Friday, January 31, 2014

North Korea, Diplomacy and Rare Earth Elements

Just as we've seen the world make overtures toward Iran in recent months, I suspect that next on the "diplomacy" schedule will be North Korea.  But first, let's look at a bit of background information.

Rare earth elements (REEs) or rare earth metals are a group of 17 elements in the periodic table (doesn't that take you back to high school?), consisting of 15 lanthanide metals: lanthanum, cerium, praseodymium, promethium, neodymium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium with atomic numbers ranging from 57 to 71.  In addition, scandium and yttrium are considered rare earths since they often occur in the same ore deposits as the lanthanides as you can see on this periodic table:

Despite their name, rare earth elements are not really all that rare; for example, cerium is the 25th most abundant element in the earth's crust at 68 parts per million, about the same concentration as copper and more abundant than lead, gold and platinum.  The problem is that the rare earths are rarely found in high concentrations and are rarely concentrated in an ore body that is easily exploitable.

Rare metals are critical to the world for several reasons, one of the key ones being the growing green energy sector.  Rare earths are used in LED lighting, hybrid cars, wind turbines, thin-film solar cells, permanent magnets, laptop hard drives and the red colour for computer and television screens.  Here is a pie chart showing projected rare earth demand by application for the year 2015 for the United States and the world as a whole:

United States demand for rare earth elements is expected to grow over the coming years; permanent magnet demand is expected to rise by 10 to 16 percent annually and demand for REEs in auto catalysts and petroleum cracking is also expected to increase between 6 and 8 percent annually.  The Department of Defense uses about 5 percent of domestic rare earth production, particularly in permanent magnets, a key part of military weapons systems.

Here is a table showing rare earth element production and reserves for the entire world for 2011:

I think that you can see where a potential geopolitical conflict could occur.  China controls 89 million metric tons of the world's total reserve base of REE or 59.3 percent of the 154 million metric tons in the entire world.  Russia controls 21 million metric tons or 14 percent of the world's total and the United States controls a relatively modest 14 million metric tons or 9.3 percent of the world's total.  On the production side, in 2011, China produced 105,000 metric tons of REE or 95 percent of the world's total with India and Australia producing 2.5 percent and 2.0 percent respectively.  The United States produces no rare earth elements.  This is largely because of environmental regulations associated with the mining of REEs due to the toxic and radioactive waste that is a legacy of rare earth mining.  In fact, Mitsubishi Chemical is now spending $100 million to clean up its Bukit Merah rare earths processing site in Malaysia which was closed in 1992.  The site is one of Asia's largest radioactive waste cleanup sites.

Here is a map showing the flow of rare earth elements around the world:

In 2010, the world demand for REEs was estimated at 136,100 tons with global production of around 133,600 tons.  By 2015, global demand is expected to rise to 210,000 tons per year with China producing around 130,000 tons per year by 2016, leaving a rather substantial shortfall, a situation that  could grow even worse if China continues to set quotas on rare earth exports.  It is suspected that shortfalls will occur in yttrium, dysprosium, terbium, neodymium and europium.  One nation that feels particularly vulnerable to China's REE whims is Japan, particularly given the recent friction between the two nations and Japan's reliance on imported rare earths for its automotive and electronics sectors.

Now, on to North Korea, the subject of this posting.  A recent press release by SRE Minerals, a United Kingdom private equity firm, announced the results of an exploration program in the Democratic People's Republic of Korea (DPRK or North Korea as it is known to most of us).  A joint venture agreement between the Korea Natural Resources Trading Corporation and SRE known as Pacific Century Rare Earth Mineral Limited has announced that an initial assessment of the Jongju REE Exploration Target located about 150 kilometres north of Pyongyang in North Pyongyam Province has indicated a total mineralization potential of 6 billion tons with total rare earth oxide potential of 216.2 million tons.  This deposit alone would more than double the world's total REE reserves.  In total, 664.9 million tons of the target have greater than 9 percent total rare earth mineralization.  According to the company, this would make the Jongju target the world's largest REE occurrence.  A further exploration program is planned for the third quarter of 2014.

As was the case in Iran and its world-leading natural gas and oil reserves, one has to wonder if North Korea's rare earth reserve base pans out to be economically viable, whether the world will beat a path to the nation's door, trying to gain a foothold in a very lucrative natural resource base.

1 comment:

  1. Cool article and thank you for analysis. What confused me is units. The table says annual production is 0.1 million metric tons, but world reserves are 100 million even without DPRK. That does not seem a cause for alarm, even if production needs to double.