Beryllium...Still Sexy

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The Daily Reckoning | Tuesday, July 5, 2011 Saboteurs set fire to the Middle East energy supply...again, One "minor metal" to keep your eye on, Plus, Bill Bonner on the end of QE2 and what's in a name... -------------------------------------------------------- External Advertisement The best location for the investor's dollar Money Morning Contributing Editor Martin Hutchinson has discovered one place on earth where investor money is being treated like royalty. He calls it "an investor's paradise." The world's biggest companies are moving there (not just HQs, but plants). And the world's wealthiest people are investing there. Why not learn how to give your money the "royal treatment" too. Martin shows you how, here. Israel's Other Source of Natural Gas Assessing the Implications of Yesterday's Pipeline Sabotage in the Middle East Addison Wiggin Reporting from Agora Financial's H.Q. in Baltimore, Maryland... Yesterday, as you prepared to light up your barbecue grill, saboteurs lit up a pipeline in the Middle East – again. "You keep repairing it? We'll keep blowing it up!" For the third time this year, the natural gas flowing from Egypt to Israel has been cut off. This time masked men stormed a pipeline station, tied up security guards, planted explosives, then ran away and set off them remotely by firing gunshots. Again, the source for 40% of Israel's natural gas is out of commission. Ironically, the perps might not even have it in for Israel. Both times before, the saboteurs were Bedouin tribesmen who feel the Egyptian government discriminates against them. No matter, the results are the same. "In the long term, it looks like Egypt won't be a reliable source of gas," says Deutsche Bank analyst Richard Gussow, based in Tel Aviv. No, probably not. As with past attacks, coal-fired plants and diesel generators fill the void to keep the lights on in Israel. The problem is that the source for the other 60% of Israel's gas – a project called Yam Tethys – will likely run out of reserves by 2014. Even before this latest explosion, the Israeli Public Utility Authority warned the unreliable Egyptian supply is one reason Israeli electricity rates could rise 20% next year. "Electricity comprises a major input in industrial production, as well as for commercial enterprises and households," says Amit Mor of the Israeli consulting firm Eco energy. "Such a dramatic increase will have a macroeconomic impact, and will cause a significant increase in the consumer price index." "How many times do you have to bump your head on your bed frame until you fix it?" asks Professor Brenda Shaffer at the University of Haifa. "It's another reminder that in all the considerations about what Israel needs for consumption, it shouldn't count on the Egyptian supply. "We don't even know what's going to happen in Egypt in terms of government," she adds, with the first elections of the post-Mubarak era coming in September. For all the continuing angst of the Middle East, Israel is still among the top third largest economies in the world. And among the largest in the region. Bottom line: Israel needs a new source of gas – and fast. Fortunately, it has one: And that means opportunity. The Leviathan offshore field we've been discussing is one of the biggest gas discoveries in the last 25 years – with 16 trillion cubic feet. Our resident geologist and editor of the Energy & Scarcity Investor, Byron King, has been eyeing developments there for some time, because he says the region has all the markers of a major "petroleum system." "It has analogues," he explains, "with other of the world's best hydrocarbon-rich areas. There are salt layers similar to, but not as thick as, the pre-salt of Brazil. There are structures and stratographic traps, like off West Africa, with oil plays like Angola and Namibia. In other words – potential on a scale with Brazil's offshore Tupi find...or the one off the coast of southwestern Africa that Byron latched onto in the fall of 2009. So far, that's delivered a 518% gain for readers of his premium service, Energy & Scarcity Investor. Byron has identified another tiny producer with the same or even greater profit potential. This company is sitting on prime Leviathan territory...and it's the only company working the region that's essentially a "pure play" on this massive find. You can secure Byron's full write-up on this company – plus a discounted membership to Energy & Scarcity Investor – but only for a few more days. The Daily Reckoning Presents Beryllium...Still Sexy Byron King The market for Rare Earths is completely out of whack. It's due to distortions from the Chinese monopoly. The West has spent the past 20 years sitting on its collective butt not understanding the seriousness of this strategic resource-based issue. The chickens have come home to roost. A few weeks back, I alerted the subscribers of my investment letter, Energy & Scarcity Investor, that the Chinese would be ramping up their stockpiling of Rare Earth products. The very next day, news hit the wires that Rare Earth prices are skyrocketing. Dysprosium oxide prices, for example, doubled in the first two weeks of June. Price and availability are going nuts. Beryllium prices are not on a tear...yet. But I am very bullish about the long-term prospects for this "minor metal." The Daily Reckoning faithful may recall my column from June 7 entitled, "Beryllium...Even Sexier Than it Sounds." I mentioned a couple of beryllium plays, while also asserting, "The rare earths are one of the very few industries that possess robust long-term, growth potential, even if global economic activity continues to disappoint." Well I'm back today to pound the drum again on this unique rare earth. Beryllium demand might receive a significant bump over the next few years, if a developmental nuclear energy technology takes hold. This one could be a game-changer. Beryllium has phenomenal heat-flow characteristics. It cools off very quickly. So take that idea, and now mix beryllium with uranium. You can build fuel rods with much greater ability to transfer heat away. That is, you can heat up the fuel rods and they'll cool down a lot faster. In theory, therefore, if you exposed hot beryllium alloy fuel rods to air, they wouldn't melt down on you. This is what did NOT happen at Fukushima, Japan, with the old- technology fuel rods that are zirconium-clad uranium. The Japanese rods – as with all fuel rods, everywhere across the world – held the heat and needed cooling water. When the system lost the cooling water, the Japanese plants experienced a series of catastrophic meltdowns. Big problems for a long time to come. Researchers at Purdue University, Texas A&M and MIT are working on making the beryllium-uranium metallurgy work. It's not as easy as just adding a bit of beryllium to the uranium melt. It's a much more complex engineering process than that. There's a lot of research ahead. But at this stage, it's very promising. The research is yielding excellent data. How long will it take to get the beryllium idea running in the nuclear field? It's hard to say just now. But the up-side is that if beryllium winds up in the nuclear fuel cycle, it'll increase global beryllium demand by an order of magnitude. Materion (NYSE:MTRN), a company with large beryllium resources and extensive processing abilities, is one that stands to benefit from rising beryllium demand...and rising prices. There's a lot of shaking going on throughout the Rare Earth space. For the longest time, the spotlight has been on the two companies closest to production. That's Lynas Corp. (ASX:LYC), with its mine in Australia and its plant in Malaysia. And Molycorp, which is rebuilding its facilities in California. If you read the generalized reportage about Rare Earths in the mainstream business press, a lot of it is pretty uninformed. The reporters just don't get the Rare Earth business. Not long ago I saw an article under a globally-recognized news feed, along the lines that Lynas and Molycorp will produce a large volume of Rare Earths by 2013 and the currently-tight world markets will settle down. Ergo, Rare Earth prices will fall. Oh really? That sort of analysis is entirely wrong. Lynas is having problems with its plant in Malaysia, and will likely not make the deadline of November 2011 for first runs of RE product – mostly lower-priced "light" Rare Earths by the way. And Molycorp's "new plant" in California is still a bare patch of ground where they're pouring concrete footers. There's no floor. There's no structural steel. There's no roof. There's no new equipment installed. Nothing is running, in any industrial sense. And it's halfway through 2011. So neither Lynas nor Molycorp are close to producing a final product and selling it. Furthermore, in a general, it's hard for any one company to be fully integrated in the Rare Earth space, from mines to final end product. Mining ore, crushing and concentrating is the first step. Then there are numerous intermediate steps to upgrade the concentrate. There's downstream refining. Then there's cranking out the final product. Each one of these steps takes a high level of understanding about the Rare Earth chemistry and mineralogy. It requires high levels of technology, strong managerial competence and plenty of financial depth. When I see the hype that has surfaced about Lynas and Molycorp, it seems ridiculous to believe that the new-design, new-build, new-process will work seamlessly. Somebody will just cut the ribbon on the front door of the factory and then start pouring ore into one end of a big, magic machine. A lot of people in this world know how to drill an oil well, then refine and deliver refined products to the marketplace. But the Rare Earth business is different. It's relatively small, and the Chinese dominate 97% of it. Here in the West, we have to rebuild our intellectual capital in Rare Earths expertise, as well as new-build every facet of Rare Earths production – from mining to logistics to refining to end-product fabrication. The Rare Earths business is not easy. The successful players will have to do many things right, with few glitches, and be really competent. At the same time, the early players stand to make a lot of money. Keep a very close watch on this unique corner of the commodities markets. Regards, Byron King, for The Daily Reckoning Joel's Note: As Addison mentioned above, you can get your name on Byron's exclusive mailing list at a discounted rate right now...but only for a few more days. Byron has been a step ahead of the crowd on both the Rare Earth story and the increasingly precarious energy scenario in the Middle East...both situations that have handed his readers a bevy of opportunities to realize real, triple-digit profits. Get the full low down here. Addison Wiggin's Apogee Advisory Presents... Forget QE3 – America's Going Bust, on the Road to Bankrupt Hell If America had a credit card, it would get mercilessly cut up and thrown back in her face. The country's basically broke and isn't paying its debts. Harsh, but true. All of that – and how it could affect your family and your retirement – is revealed in this urgent video report. Don't wait, watch now. Bill Bonner The Day QE2 Ended Bill Bonner Reckoning from West River Farm, Maryland... Americans had something to celebrate this Independence Day. QE2 – the Feds' $600 billion money-printing program – ended on Friday. And guess what? The world didn't end with it. Instead, the stock market gave a loud 'yahoo!' The Dow rose 168 points. If QE2 is going to be the death of the US economy, the stock market doesn't see it. Not that stock market investors always have 20/20 vision. These were the same people who were buying Lehman Bros. and mortgage lenders stock just before the company collapsed. So, we're not saying that today's prices will necessarily be the same as tomorrow's. The market may know the price of everything at every moment. But it doesn't know the value. So, as it discovers value, it changes its mind about the price. Still, we find it mildly disturbing that the Fed can cut off a $100 million-a-month buying program without upsetting investors' sangfroid. It doesn't make us wonder about the Fed...but about investors. What's wrong with them? But since it was a national holiday, we decided not to worry about it. Instead, we'd spared a little pity for the US Senate. The poor senators decided to stay in session this 4th of July. They thought it was important to pretend to solve the US debt crisis. As you know, from the day of its founding – that is, July 4th, 1776 – to the present day, the feds have run up approximately $14.3 trillion of official national debt. And since Congress has only authorized $14.3 trillion of debt, they're running into a problem. Either they pass a new law, raising the debt ceiling. Or they cut spending so they don't have to borrow more money. Or, they treat the debt ceiling law like the US constitution, and simply ignore it. We know which choice we would make. But nobody asked our opinion, so we'll keep it to ourselves. The debt ceiling is distraction. It's just an American nuance to a genuine problem that is plaguing all the mature democratic/capitalistic economies. Greece, Britain, Ireland...dozens of other countries...and the US. As regular readers of this Daily Reckoning know, It is a problem with the funding of the modern social welfare state...and the 'social contract' itself. The bargain is this: The people give up 20% to 50% of their output...and sometimes, their lives...to their government. In return, the government promises to make their lives better than they would be otherwise. But how can the feds make the common citizen's life better? If it gives them back in services only as much as they've paid in taxes, what's the point? In fact, the government can't even do that. It is a poor capital allocator. And there's a huge amount of inefficiency and friction in the system. So, the government spends money unwisely. It gets a poor return. If people get half of what they pay for it will be a miracle. When the system was first invented, in the 19th century, it worked well enough. GDP growth rates were high. Old people, regulations and government-provided services were few. But as the system matured, over 150 years, it became zombified. That is, the friction, misallocation of resources, fixed costs, old people and parasites increased. The feds spent more and more. People got less and less for it. They didn't want to raise taxes...because the voters would feel they weren't getting their money's worth. But the voters still wanted more and more 'services.' So, from approximately the end of the "30 glorious years" following WWII...in about 1980...to the present, the government was only able to expand services by borrowing. And now, borrowing is becoming a problem. Wise...or lucky...countries such as Greece and Britain (not necessarily in that order) are now being forced to cut back. Either because they can't borrow now...or they fear they won't be able to do so in the future. Naturally, the zombies don't like it. They've taken to the streets in Athens as well as London. In London, the schoolteachers "interrupted" services all across England last week. In Greece, they didn't even have to strike; they weren't supplying much service anyway. Where will this lead? We don't know. But it's a serious question. And we don't think about serious questions on a national holiday. Besides, it's probably against the law. And more thoughts... We are here in Maryland at a gathering of the Bonner clan at the old farmstead. Cousins, uncles, aunts, nephews and assorted kin are here. Occasionally, a reader named "Bonner" asks if we might be related. Of course, we might. But our clan of Bonners is very different from many of the other Bonners in the world. We're a Gaelic Irish family. There was a Henry Bonner in these parts in the early 18th century. But that was a different family – a family of Englishmen, probably derived from Norman French, where the family name came from 'de bon aire.' Or debonair, in the modern form. There are also Bonners who come from the Rhineland Palatinate...from Bonn, Germany, that is...again very nice people, we are sure, but not us. No, we come from the Donegal Bonners...a clan that was Celtic...Gaelic- speaking, and papist. Under pressure from English invaders, we anglicized our family name from O'Cnaimsighe. No kidding. That's what the genealogical historians say. At least, that's the story we're going with. It fits The Daily Reckoning and explains why we have always taken the part of the underdog, the marginalized, the die hard, and the lost cause. Our ancestors were slaughtered by the English in Ireland, crushed by the terrorists in the American Revolution (they were Eastern Shore, Maryland, Tories!), and defeated by the damned Yankees in the War of Northern Aggression. Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- Readers who are interested in exactly what Bill is doing to protect and grow his own family wealth will do well to take a look at his Bonner & Partners Family Office project. In it, Bill and his team of international analysts, contrarian thinkers and specialists work to devise creative, though low-risk investments to build long-term financial security. Feel free to take a look at a personal invitation, from Bill's son, Will, right here. -------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com When Lenders Stop Lending It's often said that the stock market is about the future. The bond market is about the here and now. But what if bond buyers suddenly recalled how they got mugged the last time they went around the corner? What if they remembered what happens when debtors borrow so much that they could never pay it back? Why Greece Should Default and Go Broke With Dignity Bear Traps in the Bond Market China: Where Money Is Treated Best I am sure that Mr. Pento is right because every country on the Face Of The Planet (FOTP) is desperately creating more and more money, and the money will eventually find its way to the place where it is treated best and/or has the best prospects, which is, in this case, Bob. Oops! I meant "China." Buying Gold on the Price Inflation Guarantee Awaiting the "Zero Hour" of Available Credit Currency Moves and Central Bank Meetings Abound First of all... The markets overseas were open for business yesterday, as we enjoyed our holiday, and the action was muted, but had a "buy dollars" bias... That bias, though, seems to have faded this morning. Sweden's Riksbank hiked rates this morning 25 basis points (1/4%) to an internal rate of 2%... Two Potential Flaws in Selling Swiss Currency for Swedish Greece Votes To "Implement" Austerity Measures The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. 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