Chinese Rare Earth Production: A Darker Shade Of Green?

Earlier today I was in attendance at an Obligatory Social Event involving small children, birthday cakes and associated sugar-induced mayhem. As I sought some respite from the proceedings in a hallway, I started chatting to a fellow escapee and before you could say "Coco the Clown", our conversation meandered to the subject of off-shoring to China, and eventually, with a little help from yours truly, to the current global reliance on the Chinese for rare earth elements.

Without even realizing it, it seems that I have developed something of an "elevator pitch" on this subject in recent months, which gets trotted out on occasions like these, about how we have to get production up and running in North America. My audience of one listened intently [I would like to think, anyway], and then asked me if it wasn't somewhat naive to believe that the West can compete with the Chinese in this arena, with their complete disregard for the environment, and the tremendous amount of red tape associated with getting environmental permits for new mine production here.

"Oh no," says I, possibly with the slightly patronizing tone of someone thinking they're about to impart a pearl of wisdom, "The Chinese have come a long way in this regard. Starting a couple of years ago, they've been closing down illegal mines and production facilities. Initially this was tied to the run up to the Beijing Olympics, but the Chinese have realized that the long term sustainability of their industry and of their workforce, necessitates reducing pollution and mitigating 'collateral damage' during industrial production. So, their prices will have to go up, and we will be able to compete."  Now suitably informed, my colleague and I went off to find our host's semi-secret bottle of good single malt Scotch.

Alas, it seems that I spoke too soon and with far too broad a brush. Just moments ago, I discovered that in tomorrow's edition of the UK's Sunday Times, Lindsey Hilsum reports on the horrendous pollution to be found in the countryside that surrounds the industrial city of Baotou, Inner Mongolia - home, as we all know, to half the world's rare earth production.  Locals tell the tale of a "viscous, red liquid" that oozes from a lake near to the city, a lake as it happens that contains the tailings of rare earth mining production. Water from the lake seeps into the surrounding farmland, rendering the fields barren and the water supply undrinkable.

Further to the southeast, Lindsey Hilsum reports that polluting rare earth extraction plants in Jiangxi province, once shut down by the authorities, illegally "operate at night, under armed guard, with the collusion of local Communist party leaders who help mafia bosses keep the lucrative trade going."

The irony that all of this pollution and contamination is occurring in the name of the production of the so-called "green elements" should, I hope, not go unnoticed.

While there are certainly signs that China is genuinely trying to clean up its industrial and environmental act, reports like these are a sobering but timely reminder of the very real, hidden price that is being paid, day in, day out, for producing the low-cost goods to which the West is addicted. By continuing to rely on the Chinese for these materials, produced in this way, we enable this behavior, and indirectly facilitate the continued demise of Western, and in particular North American manufacturing and production.

That this pollution and befouling of the environment is still occurring in the supply chain of rare earths to the West, despite the vast potential reserves in Canada and elsewhere in North America, makes this act of enablement an even more bitter pill to swallow. Where are the "über-capitalists" in North America? Why are they not falling over themselves to line up to help the junior miners and exploration companies fully realize their ore deposits - in an environmentally sensitive and responsible manner of which we are capable? Why is it such a challenge for these guys to raise the cash they need to make these projects a success?

I'll make another point here... according to the China Environment Forum, there were over 5,000 environmental protests in China last year, and the numbers are growing.  This increased social and political unrest over pollution and the deteriorating health of the population has the authorities concerned. Despite the apparent blind eye to illegal activity described earlier, it is conceivable that a massive, nationwide crackdown on environmentally unsound mining and processing plants could occur in the near future, in a bid to quell unrest. 

This would ultimately benefit the heath and well-being of Chinese villages and city dwellers - but such a move could abruptly shock the already precarious supply chain of rare earths, from China to the West. This would cause a reduction in supply, and a rapid increase in cost - long before future deposits come on line in Canada and elsewhere, at present rates at least, and in sufficient quantities to be able to compensate.

If the West won't increase the rate of investment in its own resources as a means of confronting the ethical dilemma that current production practices in China present - surely this latter scenario, at least, is enough for us to get our collective acts together?

I shall continue to ponder these points and others, over another nice glass of that single malt Scotch. In the meantime, you can read the rest of the Sunday Times article here.

-- Gareth Hatch