London, 6 October 2010

In a paper released today - Material risk – Access to technology minerals, Ernst & Young explores the supply risks facing producers and consumers of technology minerals, and assesses the European mining and metals sector’s ability to respond to the supply chain challenge. The report identifies 36 companies listed or headquartered in the EU involved in the exploration or extraction of technology minerals.

The paper follows a report issued in June 2010 by the European Commission (EC) – Critical raw materials for the EU – that identified 14 raw mineral materials as critical to European industry using a methodology designed to account for the supply risk and the economic importance of each mineral and metal.

Why worry about technology minerals?

Technological minerals are under increasing pressure, with the main perceived threat being a change in geopolitical-economic frameworks that could disrupt supply and demand patterns, ultimately leading to protectionism.

Michel Nestour, director in mining and metals at Ernst & Young, comments: “Exploitation of the identified technology minerals is dependent on the sector’s ability to identify and commercially extract the minerals. If the EU mining and metals industry is to remain competitive in the future supply of these critical technological minerals, and if customers are to limit their supply chain risks, now is the time to take notice.”

Geographic concentration

Our findings show that for the majority of the technology minerals, the three largest reserves account for over 60% of total global reserves. This means, that with the exception of gallium, indium and fluorspar, over 60% of each mineral’s total reserves are concentrated in three or fewer geographical locations – Russia, North Korea (predominantly magnesium) and China.

Michel says: “A high level of geographical reserve concentration poses an additional risk to the supply chain for such technology minerals. It maximises the economic influence of a sector in a local economy. It also increases the risk that some economies may decide to process the minerals locally to create higher value-add products instead of simply exporting the minerals overseas for further processing.”

Sources of funding available

Research on our identified companies showed that since 2008, $2.2b was raised through the stock market. The majority of our sample have limited access to the debt market due to the early stage or perceived high risk profile of technology mineral operations. This is compounded by the fact that the demand for such minerals is a relatively new phenomenon, arising from increasing technology applications and the desire to bring these to global mass markets, a good example is the iPhone. Another alternative source of funding may include joint ventures.

What can the EU do to limit supply demand risk?

The number of EU companies involved in technology minerals exploration or extraction is small and currently insufficient to respond to the technology minerals supply chain issue. There is already a marked decrease in the amount of these minerals exported from emerging economies, as a result of increasing internal demand from their technology industry, such as the announced decreasing export quota from China rare earths industry to 72% on 7 July 2010.

Michel concludes: “Successfully fulfilling the demand for technology minerals must be dependent on whether the EU consumers of these technology minerals have the requisite appetite for active participation in the technology mineral supply chain. Other regions of the world are beginning to take both public and private sector action to address this risk – Europe cannot afford to be left behind.”

Ends --

www.eoy.co.uk

Attachments:

Material Risks - E&Y

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