The U.S. is Desperately Short of These 3 Critical Metals
T
hree of the most valuable metals in the world are so rare that they could become a factor in the difference between global technological dominance and military superiority on one hand, and the loss of superpower status on the other. Yet, for all their critical importance, even the most powerful nations are struggling to secure a stable supply.
Mentioned in today's commentary includes Teck Resources Ltd (NYSE TECK), Turquoise Hill Resources Ltd. (NYSE TRQ), Pretium Resources Inc. (NYSE PVG), Magna International Inc. (NYSE MGA), Agnico Eagle Mines Limited (NYSE AEM).
That's because one of these metals is so rare that total historical production wouldn't even cover your ankles in an Olympic-sized swimming pool. The second is even rarer than the first. And the third is so secretive that it's almost impossible to put a market price on it at all.
#1 Platinum (Pt)
This metal is as scarce as gold, representing .005 ppm (parts per million) of the earth's crust. But it isn't exploited at even close to the volume of gold. In 2018, the world produced 860 million ounces of silver, 109 million ounces of gold, and only 6 million ounces of platinum. That's because it's hard to get at. There's no surface-mining of platinum, although South Africa does have one very small open-pit mine that provides some 8 percent of the world's platinum production.
All the gold ever produced in the world would fill three Olympic-sized swimming pools, while platinum would barely cover your feet in one. But while gold has few uses aside from aesthetics and a safe haven for traders, platinum is critical.
Platinum is so rare and valuable that during WWII, it was declared a strategic metal, and the U.S. government banned its use in jewelry. Today, it's even more strategic than it was during the Second World War - and not just for military applications, either.
Platinum is critical for everything from computers and catalytic converters to optical fibers - and crucially, it's used by automakers to reduce harmful vehicle emissions.
And its sister metal - palladium - is on a massive bull run right now. Palladium prices have risen an amazing 400 percent since early 2016 due to chronic under-supply and relentless industrial demand. That has led to a wide gap between prices for the sister metals, with over-supplied platinum struggling but now poised to gain lost ground.
Worldwide, estimates are that we have 69,000 metric tons of platinum reserves, and 95 percent of that is deep in the earth's crust in South Africa. Miniscule amounts are to be found in Russia and North America, where it is mined as a by-product of nickel and palladium, respectively.
The platinum jackpot is South Africa's Merensky Reef, and the biggest producer is Anglo Platinum, which accounted for some 40 percent of all primary refined platinum, and 30 percent of total global production in 2017.
#2 Rhodium (Rh)
Rhodium is even rarer and more expensive than palladium. And it goes for five times the price of gold. Rhodium has a high melting point and is pretty much immune to corrosion. That makes it a key element for use in anything that needs reflective properties, as well as catalytic converters.
This month alone, rhodium prices have surged over 30 percent, and one of its key drivers is its application in emissions rules, which is now stricter and pushing much greater demand for this precious rare earths element. Both diesel and gas engines need rhodium - and now more than ever. Some analysts are calling it 'the hottest trade of 2020'.
Data from S&P Global Platts suggests that over 80 percent of demand for rhodium and palladium comes from the automotive industry. Again, the biggest producer is South Africa, followed by Russia and Canada. That's because it's produced largely as a by-product of platinum and palladium.
#3 Cesium (Cs)
Then we have cesium, the almost secretive metals market where it's next to impossible to get an exact price.
Cesium, was added to the critical commodities list by the USGS in 2018 and has several important uses in modern industry It's increasingly vital to the oil and gas industry because it's used in cesium formate brines, which act as heavy mud for high pressure, high temperature offshore oil drilling. In other words, it lubricates drill bits and prevents blowouts.
Cesium isotopes are also responsible for the world's time standard. That's why they are used in atomic clocks for cell phone networks, the internet, Global Positioning Systems (GPS) and aircraft guidance systems. Cesium clocks are the most accurate known to man - accurate to about 1 second in 300 million years.
Cesium bromide is used in infrared detectors, optics, photoelectric cells, scintillation counters, and spectrophotometers, and the metal is also used in the glass for military-grade night vision goggles.
According to the USGS, the United States relied 100% on cesium imports in 2019. It's hard to get a world market price on cesium because there is not much trading of this strategic metal, but according to the most recent Mineral Commodities Summary, one company offered 1-gram ampoules of 99.8% (metal basis) cesium for $63.00, a slight increase from $61.80 in 2018, and 99.98% (metal basis) cesium for $81.10, a 3% increase from $78.70 in 2018.
Strategic as it is, though, there are only three pegmatite mines in the world that commercially produce it Tanco in Manitoba, Bitika in Zimbabwe, and Sinclair in Australia. Of these, Tanco and Bitika are no longer producing, and the stockpiles at Tanco and Sinclair are largely controlled by China. So, not only is there limited production - there are a very limited number of companies in the cesium supply chain.
One is Sinomine Resource Group Co. Ltd, based in China and now the owner of the Tanco mine and Sinclair's stockpiles, but a potential future competitor is now just emerging on the cesium scene the relatively unknown Canadian junior miner, Power Metals Corp. (PWM.V, PWRMF) best known for its major hard rock lithium deposit in Canada.
This company is sitting on what is hoped to become only the fourth commercial mine of its kind in the world, with 100 percent ownership in the Case Lake property in Northeastern Ontario, where it has made a discovery of a deposit which includes some high-grade cesium mineralization.
The company discovered the pegmatites at West Joe Dyke in August 2018, intersecting high-grade cesium mineralization in six drill holes when it was targeting lithium instead. For cesium, it means the playing field could be strategically shifting away from what has already been lost to China and towards a new North American supply. The timing is as critical as the precious metals themselves.
The United States effectively relies on foreign imports for 70 percent of its strategic metals, as indicated by a 2017 USGS report.
That's no way to win world dominance in an age of advanced technology that would be crippled without these super metals. As the world continues to evolve, a handful of companies are looking to ride the wave of growing resource demand.
Bonus Gold
Gold is and will always hold a special place in investors' hearts. It's a safe haven asset when markets turn sour. It's a luxurious accessory when things are going well. And it's withstood the test of time. Even better, there's a lot of upside in the companies producing and dealing with it.
Wheaton Precious Metals Corp. (WPM) is a company with its hands in operations all around the world. As one of the largest 'streaming' companies on the planet, Wheaton has agreements with 19 operating mines and 9 projects still in development. Its unique business model allows it to leverage price increases in the precious metals sector, as well as provide a quality dividend yield for its investors.
Recently, Wheaton sealed a deal with Hudbay Minerals Inc. relating to its Rosemont project. For an initial payment of $230 million, Wheaton is entited to 100 percent of payable gold and silver at a price of $450 per ounce and $3.90 per ounce respectively.
Canadian based gold producer, Agnico Eagle Mines Ltd (AEM) is an especially noteworthy company for investors. Why? Between 1991-2010, the company paid out dividends every year. With operations in Quebec, Mexico, and Finland, the company also is taking place in exploration activities in Europe, Latin America, and the United States.
Teck Resources (TECK) could be one of the best-diversified miners out there, with a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets. Its free cash flow and a lower volatility outlook for base metals in combination with a potential trade war breakthrough could send the stock higher in H2 of this year.
Teck's share price stabilized last year, and many investment banks now see the stock as undervalued. Low prices for Canadian crude and disappointing base metals prices weighed on Q4 earnings.
Despite its struggles, however, Teck Resources recently received a favorable investment rating from Fitch and Moody's and will likely benefit from its upgraded score. Having investment grade ratings is very important to us and confirms the strong financial position of the company, said Don Lindsay, President and CEO. We are very pleased to receive this second credit rating upgrade.
Turquoise Hill Resources (TRQ) is a mid-cap Canadian mineral exploration and development company headquartered in Vancouver, British Columbia. Its focus is on the Pacific Rim where it is in the process of developing several large mines.
The company mines a diversified set of metals/minerals including Coal, Gold, Copper, Molybdenum, Silver, Rhenium, Uranium, Lead and Zinc. One of the fortes of Turquoise hill is its good relationship with mining giant Rio Tinto.
Turquoise has seen its share price languish last year, and the successful development of its world-class Oyu Tolgoi project in Mongolia is of utmost important to the future of this miner.
Pretium Resources (PVG) is an impressive Canadian company engaged in the acquisition, exploration and development of precious metal resource properties in the Americas. Pretium has an impressive portfolio and if you can catch the stock while the price is right, there could be huge opportunity for upside. Additionally, construction and engineering activities at its top location continue to advance, and commercial production is targeted for this year.
✔️ The U.S. is Desperately Short of These 3 Critical Metals
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