader of the Communist Party of China, noted that “The Middle East has oil and China has rare earth.”

With cheap labor and little concern for environmental safeguards, China was able to undercut U.S. prices and become the world leader in rare earths, just as the world market exploded.

The result was predictable: lower prices in China coupled with higher prices and environmental safeguards in the U.S. caused U.S. mines to close. Meanwhile, China’s share of global rare earths production rose to between 85% and 95%.

Suddenly, technology companies had virtually only one source for critical materials: China. And China capitalized on its power by lowering output and raising prices.

The world, particularly the U.S., needed to find another resource for critical rare earths. Formerly closed mines in California and elsewhere began to reopen, as new mines started in Malaysia and other areas.

But with financial, logistical, and environmental considerations making the development of a mine a five- to 10-year process, current activities weren’t sufficient to meet the growing demand for rare earths. The U.S. needed a breakthrough.

It occurred in a place few would have ever suspected.

Afghanistan.

The country is sitting on nearly $1 trillion in untapped mineral deposits, the U.S. believes. Vast stores of iron, copper, cobalt, gold, lithium, and other materials, including rare earths, are believed to exist in rich veins, making it potentially one of the most important mining centers in the world.

A Pentagon memo called the country the “Saudi Arabia of lithium,” a critical component of many batteries.

If correct, mineral wealth would far outstrip Afghanistan’s current economy, which is primarily based on opium and other narcotics, as well as a number of fruits and nuts. Unfortunately, an uncertain political future, corrupt government, and ongoing U.S. involvement make the situation unstable and unpredictable.

Beyond the current war and conflicts between regional warlords, developing the country’s vast mineral deposits presents other difficulties.

For one thing, much of the needed infrastructure, including transportation, power, and communications networks, is far from adequate. Building that infrastructure, and then bringing in the experts and equipment needed to begin development, would be very expensive.

And who would do it? The U.S. government? U.S. firms? The Afghani government, possibly in partnership with other nations or outside firms? Asian, Middle Eastern, or European countries?

The Chinese, of course, have the financial and technological resources, as well as the desire, to develop the country’s rare earth elements. The U.S., Japan, Russia, and the E.U do as well.

And all need rare earth elements, none more so than the U.S. Currently, according to the Alliance for American Manufacturing, close to100% of all rare earth elements used in U.S. manufacturing are imported.

Global competition for rare earths and energy is uncovering new opportunities for investors all over the world. One is in our own backyard.

It’s a special project that will make direct investment in oil and gas wells available to ordinary, everyday investors… An investment that wasn’t possible until very recently.

Stay tuned for more information very shortly.

Source : http://oilandenergyinvestor.com/2014/07/china-make-smartphone-disappear/

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