Japan's Rare Earth Muds

The officials in the U.S. and Australia have reportedly been in talks in recent months in regard to the rare earth mineral supply chain.  Summer 2019 U.S. undersecretary of defense engaged counterparts in Australia about supply arrangements that could fill U.S. defense industry requirements for these important metals.  In September 2019, representatives of Western Australia’s mining industry came calling in New York and Washington DC to have additional conversations.   As trade tensions with China have escalated rather than moving toward resolution, apparently the U.S. military is beginning to fret over securing a supply of metals needed in particular for the electronic components at the core of military communications, reconnaissance, and ballistics.  

As a refresher rare earth minerals are actually not rare at all, just difficult to extract from natural deposits.  There are seventeen different minerals in the rare earth group, nearly all of which have ubiquitous silvery-white metallic appearance.  Even though nondescript in appearance these minerals have been distinguished by their unique magnetic, luminescent and electrochemical properties.  Mixed with one or more of the more common metals like iron, nickel or zinc, rare earths help produce metal alloys that are lighter, stronger and more flexible.  This leads to system performance gains through lower weight, lower energy consumption, faster speed and higher thermal stability to just name a few of the advantages engineers have achieved with a rare earth mixture.

How does Japan fit into the U.S.-Australia dialogue?  Well they do not  -  at least not immediately.  However, Japan is equally motivated to reduce dependence upon China’s near monopoly market in rare earth metals.  As it is Japan produces about 3% of the rare earth mineral supplies for the U.S.  However, China dominates the world market share and supplies as much as 80% of U.S. demand.  Get in a geopolitical spat with China and metal alloy production could be in jeopardy. 

In 2013, Japan researchers and explorers at the Japan Agency for Marine-Earth Science and Technology (JAMSTEC) were elated to find high concentrations of rare earth elements and yttrium in mud at the bottom of the ocean near Minami-Tori-Shima Island.  Early estimates suggested that just one square kilometer (about 0.4 square miles) could yield about one-fifth of the global demand for rare earth metals.  An in-depth analysis completed in 2017, measured the resource at 1.2 million tons of rare earth oxide in the most promising area along.   Total estimated resource was 16 million tons that could yield several centuries supply of yttrium, eropium, terbium, and dysprosium.    

Minami-Tori-Shima is a coral atoll is located in the North Pacific within Japan waters.  The triangular shaped island is uninhabited and despite being about 1,200 kilometers (790 miles) southeast of Tokyo, it is considered part of the Tokyo prefecture.  This gives Japan complete control over the deposits.  If their rules are ever adopted by members, the International Sea Bed Authority could be involved in regulating deep sea mining in international waters.  Deep ocean waters are the territories of very specialized sea creatures that are uniquely adapted to life in extreme conditions.  There is no knowledge or understanding of how mining operations could affect these creatures and whether that will ultimately impact the ocean ecology and food chain. 

Japan Oil, Gas and Metals National Corporation (JOGMEC), which has been involved in early exploration at Minami-Tori-Shima, has been circumspect on environmental topics.  Company spokespersons cite confidentiality.    JAMSTEC on the other hand has already proclaimed that environmental studies have been completed and have confirmed the mining project is environmentally benign.

Is Japan up to the task of extracting rare earths from mud on the ocean floor?  It is perhaps better qualified than most.  In 2017, Japan started deep sea mining operations in an inactive hydrothermal vent in the Okinawa Trough.  In doing so, Japan became the first country on Planet Earth of engage in deep sea mining. 

Even with the prodigious experience under Japan’s collective belt, mining operations off the shores of Minami-Tori-Shima will not be a languid swim.  The ocean dips to 16,000 to 20,000 feet in this section of the Marinas Trench where Minami-Tori-Shima is located.  It may require equipment not yet designed to bring up the muddy treasures at that depth.  

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.