The crucial role played by smelters in the supply of critical minerals

Equivalent in situ grades example with Gallium and Germanium

Let's do this with a simple example, Germanium (Ge) and Gallium (Ga) grades, such as those which were reported by Golden Deeps (ASX: GED), in hole NSBDD008, at Nosib. That report mentions prices for Germanium at USD $2,450/kg, Gallium at USD $230/kg (7-Jul-2023).

Gold (Au) is not in that assay report, but let's use it as a reference comparison, if only because many investors are familiar with 1g/tonne gold deposits as around the lower end of viability.

Presently, gold trades at around USD $1,979/troy ounce. There are 31.105 grams per troy ounce so the kilogram price of our ever-loving precious is 1000/31.105 * 1979 = $63, 623 USD/kg.

Miners often quote in situ equivalent grades by converting to a base unit. This is a simple way to come up with ballpark estimates, although it does not realistically reflect recoveries, plant requirements, or any of the other factors which affect project economics.

With that caveat out of the way, the in-situ conversion (at prices 7-Jul-2023) reads:

1 gram/tonne Au ~ 63,623/2450= 25.96 gram/tonne Ge

1 gram/tonne Au ~ 63,623/230= 276.6 gram/tonne Ga

You can see that 25 g/t Ga and 300 g/t Ga is similar in value to 1 g/t Au. Those ratios are obviously price-dependent, but you get the idea. You need quite a bit of this stuff.

Furthermore, you need to have a processing circuit for those products. The competition will be from large aluminum smelters for Gallium and large zinc smelters for Germanium.

This is similar to the silver (Ag) market. A lot of that comes from lead-zinc smelting. You need to have pretty good Ag grades > 100g/t to qualify as a primary silver operation.

Critical minerals as smelter byproducts

It was not my intention to be rude by suggesting that finding a primary Gallium or Germanium mine would require a good deal of exploration luck. There are very many critical minerals that are only produced in significant quantity as smelter products. On that list we have:

Tellurium (Te)

Selenium (Se)

Gallium (Ga)

Germanium (Ge)

Molybdenum (Mo)

Cadmium (Cd)

Rhenium (Re)

Indium (In)

Bismuth (Bi)

This feature of critical minerals markets is key since you are unlikely to be sourcing them from a mine operation. The place to get them is downstream at the smelter.

Western nations have shut down most of their smelters. They will be in China, or Chile, Peru, Africa, India, or Indonesia, Japan, or South Korea, Mexico, or Canada, Belgium, Clarkson in the USA, or Port Pirie in Australia.

Smelters are where you get your critical minerals from.

If you shut them all down, you will have to import the minerals from someplace else.

You can see, this is complicated.

No smelter in your country? Too bad. Buy from China!

We could locate good primary deposits of base metals, such as Copper (Cu), Zinc (Zn), Lead (Pb), Silver (Ag), Tin (Sn), Gold (Au), but the above metals will be produced at the smelter. Smelters are expensive to build, near impossible to permit, and difficult to manage from an ESG perspective. 

The disciplines of hydrometallurgy and pyrometallurgy are barely taught.  There are greener processes in the offing, like biometallurgy, but they are nascent.

I doubt that many smelters will be built in nations worried about China.

It gets worse. Rare Earths (REE) metals introduce a whole different level of complexity because their economic separation requires a complex cascade of many hundreds of Solvent Extraction (SX) units. These are one billion-plus dollar plants, and quite useless if you have no buyer.

With rare earths, if you build such a plant, and have no buyer lined up, then the very worst you could do is to tell investors that you "won't sell to China". That cuts out 90% of the market. To make matters worse, Japan is full up with Lynas and MP Materials. That leaves you with just about 3% of the market. Since Arafura probably will saturate South Korea, you are now telling investors that they can stump up one billion dollars for you to sell into 1% of the market.

What about the USA? Sorry, they have around 100 tons of magnets moving to 1,000 tons once MP Materials finishes their Fort Worth, TX plant. Once you adjust for the 30% by weight of rare earths in a magnet, you are chasing 300 tons.

Great business plan. I won't sign, because you are chasing 0.8% of the global market!

Furthermore, the high value technology applications usually require four nines (4N) to six nines (6N) purity. That is 99.99% to 99.9999% pure. You don't get that from the smelter. You would need to create a secondary purification for the secondary product.

In the case of metals like Rhenium, it is a tertiary product.

You get Rhenium (Re) from the left-over flue gases of a Molybdenum (Mo) extraction circuit on a Copper (Cu) smelter. Since there is so little in the ore, you need a very big copper smelter. You need to go to Chile or Poland for that.

The problem of too much National Security Noise in this market

This is important for investors to understand because the national security people will go off, on a regular basis, like so many frogs in a sock, about the need for more mines. These folks mean well, but the noise distracts attention from what is needed. 

I thought I would have a critical minerals investment fund launched by now, to invest in new projects. That hasn't happened because I spend every waking hour combatting a torrent of disinformation from incredibly well financed national security think tanks!

I pointed this out in my wire: Which country is the largest exporter of unseparated rare earth concentrates to China? The answer is the USA! The USA mines more than enough Neodymium and Praseodymium to replace its current imports of rare earth magnets from everywhere else, including China and Japan.

The reason that the USA exports rare earths, to buy back the finished magnets, is because it has no rare earth separation, rare earth metallization, or rare earth magnet manufacturing.

It has the mine. Yay! 

It just doesn't have the other pieces. Boo!

Let's have World War III to fix that problem. Yay!

You can see how this soon balloons into a big problem. You tell the world that you need more mines, when you already have one, and forget to tell people that what you really need is to go build separation plants, metal plants, magnet plants, and so on.

Needless to say, if you cannot figure out what your problem is then you won't fix it.

Why we pay attention to smelters

If Joe Biden was happy to build more smelters in the USA, then the USA could get most of what they need by buying base metal concentrates from Australia. This might be one good way to avoid World War III as a way to get, I don't know, Gallium. Sadly, I don't think that either he, or any of his many advisors, have figured that out yet.

This mistake is common. 

The exact same mistake boomerangs back every ten to fifteen years!

[You folks I know in the market who were there in 2010, high five on that one.]

You don't hear about this in the Australian press.

You won't read it in any report from a Washington DC Think Tank.

Don't get me wrong. The folks in question are not stupid. They just don't know.

This stuff matters for any investor in this space.

The tub thumpers don't know it, so World War III is perennially on the menu.

Lots of people don't, so it is your advantage to bone up on metallurgy and smelters.

Now you know, so have fun!

Critical minerals are both important and interesting. If you get your metallurgical and market ducks lined up and quacking, they can be lucrative.

Photo by Bruna Fiscuk on Unsplash. Smiling woman at the Chuquicamata mine in Chile. The smelter is ugly as sin, which is why Joe Biden will probably never solve the problem of the USA importing critical minerals from faraway places. It is why China has high market share. It is why World War III looks attractive to people who don't actually know anything.