MINING.com » Richard Mills – Ahead of the Herd

An argument for a contrarian investment

Richard Mills - Ahead of the Herd — Sat, 19 May 2012 10:01:24 +0000

While it might not look like it now, the most investable trend over the next 20 years is going to be in the resource sector, the renewable and non-renewable resources, the minerals, ores, fossil fuels and biomass a wealthier and growing global population is increasingly demanding from finite supplies and already strained production capabilities.

Renewable and Non-renewable Resources

We have crossed a critical threshold. The demand we are now placing on our planets resources appears to have begun to outpace the rate at which they can be supplied.

The gap between human demand on our planet’s renewable resources and the supply of those resources is known as ecological overshoot. To better understand the concept think of your bank account – in it you have $5000.00 paying monthly interest. Month after month you take the interest plus $100. That $100 is your financial, or for our purposes, your ecological overshoot and its withdrawal is obviously unsustainable.

The human enterprise now consumes nearly 60 billion metric tons of the world's four key resources – minerals, ores, fossil fuels and biomass (plant materials) – per year.

Developed countries citizens consume an average of 16 tons of those four key resources per capita (ranging up to 40 or more tons per person in some developed countries).

According to a report from the U.N., by 2050, humanity could devour an estimated 140 billion tons of minerals, ores, fossil fuels and biomass per year.

Total global resource use soared from six billion tonnes in 1900 (1.6 billion people) to 49 billion tonnes in 2000 (just over 6 billion people) and is now running at close to 60 billion tonnes (just over 7 billion people).

Demand/Consumption

Two factors are involved in increasing consumption. One is the growth in population:

2011 7 billion

2020 7.6 billion

2027 8 billion

2030 8.2 billion

2040 8.8 billion

2046 9 billion

2050 9.2 billion

The second factor is the growth in wealth in the major developing countries – China, India, Africa* and Indonesia have enormous numbers of people who are already middle class and hundreds of millions still to become middle class.

*Africans, on a per capita basis, are richer than Indians and a full dozen African states have higher gross national income per capita than China.

Today Africa has 14% of the world’s population and by 2050 one in every four people on the planet will be African. The rapidly emerging African middle class could today number almost 300 million people – that’s out of a total population of one billion.

The Organization for Economic Co-operation and Development says the global middle class numbers 1.8 billon, or 28% of the world’s population.

According to the UN report “RESILIENT PEOPLE RESILIENT PLANET A Future Worth Choosing” the number of middle-class consumers will increase by three billion people over the next 20 years.

The president of the Center for Global Development, Nancy Birdsall, calculates that India has no middle class. The McKinsey Global Institute projects that India’s middle class of 50 million – less than 5% of the country’s population – will explode to 583 million by 2030.

McKinsey Global puts China’s middle class at 43% of its population today, on its way to 76% in 2025.

Economic studies suggest that industrial metals and minerals consumption depends on the stage of development, the stages are normally divided in four, and are said to be dominated by 1) infrastructure development, defined by high use of cement and construction materials; 2) light manufacture, defined by high use of copper; 3) heavy manufacture, defined by high use of aluminum and steel; and 4) Consumer goods, defined by high use of aluminum, energy minerals and specialty steels (Source: USGS).

The stages are expected to take about 20 years each and begin at 5 year intervals, lasting for a total of 30 – 40 years, depending on political and macroeconomic conditions. China for instance, appears to have entered the heavy manufacture stage based on steel consumption, while India may be well into the light manufacturing stage.” Luisa Moreno Investingthesis.com

Of course many other factors are at play and will, going forward, contribute to a “perfect storm” in the commodity markets.

Inflation

Because central banks can increase the supply of money virtually at will, and do so, the value of all existing money decreases.

The amount of goods and services remains the same, but now the amount of money chasing them has increased, this increased competition – more money (inflation) for the same amount of goods and services – causes prices to rise.

Governments and Central Banks want slowly rising prices. They pour money into the market to encourage growth so prices increase rather than decrease. Price decreases, or deflation (less money growth), slows economic activity – if people think prices are going to be lower next week they will not buy today, they will wait, this leads to a contraction in economic activity, something all governments fear.

Nations in Europe, and the U.S., will inflate (print more of) their currencies rather than cutting back spending or raising taxes. In a global race to worthless Asian economies will also have to print massive amounts of their currencies so they stay weaker then the US dollar. Asian exports have to be cheap for American consumers and American exports have to be more expensive than locally produced goods.

Many have called for very high levels of inflation possibly leading to hyperinflation. Their reasoning is that over printing of the US dollar will cause the dollar to weaken and inflation to set in – more money chasing the same amount, or less, of goods causes prices to rise. A rise in gold, silver and commodities prices in would be the result.

The precious metals and commodities have gone up, substantially – prices reacted to the increase in the monetary base and the corresponding increase in the velocity of money caused by financial innovations such as mortgage-backed securities (MBS), collateralized debt obligations (CDO), derivatives and credit default swaps etc.

The monetary base was expanding and there was an orgy of money spending fueling expectations of inflation.

As soon as the QE program, part’s 1 & 2, ended in June of 2011 the markets had to get by on a lot less money and liquidity. Austerity has temporarily replaced prolific spending – the monetary base is not expanding, money is not circulating and this is fueling deflationary fears.

Today the dollar is strong because the EU, and the world, have an acute shortage of dollars for the necessary bailouts and needed liquidity. A rising dollar is noninflationary so the rising dollar produces lower commodity prices.

It’s this author’s belief the US, and the world, will return to Quantitative Easing (QE) and will flood the world with liquidity. A falling weaker dollar pushes up the price of commodities.

Single minded money printing has to be the next stage. Politicians, governments and central banks will abandon the restraints they have been operating under and do whatever they think it will take to pacify voters, save their re-election chances, “right” their economies and salvage the fiat monetary system. Tax cuts, more and bigger deficits, continued low interest rates into the forseeable future and aggressive asset purchase programs, steroidal quantitative easing, are all going to achieve previously unimaginable levels.

The monetary base will explode, and if the money velocity chart reverses – if small businesses and consumers actually get their hands on some of this money – precious metals and commodities prices will soar.

Supply

Supply shortages always lead to high enough metal prices for further increases in production, thus supply will eventually exceed demand and prices will drop…right? Well maybe, maybe not. Margins (not price) motivates investment and if the cost of metal production is increasing margins might not be sustainable.

Lets state the obvious:

For over the last ten years supply has struggled to keep pace with demand
Metal supply is finite and subject to compounding demand from developing nations
Metal production is highly cyclical, with intermittent peaks and troughs which are closely linked to economic cycles – declining production has historically been driven by falling demand and prices, not by scarcity
Rates of production and amounts of reserves continually change in response to movements in markets and technological advances
Most mineral resources will not be exhausted in the near future
If energy was cheap and unlimited then recoverable resources would be unlimited

But

Discovery and development is increasingly becoming more challenging and expensive
Average ore grades are in decline for most minerals, yet production has increased dramatically
Our most important metals are suffering from declining ore quality and rising extraction (ore is a different and inferior chemical or structural composition) costs
Our prosperity has always been based on the fact that producing resources yielded more resources than it cost. However the cost of *energy is climbing, the amount used is climbing but the returns from energy expended is declining. Eventually the quantity of resources used in the extraction process will be 100% of what is produced
Most older existing mines, the foundation of our supply, have increasing costs with production rates stagnating or even declining
The rate of discovery is not keeping pace with the rate of depletion, let alone being higher

*Energy can be thought of as a proxy for labor, materials, energy and externalities – environmental, community impact etc.

The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically – all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics.

The average grade of gold deposits has been dropping as well.

“We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America. Now we have to go to the more remote places.” Glencore CEO, Ivan Glasenberg in the Financial Times describing why his firm operates in the Congo and Zambia

We are experiencing a paradigm shift. If nothing else, right now at this point in history, we all have to realize that the mining industry is exiting “easy & cheap” and is starting the upward slope of chronic lower supply, permanently higher prices and higher risk.

Increasingly we will see falling average grades being mined, mines becoming deeper, more remote and come with increased political risk. Extraction of metals from the mined ore will is becoming more complex and expensive.

Resource Nationalism

Country Risk - Where the political and economic stability of the host country is questionable, and abrupt changes in the business environment could adversely affect profits or the value of the company’s assets.

Resource nationalism – The tendency of people and governments to assert control, for strategic and economic reasons, over natural resources located on their territory.

Every country needs to secure supplies of needed commodities at competitive prices yet supply is increasingly constrained and demand is growing. Barring a total global economic collapse or a dramatic reduction in the world’s human population it doesn’t seem to this author demand is going to collapse anytime soon.

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

Massive population booms
Infrastructure build out and urbanization plans
Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

Political instability of supplier countries
The manipulation of supplies
The competition over supplies
Attacks on supply infrastructure
Accidents and natural disasters
Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

Stopping or slowing the export of natural resources
Shutting down traditional supply markets
Buying companies for their deposits
Project finance tied to off take agreements

“Resource nationalism is taking other forms as well, including greater controls on foreign participation, mandated beneficiation, use it or lose it demands and mandated government participation.” Ernst & Young Global Mining & Metals Leader Mike Elliott

The PricewaterhouseCoopers Mine 2011 survey highlights what governments across the globe are looking at in regards to the world’s top 40 miners:

Achieved net profits of $110b last year
Halved their debt
Built cash reserves of $105bn
Announced capital programs of $300b for 2011

Today many governments are looking at ways to get more money from miners as companies report record profits – the higher the returns and the higher the profits, the greedier governments become. As commodity prices rise governments try to boost their share of the proceeds from their countries energy and mining sectors.

Miners are an easy target as mining is a long term investment and one that is especially capital intensive – mines are also immobile, so miners are at the mercy of the countries in which they operate. Outright seizure of assets happens using the twin excuses of historical injustice and environmental/contractual misdeeds. There is no compensation offered and no recourse.

All of this means increasingly scarce, and accessible resources, are going to become much harder to find and develop – meaning companies with projects in politically stable environments are that much more valuable.

Skills and Labor Shortage

A combination of mass retirements and increasing natural resource demand from emerging economies has created a crisis in the resource extraction sector – one which is definitely not on investor’s radar screens.

Currently there is a “massive talent gap” that is going to get worse because the global mining industry is experiencing the biggest wave of workforce retirements in 70 years – the oldest baby boomers turned 65 years old in 2011.

The Mining Industry Human Resources Council (MIHRC) has recently said that about 40% of the resource extraction industry’s workforce is at least 50 years old and one third of them are expected to retire by 2022.

The organization also forecasts that the Canadian mining industry will face a shortage of 140,000 workers by 2021 – this number of workers being needed just to maintain current levels of production.

The Petroleum Human Resources Council of Canada warned a severe oil patch labor shortage is looming and that the “patch” will need to hire 24,000 new employees by 2014.

Increased resource demand is driving demand for skilled workers. A shortage of skilled workers was the second biggest business risk for mining in 2011 (as it was in 2010) and is forecast to be the number two risk (resource nationalism/country risk is the number one risk) for miners again in 2012. In the coming years a lack of skilled workers is going to be the major cause for concern in the resource extraction industry.

“Government or industry reports in the past few years in Australia, the U.S. and South Africa all highlight growing skills shortages in the mining industry.” Recent HSBC commodities report

The skills shortages are global, shortages are happening in South Africa, Australia, Canada and South America. Costs are increasing, projects are being deferred or perhaps even cancelled outright due to the inability to staff operations – tighter labor markets also provide unions with greater bargaining powers when dealing with companies over wage settlements and other disputes.

“Given the ageing profile of the current workforce and a lack of engineers and geologists with enough experience, the labour resourcing requirements for new mining projects at various stages of development across the globe are simply not going to be met. Production targets and project deadlines are inevitably going to slip. The time taken to train a mining professional can be up to five years, but it is the candidate with around ten years experience who is in particularly short supply. A failure by the mining industry to recruit and train during the tough times in the 1990s, when the price of metals plummeted, has led to particular shortages of mid-career professionals.” Mining Global Employment Review 2011, Faststream Recruitment

Analysts say attracting and retaining increasingly scarce skills will:

Accelerate cost increases
Squeeze profit margins
Threaten the viability of some marginal projects

Conclusion – Junior’s, An Argument for a Contrarian Investment

Our reality – we’re living on a relatively small planet with a finite amount of reserves and a growing human population.

The world’s major miners are making immense profits but they are having an extremely difficult time replacing reserves let alone growing them. Mining is the story of depleting assets, that asset must be constantly replenished, miners that want to stay in business must replace every pound, oz and gram taken out of the ground.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines – majors do not make discoveries, juniors do, that’s their function in the resource food chain. Junior resource companies already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

Junior resource companies – the same ones who today are so oversold and undervalued – are the present owners of the world’s future commodities supply and, most important for investors seeking outsized returns, they act like leveraged exposure (with price gains many times that of the underlying commodity) to the specific commodity(s) investors want exposure to.

Are there a few junior resource companies, with exceptional management teams operating in politically safe jurisdictions, on your radar screen?

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

***

Richards articles have been published on more than 400 websites including:

Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Money slow down

Richard Mills - Ahead of the Herd — Sun, 13 May 2012 14:59:09 +0000

Many have called for very high levels of inflation possibly leading to hyperinflation. Their reasoning is that over printing of the US dollar will cause the dollar to weaken and inflation to set in – more money chasing the same amount, or less, of goods causes prices to rise. A rise in gold and silver (and commodities prices), would be the result.

Gold and commodities have gone up, substantially – prices reacted to the increase in the monetary base and the corresponding increase in the velocity of money caused by financial innovations such as mortgage-backed securities (MBS), collateralized debt obligations (CDO), derivatives and credit default swaps etc.

But the called for massive inflation hasn’t yet happened, yes there’s been more than a modest rise in the real price of goods (much more then the government measured Consumer Price Index), but treasury yields and home prices are at record lows, jobs have languished and credit has stalled. These are not the conditions one would expect to see in a highly inflationary environment.

This brings up two questions:

We’ve not had the much higher inflation called for – why not?
Are there further gains to be made in the prices of gold and silver (and commodities in general)?

Between August 11, 2008 and the end of 2011, the monetary base, which only the Fed can produce, almost tripled with a Bernanke Fed injection of $1.7 trillion dollars.

Most of the money issued by the Bernanke Fed is parked in banks as excess reserves that the banks are not required to hold.

On October 6, 2008 the Fed announced it would begin paying interest on the reserve balances of the nation's banks. The Fed’s records show they were paid $2.18 billion interest on these reserves just in 2009.

These interest payments are an incentive to hold the cash. At the end of 2011 U.S. banks were holding 88 percent of the monetary base ($1.5 trillion of the $1.7 trillion increase) issued by the Fed since August 2008 as excess reserves they are not required to hold.

As long as this money stays parked at the Fed it has no velocity, it’s not loaned out, it’s not changing hands, it’s not being spent, its velocity is zero.

When we talk about the velocity of money, we are speaking of the average frequency a dollar is spent. If nobody is spending money the velocity is zero.

Velocity, as shown by the above chart, is currently at a record low.

Most of the dollars created in the stimulus programs (ie QE’s 1 & 2), after the bubbles burst, have never made it into circulation to be spent by small businesses (the largest job creators) or consumers (the driver of the US and world economies), there either parked at the Fed or the world’s central banks as foreign reserves (many countries hold US dollars in their foreign reserve accounts, China has trillions of US dollars, most of these dollars will never make it into circulation).

Let’s take a look at four charts; the US monetary base, gold’s price, money velocity and the US dollar index. You can see that gold has not, and is not, responding to the dollar’s strength or weakness as much as it responds to the increase in the US monetary base and money’s velocity.

Now we know why precious metals, and commodity prices, were so strong – the monetary base was expanding and there was an orgy of money spending fueling expectations of inflation. Currently the monetary base is not expanding, money is not circulating, this is fueling deflationary fears. Add in the multiple fears of a China slowdown, the EU imploding and the US slipping back into recession and we can see why prices are falling.

The questions we need to find answers for are:

Are the Fed, and the world’s central banks, done with increasing the global monetary base?
Have they given up in their attempts to revive credit and fuel another economic “spend your way to riches” prosperity bubble?
Is austerity here to stay?

Consider:

Governing parties are suffering major losses in election after election as anti-austerity parties make gains.

Unless continuously fed with new credit the global financial system will implode, when confronted with this possibility governments always respond in the same way – by printing more money.

The world’s governments have unlimited printing presses.

France has elected a socialist leader who will demand an end to austerity.

The European Central Bank has accepted that growth should take precedence over balanced budgets.

German Chancellor Angela Merkel’s CDU party won only 31% of the vote in Scheleswig-Holstein, the party’s worst showing in 50 years. Merkel’s hard line austerity programs, so unpopular in the rest of Europe, are increasingly being viewed with skepticism at home in Germany.

Greek voters just delivered a resounding anti-austerity election verdict – more than 50 per cent of them cast votes for parties opposing public spending cuts. If there’s another election in Greece this summer there is a high probability of Greece defaulting and exiting the Euro.

Fed chairman Bernanke has made it clear he’ll step in with more easing if necessary.

Conclusion

The resource boom isn’t over, someone hit the pause button on the printing presses to take stock, do a review of their attempted fix methods and success achieved to date.

The greatest leverage to soaring precious metal and commodity prices has historically been junior resource companies. It is this authors opinion that we are presently being given the greatest buying opportunity of our lifetimes.

The whole world is the stage and the drama is set to continue. The greatest show on earth, a couple of charts (monetary base/money velocity), and a handful of carefully selected junior resource companies, should be on all our radar screens.

Is the drama, two charts and a couple of juniors on your radar screen?

If not, maybe they should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

***

Richards articles have been published on more than 400 websites including:

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Money slow down

Richard Mills - Ahead of the Herd — Fri, 11 May 2012 20:02:47 +0000

Many have called for very high levels of inflation possibly leading to hyperinflation. Their reasoning is that over printing of the US dollar will cause the dollar to weaken and inflation to set in – more money chasing the same amount, or less, of goods causes prices to rise. A rise in gold and silver (and commodities prices), would be the result.

This brings up two questions:

We’ve not had the much higher inflation called for – why not?
Are there further gains to be made in the prices of gold and silver (and commodities in general)?

Between August 11, 2008 and the end of 2011, the monetary base, which only the Fed can produce, almost tripled with a Bernanke Fed injection of $1.7 trillion dollars.

Most of the money issued by the Bernanke Fed is parked in banks as excess reserves that the banks are not required to hold.

As long as this money stays parked at the Fed it has no velocity, it’s not loaned out, it’s not changing hands, it’s not being spent, its velocity is zero.

When we talk about the velocity of money, we are speaking of the average frequency a dollar is spent. If nobody is spending money the velocity is zero.

Velocity, as shown by the above chart, is currently at a record low.

The questions we need to find answers for are:

Are the Fed, and the world’s central banks, done with increasing the global monetary base?
Have they given up in their attempts to revive credit and fuel another economic “spend your way to riches” prosperity bubble?
Is austerity here to stay?

Consider:

Governing parties are suffering major losses in election after election as anti-austerity parties make gains.

Unless continuously fed with new credit the global financial system will implode, when confronted with this possibility governments always respond in the same way – by printing more money.

The world’s governments have unlimited printing presses.

France has elected a socialist leader who will demand an end to austerity.

The European Central Bank has accepted that growth should take precedence over balanced budgets.

Fed chairman Bernanke has made it clear he’ll step in with more easing if necessary.

Conclusion

The resource boom isn’t over, someone hit the pause button on the printing presses to take stock, do a review of their attempted fix methods and success achieved to date.

Is the drama, two charts and a couple of juniors on your radar screen?

rick@aheadoftheherd.com

www.aheadoftheherd.com

***

Richards articles have been published on more than 400 websites including:

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

A return to real money

Richard Mills - Ahead of the Herd — Fri, 27 Apr 2012 21:05:23 +0000

On the night of November 22, 1910 a delegation of the nation’s leading financiers, led by Senator Nelson Aldrich, left New Jersey for a very secret ten day meeting on Jekyll Island, Georgia.

After the Jekyll Island visit the National Monetary Commission wrote the Aldrich Plan which formed the basis for the Federal Reserve system.

After several failed attempts to push the Federal Reserve Act through Congress, a group of bankers funded and staffed Woodrow Wilson's campaign for President. He had committed to sign a slightly different version of the Federal Reserve Act than Aldrich’s Plan.

In 1913, Senator Aldrich pushed the Federal Reserve Act through Congress just before Christmas when much of Congress was on vacation. When elected president Woodrow Wilson passed the Federal Reserve Act.

In the Federal Reserve Act Congress established three key objectives for monetary policy:

Maximum employment
Stable prices
Moderate long-term interest rates

The first two objectives are often referred to as the Federal Reserve's dual mandate.

Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved.

According to official Federal Reserve documentation today’s duties are:

Conduct the nation's monetary policy
Supervise and regulate banking institutions
Maintain the stability of the financial system
Provide financial services for depository institutions, the U.S. government, and foreign official institutions
Conduct research into the economy and publish results ie the Beige Book

The Federal Reserve’s structure is composed of a Board of Governors who – including its chairman and vice-chairman – are chosen by the President and confirmed by the Senate, the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks, privately owned U.S. banks and advisory councils.

The only stockholders of the 12 regional Federal Reserve Banks are the national banks (the ones chartered by the federal government) and those state-chartered banks that wish to join and can meet certain requirements. Roughly 38 percent of the county’s plus 8,000 banks are members of the Fed system, and they own the 12 Fed banks.

The FOMC is the committee responsible for setting monetary policy, the committee regulates the nation’s money supply and sets targets for short-term interest rates. The FOMC consists of all seven members (a voting majority) of the Board of Governors and the twelve regional bank presidents. Only five of the bank presidents vote at any given time – the president of the New York Fed is a permanent seat and four seats are rotated among the eleven other regional bank presidents.

The US Federal Reserve System is unique:

According to its Board of Governors "Its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government"

Also unusual is that an entity outside of the US central bank – the United States Department of the Treasury – creates the currency used

"When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money." Federal Reserve Bank of Boston, Putting it Simply (1984)

The Fed is highly profitable, since it can create the money that it needs at no cost the return on its investments flows directly to the bottom line. Federal Reserve banks are also exempt from state and Federal taxes.

The Fed's investment portfolio grew in 2011, it’s now approaching three trillion dollars. Almost 97 percent of the Fed’s income is generated by interest payments on its investment portfolio – the Fed is the largest single investor in federal government debt and securities issued by the government owned mortgage finance companies Fannie Mae and Freddie Mac.

Most of the money flowing into the Fed’s coffers comes from US taxpayers and the U.S. Government receives all of the system's annual profits, after a statutory dividend of six percent on member banks' capital investment is paid, operating expenses are paid (since no one audits the Fed its operating expenses have never seen the light of day and are what the Fed says they are) and an account surplus is maintained.

In 2010, the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury. This was followed at the end of 2011 with a transfer of $77 billion in profits to the U.S. Treasury Department.

Consider:

The Fed’s twelve regional bank are owned by US Federal and State chartered banks – 100% of its shareholders are banks, the stock is not publicly traded and none of its stock is owned by the US government.

The Fed does not look to Congress for annual appropriation. The Fed spends whatever it wants on operations and its profit are whatever remains after all expenses and dividends have been paid – in contrast to ordinary corporate accounting.

The Fed generates profits for its shareholders – six percent may not be considered much of a profit but any business that covers all of its expenses and gives shareholders a guaranteed tax free six percent return is a "for profit" corporation.

In addition to the guaranteed six percent, member banks get interest from the Fed, read taxpayers, on their extra reserves. Of the $1.7 trillion dollars injected into the banking system through two rounds of Quantitative Easing (QE) $1.5 trillion dollars is sitting in the Feds coffers and is collecting .25% interest from the Fed for its member banks – it’s shareholders.

“Between August 11, 2008 and the end of 2011, the monetary base, which only the Fed can produce, almost tripled with a Bernanke Fed injection of $1.7 trillion dollars.

Most of the money issued by the Bernanke Fed is parked in banks as excess reserves that the banks are not required to hold.

The Bernanke Fed has been paying banks interest on these excess reserves since October 2008. This is an incentive to hold the cash. At the end of 2011 the U.S. banks were holding 88 percent of the monetary base issued by the Fed since August 2008 as excess reserves they are not required to hold. The banks held $1.5 trillion in excess reserves of the $1.7 trillion increase in the monetary base.” Robert Auerbach, Malpractice at the Bernanke Federal Reserve, huffingtonpost.com

Member banks also borrow at the low Fed funds rate, then turn around and put this money into longer term Treasury bonds earning an immediate return from taxpayers.

The US Congress gave the Fed the right to print money at no interest to the Fed. The Fed creates money from nothing, loans it out through banks and charges interest. The Fed also buys government debt with money from nothing, and charges U.S. taxpayers interest. The Fed banking system collects tens of billions of dollars in interest annually and distributes the profits to its bank shareholders.

Ownership of a piece of the Fed’s 12 regional banks, and their highly unusual business model, “make money for free,” is extremely lucrative for the Fed and it’s banker shareholders.

Conclusion

Is the Federal Reserve Bank a privately owned company that controls, and whose shareholders profit immensely, by printing money through the US Treasury and regulating its value?

I’ll leave that for you to decide, but there is no doubt that the Fed is, first and foremost, looking out for the special interests of its shareholders, the banks, insurance companies, and securities firms.

The ownership question is moot, it’s nothing but splitting hairs and simple misdirection.

The first question we should be asking ourselves is; “What does taking care of its shareholders special interests first, have to do with the Fed’s official dual mandate: stable prices and high employment?”

The second question we need to be asking has to be; “What do we replace, not just the Fed with, but the entire global fiat monetary system with?”

A return to real money, gold and silver, has to be on everyone’s radar screens. Is it on yours?

rick@aheadoftheherd.com

www.aheadoftheherd.com

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Nixon, gold and oil

Richard Mills - Ahead of the Herd — Fri, 20 Apr 2012 22:38:24 +0000

In July 1944, delegates from 44 nations met at Bretton Woods, New Hampshire – the United Nations Monetary and Financial Conference – and agreed to “peg” their currencies to the U.S. dollar, the only currency strong enough to meet the rising demands for international currency transactions.

Member nations were required to establish a parity of their national currencies in terms of the US dollar, the "peg", and to maintain exchange rates within plus or minus one percent of parity, the "band."

What made the dollar so attractive to use as an international currency was each US dollar was based on 1/35th of an ounce of gold, and the gold was to held in the US Treasury. The value of gold being fixed by law at 35 US dollars an ounce made the value of each dollar very stable.

The US dollar, at the time, was considered better then gold for many reasons:

The strength of the U.S. economy
The fixed relationship of the dollar to gold at $35 an ounce
The commitment of the U.S. government to convert dollars into gold at that price
The dollar earned interest
The dollar was more flexible than gold

There’s a lesson not learned that reverberates throughout monetary history; when government, any government, comes under financial pressure they cannot resist printing money and debasing their currency to pay for debts.

Let's fast forward a few decades…

The Vietnam War was going to cost the US $500 Billion. The stark reality was the US simply could not print enough money to cover its war costs, it’s gold reserve had only $30 billion, most of its reserve was already backing existing US dollars, and the government refused to raise taxes.

In the 1960s President Lyndon B. Johnson's administration declared war on poverty and put in place its Great Society programs:

Head Start
Job Corps
Food stamps
Medicaid
Funded education
Job training
Direct food assistance
Direct medical assistance

More than four million new recipients signed up for welfare.

During the Nixon administration welfare programs underwent major expansions. States were required to provide food stamps. Supplemental Security Income (SSI) consolidated aid for aged, blind, and disabled persons. The Earned Income Credit provided the working poor with direct cash assistance in the form of tax credits and welfare rolls kept growing.

“The problem with Socialism is that eventually you run out of other people's money.”Margaret Thatcher

Bretton Woods collapsed in 1971 when Nixon severed (known as the Nixon Shock because the decision was made without consulting the other signatories of Bretton Woods, even his own State Department wasn’t consulted or forewarned) the link between the dollar and gold – the US dollar was now a fully floating fiat currency and the government had no problem printing more money.

Because of the massive printing of the US dollar to cover war and welfare reform costs Nixon worried about the strength of his country’s currency.

Recognizing that the US, and the rest of the world, was going to need and use more oil, a lot more oil, and that Saudi Arabia wanted to sell the world’s largest economy (by far the US) more oil, Nixon and Saudi Arabia came to an agreement whereby Saudi oil could only be purchased in US dollars. This caused an immediate and strong global demand for US dollars.

"Beginning in the mid-1970’s the American Century system of global economic dominance underwent a dramatic change. The oil price shocks of 1973-1974 and 1979 suddenly created enormous demand for the floating dollar. Oil importing countries from Germany to Argentina to Japan, all were faced with how to acquire export-based dollars to pay their expensive new oil import bills. The rise in the price of oil flooded OPEC with dollars that far exceeded domestic investment needs, and were therefore categorized as “surplus petrodollars.” A major share of these oil dollars came to London and New York banks where the new process of monetary petrodollar recycling was initiated.

In 1974 U.S Assistant Treasury Secretary Jack F. Bennett and David Mulford of the London-based Eurobond firm of White Weld & Co set about the mechanism to handle the surplus OPEC petrodollars. Kissinger, Bennett and Mulford helped orchestrate the secret financial arrangement with the Saudi Arabia Monetary Agency (SAMA) that creatively transformed the high oil prices of 1973-1974 to the direct benefit of the U.S. Federal Reserve banks and the Bank of England.

Despite the financial windfall enjoyed by the U.S./U.K banking and petroleum conglomerates who “managed the recycling of petrodollar flows,” most Americans regard the 1973-74 oil shocks as a particularly painful time period of high inflation and long lines at every gas station. In the Third World these high oil prices created huge loans from the International Monetary Fund – debts to be re-paid entirely in dollars." petrodollarwarfare.com

By 1975 all OPEC members had agreed to sell their oil only in US dollars.

The US Dollar Today

republicbroadcasting.org

The dollar lost 95% of its value from 1913 (inception of the Federal Reserve) to 2010. Nixon cut the Bretton Woods tie to gold in 1971 and did the oil for US dollars deal with Saudi Arabia in 1973.

Current Account Deficit

The more popular the worlds reserve currency is relative to other currencies (remember Nixon’s deal with the Saudis?), the higher its exchange rate and the less competitive domestic exporting industries become. This causes a trade deficit for the reserve currency issuing country – the United States is running the largest current account deficit in the world.

The current account is the difference between the value of exports of goods and services and the value of imports of goods and services. A deficit then means that the country is importing more goods and services than it is exporting.

The U.S. current account deficit for 2011 was $473.4 billion or 3.1 percent of GDP. A sustainable current account deficit is considered to be in the 2-2.5% range.

A country's current account deficit may become unsustainable if it is unable to secure the necessary financing – countries like China are shunning U.S. Treasuries, “In 2009, such foreign purchases of U.S. debt amounted to 6 percent of GDP and has since fallen by over eighty percent to a paltry 0.9 percent.” Money News article

The Federal Reserve bought approximately 61 percent of all government debt issued by the U.S. Treasury Department in 2011.

This is called “monetizing the debt” – printing money to buy your own debt is the most inflationary thing a country can do.

Trade imbalances - deficits and surpluses – between nations are one of the major reasons for financial crises.

Fiat versus Bretton Woods

Todays fiat monetary system as compared to the Bretton Woods system:

Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8%

World inflation of 4.8% a year is 1.5 percentage point higher

Downturns for the median countries have more than tripled to 13% of the total period

The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods

Moreover, abandoning the gold standard in favor of free floating currencies was supposed to eliminate currency crises and lead to an automatic adjustment in trade imbalances. Instead:

The number of currency crises has increased to 3.7 per year from 1.7 per year

Current account deficits have nearly tripled to 2.2% of world GDP from only 0.8% of GDP under Bretton Woods

These results demonstrate beyond a reasonable doubt that the experiment with floating paper currencies has been a disaster for the people of the world. Charles Kadlec, An International Gold Standard Beats The Rule Of The Governing Elite, forbes.com

Gold Today

Gold purchases by the world’s central banks soared from 77.0 tonnes (t) in 2010 to 439.7t in 2011.

According to the World Gold Council (WGC) this reflects “the need to diversify assets, reduce reliance on one or two foreign currencies, rebalance reserves and ultimately protect national wealth.”

Has it only taken 41 years, 1971-2012, for the world’s governments to realize…

“The commodity used most successfully for money to date has been gold.” John Tomlinson, Honest Money

and that

“Paper money eventually returns to its intrinsic value – zero” Voltaire 1729

Investors certainly understand gold’s role in the monetary system.

Record investment demand lifted global gold demand to an all-time high in 2011 – 4,067t. The main driver for this increase was the investment sector where annual demand was 1,640.7t, up 5% from the previous record set in 2010.

“What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity.” Marcus Grubb, managing director for investment at the World Gold Council

Conclusion

In the time of the ancient Babylonians – long before the periodic table – there were seven sacred metals: gold, silver, copper, iron, tin, lead and mercury.

In Roman and Greek Mythology, the First Age was called Golden, the Second Age Silver.

Gold and silver have played a role in most countries' currency systems for well over two thousand years.

The history of fiat money has always been one of failure (most paper money economies downfall can be linked directly to the costs of financing out of control military growth and its wars). Every fiat currency since the Romans started diluting the silver content of their denarius has ended in devaluation and eventual collapse of both the currency and of that particular economy.

Silver and gold have stood the test of time, as a medium of exchange, a storehouse of value and a safe haven in times of turmoil.

Gold remained the basis of the monetary system until 1971.

For the very first time in our history, all money, all currencies, are now fiat – the US dollar use to be gold backed and it was the rock all the worlds currencies were anchored to – when the US dollar became fiat, all the worlds currencies became fiat.

Our 41 year experiment with paper money is almost over. This fact should be on all our radar screens. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

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Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 400 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, and the Association of Mining Analysts.

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Image of former US President Richard Nixon sourced from Youtube.

Of debt, gold and Okun’s Law

Richard Mills - Ahead of the Herd — Fri, 13 Apr 2012 20:30:22 +0000

Is gold’s run over? Let’s look at some facts.

The amount of money the federal government owes to its creditors, combined with IOUs to government retirement and other programs, now tops $15.23 trillion. That's roughly equal to the value of all goods and services the U.S. economy produces in one year: $15.17 trillion as of September, 2011.

Among advanced economies, only Greece, Iceland, Ireland, Italy, Japan and Portugal have debts larger than their economies.

The U.S. government spent over 454 billion dollars just on interest on the national debt during fiscal 2011.

The debt ceiling stands at nearly $16.4 trillion. Some predict the U.S. will run out of money by September 2012. The next increase to the debt ceiling could be as high as $2 trillion.

Since Barack Obama was elected, the U.S. government has added five trillion more dollars to the national debt.

The United States government is responsible for more than a third of all the government debt in the entire world.

Mandatory federal spending surpassed total federal revenue for the first time ever in fiscal 2011.

The deficit has ballooned to nearly $48,000 for every man, woman and child in the U.S.

During fiscal year 2011, the U.S. government spent 3.7 trillion dollars but it only brought in 2.4 trillion dollars.

“The government’s total indebtedness — its fiscal gap — now stands at $211 trillion, by my arithmetic. The fiscal gap is the difference, measured in present value, between all projected future spending obligations — including our huge defense expenditures and massive entitlement programs, as well as making interest and principal payments on the official debt — and all projected future taxes.” Professor Laurence J. Kotlikoff, CNN

Obamacare will add 17 trillion dollars more to US long term unfunded obligations.

The FT World Markets Index EX U.S. declined 3% in March.

President Obama's 2012 budget shows the debt soaring past $26 trillion a decade from now.

The US accounts for 45.7 percent of total military spending by the world's 171 governments and territories.

Adding in all of these non-DOD agencies' costs:

The $20 billion in military retirement spending by the Treasury Department

Military aid to countries like Israel and Pakistan
Secret or black operations costs
Homeland defense costs in the Department of Homeland Security
The costs of caring for veterans of past and current wars in the Department of Veterans Affairs
The budget for nuclear weapons is in the Department of Energy

Plus a share of the annual interest on the national debt gets total US defense-related spending up to $1 trillion.

Currently spending by the federal government accounts for 24 percent of GDP. In 2001, it accounted for 18 percent.

“The time for austerity is not today. If we were to put in austerity measures right now, it would take the economy in the wrong way.” White House Chief of Staff Jack Lew, NBC News, Meet the Press

Your government cannot spend more than the sum of what it has and what it can raise. The places a government can get its money from are

• Taxes – no politician will raise taxes, they would never get re-elected

 Debt

• Income – government income is small and limited

• Fines – revenue here is limited as well

 Inflation

The top five percent of all income earners already pay nearly 50 percent of all federal taxes.

The United States already has world's highest corporate tax rate (includes central government, regional and local taxes) at 39.5 percent.

Countries like China are shunning U.S. Treasuries, “In 2009, such foreign purchases of U.S. debt amounted to 6 percent of GDP and has since fallen by over eighty percent to a paltry 0.9 percent.” Money News article

The Federal Reserve bought approximately 61 percent of all government debt issued by the U.S. Treasury Department in 2011.

This is called “monetizing the debt” – printing money to buy your own debt is the most inflationary thing a country can do.

Consider:

There are more than 12 million officially unemployed. The unofficial number is 22 million
There are 46 million people on food stamps
Home prices are falling despite near record low mortgage rates
The BRICS nations are actively seeking an alternative to the U.S dollar for settlement of trade, this threatens the dollar’s reserve currency status
A possible war in the Middle East
A “Super Committee” of Democrats and Republicans couldn’t agree on a deficit reduction plan. After the last budget battle the credit rating of the U.S. was downgraded. US debt was just downgraded again – citing the lack of any tangible progress on addressing the problems and the continued rise in debt to GDP Egan-Jones downgraded the US to AA from AA+.
The US, and most other countries, are going to continue to run deficits and build up debt. They will finance their debt by printing money. Their currencies are going to be worth less and less and less and less. None of this debt will be paid back

When the only tool in your toolbox is a hammer, everything is a nail. All central banks, and the US’s Federal Reserve, have in their toolbox is the ability to print money – inflate. The Fed’s answer to everything is to print more.

The Fed has already spent $2.3 trillion in two rounds of Quantitative Easing (QE), so far the money has been hoarded by banks to prop up their balance sheets and to buy over priced stocks to make the markets look good and help management cash out on their option plans.

Okun’s Law

Despite what can only be described as a very weak economic recovery the US unemployment rate dropped, from nine percent to 8.3 percent this quarter. Yet Okun’s Law holds that an economy, it’s GDP, must grow above its potential to reduce the unemployment rate.

Okun’s Law says that year-on-year economic growth of two percent above the trend (considered to be 2.5 percent) is needed to lower unemployment by one point. Many are forecasting real GDP growth of less than two percent for this quarter, not 4.5 percent, yet the unemployment rate is falling.

The apparent failure of Okun’s law could be caused by faulty growth estimates and misleading unemployment figures.

“While it is true that growth was stronger in the fourth quarter, most of that growth was due to inventory accumulation…To begin with, the economic data looked brighter at this point in 2010 and again in 2011, only to fade as we got into the second and third quarters of those years…

Although the sharp decline in the unemployment from 9 percent last September to 8.3 percent in February suggests we are doing better than that, it is important to recognize that about half of that decline was due to a declining labor force participation rate. In fact, had the labor force participation rate not declined from around 66 percent in mid-2008 to under 64 percent in February, the unemployment rate would still be over 10 percent.” William Dudley, President New York Federal Reserve

Is Quantitative Easing Over?

Early in 2012 a faint, but false glimmer of hope was given to consumers by way of increased economic growth estimates and improving employment figures. Consumers responded, personal spending increased 0.8% in January – while during the same time period personal income was up just 0.2%.

Can consumers, on their own, continue spending .06 percent above the rise in personal income? Not according to Ben Bernanke, Federal Reserve head…

“Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”

Bernanke’s speech was from March 26^th, before the April 6^th jobs report – which said 120,000 new jobs were created. That's half of the number that the consensus of analysts were expecting, and half the number created in the prior month.

Conclusion

It’s obvious to this author gold is on hold and solidifying its gains from over the last decade – gold’s run is not over.

The U.S. dollar, the euro, the yen, all the world’s currencies, are being de-valued by the massive money creation that has taken place and that will continue to happen. Gold’s not really rising – it’s fiat currencies that are falling.

The fact that gold is being treated as money, the fact that gold is being valued according to its relationship with other currencies, the fact that the world’s central banks are buying, and not selling gold, should be on all our radar screens, are these truths on yours?

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Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified. Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

A case study for a Greenfield investment

Richard Mills - Ahead of the Herd — Tue, 10 Apr 2012 21:35:51 +0000

Fact – our reality is we’re living on a relatively small planet with a finite amount of reserves and a growing human population that wants an increase in their standard of living.

I think we would all agree that the planet's booming population and rising standards of living are going to put unprecedented demands on supply.

Here’s something else to think about – when was the last time you heard of a major mining company actually finding a deposit? Think about that for a few minutes.

Well it rarely happens – juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines, that is their place on the food chain. They already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

But how does a junior find a quality project to acquire and how does an investor find that quality junior – the one with a project so good it sticks head and shoulders above the rest, the one that is screaming to have money spent on it, the one junior with the project so damn good you need to have a piece of it? Well it boils down to people, the network of contacts you’ve built – people who trust you and are willing to work with you and of course a huge amount of due diligence.

Nickel Tenor – Ni concentration in 100% sulphides.

In nickel exploration you look for nickel tenor, which is a reflection of how much nickel you know is in the sulfides as a percentage of that sulfide. If you have nickel tenor of 6% and you have 50% sulfide in your deposit, you are going to have 3% nickel – you know the grade, you know the outcome if you hit sulfides and that outcome is usually fairly consistent.

Kryolitselskabet Øresund (A/S-KØ) *drilled 119 holes between 1965 and 1972, totaling 6,287 meters for an average hole depth of 53 meters. All but six of these holes were drilled with a portable *Winkie drill. Most of this drilling tested exposed sulphide mineralization and shallow electromagnetic (EM) anomalies directly associated with exposed mineralization – this equates to about $3 million worth of drilling in today’s dollars.

*Fred Wink designed the Winkie drill in the mid 1970’s and it’s the core drilling rig of choice for drilling in remote locations such as high mountains, deserts, arctic tundra or dense jungles. The main reason for this is because the drill weighs only 180 pounds, has the capacity to drill 475 feet, and can be carried by pickup truck, mule, helicopter or two men into the most difficult terrain.

Most of the Kryolitselskabet Øresund core still exists and is being protected in dry space by the Danish government. Falconbridge and Cominco have both looked at the core and Falconbridge did a study on the nickel tenor in 2000.

This chart shows the sulphur and nickel values for drill core samples from throughout the belt.

The chart shows you, in regards to the nickel, that when the sulfide component is high the nickel component is also high (the dashed line shows the general trend) – if we were looking at a low-grade nickel environment the slope of the dashed line would be much flatter.

According to the work done by Falconbridge, samples across this entire belt, 15 km wide by 70 km long, have sulphide nickel tenors averaging 6% to 8%.

When looking for a nickel deposit, or even better a nickel camp, you need to have evidence of a large long-lasting magmatic event, and then you can start looking for nickel tenor. In this case the shear size of the belt indicates we are dealing with a large event. Now we also have evidence that high grade nickel mineralization is associated with it.

This is the evidence I needed to see to convince myself this project needs money spent on it.

But there’s more to this unfolding story than yet revealed and the untold part makes it an even better project for this author’s money.

Why, if Kryolitselskabet Øresund, Falconbridge and Cominco were working this nickel belt – considering the drill results they did have – didn’t they stay? They knew about the grade, they knew about the size of the project, but they left it for our junior to claim.

The answer is simple – they didn’t have quality time domain electromagnetic (EM) targets and they weren’t there for five million tonnes. They were looking for ten or more fifteen million tonne deposits and they needed an EM signal telling them they were there.

Fortunately for us the most they could get was a 2-line EM conductor, which might suggest 100 or maybe a 200m strike line – so they left, they just could not see the targets they needed to see to justify staying and spending more money.

Today’s helicopter SkyTEM system has a much higher signal to noise ratio than the old fixed wing survey flown would have had and a helicopter can better maintain the required altitude above the ground to maximize detection of geophysical signals. The fixed wing GeoTEM system was also often forced to fly at a low angle to strike and well above (sometimes double or more) the necessary ground clearance due to the rugged terrain – a helicopter system is able to hug the terrain and survey perpendicular to strike. Parts of the project were flown in 2011 and three high priority targets were identified.

This spring our junior is going to fly the southern part of the project using helicopter TEM. A drill program is planned for the summer months.

If they do hit sulfides they will use down hole probe technology – you lay wire on the ground roughly 300m in diameter with your drill hole in the center, you send a little tool down to the bottom of the hole, then pull it up. It records any evidence of a conductive body within that 300 m diameter – the 150m all around the hole.

Our exploration advantage today is threefold;

We know there is high-grade nickel, we have drill assays and can use these known mineralized areas to identify other mineralized areas
We’ll have much better targeting because of today’s modern helicopter SkyTEM system
We have the down hole probe technology to tell us whether there’s more sulfides anywhere around that drill hole

Discovery

What about the overall market? Do we have to worry about that? Well ask yourself why you would invest in this company? One word – Discovery.

It’s this author’s opinion that this is a green fields early stage exploration stock and that a discovery of the magnitude we’re looking for, a 100% owned nickel camp, will make whatever market conditions we face inconsequential.

It isn’t a nickel story, it’s a discovery story. But it isn’t just a discovery story, this is a belt story, and it’s not just a belt story, it’s a belt story with all of this evidence in a politically secure jurisdiction on tide water across from the big processing facility that Inco was forced to build inNewfoundland.

That facility could be waiting for our junior’s feed.

You’re looking at an opportunity where this company, if it makes a discovery, will own the neighborhood, and I point out that if you look back at Voisey’s Bay how much money was made in all of those neighborhood plays.

Except there won’t be a neighborhood play because we own it all.

I’ll say it again – we own the neighborhood. That’s exactly right. So therefore, the upside on this is bigger than any opportunity you’ve seen, and I challenge anybody to show me an upside the size of aSudbury.

Laterites v Sulphides

What about the laterites coming on? They say the laterite technology is finally going to work. Well we’ve heard that for 20 years. Nickel sulfides are here to stay and nickel prices are solid – RBC Capital Markets forecasts nickel growth at 9.5% in 2012, 10.3% in 2013, and trend growth of approximately 5.0% thereafter.

My take on the laterites was that the reason that people are chasing them and trying to develop them was because nobody was finding sulfides, but that does not mean that sulfides are gone. It just means that they are harder and harder to find. The easier ones have all been found so they had to develop something else. But for anybody that finds a sulfide deposit today the technology’s there. It’s the old standby. It’s a sulfide deposit. It’s going to work, it would be a hugely important discovery.

Nickel Sulphide Deposits

Magmas (magma is a mixture of molten rock, volatiles and solids that is found beneath the surface of the Earth – Lava is the extrusive equivalent of magma) originate in the upper mantle and contain small amounts of nickel, copper and PGE. As the magmas ascend through the crust they cool as they encounter the colder crustal rocks.

If the original sulfur (S) content of the magma is sufficient, or if S is added from crustal wall rocks, a sulphide liquid forms as droplets dispersed throughout the magma. Because the partition coefficients of nickel, copper, iron and Platinum Group Elements (PGE) favor sulphide liquid these elements transfer into the sulphide droplets in the magma. The sulphide droplets sink toward the base of the magma because of their greater density and form sulphide concentrations. On further cooling, the sulphide liquid crystallizes to form the ore deposits that contain these metals.

Currently, the majority of today’s nickel is produced from sulphide deposits, as it is easier and cheaper to mine and process than lateritic ore. However known sulphide deposits are getting depleted, ore grades are falling and new discoveries are scarce.

There are two main types of nickel sulphide deposits. In the first, Ni-Cu sulphide deposits, nickel (Ni) and copper (Cu) are the main economic commodities – copper may be either a co-product or by-product, and cobalt (Co), Platinum Group Elements (PGE) and gold (Au) are the usual by-products.

The second type of deposit is mined exclusively for PGE’s with the other associated metals being by-products.

Nickel sulphide deposits can occur as individual sulphide bodies but groups of deposits may occur in areas or belts ten’s, even hundreds of kilometers long. Such groups of deposits are known as districts. Two giant Ni-Cu districts stand out above all the rest in the world: Sudbury Ontario, and Noril’sk-Talnakh, Russia.

The most important platinum-rich PGE district in the world is the Bushveld Complex, South Africa. The second PGE district in importance is the Noril’sk-Talnakh district, which is exceptionally Palladium (Pd) rich as a by-product of its Ni-Cu ores.

Nickel laterite deposits

Nickel laterite deposits were first discovered in 1864 by French civil engineer Jules Garnier in New Caledonia – commercial production started in 1875. New Caledonia’s laterites were the world’s largest source of nickel until Sudbury Ontario’s sulphide deposits started production in 1905 and totally dominated global production for the next 70 years.

Eighty-four million tons, or roughly 60 percent of global available nickel is in laterite deposits – a deposit in which weathering of ultramafic rocks has taken place. The initial nickel content is strongly enriched in the course of lateritization – under tropical conditions fresh rock weathers very quickly. Some metals may be leached away by the weathering process but others, such as aluminum, iron and nickel can remain.

Typically nickel laterite deposits are very large tonnage, low-grade deposits located close to the surface. They tend to be tabular and flat covering many square kilometers. They are most often in the range of 20 million tonnes and upwards, with some examples approaching a billion tonnes of material.

Laterite deposits usually contain both an upper dark red limonite (higher in iron and lower in nickel, magnesium and silica) and lower bright green saprolite zone (higher nickel, magnesium and silica but lower iron content). Due to the different quantities of iron, magnesium and silica in each zone they must be processed differently to cost-effectively retrieve the nickel.

HPAL technology

Most nickel sulfide deposits have traditionally been processed by concentration through a froth flotation process followed by pyrometallurgical extraction

Laterite saprolite (higher nickel, magnesium and silica but lower iron content) orebodies are processed with standard pyrometallurgical technology.

However a laterite limonite zone is higher in iron and lower in nickel, magnesium and silica, which means using High Pressure Acid Leaching (HPAL) technology.

HPAL involves processing ore in a sulphuric acid leach at temperatures up to 270ºC and pressures up to 600 psi to extract the nickel and cobalt from the iron rich ore – the pressure leaching is done in titanium lined autoclaves.

Counter-current decantation is used to separate the solids and liquids. Separating and purifying the nickel/cobalt solution is done by solvent extraction and electrowinning.

Conclusion

There aren’t any nickel names left. Once Inco went, who do you invest in if you want nickel? And that’s why that chart I mentioned a few pages back, the nickel tenor one that goes on a perfect diagonal right up the line between the two axis to get to 6% to 8% nickel tenor is so important. You know if you’ve got sulfides you’ve got economic grade. That’s huge.

Mine production of many different metals is showing a number of similarities:

Slowing production and dwindling reserves at many of the world’s largest mines
The pace of new elephant-sized discoveries has decreased in the mining industry
There hasn’t been a new technology shift in mining for decades – heap leach and open pit mining come to mind but they are both decades old innovation

Every country needs to secure supplies of needed commodities at competitive prices yet supply is increasingly constrained and demand is growing. This is our reality – we’re living on a relatively small planet with a finite amount of reserves and a growing human population.

Quality greenfield junior exploration plays like Our Junior should be on every resource investors radar screen. Is this junior on yours?

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills owns shares of North American Nickel TSX.V –NAN

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Into the green – lithium

Richard Mills - Ahead of the Herd — Fri, 06 Apr 2012 20:01:19 +0000

Rare and critical metals are playing a crucial role in recent scientific advancements, especially in the environmental technologies and energy sectors. These advancements in today’s and tomorrow’s green technology are driving industrial countries like the United States to allocate significant funding for breakthroughs in alternative fuels for vehicles and alternative energy storage.

Furthermore, there is an increasing scientific consensus that we need to protect the environment from growing pollution, while frustrated drivers continue to bear the cost of emissions through surging gas prices. On these premises governments have been pushing policies which foster sustainable consumption and production efforts. These calls for action reinforce the belief that the clean energy sector is definitely here to stay. Spearheading the progression are two frontrunners; Lithium and Graphite. Both are key resources in developing higher range and lower cost electric vehicles, specifically in the application of Lithium batteries.

Graphite is a key component in rechargeable Lithium batteries, with China cutting back production and with the west’s supply replacement and much needed new supply not on stream Graphite’s price value is yet to level. By comparison, Lithium, which has already gone through one price surge, is seeing it’s demand prices firming, and with the rechargeable battery industry for EV’s and consumer electronics driving demand, forecasters believe lithium’s price could as much as double in value in the near future.

Lithium is the next step to reducing greenhouse gasses and supporting sustainable development – it is a vital component in many environmental technologies. It is the lightest of the metals and provides considerable savings due to its high energy density which is crucial for energy storage in mobility applications. Already the most widely used battery in portable electronics’ the Lithium battery is also the choice of preference for plug-in hybrids, mainly for its chemical attribute allowing us to create the batteries with specific power and energy capacity without the so called memory effect – with every charging cycle the battery loses part of its capacity.

There is currently no substitute for Lithium; hence it has to be either obtained through salar brines by way of evaporation or through mined hard rock.

Recognizing the advantages to being in the rare metal and rechargeable energy space several companies have been building up their rare metal resources, one such company being International Lithium Corp. TSX.V – ILC

International Lithium is a global Lithium and rare metals exploration company with a dynamic portfolio of projects worldwide, particularly in Lithium-rich Argentina, Ireland and Canada.

ILC was successfully launched into the market in 2011 through a spin-out from their parent company TNR Gold Corp. With their previous experience, a strong management team as well as a balanced portfolio, ILC was able to secure Ganfeng Lithium Co. Ltd., a globally recognized Lithium manufacturer as a key partner and investor.

Gangfeng recently increased its equity stake in ILC to 14.7% on a non-diluted basis. The company is a professional producer of lithium products which has developed a comprehensive product chain, including lithium metal and alloys, inorganic and organic lithium chemicals, supplies a wide range of lithium products for primary and secondary lithium battery market, pharmaceutical and new material industries. Ganfeng recently announced USD75million in sales revenue in their 2011 annual report, representing a 34% increase over the previous year.

ILC’s overall approach is to build shareholder value through quality projects and strategic land positions; thus far they are off to a strong start and are rapidly accelerating operations. At present ILC has nine viable projects including operations within the world renowned Lithium Belt in South America as well as highly prospective Mavis Lake, Ontario and Backstairs, Ireland.

The Mavis Lake rare metals pegmatite project is strategically situated with excellent infrastructure and accessibility being located 15km northeast of Dryden, Ontario and 5km from the Trans Canada Highway. The property comprises a total of 2,624 hectares and encompasses a continuous pegmatite field exhibiting high-grade, well-evolved, lithium and tantalum zonation as well as significant levels of cesium and rubidium.

A recent 20 hole drill program, totaling 1,750 meters, was completed on the property and exceeded expectations by revealing additional and more extensive pegmatite intersections than anticipated. One hole, MF11-12, drilled to the north of past exploration activity encountered a 78 meter pegmatite intersection reporting two intervals grading 1.86% Li2O over 26.25m and 1.22% Li2O over 28.45m. The discovery of this previously unknown high-grade lithium near surface pegmatite attests to the under explored potential of the property and the Company intends to expand the scope of the project in the coming year.

The Blackstairs rare metal pegmatite project located 80 km south of Dublin, Ireland, totals 292 square kilometers and encompasses the extensive NE-SW oriented 50 kilometer long Leinster Pegmatite Belt. Nineteen significant lithium pegmatite prospects have been identified along the trend primarily as boulder occurrences with five buried pegmatites revealed through a modicum of past trenching and drilling.

The Aclare House pegmatite initially discovered through boulder prospecting is reportedly up to 20 metres wide, has been traced for more than 400 metres along strike and grades 1.5% Li2O.

Recently ILC discovered an extensive high-grade lithium boulder field within a concentrated 250 x 250 meter area from a preliminary reconnaissance at Moylisha. Four samples were collected in this new area with three of the samples grading better than 3% Li2O and the highest returning an outstanding 4.59% Li2O. The density and size distribution of the lithium boulders at Moylisha indicates a potentially sizable, yet to be discovered buried pegmatite body and such significant findings from a cursory investigation highlights the potential to discover additional buried pegmatite bodies elsewhere on the Property.

The Mariana lithium-potash brine project is one of the more prominent salar (‘salt lake’) basins in the world renowned lithium belt of South America; host to the vast majority of global lithium production. The project totals 160km² and strategically encompasses the entire salar effectively ruling out any competition for the lithium-potash brine resident within the basin. Initial sampling of the surface brine revealed highly compelling geochemistry returning average grades of 440 mg/L lithium and 12,700 mg/L potassium.

The lithium grades are comparable to early stage exploration from other salars in the area, however the potassium levels represent one of the highest grades outside of the world class operation on the Atacama salar in Chile.

Recently, a widely spaced four-hole Phase 1 resource delineation drilling program was completed at Mariana and extensive brine hosting sand-rich layers were intersected below the surficial halite horizon. Unconsolidated stratigraphic units with a considerable granular or sand component represent an ideal brine host and are an important target in the lithium-potash brine exploration model. This setting, in conjunction with the high brine density and flow measurements during drilling, indicates the potential for a significant brine aquifer at the Mariana lithium-potash project. Drilling results are anticipated shortly and according to the Company will provide the basis to rightfully rank the Mariana project amongst some of the more advanced lithium-potash brine projects in the world.

Responding to industry demand and growing global focus on sustainable development International Lithium Corp. is opportunely positioned to advance in the Lithium Market. With a stable Canadian currency that is encouraging international trade, diverse global assets and a strategic partner, they are well on their way to providing strong value to their shareholders and securing a threshold in lithium assets.

Is International Lithium Corp. TSX.V – ILC on your green radar screen?

rick@aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

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Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

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Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills does not own shares of International Lithium Corp. TSX.V – ILC

International Lithium Corp. TSX.V – ILC is a sponsor of Richards website

Stormtroopin’ USA

Richard Mills - Ahead of the Herd — Sat, 31 Mar 2012 18:41:26 +0000

Richard (Rick) Mills

AheadoftheHerd.com

No term generates more confusion or misunderstanding than fascism; too many people believe that fascism exists solely in images on the History Channel – storm troopers pounding thundering jackboots down cobblestone streets of occupied countries while throwing up the Roman salute. But fascism is not defined by clothing, symbolism or salutes.

Fascism is a totalitarian system of government that bases its economy on capitalism, it’s a marriage of government authority and military/police power managed by corporate influence.

“The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes stronger than their democratic state itself. That, in its essence, is fascism – ownership of government by an individual, by a group.” Franklin D. Roosevelt

Consider the following, all are characteristics of fascism:

A dictatorial ruling cabal runs the country

The military is increasingly being used to control the civilian population

The government repeatedly violates the U.S. Constitution

Government informants are spying on their fellow citizens

Controlled mass media

Fraudulent elections

Powerful and continuing nationalism, calls for national unity

Militaristic values are spreading in society and the power of the military is increasing, glorification of war

Obsession with national security

Disdain for the recognition of human rights, racism

Radical opposition to Communism/Socialism, Modernism and attacks on Liberals

Identification of enemies as a unifying cause

Corporate power is protected while labors power is suppressed – Fascism and capitalism are inseparable because the corporate power structure is authoritarian, and is geared to reward the elite owners, but not the workers. Few would argue against the fact that corporations control our government and have the dominant role in our society

Obsession with crime and punishment

Militarization of the police – Since the terrorist attacks in 2011 the US has spent $635 billion to militarize its police forces

A trend toward corporatism and systematic destruction of the middle class

Rampant cronyism and corruption

Intertwining of government and religion

A cult like leader

Consequences of fascism to the governed are the loss of rights and the enhancement of the elitists.

Creeping Fascism

“It is a mistake to think that early in a fascist shift you see the profile of barbed wire against the sky. In the early days, things look normal on the surface; peasants were celebrating harvest festivals in Calabria in 1922; people were shopping and going to the movies in Berlin in 1931. Early on, as WH Auden put it, the horror is always elsewhere – while someone is being tortured, children are skating, ships are sailing: "dogs go on with their doggy life … How everything turns away/ Quite leisurely from the disaster.”

As Americans turn away quite leisurely, keeping tuned to internet shopping and American Idol, the foundations of democracy are being fatally corroded. Something has changed profoundly that weakens us unprecedentedly: our democratic traditions, independent judiciary and free press do their work today in a context in which we are "at war" in a "long war" – a war without end, on a battlefield described as the globe, in a context that gives the president – without US citizens realising it yet – the power over US citizens of freedom or long solitary incarceration, on his say-so alone.” Naomi Wolf, Fascist America in 10 Easy Steps, guardian.co.uk

Fascism is dangerous because its insidious, it is a natural degenerative process of a capitalistic society caused by the revolving door between government and the most powerful global corporations. Large multi-national corporations, through campaign finance and intense lobbying, come to dominant the legislative and political process.

“Fascism in America won't come with jackboots, book burnings, mass rallies, and fevered harangues, nor will it come with black helicopters or tanks on the street. It won't come like a storm but as a break in the weather, that sudden change of season you might feel when the wind shifts on an October evening: Everything is the same, but everything has changed. Something has gone, departed from the world, and a new reality will have taken its place.

All the old forms will still be there: legislatures, elections, campaigns plenty of bread and circuses. But consent of the governed will no longer apply; actual control of the state will have passed to a small and privileged group who rule for the benefit of their wealthy peers and corporate patrons.

To be sure, there will be factional conflicts among the elite, and a degree of debate will be permitted; but no one outside the privileged circle will be allowed to influence state policy. Dissidents will be marginalized usually by the people themselves. Deprived of historical knowledge by a thoroughly impoverished educational system designed to produce complacent consumers, left ignorant of current events by a corporate media devoted solely to profit, many will internalize the force-fed values of the ruling elite, and act accordingly. There will be little need for overt methods of control.

The rulers will act in secret, for reasons of national security, and the people will not be permitted to know what goes on in their name. Actions once unthinkable will be accepted as routine: government by executive fiat, state murder of enemies selected by the leader, undeclared wars, torture, mass detentions without charge, the looting of the national treasury, the creation of huge new security structures targeted at the populace. In time, this will be seen as normal, as the chill of autumn feels normal when summer is gone. It will all seem normal.” Chris Floyd, November 10, 2001 Moscow Times

Assassination

The President of the United States claims he has absolute arbitrary power over the life and liberty of every person on earth – that he can order the execution or kidnapping of any person, in any country.

The Obama administration has compiled a hit list of American citizens targeted for assassination. Obama’s top Terrorism adviser has suggested that the number of U.S. citizens targeted for assassination could be in the dozens.

It’s obvious that if the present US administration thinks it can kill its own citizens with impunity the gloves are off for foreign nationals of any country.

Rendition

The Obama administration maintains that rendition is legal under U.S. law - rendition is the practice of snatching terrorism suspects from one country and rendering them into the custody of another.

"U.S. law does not even preclude the United States from rendering an individual to a foreign location where he or she could be abused or tortured." CIA assistant general counsel Daniel Pines

New Yorker journalist Jane Mayer says Egypt is the most common destination for suspects rendered by the United States.

According to a former CIA agent, “If you want a serious interrogation, you send a prisoner to Jordan. If you want them to be tortured, you send them to Syria. If you want someone to disappear – never to see them again – you send them to Egypt.”

Indefinite Detention

The US federal government is looking for contractors to provide staff and supplies for “emergency camps” located around the country.

The recently passed National Authorization Defense Act has a provision which empowers the government to arrest Americans and hold them in these emergency camps – you should read that as detention camps – with no legal recourse.

Also under the new law the US military has the power to carry out domestic anti-terrorism operations on US soil. The NDAA authorizes the military to detain even US citizens without trial and no legal recourse.

NDAA section 102: “which purports to authorize the president of the United States to use the armed forces of the United States to detain American citizens who the president suspects are or have been substantial supports of al-Qaida, the Taliban, or associated forces, and to hold such citizens indefinitely.”

“The power of the Executive to cast a man into prison without formulating any charge known to the law, and particularly to deny him the judgment of his peers, is in the highest degree odious and is the foundation of all totalitarian government whether Nazi or Communist.” Winston Churchill

Checkpoint USA

TSA motto – “Dominate. Intimidate. Control.”

The Transportation Security Administration’s (TSA) 25 Visible Intermodal Prevention and Response (VIPR) teams have run more than 9,300 unannounced checkpoints and other search operations in the last year.

Department of Homeland Security officials have asked Congress for funding to add 12 more teams to the federal agency’s 25 VIPR units that are already scattered across the country.

“Uncontrolled search and seizure is one of the first and most effective weapons in the arsenal of every arbitrary government…Among deprivations of rights, none is so effective in cowing a population, crushing the spirit of the individual and putting terror in every heart.” Justice Robert Jackson, chief U.S. prosecutor at the Nuremberg Trials

The $24 million in funding (in addition to the $110 million spent in fiscal year 2011) is in addition to the TSA’s role in airports which costs taxpayers $5 billion a year.

VIPR units, comprised of federal air marshals, surface transportation security inspectors, transportation security officers, behavior detection officers and explosive detection canine teams are responsible for manning terrorism and drug checkpoints on interstates, in bus and train terminals, seaports, at major sporting events and, according to a May 2011 Federal Court ruling, even a Santa Fe high school prom.

“TSA and VIPR searches also indoctrinate children to accept pat-downs, full-body scans, and the like, as a regular component of the relationship between government and its citizens. In this way, police state tactics will gradually grow in acceptance as simply “the way things are.” A child who has been molested by government officials since before he could read is unlikely to question such activities as an unjustified exercise of authority when an adult.

Furthermore, the normalization of intrusive searches arguably reworks the content of the protections provided by the Constitution, particularly the Fourth Amendment. Increasing use of pat-downs and other controversial screening procedures changes the definition of what is a “reasonable” search and seizure from a cultural perspective and therefore actually re-engineers the constitutional fabric by altering the definition of what is “reasonable” under the Fourth Amendment.

The increasing deployment of VIPR teams, obviously, also drastically undermines the right to privacy. There is both an intrinsic and instrumental value to privacy. Intrinsically, privacy is precious to the extent that it is a component of liberty. Part of citizenship in a free society is the expectation that one’s personal affairs and physical person are inviolable so long as one remains within the law. A robust conception of freedom includes the freedom from constant and intrusive government surveillance of one’s life. From this perspective, Fourth Amendment violations are objectionable for the simple fact that the government is doing something it has no license to do, i.e., invading the privacy of a law-abiding freeman by monitoring his daily activities and laying hands on his person without any evidence of wrongdoing.” John W. Whitehead, ohiofreepress.com

“First we are told by the U.S. Supreme Court that American citizens have no 4th Amendment protections at border crossings, even when standing on U.S. soil. Now TSA takes the next logical step and simply detains and searches U.S. citizens at wholly internal checkpoints.” Texas Congressman and US presidential candidate Ron Paul

Wiretapping the Internet

Federal law enforcement and national security officials argue that their wiretap abilities are dramatically decreasing as people increasingly communicate over the internet instead of by telephone.

Officials are asking Congress to require all services like BlackBerry with its encrypted e-mail transmitters and Skype because it’s software allows direct messaging to be technically capable of complying with a wiretap order.

Data Mining

Why is the US government spending time, money and resources on watching over those that help bring news to the masses?

According to Oxford University Press, A Dictionary of World History “The inhabitants of a police state experience restrictions on their mobility, and on their freedom to express or communicate political or other views, which are subject to police monitoring or enforcement. Political control may be exerted by means of a secret police force which operates outside the boundaries normally imposed by a constitutional state.”

The National Operations Center (NOC)’s Media Monitoring Initiative has given the NCO and its Office of Operations Coordination and Planning (OPS) permission to retain data on users of social media, online networking platforms, news anchors, journalists, reporters and anyone else, including government officials and common bloggers, who may use “traditional and/or social media in real time to keep their audience situationally aware and informed.”

The Department of Homeland Security’s says such data could consist of any intellect “that permits the identity of an individual to be directly or indirectly inferred, including any information which is linked or linkable to that individual.”

The Department of Homeland Security, under the NOC Monitoring Initiative has been collecting information since 2010 and the data is shared with private sector businesses and international third parties.

Escaping The Matrix

Over 11,500 terrorist attacks occurred in 72 countries in 2010, resulting in almost 13,200 deaths – the number of attacks rose by almost five percent over the previous year. Of the 13,200 deaths caused by terrorism in 2010 just 15 were American private citizens, 13 died in Afghanistan, one in Iraq and one in Uganda.

The Heritage Foundation has compiled a list of 39 foiled internal terrorist plots against the US since September 2001.

“11,500 terrorist attacks occurred in 72 countries in 2010, resulting in almost 13,200 deaths” is an average of 1.14 deaths per attack; 39 x 1.14 = 44.46 lives saved.

In the ten years directly after 9/11 the increase in US domestic homeland security cost in excess of one trillion dollars – does not include foreign wars.

The risk of dying in the U.S. from terrorism is substantially less than the risk of dying in an accident caused by a deer.

2010 Leading Causes of Death in America

Heart Disease – 595,444 deaths

Cancer – 573,855 deaths

Chronic lung disease – 137,789 deaths

Strokes – 129,180 deaths

Accidents – 118,043 deaths

The actual leading causes of death in the US are:

Tobacco

Poor diet and physical inactivity

Alcohol consumption

Motor vehicle crashes

“The defining dramatic moment in the film occurs just after Morpheus invites Neo to choose between a red pill and a blue pill. The red pill promises ‘the truth and nothing more.’ Neo takes the red pill and awakes to reality – something utterly different from anything Neo, or the audience, could have expected. What Neo had assumed to be reality turned out to be only a collective illusion, fabricated by the Matrix and fed to a population that is asleep, cocooned in grotesque embryonic pods. In the Matrix world, true reality and perceived reality exist on entirely different planes.” Escaping the Matrix by Richard K. Moore.

Is a red pill, and the natural degenerative process of a capitalistic society, on your radar screen?

If not, maybe they should be.

Richard (Rick) Mills

HYPERLINK "mailto:rick@aheadoftheherd.com" rick@aheadoftheherd.com

HYPERLINK "http://www.aheadoftheherd.com" www.aheadoftheherd.com

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Good intentions bad directions

Richard Mills - Ahead of the Herd — Fri, 23 Mar 2012 22:32:13 +0000

One Year On - International Atomic Energy Agency

“Beneath the Pacific Ocean's floor deep in the Japanese trench, tectonic plate boundaries slipped repeatedly, triggering one of the most severe earthquakes in recent history. The earthquake's epicenter lay off the eastern coastline of Japan near the Fukushima Prefecture. The plates' movements generated a tsunami that swiftly drove forward ranks of waves towards the earthquake-battered Japanese coast.

It was 11 March 2011.

Along the coastline, sensors detected violent ground motion and automatically shut down all operating reactors at Tokai Daini, Onagawa, Fukushima Daiichi and Fukushima Daini Nuclear Power Stations.

Off-site Power Lost

The reactors at TEPCO's Fukushima Daiichi Nuclear Power Plant require an electric power supply to safely remain in "shutdown" condition. If power fails, back-up generators supply electrical power for the equipment needed to shut down the reactor safely and maintain the security of the plant.

The "Great East Japan Earthquake" toppled pylons supporting the overland electrical power lines. As soon as off-site power was lost at Fukushima Daiichi, on-site emergency diesel generators started automatically, supplying electricity to the reactors' "essential loads", namely emergency core cooling pumps, valves, monitoring instruments and controls.

Vital Cooling

Minutes after the earthquake hit the plant, the specially trained operation teams confirmed that the chain reaction in the three operating reactors at Fukushima Daiichi had stopped and that the emergency diesel generators were operating.

In an operational nuclear power plant, the fission process in the reactor core produces heat. Cooling water continuously absorbs and carries off the heat. In a "boiling water reactor" like those operating at Fukushima Daiichi, the cooling water boils in the core. A mixture of steam and water then flows through separators where steam is extracted and diverted to spin the power plants' turbine-generators to produce electricity. When the steam is cooled, it condenses into water, which is returned to the reactor core that heats it again, producing steam and restarting the cycle. Powerful pumps drive the primary cooling fluid, in this closed loop, maintaining the reactor core at operating temperatures.

After the emergency shutdown, the nuclear fuel in the reactors nonetheless continues to release a considerable amount of decay heat. Continuous and reliable cooling, provided by the emergency diesel generators, is vitally important to prevent overheating and fuel damage.

Tsunami Strikes

About 40 minutes after the Fukushima Daiichi reactors were shut down, several massive tsunami waves crashed over the six-Unit plant's protective wall, forcing seawater deep into the plant. Emergency generators and some of the associated electrical equipment were flooded. Thirteen generators ceased operating. Only one emergency generator survived the onslaught, providing power to Units five and six.

The earthquake had already disrupted mobile and landline communication and now the on-rushing tsunami waters hurled debris into the plant, damaging equipment and buildings and blocking access.

The combined effects of the earthquake and tsunami devastated the coastal area, exacting a dreadful toll: almost 16 000 lives were lost, over 8 000 people remain missing, and more than 679 000 homes were destroyed or damaged.”

The accident at Fukushima resulted from:

Natural disaster combination – First the reactors had to withstand a magnitude 9.0 earthquake, an earthquake far more powerful than they were designed to handle. Next came 14 meter high tsunami waves that swept over the reactors protective sea wall
Human and organizational failing – Oversight of the plant operator (TEPCO) was weak because Japan's nuclear regulatory authority was not sufficiently independent and the plants emergency response training for its workforce was inadequate for this situation
Plant design – The backup power supply vital for reactor and spent fuel rod cooling, in case of loss of primary power supply, was not properly protected

It was the tsunami – caused by the largest earthquake ever to strike Japan – that killed 16,000 people.

It was the tsunami – and the earthquake – that destroyed or severely damaged hundreds of thousands of buildings.

But it’s Fukushima that’s the headline disaster. Yet the Fukushima reactors did not completely melt down even after:

A magnitude 9.0 earthquake and aftershocks
A relatively direct hit from multiple, and massive, tsunami waves
Backup power supply failure

Consider:

The plant itself was well over 40 years old and slated for decommissioning in the very near term – Fukushima was built in the 1970s
The technology on which it was based dated from a decade earlier

Since Fukushima nuclear power generation has become safer.

The nuclear industry's safety record was second to none before Fukushima – today it’s even better. New plant designs – the generation III reactors – have enhanced safety features compared to the Fukushima 1970s era generation II’s. The regulatory framework has been strengthened – new and extremely high benchmarks for the regulations and the licensing of every stage of the process have been modified and put in place, steps were taken and are still being put in place:

Improving preparedness for prolonged power outages, protection of backup power sources and ensuring the availability of water for cooling even under the most severe accident conditions
Global nuclear safety standards are being reviewed and international emergency response capabilities are being upgraded
Countries are opening their plants to more international safety reviews and plant operators and national regulators are being scrutinized more critically

Japan – No Energy Security

Japan had plans to construct nine new nuclear power plants by 2020 and at least another 14 by 2030. After Fukushima, Japan’s then Prime Minister Kan advocated replacing nuclear energy with renewables.

Kan resigned because of criticism of his handling of the crisis and questions over his energy strategy. Japans current Prime Minister has changed course and backed away from his predecessors sudden shift to phasing out nuclear and jumping headlong into renewable energy.

Japan has little of its own coal, oil or natural gas so the country has made up a good portion of their missing nuclear supplied energy by burning even more imported liquefied natural gas (LNG), coal and fuel oil. Japan is now the world’s largest importer of coal and liquefied natural gas and is the second largest importer of oil – the country now imports about 84% of its energy requirements.

In response to an appeal for support from the US regarding an Iranian oil sanction Japan pledged to further cut Iranian oil imports – In 2011 Iranian crude made up just 8.8 percent (3.6 million barrels a day) of Japan’s total crude oil imports.

“It would cause immense damage if they were cut to zero.” Japanese Finance Minister Jun Azumi said referring to Japan’s Iranian imports.

Playing Populist Politics in Germany

In 2002, Germany enacted a law to phase out nuclear power, but the current government, led by Chancellor Angela Merkel decided (autumn 2010) to extend the lifetimes of the country's reactors by an average of 12 years. This was based on the judgment that Germany would not be able to meet its power demand using only natural energy sources – wind and solar power – and would not be able to meet the governments ambitious goals of a 40% reduction in carbon emissions by 2020 burning more coal and natural gas.

Then, playing populist politics and over reacting to the partial meltdowns in Japan’s Fukushima Daiichi nuclear complex Merkels government immediately shut down almost half of the country’s nuclear power. Germany, overnight, decided 40 percent of its nuclear power capacity will be shut down and removed 8,800 megawatts (MW) from the grid, the remaining 12,700 MW of nuclear supplied electricity will be gone by 2022.

Carbon Footprint

It will be difficult for any country to achieve sustainable energy supplies and curb greenhouse gases unless nuclear power remains an important part of their energy mix.

Japan has unplugged their nuclear reactors that provided 30 percent of the country’s electricity before Fukushima.

“They’re swapping fossil fuels for nuclear, and that’s driving up their CO2 emissions and the carbon intensity of their electricity supply.” Jesse Jenkins, energy analyst, the Breakthrough Institute

Germany's 17 reactors provided 28 percent of its power. Germany is going to shut down all its nuclear plants by 2022 – eight were shut down immediately after Fukushima.

There’s a similar CO2 rise in Germany as in Japan and its going to effect the entire EU.

“The additional German emissions alone could add up to more than 300 million tons by 2020, which according to the World Nuclear Association, would ‘virtually cancel out the 335-million-ton savings intended to be achieved in the entire European Union by the 2011 Energy Efficiency Directive’.” New Scientist

Germany had pledged to slash its *carbon emissions to 40 percent below 1990 levels by 2020.

* Nuclear power's life-cycle emissions range from 2 to 59 gram-equivalents of carbon dioxide per kilowatt-hour. Only hydropower's range ranked lower at 2 to 48 grams of carbon dioxide-equivalents per kilowatt-hour. Wind came in at 7 to 124 grams and solar photovoltaic at 13 to 731 grams. Emissions from natural gas fired plants ranged from 389 to 511 grams. Coal produces 790 to 1,182 grams of carbon dioxide equivalents per kilowatt hour.

According to Siemens (which built all of Germany's 17 nuclear plants) Germany's exit from nuclear power could cost the country as much as 1.7 trillion euros ($2.15 trillion) by 2030 – two thirds of the country's GDP in 2011.

"This will either be paid by energy customers or taxpayers." Michael Suess, head of Siemen's Energy Sector, in a Reuters interview

Siemens is no longer in the nuclear business, however the company is active in several areas including power transmission, solar, wind and hydro power.

Conclusion

Many decisions, made with the best of intentions, yet undertaken when emotions are running high might not result in the best direction for individuals or countries.

A civil nuclear renaissance, because of energy security, safety and a reduction in our carbon footprint, should be on everyone’s radar screen. Is it on yours?

rick@aheadoftheherd.com

www.aheadoftheherd.com

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A nation's metallurgical Achilles' heel

Richard Mills - Ahead of the Herd — Sat, 17 Mar 2012 15:41:10 +0000

The following have all combined to limit control of foreign minerals by US companies:

In 2011, Resource nationalism became the number one risk for mining companies
Nationalization
Expropriation
Increased taxation
Constraints on the degree of foreign ownership
A trend in the less developed countries toward processing their own ores
Increased completion from large eastern based mega mining companies
Increasing competition from sovereign wealth funds and end users wishing to vertically integrate

Several major and uncontrollable factors have led to a decline in mining and in the US mineral processing industry:

Sharply higher energy costs
Most of the world's mineral wealth is not located in the US
Foreign ore deposits are usually richer than those found in the US
Foreign mines are usually located close to cheap energy sources and low-cost labor

Plenty Of Blame For The US:

Restrictive environmental regulations have made mining and processing more difficult and costly, lead times for new mine development has increased – the nonfuel minerals industry is impeded by 80 different laws administered by 20 different agencies
Approximately three-fourths of the 750 million acres of public land has been closed to exploitation, and closure continues
The U.S. share of investment in mining is at an all-time low dropping from 21 percent of the world's mining investment in the early 1990's to 10 percent in 2000 and 8 percent today

“Gold and copper exploration in the United States kept it in sixth place regionally, ahead of the Pacific Islands.” World Exploration Trends 2012 – A Special Report from the Metals Economics Group

The Metallurgical Achilles' Heel of the United States

“The United States has consistently maintained that a strong domestic minerals and metals industry is an essential contributor to the nation's economic and security interests…The United States has a fundamental interest in maintaining a competitive minerals and metals sector that will continue to contribute significantly to the nation's economic strength and military security. The industry represents an $87 billion enterprise that employs over 500,000 U.S. workers and provides the material foundation for U.S. manufacturing.” The 1980 National Academy of Sciences executive summary of “Competitiveness of the U.S. Minerals and Metals Industry”

A concise summary of U.S. mineral vulnerabilities was presented to the Industrial Readiness Panel of the House Armed Services Committee as early as 1980 by General Alton D. Slay, Commander Air Force Systems Command. He pointed out that technological advances have increased the demand for exotic minerals at the same time that legislative and regulatory restrictions have been imposed on the U.S. mining industry.

The 1981 report “A Congressional Handbook on U.S. Minerals Dependency/Vulnerability” singled out eight materials "for which the industrial health and defense of the United States is most vulnerable to potential supply disruptions" – chromium, cobalt, manganese, the platinum group of metals, titanium, bauxite/aluminum, columbium, and tantalum – the first five have been called "the metallurgical Achilles’ heel of our civilization."

In 1984 U.S. Marine Corps Major R.A. Hagerman wrote: “Since World War ll, the United States has become increasingly dependent on foreign sources for almost all non-fuel minerals. The availability of these minerals have an extremely important impact on American industry and, in turn, on U.S. defense capabilities. Without just a few critical minerals, such as cobalt, manganese, chromium and platinum, it would be virtually impossible to produce many defense products such as jet engine, missile components, electronic components, iron, steel, etc. This places the U.S. in a vulnerable position with a direct threat to our defense production capability if the supply of strategic minerals is disrupted by foreign powers.”

In 1985, the secretary of the United States Army testified before Congress that America was more than 50 percent dependent on foreign sources for 23 of 40 critical materials essential to U.S. national security.

The 1988 article “United States Dependence On Imports Of Four Strategic And Critical Minerals: Implications And Policy Alternatives” by G. Kevin Jones was written in regards to what he thought are the most critical minerals upon which the United States is dependent for foreign sources of supply – chromium, cobalt, manganese and the platinum group metals (PGE). These metals represent the "metallurgical Achilles' heel" of United States strategic mineral supply because their role in the economy is pervasive and they are vulnerable to supply interruption.

The May 1989 report “U.S. Strategic and Critical Materials Imports: Dependency and Vulnerability. The Latin American Alternative,” deals with over 90 materials identified in the Defense Material inventories as of September 1987. At least 15 of these minerals are considered “key minerals” because the US is over 50% import reliant. All these minerals are essential to domestic security and the national economy but four are referred to as the “first tier” or “big four” strategic materials because of their widespread role and vulnerability to supply disruptions – chromium, cobalt, manganese and platinum group metals.

“The U.S. depends on southern Africa's minerals for about the fifty percent of the "big four". Thus, a long-term cutoff of any or all of these materials has the potential for an economic and strategic crisis of greater proportions than the oil crisis of the 1970s. An embargo of South African minerals to the U.S. would affect millions of American jobs in the steel, aerospace, and petroleum industries, and could in effect shut down those industry groups.” U.S. Strategic and Critical Materials Imports: Dependency and Vulnerability

Chromium, cobalt, manganese, the platinum group, and titanium have been labeled "the metallurgical Achilles’ heel of our civilization" – MII, 1996, Gaston, 2001.

While much of the rest of the world is scrambling to tie up control of strategic minerals America has deliberately hamstrung itself. Americans don’t get it, yet they’ve had plenty of warning starting as far back as WWl.

In World War I severe material shortages (tungsten, tin, chromite, optical grade glass, and manila fiber for ropes) played havoc with production schedules and caused lengthy delays in implementing programs. This led to development of the Harbord List – a list of 42 materials deemed critical to the military.

After World War II the United States created the National Defense Stockpile (NDS) to acquire and store critical strategic materials for national defense purposes. The Defense Logistics Agency Strategic Materials (DLA Strategic Materials) oversees operations of the NDS and their primary mission is to “protect the nation against a dangerous and costly dependence upon foreign sources of supply for critical materials in times of national emergency.”

The NDS was intended for all essential civilian and military uses in times of emergencies ie guerrilla warfare in Zaire during the 1970s caused the worldwide price of cobalt to increase from $6 to $45 a pound, and a United Nations (UN) trade boycott of Zimbabwe (formerly Rhodesia) stopped legal exports of chromium from the country.

In 1992, Congress directed that the bulk of these stored commodities be sold. Revenues from the sales went to the Treasury General Fund and a variety of defense programs – the Foreign Military Sales program, military personnel benefits, and the buyback of broadband frequencies for military use.

“Without increased domestic exploration, significant declines in US mineral production are unavoidable as present reserves are exhausted. We will continue to ship American jobs overseas and forfeit our economic competitiveness unless we take steps to develop our own mineral resources.” Subcommittee on Energy and Mineral Resources Chairman Doug Lamborn

The Five Horsemen

Chromium - is a mineral the United States Geological Survey (USGS) still considers “one of the nation’s most important strategic and critical materials.”

In 2011, the United States was expected to consume about 5% of world chromite ore production in various forms of imported materials, such as chromite ore, chromium chemicals, chromium ferroalloys, chromium metal, and stainless steel.

Import Sources (2007–10): Chromium contained in chromite ore, chromium ferroalloys and metal, and stainless steel mill products and scrap: South Africa, 34%; Kazakhstan, 17%; Russia, 9%; China, 5%; and other, 35%.

Net import reliance as a percentage of apparent consumption: 2007 – 67%, 2008 – 66%, 2009 – 12%, 2010 – 62%, 2011 – 60%, USGS

Some 90% of chromite mined worldwide is converted to ferrochrome – Ferrochrome (FeCr) is an alloy of chromium and iron containing between 50% and 70% chromium. Stainless steel production consumes most of the ferrochrome produced annually. Chromium is also used to make heat-resisting steel. Superalloys use chromium and have strategic military applications. Chromium is one of the major elemental resources that the United States depends upon. The Republic of South Africa and Zimbabwe contain 98% of the world's reserves of this mineral.

There is no good alternative for chromium in the manufacture of steel or chromium chemicals.

Global steel production is forecast to rise to 1.5 billion tons in 2012. Higher labor and fuel costs, as well as a substantial devaluation of the US dollar, has led to a sizeable increase in costs of ferrochrome and chrome ore production.

Cobalt has not been mined in the U.S. since 1971 – the US has no domestic production and is 100% dependent on imports for its supply of primary cobalt. The US is the world's largest consumer of cobalt and considers cobalt a strategic metal.

Approximately 48% of the world's 2007 mined cobalt was a byproduct of nickel mining from sulfide and laterite deposits. An additional 37% was produced as a byproduct of copper operations, mainly in the Democratic Republic of the Congo (DRC) and Zambia. The remaining 15% of cobalt mining came from primary producers.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

Net import reliance as a percentage of apparent consumption: 2007 – 80%, 2008 – 81%, 2009 – 76%, 2010 – 81%, 2011 – 75%

In 2011, cobalt contained in purchased scrap represented an estimated 24% of cobalt reported consumption.

Import Sources (2007–10): Cobalt contained in metal, oxide, and salts: China, 18%; Norway, 16%; Russia, 13%; Canada, 10%; and other, 43%.

Nickel – Nickel, while not included in the list of top four or as a Metallurgical Achilles Heel is mentioned here because of its importance in regards to the mining of cobalt and Platinum Group Elements (PGE).

The United States does not have any active nickel mines but limited amounts of byproduct nickel were recovered from copper and palladium-platinum ores mined in the Western United States. The estimated value of apparent primary nickel consumption in the US was $2.93 billion.

The U.S. Government sold the last of the nickel in the National Defense Stockpile in 1999.

RBC Capital Markets forecasts nickel growth at 9.5% in 2012, 10.3% in 2013, and trend growth of approximately 5.0% thereafter. Citing Reuters, RBC Capital Markets Ltd. said Russia’s OAO GMK Norilsk Nickel plans to trim output in 2012.

The second type of deposit is mined exclusively for PGE’s with the other associated metals being by-products.

The long-term decline in discovery of new sulfide deposits in traditional mining districts has forced companies to shift exploration efforts to more challenging locations like the Arabian Peninsula, east-central Africa, and the Subarctic.

China is the leading consumer of nickel and is competing for supplies with recovering US industrial demand, as well as India, Russia and Brazil.

Import Sources (2007–10): Canada, 38%; Russia, 17%; Australia, 10%; Norway, 10%; and other, 25%.

Net import reliance as a percentage of apparent consumption: 2007 – 17%, 2008 – 33%, 2009 – 21%, 2010 – 34%, 2011 – 47%

Manganese – From the USGS – Events, Trends, and Issues: U.S. steel production in 2011 was projected to be 18% more than that in 2010. Imports of manganese materials were expected to be significantly more in 2011 than in 2010 – 17%, 20%, and 35% more for manganese ore, ferromanganese, and silicomanganese, respectively. As a result, U.S. manganese apparent consumption increased by an estimated 7% to 810,000 tons in 2011, which is less than might be expected based on increased imports because of a significant amount of manganese added to the Government stockpile.

The annual average domestic manganese ore contract price followed the decrease in the average international price for metallurgical-grade ore set between Japanese consumers and major suppliers in 2011. Improved economic conditions led to planned expansions at three manganese mines and the startup of two new manganese mines, which added about 4.2 million tons per year of additional manganese ore production capacity worldwide.

Net import reliance as a percentage of apparent consumption: 2007 – 100%, 2008 – 100%, 2009 – 100%, 2010 – 100%, 2011 – 100%

Import Sources (2007–10): Manganese ore: Gabon, 57%; Australia, 15%; South Africa, 12%; Brazil, 4%; and other, 12%. Ferromanganese: South Africa, 50%; China, 19%; Ukraine, 6%; Mexico, 6%; and other, 19%. Manganese contained in all manganese imports: South Africa, 33%; Gabon, 19%; China, 10%; Australia, 9%; and other, 29%.

World Resources: Land-based manganese resources are large but irregularly distributed; those of the United States are very low grade and have potentially high extraction costs. South Africa accounts for about 75% of the world’s identified manganese resources, and Ukraine accounts for 10%.

Platinum – South Africa contains 73% of the world reserves of platinum and virtually all of the United States need is met by this country.

Net import reliance as a percentage of apparent consumption: 2007 – 91%, 2008 – 89%, 2009 – 95%, 2010 – 91%, 2011 – 88%

The most important platinum-rich PGE district in the world is South Africa’s Bushveld Complex.

The government of South Africa is proposing a 50 percent tax on company profits once a "reasonable return" on mining activities has been achieved – this in a sector that is facing rising labor and power costs.

South African is in the process of building a state mining company to ensure cheap domestic supplies of minerals. This may evolve into significant state control of specific areas of mining. While South Africa has flatly denied a general nationalization of its mining industry specific sector targeted nationalization is obviously on the table.

The second PGE district in importance is the Noril’sk-Talnakh district, which is exceptionally Palladium (Pd) rich as a by-product of its Ni-Cu ores.

Competition – Have supply concerns been mitigated over the years?

“Continued growth in consumption resources is being driven by growth in China and the rest of Asia. Chinese companies are increasingly acquiring assets, as are Indian companies, prompting other global miners into a race to secure mineral assets of their own.” George Fang, Standard Bank’s Head of Mining and Metals China

In his 1989 book “The Rise and Fall of Great Powers” historian Paul Kennedy argues that a country with a growing economy prefers to become wealthy instead of funneling its economic output into the military. While China’s, and other developing countries military might has grown there is no doubt their greatest concern is to secure the needed energy and raw commodities necessary to continue their economic expansion.

The global mining industry is facing stiff new competition in getting deals done. The new competitor’s for the world’s resources have a mandate to secure long term resource deals for domestic use and have the financing capabilities any major mining company, or for that matter any government, would be envious of.

China’s state owned enterprises (SOE) and sovereign wealth funds (SWF) were armed with hundreds of billions of US dollars from the country’s foreign reserves and sent out to scour the globe for resources – they went on the hunt to fuel China’s exploding economy.

China wants to diversify out of the massive US dollar component of its Foreign Reserves which means:

SOE/SWFs have no problem dealing in straight cash and operating in what some might consider high risk areas
The Chinese have a longer term horizon for their ultimate payoff because they are mostly after off-take supply agreements from early stage development projects
The Chinese government funds infrastructure projects that secure the cooperation of the host country with regard to mine development and off-take agreements
Thanks to the trillions of foreign exchange reserves it currently holds China offers loans at highly competitive interest rates. For example, the Export-Import Bank of China (Exim Bank) gave the Angolan government three loans at interest rates ranging from LIBOR (London Interbank Offered Rate – the rate banks charge each other on loans) plus 1.25 percent, up to LIBOR plus 1.75 percent, as well Exim Bank offered generous grace periods and long repayment terms

The future production from the deposits that the Chinese, Indians and others acquire and develop through state-owned entities will flow directly back to their respective countries and bypass the global commodity markets. It’s obvious they are not putting these deposits into production so that they can make a profit selling output into the commodities market.

Conclusion

Many minerals were recognized as critical and strategic decades ago. Some – referred to as the big four, the top tier or the metallurgical achilles heel of the US – are more critical than others.

The Rare Earth Elements (REE) and most recently graphite, have caught investors attention and rightly so. But let’s not forget the achilles heel’s – chromium, cobalt, manganese and the platinum group metals (PGE) – are the basic building blocks any nation needs for its economic foundation.

The fact is, the US has a metallurgical achilles heel because it’s still dependent on South Africa (and its march to Marxism), the politically unstable Democratic Republic of Congo (DRC) and an increasingly unreliable China for supply of what it considered stragetic or critical minerals 30 plus years ago.

Over the intervening decades these minerals have become ever more critical and supplier countries even more unreliable.

The 2011/2012 Fraser Institute survey rankings examines which jurisdictions provide the most favorable business climates for the resource extraction industry. Out of 93 places surveyed, the US depends on a large majority of its supply of its most critical minerals, it’s Metallurgical Achilles Heel, from countries that ranked no higher than 50^th in the survey:

Zambia 50^th

South Africa 54^th

China 58^th

Russia 71^st

Zimbabwe 74^th

DRC 76^th

Kazakhstan 81^st

India 89^th

“As resource constraints tighten globally, countries that depend heavily on ecological services from other nations may find that their resource supply becomes insecure and unreliable. This has economic implications – in particular for countries that depend upon large amounts of ecological assets to power their key industries or to support their consumption patterns and lifestyles.” Dr. Mathis Wackernagel, President of the Global Footprint Network

Numerous countries are taking steps to safeguard their own supply by:

Stopping or slowing the export of natural resources
Shutting down traditional supply markets
Buying companies for their deposits
Project finance tied to off take agreements

Conclusion

The United States needs to figure out who its friends are and work with them to establish Security of Supply. The countries politicians, and its citizens, also need to figure out that true wealth, a growing economy and a strong country are built by resource extraction and manufacturing not a service based system pandering to the cries of non-government organizations (NGO).

Critical materials, and there sources, should be on every investors radar screens. Are they on yours?

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource sector, and specific nickel, cobalt and PGE junior companies, please come and visit us at www.aheadoftheherd.com

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Critical raw materials revisited

Richard Mills - Ahead of the Herd — Fri, 09 Mar 2012 21:20:20 +0000

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

Possibility (or not) of substitution
Irreplaceable functionality
Potential supply risks

Demand is increasing for critical metals due to:

Economic growth of developing countries
Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

Massive population booms
Infrastructure build out and urbanization plans
Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

Political instability of supplier countries
The manipulation of supplies
The competition over supplies
Attacks on supply infrastructure
Accidents and natural disasters
Climate change

Numerous countries are taking steps to safeguard their own supply by:

Stopping or slowing the export of natural resources
Shutting down traditional supply markets
Buying companies for their deposits
Project finance tied to off take agreements

In this article I am going to take a look at three reports covering what the US and Europe consider critical or strategic minerals and materials.

In its first Critical Materials Strategy, the U.S. Department of Energy (DOE) focused on materials used in four clean energy technologies:

wind turbines – permanent magnets
electric vehicles – permanent magnets & advanced batteries
solar cells – thin film semi conductors
energy efficient lighting – phosphors

The DOE says they selected these particular components for two reasons:

Deployment of the clean energy technologies that use them is projected to increase, perhaps significantly, in the short, medium and long term
Each uses significant quantities of rare earth metals or other key materials

In its report the DOE provided data for nine rare earth elements: yttrium, lanthanum, cerium, praseodymium, neodymium, samarium, europium, terbium and dysprosium as well as indium, gallium, tellurium, cobalt and lithium.

Five of the rare earth metals – dysprosium, neodymium, terbium, europium and yttrium – as well as indium, were assessed as most critical in the short term. The DOE defines “criticality” as a measure that combines importance to the clean energy economy and risk of supply disruption.

In a follow up to its earlier report the U.S. Department of Energy, Dec. 2011 – Critical Materials Strategy, examined the role that rare earth metalsand other key materials play in clean energy technologies such as wind turbines, electric vehicles, solar cells and energy-efficient lighting.

The five rare earth metals – dysprosium, neodymium, terbium, europium and yttrium are considered to be the most critical of the elements considered in the report.

Securing Materials for Emerging Technologies

A Report by the APS Panel on Public Affairs and the Materials Research Society coined the term “energy-critical element” (ECE) to describe a class of chemical elements that currently appear critical to one or more new, energy related technologies.

“Energy-related systems are typically materials intensive. As new technologies are widely deployed, significant quantities of the elements required to manufacture them will be needed. However, many of these unfamiliar elements are not presently mined, refined, or traded in large quantities, and, as a result, their availability might be constrained by many complex factors. A shortage of these energy-critical elements (ECEs) could significantly inhibit the adoption of otherwise game-changing energy technologies. This, in turn, would limit the competitiveness of U.S. industries and the domestic scientific enterprise and, eventually, diminish the quality of life in the United States.”

According to the APS and MRS report several factors can contribute to limiting the domestic availability of an ECE:

The element may not be abundant in the earth’s crust or might not be concentrated by geological processes
An element might only occur in a few economic deposits worldwide, production might be dominated by and, therefore, subject to manipulation by one or more countries – the United States already relies on other countries for more than 90% of most of the ECEs identified in the report
Many ECEs have, up to this point, been produced in relatively small quantities as by-products of primary metals mining and refining. Joint production complicates attempts to ramp up output by a large factor.
Because they are relatively scarce, extraction of ECEs often involves processing large amounts of material, sometimes in ways that do unacceptable environmental damage
The time required for production and utilization to adapt to fluctuations in price and availability of ECEs is long, making planning and investment difficult

This report was limited to elements that have the potential for major impact on energy systems and for which a significantly increased demand might strain supply, causing price increases or unavailability, thereby discouraging the use of some new technologies.

The focus of the report was on energy technologies with the potential for large-scale deployment so the elements they listed are energy critical:

Gallium, germanium, indium, selenium, silver, and tellurium – employed in advanced photovoltaic solar cells, especially thin film photovoltaics.
Dysprosium, neodymium, praseodymium, samarium and cobalt – used in high-strength permanent magnets for many energy related applications, such as wind turbines and hybrid automobiles.
Gadolinium (most REEs made this list) for its unusual paramagnetic qualities and europium and terbium for their role in managing the color of fluorescent lighting. Yttrium, another REE, is an important ingredient in energy-efficient solid-state lighting.
Lithium and lanthanum, used in high performance batteries.
Helium, required in cryogenics, energy research, advanced nuclear reactor designs, and manufacturing in the energy sector.
Platinum, palladium, and other PGEs, used as catalysts in fuel cells that may find wide applications in transportation. Cerium, a REE, is also used as an auto-emissions catalyst.

The third report I looked at, “Critical Raw Materials for the EU” listed 14 raw materials which are deemed critical to the European Union (EU): antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.

“Raw materials are an essential part of both high tech products and every-day consumer products, such as mobile phones, thin layer photovoltaics, Lithium-ion batteries, fibre optic cable, synthetic fuels, among others. But their availability is increasingly under pressure according to a report published today by an expert group chaired by the European Commission. In this first ever overview on the state of access to raw materials in the EU, the experts label a selection of 14 raw materials as “critical” out of 41 minerals and metals analyzed. The growing demand for raw materials is driven by the growth of developing economies and new emerging technologies.”

For the critical raw materials, their high supply risk is mainly due to the fact that a high share of the worldwide production mainly comes from a handful of countries, for example:

China – Rare Earths Elements (REE)
Russia, South Africa – Platinum Group Elements (PGE)
Democratic Republic of Congo – Cobalt

Taking all the metals, from all three lists, gives us:

Antimony

beryllium

Cerium

Cobalt

Dysprosium

Europium

fluorspar

Gadolinium

Gallium

Germanium

Graphite

Helium

Indium

Lanthanum

Lithium

Magnesium

Neodymium

Niobium

Palladium

Platinum

Praseodymium

Rhenium

Samarium

Selenium

Silver

Tantalum

Tellurium

Terbium

tungsten

Yttrium

The key issues in regards to critical metals are:

Finite resources
Chinese market dominance in many sectors
Long lead times for mine development
Resource nationalism/country risk
High project development cost
Relentless demand for high tech consumer products
Ongoing material use research
Low substitutability
Environmental crackdowns
Low recycling rates
Lack of intellectual knowledge and operational expertise in the west

Conclusion

Critical materials should be on every investors radar screens. Are they on yours?

rick@aheadoftheherd.com

www.aheadoftheherd.com

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Silver eagles soar

Richard Mills - Ahead of the Herd — Mon, 27 Feb 2012 23:33:23 +0000

In World War I severe material shortages played havoc with production schedules and caused lengthy delays in implementing programs. This led to development of the Harbord List – a list of 42 materials deemed critical to the military.

The NDS was intended for all essential civilian and military uses in times of emergencies. In 1992, Congress directed that the bulk of these stored commodities be sold. Revenues from the sales went to the Treasury General Fund and a variety of defense programs – the Foreign Military Sales program, military personnel benefits, and the buyback of broadband frequencies for military use.

American Silver Eagle

The American Silver Eagle is the official silver bullion coin of the United States. It was first released by the United States Mint on November 24, 1986 and is struck only in the one troy ounce size.

The Bullion American Silver Eagle sales program ultimately came about because the US government wanted, during the 1970s and early 1980s, to sell off what it considered excess silver from the Defense National Stockpile.

"Several administrations had sought unsuccessfully to sell silver from the stockpile, arguing that domestic production of silver far exceeds strategic needs. But mining-state interests had opposed any sale, as had pro-military legislators who wanted assurances that the proceeds would be used to buy materials more urgently needed for the stockpile rather than merely to reduce the federal deficit." Wall Street Journal

The authorizing legislation for the American Silver Eagle bullion sales program required that the silver used for the coins had to be from the Defense National Stockpile. By 2002 the DNS stockpile was so depleted of silver that if the American Silver Eagle bullion sales program was to continue further legislation was required.

On June 6, 2002, Senator Harry Reid (D-Nevada) introduced the Support of American Eagle Silver Bullion Program Act to “authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted."

2002 - 10,539,026 Bullion American Silver Eagles were sold.

2003 - 8,495,008 Bullion American Silver Eagles were sold, silver averaged $4.88 an ounce for the year.

2004 - 8,882,754 Bullion American Silver Eagles were sold. For 2004 the average cost of an ounce of silver was $6.67.

2005 - 8,891,025 Bullion American Silver Eagles were sold. Silver averaged $7.32 an ounce.

2006 - 10,676,522 Bullion American Silver Eagles were sold. Silver averaged $11.55 an ounce

2007 - 9,028,036 Bullion American Silver Eagles were sold.

2008 - 20,583,000 Bullion American Silver Eagles were sold. Silver averaged $14.99 an ounce and almost 80% more Bullion American Silver Eagles were sold then in any previous year.

The US Mint suspended sales of the silver bullion coins to its network of authorized purchasers twice during the year.

In March 2008, sales increased nine times over the month before – 200,000 to 1,855,000.

In April 2008, the United States Mint had to start an allocation program, effectively rationing Silver Eagle bullion coins to authorized dealers on a weekly basis due to "unprecedented demand."

On June 6, 2008, the Mint announced that all incoming silver planchets were being used to produce only bullion issues of the Silver Eagle and not proof or uncirculated collectible issues.

The 2008 Proof Silver Eagle became unavailable for purchase from the United States Mint in August 2008.

2009 - 30,459,000 Bullion American Silver Eagles were sold

On March 5, 2009, the United States Mint announced that the proof and uncirculated versions of the Silver Eagle coin for that year were temporarily suspended due to continuing high demand for the bullion version.

On October 6, 2009, the Mint announced that the collectible versions of the Silver Eagle coin would not be produced for 2009.

The sale of 2009 Silver Eagle bullion coins was suspended from November 24 to December 6 and the allocation program was re-instituted on December 7.

Silver Eagle bullion coins sold out on January 12, 2010.

The average cost of an ounce of silver in 2009 was $14.67

2010

No proof Silver Eagles were released through the first ten months of the year, and there was a complete cancellation of the uncirculated Silver Eagles.

Production of the 2010 Silver Eagle bullion coins began in January instead of December as usual. The coins were distributed to authorized dealers under an allocation program until September 3.

In 2010 the US Mint sold 34,700,000 Bullion American Silver Eagle Coins.

2011

According to the USGS’s most recent Silver Mineral Industry Survey, silver production fell to 37 tonnes in October – compared to 53 tonnes year over year (yoy).

In 2011, the United States produced approximately 1,054 tonnes of silver – down from 2010’s production of 1,154 tonnes and down from 2007’s production of 1,163 tonnes.

The US imported 6,600,000 oz of silver for consumption in 2011 – up from 2007’s imports of 4,830,000 oz.

In 2011 the US Mint sold 39,868,500 Bullion American Silver Eagle Coins.

2011 was the first year in which official coin sales will surpass domestic silver production.

Jeff Clark of Casey Research writes“For the first time in history, sales of silver Eagle and Maple Leaf coins surpassed domestic production in both the US and Canada. Throw in the fact that by most estimates less than 5% of the US population owns any gold or silver and you can see how precarious the situation is. A supply squeeze is not out of the question – rather it is coming to look more and more likely with each passing month.”

The US Mint is required by law to mint the bullion Silver Eagles to meet public demand for precious metal coins as an investment option. The numismatic versions of the coin (proof and uncirculated) were added by the Mint solely for collectors.

2012

United States Mint Authorized Purchasers (AP’s) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales higher than half of the monthly totals in 2011.

As of January 25th 2012, 5,547,000 Bullion American Silver Eagle Coins had been sold.

Bullion Silver Eagles are guaranteed for weight and purity by the government of the United States and because of this the US government allows bullion Silver Eagles to be added to Individual Retirement Accounts (IRAs).

Conclusion

The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets.

“Mark my words, if the interest rates on U.S. government debt truly reflected both the real level of inflation in this country and the rising risk of some form of default, rates would already by sky-high and the U.S. would resemble a massive Greece.” John Embry, Chief Investment Strategist, Sprott Asset Management

Investors are currently risk adverse and mining stocks are not well understood by the general investing public, but at least one thing is going to become very apparent to most - the best way to hedge yourself against inflation could be owning silver.

Junior resource companies offer the greatest leverage to increasing demand and rising prices for silver. Junior resource companies are soon going to have their turn under the investment spotlight and should be on every investors radar screen. Are they on yours?

If not, maybe they should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource sector, and several quality silver companies, please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

*** Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Graphite: Pencil It In

Richard Mills - Ahead of the Herd — Wed, 15 Feb 2012 00:03:42 +0000

Sometime between 1500 and 1565 a large graphite deposit was discovered in Cumbria, England. Because the graphite was extremely pure and solid it could easily be sawed into sticks. The graphite was actually thought to be a form of lead and called plumbago – Latin for lead ore.

The Borrowable Mine was soon ordered to be put under armed guard by Queen Elizabeth because the “lead” could be used to line the moulds for making her armies cannonballs. But black marketers managed to smuggle out the graphite for continued use in pencils. Artists from all over the known world quickly learned to appreciate the qualities of Cumbria’s graphite but it wasn’t until 1795 that Nicholas Conte learned to mix graphite powder with clay and fire it in a furnace to actually make something with the equivalent quality of Borrowables plumbago.

Today graphite (named for the Greek word meaning "to write") is attracting the attention of investors, and for just as good a reason as it once attracted all those artists 500 years ago.

Carbon

By mass carbon is the fourth most abundant element in the universe (after hydrogen, helium, and oxygen) and it’s the 15th most abundant element in the Earth's crust. Carbon is present in all known life forms and is the second (oxygen is first) most abundant element by mass – about 18.5% – in the human body.

Carbon is the stuff of life, it is the foundation, the chemical basis, of every living thing on Earth, yet because of its pervasive familiarity we all take it for granted.

As investors we might want to rethink that.

Allotropes are structural modifications of an element – the allotropes of carbon include:

• Diamond – The carbon atoms are bonded together in a tetrahedral lattice arrangement
• Fullerenes – The carbon atoms are bonded together in spherical, tubular, or ellipsoidal formations
• Graphite – The carbon atoms are bonded together in sheets of a hexagonal lattice
• Graphene – A flat two-dimensional sheet of carbon atoms

Graphite

Graphite has long been used in the aviation, automotive, sports, steel and plastic industries, as well as in the manufacture of bearings and lubricants. Graphite is an excellent conductor of heat and electricity, is corrosion and heat resistant and is also strong and light.

Currently, the automotive and steel industries are the largest consumers of graphite and demand across both industries is rising at five percent per annum.

The steel industry uses graphite as liners for ladles and crucibles, they use it in the bricks which line blast furnaces and to increase the carbon content of steel. Graphite has already replaced asbestos in automotive brake linings and pads and is used for gaskets and clutch materials. Sparks plugs are also made incorporating graphite.

But demand for graphite has been rising for other applications as well; Flexible graphite sheets, lithium-ion and vanadium batteries, fuel cells, semi conductors, nuclear, wind and solar power.

Graphoil

Graphoil is flexible graphite sheets and one of the fastest growing graphite markets. Flexible graphite is desirable for compression packing and gaskets, whose ability to seal comes from filling gaps through which fluid might flow.

Flexible graphite products have valuable properties:

• Free from creep under constant load
• Stable from cryogenic temperatures far below zero to temperatures well above the melting point of most ferrous and non-ferrous metals
• Resists a wide range of corrosive materials
• Nuclear radiation resistant even when exposed to massive doses of radiation
• Fire-safe in the presence of highly volatile fluids and extremely high temperatures

Nuclear Power

Graphite plays a key role in many current, and future, nuclear reactor designs. The next generation nuclear reactor (the INL-led Next Generation Nuclear Plant (NGNP) and other proposed high-temperature, gas-cooled reactors) temperatures are expected to reach as high as 1,000 °C in their cores – graphite, having a higher melting point then steel, doesn't burn until 3,000 degrees Celsius. Because graphite has a huge heat-absorbing capacity it’s also used to keep nuclear fuel at safe temperatures during unexpected events – as an aside graphite is also used as a heat sink in computers.

China’s Pebble bed reactors (PBR) are a graphite moderated, gas cooled nuclear reactor. The base of the PBR's design is the spherical (billiard ball-sized) fuel elements called pebbles. In the PBR, thousands of pebbles are amassed to create a reactor core. The pebbles are made of pyrolytic graphite (a protective graphite coating which moderates the pace of nuclear reactions) and they contain thousands of micro fuel particles called TRISO particles. These TRISO fuel particles consist of a fissile material such as 235U. These reactors are cooled by non-explosive helium gas instead of depending on a steady source of water.

Substantial amounts of graphite are required to charge the reactor at startup – 3000 tons and a percentage of the balls must be replaced each year as the fuel is spent necessitating a further 600 to 1000 tons of graphite each year of operation. China has one operating prototype, is now building two commercial units and plans to have 30 Pebble Bed nuclear reactors in operation by 2020.

Fuel Cells

The two major types of fuel cells – the phosphoric acid fuel cell (PAFC) and the proton electrolyte membrane fuel cell (PEMFC) – currently under development rely heavily on graphitized carbon. PAFCs are for stationary power generation (primary or backup power for remote locations such as cell phone towers), whereas PEMFC's have attracted widespread interest for use in transportation applications.

A fuel cell is not a battery – a battery is an energy storage device, it will stop producing electrical energy when the chemical reactants are consumed or it needs to be recharged. The fuel cell is an energy conversion device and will produce electrical energy as long as the fuel, and the oxidant, are fed to the electrodes.

More and more fuel-cell applications are in development every year and fuel cell technologies rely heavily on graphite – the proton exchange fuel cell (PEMFC) requires 80-100 pounds of graphite per vehicle.

"Large-scale fuel cell applications are being developed that could consume as much graphite as all other uses combined." U.S. Geological Survey

Solar Thermal Collectors

The biggest limitation of Solar or Photovoltaic (PV) panels is that they can use only a fraction of the sunlight that hits them, the rest of the sunlight turns into heat which actually hurts the performance of the panels.

An alternative that can make use of all of the sunlight, including light frequencies PVs can't use, is the solar thermal collector – they collect heat that’s used to boil the water to make the steam which drives the turbine which creates the electricity.

To further increase the efficiency of solar collectors, nanoparticles – particles a billionth of a meter in size – are added into the heat transfer oils normally used in solar thermal power plants. In laboratory tests nanoparticles increased heat collection efficiency by up to 10 percent. 100 grams of nanoparticles provides the same heat-collecting surface area as an entire football field.

Graphite nanoparticles are very efficient heat collectors.

Vanadium Redox Batteries

When the sun doesn’t shine and the wind doesn’t blow neither solar or wind plants are generating electricity, these two green energies need batteries to store the excess energy they can produce under optimal conditions. The vanadium redox battery (VRB) could be the perfect answer as they:

• Have unlimited capacity simply by increasing the size of their storage tanks
• Can be left completely discharged for long periods of time with no ill effects
• Have low maintenance requirements
• Can be recharged by simply replacing the electrolyte
• Have a nominal environmental footprint

VRB’s also require almost 300 tonnes of flake graphite per 1,000 megawatts of storage capacity.

Lithium-ion Batteries

The most important application for increased graphite demand might come from the lithium-ion batteries found in electric vehicle batteries and used to power our modern consumer electronics.

While lithium is the cathode the anode is graphite and these batteries need 10 to 30 (depending on which expert you are listening to) times more graphite than lithium and the lithium-ion battery industry is growing at a 30 to 40% annual rate.

As many as six million electric vehicles might be manufactured in 2020, each of them requiring 40 pounds of graphite for its battery system – the electric motorcycle and scooter markets are growing even faster.

Lithium-ion batteries are also crucial to the consumer electronics industry – power tools, cell telephones, laptops, tablets and media players etc.

Graphene

If you took a close look, a very close look, at a graphite pencil lead you will see layer upon layer of carbon atoms, multiple two dimensional planes that are loosely bonded to their neighbors.

The reason graphite works so well as a writing material, and industrial lubricant, is because the layers of atoms slip easily over one another – the layered structure facilitates easy cleavage along the planes.

Each of those single layer of atoms is grapheme.

Separating the individual layers of graphite sets the electrons free and allows carbon to behave…differently.

Properties

Graphene has unique combinations of optical, electrical and mechanical properties:

 Astonishing electrical conductivity – Graphene has the highest current density (a million times that of copper) at room temperature; the highest intrinsic mobility (100 times more than in silicon); and can carry more electricity more efficient, faster and with more precision than any other material
 Graphene also beats diamond in thermal conductivity – it's better than any other known material
 It is the thinnest and strongest material known to man; 200 times stronger than steel, is almost invisible and weightless, stretches like rubber – graphene can stretch up to 20 percent of its length – and yet is the stiffest known material, even stiffer than diamond
 Graphene is the most impermeable material ever discovered

Uses

Touch Screens

Graphene is transparent in infra-red and visible light, absorbing just 2.3 percent of light that lands on it. But, with your naked eye, you can see a single layer of graphene laid on a blank piece of white paper.

Indium Tin Oxide (ITO), the current touch screen material of choice, absorbs 10 percent of incident light, but it’s quite brittle, the exact opposite of graphene. Graphene is ideal for use in touch screens.

According to some reports the world has only 5-10 years of ITO reserves remaining and prices already exceed US$700,000 per tonne.

Photovoltaic (PV) Cells

Graphene has no band gap – everything is accepted.

What this means is that graphene solar panels have a huge advantage over silicon solar panels – graphene can absorb light from all over the solar spectrum, whereas silicon is confined to just certain frequencies.
That makes graphene solar panels much more efficient than any other material – instead of waiting 10-12 years for payback it might come as quickly as 5 years.
Transistors
It is possible to induce a small band gap in graphene by doping it, which means grapheme can be used a transistor – you need the band gap if you want to be able to turn the transistor off.

Spintronics

Spintronics is a technology for controlling not only individual electronics, but also their spin, this increases the amount of information that can be stored per electron – data is stored in the spin of an electron, not its presence. Since graphene has a long spin diffusion length the technology promises to increase the efficiency with which devices consume power and increase data storage capability.

Superconductivity At Room Temperature

The mean free path is the distance an electron can travel freely without bumping into something, or having its path disrupted by scattering – both cause resistance which means heat is generated.

In graphene, the mean free path is 65 microns — long enough that electronic components could be made that would operate at ambient temperatures with virtually no resistance.
We’re talking ambient temperature unimpeded conduction of electrons – superconductivity at room temperature.

Sensors

Graphene is the most impermeable material ever discovered, not even helium atoms can squeeze through. Highly sensitive gas detectors can be manufactured because the smallest quantity of a gas will get caught in its lattice producing an electrical signal that flags the presence of the chemical.

Medical imaging devices that won’t do the harm X-rays cause are possible, as are strain sensors – when you pull or push the strain can be monitored – this could be useful for buildings in earthquake prone areas or in airplane wings.

DNA sequencing

If you pass a strand of DNA through a sheet of grapheme with a small gap in it the electrical properties of graphene change on exposure to each base pair. Because graphene is 2D, it can "read" one base at a time, making it much more accurate than anything used today.

Derivatives

All the chemical derivatives of graphene are useful. You can dissolve graphene and the solutions (fluorographene, graphene oxide, hydrogenated grapheme) have applications in printable electronics that are already ten times better than current state of the art technology.

Criticality

In 2010 a European Commission included graphite among the 14 materials it considered high in both economic importance and supply risk. The British Geological Survey listed graphite as one of the materials to most likely be in short supply globally.

The US has also declared graphite a critical material. The U.S. Department of Homeland Security, and the State Department, said America could be hurt if terrorists were to disable graphite mines in China.

Market

The natural graphite market is 1-1.2 million tons per year and consists of several different forms of graphite – flake, amorphous and lump. Historical applications primarily use amorphous and lump graphite, most newly emerging technologies and applications use flake graphite. Of the up to 1.2 million tons of graphite that are processed each year just 40% is flake.

China, India and Canada are responsible for most graphite mining and processing with China producing the lion’s share at 70–80%. China’s production is 70% amorphous and lower value small flake graphite.

Currently China imports a significant amount of North Korea’s large flake graphite production raising considerable doubts in regards to China’s abilities to ramp up its graphite supply. Indeed China has already taken steps to retain its graphite resources by restricting its export quota – China imposed a 20% export duty, a 17% VAT and also closed state owned enterprises.

“The days of cheap, abundant graphite from China are over.” Industrial Minerals Magazine May, 2011.

It’s thought that the increased use of lithium-ion batteries could gobble up well over 1.6 Mt of flake graphite per year by 2020 – only flake, upgraded to 99.9% purity and synthetic graphite (made from petroleum coke, a very expensive process) can be used in lithium-ion batteries.

“Annual flake graphite production will have to increase by a factor of six by 2020 to meet incremental lithium carbonate requirements for batteries.” Canaccord research report.

The U.S. Geological Survey says large-scale fuel cell applications are being developed that could consume as much graphite as all other uses combined – a bold statement, but even if only half of the USGS demand is realized graphite use is going to explode just because of fuel cells, let alone other known demand drivers and new applications.

What if the current market almost doubles – new demand, between now and 2020, comes in at one million tonnes on top of the existing 1.2 million?

Today’s graphite producers, other than the ones in China, are going to have to produce more and junior companies are going to have to get busy and start to develop deposits. There will be a premium placed on mines in stable, safe areas for investment.

Since a large scale producer puts out 20,000 to 40,000 tons per year that’s a lot of new mines and a lot of opportunity for investors – one million tonnes divided by 40,000 could be the equivalent of up to twenty five mines worth of new production needed – and that’s a severe low-balling of the experts forecast increased usage numbers.

Consider also that most of the mines expected to come online, and the ones already in production, will not produce the highest grades of graphite – crystalline large flake – which runs between 94% and 97% carbon and starts at 80 or higher mesh size. Indeed most will produce medium, small-flake, lump and amorphous graphite.

Conclusion

The extraction of graphite and its processing is very well known in the west and western countries are the leaders in graphite and graphene application research.

China is not going to be much of a factor in the large flake graphite market, except perhaps as a future importer – the west has large flake graphite deposits, knows how to extract and refine the graphite and are the leaders in technological advancements regarding this space and demand is going to grow exponentially.

New, high-tech applications require more and more graphite production while graphene seems to be a wonder material and a lot of time, effort and money is being spent researching it – 3000 research reports were written just in 2010.

An investor needs to be doing his/her due diligence on junior resource companies with near surface, high grade large flake deposits close to all necessary infrastructure in politically safe jurisdictions.

Graphite should be on every investors radar screen. Is it on yours?

If not, maybe it should be.

rick@aheadoftheherd.com
www.aheadoftheherd.com
***
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Hudson’s Neodymium magnet mine

Richard Mills - Ahead of the Herd — Tue, 07 Feb 2012 14:30:52 +0000

Sarfartoq Carbonatite Complex

The Sarfartoq Carbonatite Complex, in west Greenland, is 100% controlled by Hudson Resources TSX.V – HUD and is one of the worlds largest carbonatite complexes having approximate dimensions of 13km X 8 km.

The minerals of economic interest are:

Pyrochlore – a niobium and tantalum oxide. In the core of the complex there are high uranium levels corresponding with exceptionally high concentrations of niobium and tantalum, concentrations which are unusually high in comparison to other such deposits throughout the world – the Sarfartoq Project has produced some of the highest known niobium intercepts.

Uranium is directly associated with the niobium in the pyrochlore and is an effective prospecting tool used to identify other pyrochlore occurrences on the project.

Red Ankerite – the bulk material containing bastnaesite and monazite which are host to the rare earth elements. The Sarfartoq Carbonatite’s rare earth elements (REE) are generally found along the outer margins of the carbonatite.

The distribution of individual rare earth oxides, as a percentage of the total rare earth oxides, demonstrate a high proportion of neodymium oxide to total rare earth oxides.

The high grade rare earth oxides on the Sarfartoq Project are associated with low levels of thorium. As a result, the thorium radiometric signature is an effective prospecting tool for identifying additional REE occurrences.

A 2002 radiometric survey identified over 30 targets on the Sarfartoq Project but a significant portion of the area is covered by disaggregated material which may be masking additional radiometric anomalies.

Sarfartoq Project Historical Work

The Sarfartoq Carbonatite Complex was the focus of limited exploration activity after its discovery by Greenland government geologists in 1976.

Hecla Mining completed a small initial drill program in 1989 which was followed by New Millennium Resources spending in excess of five million dollars on exploration from 2000 to 2002.

Non-compliant NI 43-101 historical results include a trench sample grading 14.4% Nb2O5 over 200 meters and a diamond drill hole averaging 12.13% Nb2O5 over 20 meters starting from near surface.

Bench-scale metallurgical test work carried out on the pyrochlore material from 2000-2003 demonstrated that recoveries of over 95% for niobium and uranium are achievable utilizing solvent extraction.

No follow up work was ever done on some highly anomalous REE results in a number of areas within the outer ring structure of the carbonatite – the north area, despite the average combined lanthanum, cerium and neodymium oxides samples averaging 1.1% (a number of samples exceeded 4.0%), saw little advanced exploration.

Infrastructure

The Sarfartoq Complex is 20 minutes by helicopter from a major airport, is located near tidewater – in a year round ice free area of Greenland – and is adjacent to very good potential hydroelectric (run of river) sites.

Alcoa is currently evaluating a hydroelectric site within 15 km of the Sarfartoq project to support an aluminum smelter to be built on the coast. The hydroelectric facility would have an installed capacity of 600 to 750 megawatts. Civil infrastructure, including harbors, camps, roads and heliports would be developed to support construction of the project.

Hudson has had preliminary discussions with the Greenland government and Alcoa to ensure access to this clean, cost effective power source should it be constructed.

Moratorium On Uranium Exploration

The Government of Greenland amended the Standard Terms for Exploration Licenses and will permit – subject to their approval – the exploitation of minerals that co-exist with radioactive elements above normal background concentrations. There has been no change to the moratorium on uranium exploration and the government retains all rights to radioactive elements.

Because of the current controversy surrounding uranium mining in Greenland, and the exceptional grades of uranium – consistently hitting one percent – Hudson is not, despite average niobium grades of five percent, committing itself to working in the core of the Sarfartoq Carbonatite Complex at the present time. Instead, it is Hudson’s intention to focus on development of its rare earth prospects, in particular the REE(s) associated with the manufacture of today’s powerful miniaturized magnets.

Todays Sarfartoq Carbonatite Neodymium Mine Project

Hudson has recently released the results of a Preliminary Economic Assessment (PEA) for its Neodymium Mine Project.

The Study shows a Net Present Value of $616M and an Internal Rate of Return of 31.2 % with a 2.7 year pay-back period. The Study was based on the Company’s 43-101 compliant inferred resource of 14.1Mt at 1.5% TREO at the ST1 Zone.

A total of 16,514 meters in 71 holes were drilled in 2011 and these results have not yet been incorporated into the resource estimate or the PEA.

“We are very pleased with the results of the PEA which demonstrate the robust economics of the project. Having the project located adjacent to tidewater provides significant economic benefits in both capital and operating costs. Looking ahead, we expect to have an updated resource estimate completed in early 2012, which will incorporate all of the 2011 drill results which includes dozens of high-grade sections from 2.0% to 6.5% TREO.

We plan to update the PEA with the results of the updated resource estimate in early 2012. As the project economics are quite sensitive to grade, we are optimistic that higher project valuations will be reported in the updated PEA." James Tuer, Hudson’s President

Assays from a five tonne bulk metallurgical sample, collected on surface at the ST1 Zone, graded 2.5% Total Rare Earth Oxides (TREO). Neodymium oxide averaged 20% of total REO’s.

“The extraction of the five tonne metallurgical sample is very exciting for several reasons. Firstly, it confirms the presence of a significant amount of high-grade rare earth material at surface. Secondly, and possibly more importantly, it provides a sufficient quantity of material for us to take the metallurgy through to pilot scale testing. This sample will be incorporated into our updated resource model which we expect to have out in the first quarter of 2012.” James Tuer, Hudson’s President

Recent metallurgical test work from SRC has demonstrated successful extraction of rare earths utilizing acid baking and leaching. Test work showed that two hours of baking, at 220°C and approximately one tonne of acid per tonne of mineralized feed (concentrate) recovers 94% of the TREO.

Neodymium

The U.S. Department of Energy, in its Dec. 2011 report Critical Materials Strategy examined the role that rare earth metals and other key materials play in clean energy technologies such as wind turbines, electric vehicles, solar cells and energy-efficient lighting.

Five rare earth metals – dysprosium, neodymium, terbium, europium and yttrium are considered to be the most critical of the elements considered in the report.

Neodymium is the key to making the highest coercivity rare earth permanent magnets – the superior high strength permanent magnets used for many energy related applications, such as wind turbines (the most efficient turbines require approximately 1,000 kg of neodymium for each megawatt of electricity to be produced) and hybrid automobiles. The shift away from electromagnetic systems towards permanent magnetic-based direct drive systems is increasing demand for these high powered magnets.

Neodymium is in short supply in the global marketplace causing prices to remain robust with neodymium oxide currently quoted at US$200/kg, FOB China, and at US$100/kg, within China, according to metal-pages.com

Neodymium Mine

The distribution of individual rare earth oxides, as a percentage of the total rare earth oxides, from the Phase Two program at HUD’s Sarfartoq Carbonatite’s ST1 Zone are documented in the table below. The results are consistent with previous assay results and demonstrate a high proportion of neodymium oxide to total rare earth oxides at 19% – based on the present inferred resource the ST1 Zone at Sarfartoq represents one of the industry’s highest ratios of neodymium to total rare earth oxide (TREO).

Note that the gross amount of neodymium (Nd203, 40 Mkg in total) oxide is approximately the same at each of three locations, this is important for development of the project as a neodymium mine.

Also note; Hudson’s ST1 Zone represents one of the industry’s highest ratios of neodymium and praseodymium to TREO, totaling 25%, and that drilling at ST40 continues to intersect a very high ratio of neodymium oxide to TREO at 46%.

Management & Board

James Tuer – President & Director;

MBA, Mechanical Engineer. CEO of Hudson since 2000. Public company & corporate finance background (TD Securities)

Jim Cambon – VP Project Development;

B.Sc. Geology. Over 20 years international mining/engineering project experience (AMEC, Bateman) including specific arctic project experience (Ekati, Snap Lake)

John McConnell – Director

Professional Mining Engineer with an extensive background developing and operating mining projects, particularly in arctic regions. President of Victoria Gold

Flemming Knudsen – Director;

Retired CEO of Royal Greenland A/s, Greenland’s largest company. Extensive world-wide business experience. Strong connections in the EU.

John Hick – Director;

Has served in a senior capacity and/or on the board of directors of major mining companies (Placer Dome, TVX Gold, Rio Narcea) .

Dr. John A. McDonald – Director;

He and his technical team were directly responsible for the discovery and development of the Snap Lake diamond deposit, acquired by De Beers for $480 million in 2000.

Dr. Peter Le Couteur – Consulting Mineralogist;

A mineralogist with significant experience working with carbonatites. Ex-Cominco.

Dr. Mike Druecker – Consulting Geologist:

Ex-Hecla, professional geologist, one of the pioneers in rare earth exploration dating back to the 1970’s.

John Goode– Consulting Metallurgist:

48 years experience with numerous rare earth projects in China, Canada and the USA.

2012

Hudson’s plans for 2012 include the commencement of a prefeasibility study (PFS) and an extensive drill program which will further delineate the high grade zones encountered in 2011 as well as other prospective targets that have been identified around the 32 km circumference of the Sarfartoq Carbonatite Complex. With current working capital of $12.5M, the entire 2012 program could be accomplished with the current treasury.

Conclusion

There currently exists a formidable demand for Hudson’s primary target, neodymium and its other potential by-product credits ie praseodymium. Neodymium is in a supply deficit, both in China and in the west – the magnet industry demand for neodymium is expected to grow by about 10% per year.

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard does not own shares of Hudson Resources TSX.V – HUD

Hudson Resources TSX.V – HUD is a sponsor of Richards site Aheadoftheherd.com