Saturday, September 18, 2010

Industrial Policy Stimulus - Mining REOs

Rare earth oxides are minerals rarely discused, but we use them everyday. Our modern techno-gizmos contain REOs. Ipads, cell phones, and modern military gizmos all contain REOs. China produces almost all of the REOs worldwide (97%), and has a corner on a vast majority of the REO export market. They recently announced they would reduce their exports of REOs. Wired was writing of this curb as a potential geopolitical bargaining chip a year ago. Brilliant call by them. This is a sensitive issue as their production supplies our military, which the media doesn't report on much anymore, that still has 150K soldiers in Iraq/Afganistan.

Fear not. The USA has plenty of REO resources, and an American mining firm is re-opening an old mine. The last REO mine in the US was shut down 14 years ago due to enviro standards. America is one of the most blessed countries in natural resources, fresh water and arable land, we just don't use them. Instead we protect our environment, and force other countries to do the dirty work of mining, oil extraction, etc. Like anything in life, there are trade offs, and we will have to absorb some dirty side effects if we want our REOs.

A nice stimulus program would be this: all income generated by a mining operation for REOs is not subject to corporate taxes. Yes, this is corporate welfare and yes, this will hurt our environment, but consider the incentives and positive outcomes:

1. These economic activites do not exist right now, so we currently collect no taxes on them. Forgiving taxes on them now, is no 'loss' to us for tax revenue.
2. Firms now have a built in boost to the cost-benefit analysis of opening REO mines. Large operations would see huge boosts as the elimination of tax rates would give them a greater cushion for planning a mine. Mines close when they are not profitable. This would make marginal mines and unprofitable mines suddenly look better.
3. This creates a domestic supply of REOs, which we could buy some output from like we do with the strategic oil reserve.
4. This would employ many Americans at all skill levels. You would have the direct employment of mining operations, and the ancillary industries associated with waste disposal, machinery supply, chemical supply, and our railroads with shipping.
5. National security is strengthened as we become less reliant on an unfriendly supply of REOs (China).
6. If China does reduce production by 72%, this leaves a huge gap in supply that American producers would have a market for selling. Hello, finding market demand is a problem everywhere now (except food and gas).
7. One sight I saw said there was an issue of disposing radioactive Thorium byproduct. Thorium nuclear reactors are a hot topic in nuclear power discussions. Nuclear is the best baseload power generation to replace coal that would reduce our CO2 output which make enviros upset.

This would never happen with our current POTUS as it makes too much sense from an economics sense, and it is a positive for a business out of favor with Obama (dirty mining). This mining problem goes to the heart of our current problems. We want Ipads and cell phones, but we don't want to mine for the materials for them. We want to drive our cars non-stop, but we fight oil drilling on land despite our billions in reserves. We want so much, but do not want to put in the effort for it. We can outsource the hard work, outsource the drilling, outsource the logging, and when we see employment fall or decent paying jobs with basic education requirements disappear we scratch our heads and ask why.

No comments: