Tuesday, October 04, 2016

The Germanium Solution

The world is full of solutions searching for a problem to solve.  Scientists have known for years how to craft metal alloys made with germanium, one of the least celebrated members of the table of elements.  These alloys might get ‘silver bullet’ status at long last.  Developers of geothermal power plants truly do have a problem in dealing with the exceptionally hostile environment deep in the earth.  The electronic monitoring equipment sent ‘downhole’ are subjected to high temperatures, excessive vibration and intense pressure.  The mix of germanium with precious metals may be exactly what is needed for the job.

Image result for germanium images
Shiny and silvery, germanium is quite brittle, but resists bubbling into liquid form until it is subjected to temperatures over 1,720 degrees Fahrenheit (938 degrees Centigrade).  Germanium is metalloid, having properties of both metals and nonmetals.  Silicon, tellurium and boron are other examples of metalloids.  Germanium is among an even more elite group of elements that expand like water when frozen.  Silicon swells under cold conditions as do gallium materials. 
These properties have given germanium a place in a variety of applications.  About 30% of germanium materials produced each year find their way into components for infrared optics and detectors used by the military.  However, there are other uses as well:  fiber optics, polymerization catalysts, electronic circuitry and solar cells, phosphors, metallurgy and chemotherapy.
It was on this foundation of unique characteristics and multiple applications that scientists at Sandia National Laboratories began fiddling around with germanium.  Sprinkling in some silver and gold, the Sandia folks developed an alloy that could be used as a bonding material for brazing together components.  Originally, the bonding material was intended for use in a neutron tube.  Although passed over for another bonding solution, the germanium-silver-gold alloy has since been dusted off for use as a joining material in the high precision electronics components that will be used in the depths of geothermal power installations.
It is always interesting to track the development of new materials applications back through the supply chain, keeping an eye out for how investors can participate in value creation.   The U.S. Geological Survey reports that approximately 165,000 kilograms of germanium were produced n 2015, about the same as the previous year.  About 30% of the world demand for germanium is satisfied with recovery of the element from recycled materials.   Production of new germanium resource is largely a buy-product of zinc and copper mining operations.   
China remains the leading producer of germanium.  There are as many as thirty-five germanium ore deposits in China, many of which are in Yunnan Province and Inner Mongolia.   Just four companies account for as much as 90% of China’s germanium supply chain:  Lincang Zinyan Germanium Industrial Co., Zilingol Tongli Ge Refine Co., Yunnan Chihong Zinc & Germanium Co., and Shenzhen Zhongjin Lingnan Nonfemet Co.  China produced about 120,000 kilograms of germanium in 2015, of which about 100,000 kilograms came from these four companies.    
China has a habit of holding materials in stockpile.  Germanium is no exception.  The independent research resource, Huidian Research, estimates that the State Reserve Bureau may accelerate stockpiles to about 9,070 kilograms by 2017.  Central policy makers want to see a reduction in the large price swings in the last couple of years that came about in part after the closing of some plant capacity to meet environmental requirements.  Supply volume is expected to drop to around 48,000 kilograms per year in the coming years.  If Huidian has pegged the market properly, this represents a significant change in supply.

The next post will take a look at investment opportunities in germanium production.  Germanium might seem to some investors to be a bit too obscure for serious investment.  However, the high value applications served by the metal, suggest the potential for strong profits.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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