[Editor’s note: To read Part 1 of this article, please click here.]

Jack Lifton, a consultant, author and public speaker with more than 45 years of experience in sourcing and recycling minor metals (including the rare earths), shares his views on the current balancing act between technologies production and available natural resources. Mr. Lifton identifies these dwindling resources and the mining companies in which to invest, as he warns of the devastating effect production cuts will have on our everyday lives in "the age of technology metals."

TGR: We’ve talked a lot about the car industry here, specifically in the battery arena.

JL: There’s another rare earth metal that’s critically important to our society—neodymium. In 1984, General Motors and Sumitomo developed the neodymium iron boron alloy for permanent magnets, which is the basis of all modern electric motors because it allows you to make a very small electric motor with the highest possible power density. Neodymium total world production is less than 20,000 tons. That may sound like a lot to you, but it’s tiny. And the fact is it’s recently been projected that a single wind turbine electric generator producing 1 megawatt of electricity requires one ton of neodymium.

TGR: One ton?

JL: One ton. Now the U.S. installed capacity for electric power production is 1,000 gigawatts, which is 1 million megawatts. So, to replace America’s capacity with wind would require 1 million tons of neodymium. At current world production, that would take around 50 years—if there were no other uses for neodymium. Clearly this isn’t going to happen.

We can produce only so much of any material in a given year. Last year marked the highest production of base metals in history. We produced 39 million tons of aluminum, 16 million tons of copper and 1.3 billion tons of steel. Unfortunately, there’s not much in the way of by-products from iron, but copper and aluminum production account for almost all of the minor metals—gallium, molybdenum, rhenium, selenium and tellurium. If the world economy declines and we don’t reach those peaks again, then we’ve already peaked in the production of those metals. The uses are mainly dissipative. We lose them. It becomes uneconomical to recover them by recycling, so we’re going to have to get along in a world where we use less, which means any industry planning on increasing production based on those metals is in big trouble. One of them clearly is solar.

TGR: Because we’re putting on our investor hats, it sounds like in order to move forward with the whole thing on hybrid cars, solar. . .a whole variety of technology, either we need to invest in China or in base metal production.

JL: Correct.

TGR: Do you foresee a situation in which a Prius is going to cost some ungodly amount because the rare metals used in the car are exponentially expensive?

JL: That’s what Toyota is worried about. The world production of cars this year was supposed to be 70 million units, so now it’s going to be 60 million due to the downturn. But the projection for 2015 is 125 million cars built, including 20 million just from China—which, by 2015, will not be only the world’s largest producer of automobiles but the largest producer in the history of automobiles.

China’s developing huge industries utilizing these materials, which it currently controls like rare earth metals. And as those industries build, we’re seeing the export of these metals sharply reduced. Can we really live without magnets for small motors? Just remove everything that’s got a small motor in it (a cell phone, Blackberry, etc.), and you’ll see why we really need the rare earth metals from China.

I happen to know the Japanese trading companies have approached SQM (NYSE: SQM, Stock Forum) (Sociedad Química y Minera de Chile S.A.) in Chile to talk about locking up some lithium supplies because they are concerned that Japanese car companies will need lithium. If you could name one American trading company that’s ever bothered to think about that, I’d be shocked. The people I know in Chile told me that, about a year ago, Japanese delegations started showing up talking about exotic metals for the first time. Japanese and Chinese companies have already bought into Chilean mining operations. But aren’t you guys mainly interested in gold?

TGR: Oh, no. We do precious metals, base metals. In fact, we think some of the more interesting plays are going to be in rare earth. We have been hearing more about the mineral tantalum? What is it used for?

JL: Tantalum is one of the most important metals used to make capacitors—a fundamental component to many of the electronics we use daily. It is found in our cellular telephones, iPods and computers. You are probably aware of the fact that the Australian company, Talison Minerals, the world’s largest producer of tantalum raw material, has shut down production.

TGR: Right. That’s where the question was going—what is the impact of that?

JL: The impact is dramatic. Talison, historically, produced up to 63% of the world’s tantalum raw material. Where will the makers of capacitors get their raw materials from?

TGR: If there’s a demand for tantalum, why is it shutting down?

JL: First off, the tantalum industry is unique in its lack of transparency with respect to the supply of raw materials. I feel that the shutdown of Talison’s mine is a decision that is more strategic than one relating to the demand for tantalum. There are limited alternate sources for tantalum raw materials, which puts Talison in a strong negotiating position if there is a real or perceived disruption in the supply of raw materials. And right now, it’s in a price negotiation.

TGR: In a price negotiation with whom?

JL: The processors of the tantalum raw materials. Processors, such as Cabot Corporation (NYSE: CBT, Stock Forum) and H.C. Starck have long-term contracts with Talison at fixed prices. Talison supplies them with concentrate, and they produce tantalum metal and powder from which electronics are made. Talison knows that if processors do not purchase material from them, the alternative is to purchase material from central Africa. The major companies are reluctant to do this due to the growing publicity of the fact that much of the material is mined illegally and proceeds are used to fund the ongoing civil wars. The material is even referred to in the industry as ‘blood tantalum.'

TGR: So there are no suppliers in more politically stable areas, such as Europe or North America?

JL: Not any major suppliers. Talison is betting that, due to this fact, they can continue to sign long-term contracts with processors at prices much higher than the metal’s spot price. I believe they probably will until a new deposit of significant size is developed.

TGR: We understand that Commerce Resources Corp. (TSX: V.CCE, Stock Forum) is developing a tantalum project. Are you familiar with them?

JL: Yes I am. Commerce Resources is not producing, but they’re close. They are at the stage of pre-feasibility and developing a very large project in British Columbia, Canada. I believe that of those companies exploring and developing new deposits, Commerce is well positioned. They are financially strong and have been involved in the tantalum industry for years. Putting their deposit into production and offering competitive rates, they will capture the attention of processors and capacitor manufacturers who have long been looking for alternate sources of raw materials. This is a common theme for exotic metals, such as tantalum.

TGR: So you agree that some of the more interesting plays are going to be in rare earths?

JL: Yes, I agree with that. I think that the minor metals are going to lead the recovery in base metals.

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For additional comments on Cabot Corporation (NYSE: CBT) and Commerce Resources Corp. (TSX: V.CCE) , SQM (NYSE: SQM) (Sociedad Química y Minera de Chile S.A.) from newsletter writers, money managers, and analysts, click on the respective links or visit The Gold Report.

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Jack Lifton is an independent consultant, focusing on the sourcing of nonferrous strategic metals. His work includes exploration and mining, and the recovery of metal values by the recycling of not only metals and their alloys but also of metal-based chemicals used as raw materials for component manufacturing. Mr. Lifton has more than 45 years of experience in the global OEM automotive, heavy equipment, electrical and electronic, mining, smelting and refining industries. His background includes the sourcing, manufacturing and sales of platinum group metal products, rare earth compounds and ceramic specialties used to make catalytic converters, oxygen sensors, batteries and fuel cells. He is knowledgeable in locating and analyzing new and recycled supplies of "minor metals," including tellurium, selenium, indium, gallium, silicon, germanium, molybdenum, tungsten, manganese, chromium and the rare earth metals.