METC - Ramaco Resources: Revising My Opinion Down

2023-12-10 09:38:58 ET

Summary

• Ramaco Resources claims to have found gallium and germanium in its Wyoming coal mine, which are considered rare minerals.
• However, the presence of these minerals in coal mines is not surprising, as they are trace elements found in most coals.
• The economic value of gallium and germanium is relatively low, with the estimated value of the metals in the US market being under $40 million.

This talk of gallium and germanium

That the Ramaco Resources ( METC ) ( METCB ) coal mine has gallium and germanium in it should raise the valuation, right? And, well, no. Because nearly all coal mines have both in them - because nearly all coal has both in them. What matters is the concentration of each that is found.

That no one does gain their gallium from a coal mine might be a clue. Further, that no one gains their germanium from a coal mine - rather than a coal-fired power station - might be another.

This leads me to think that Ramaco, with their story about rare earths and other lovely things in their coal, is playing a subsidy game, not telling us of a viable mining operation. True, gain enough subsidy, and you make a profit, but that is something of a risky game all the same.

The gallium and germanium

The CEO went on Bloomberg and said they've found gallium and germanium in their coal :

"Ramaco Resources Inc. said it found two more rare minerals in a Wyoming coal mine, adding to its discovery of what the company has called one of the largest deposits of rare-earth elements in the US.

The mine that the metallurgical coal producer is surveying for rare-earth elements used in magnets also contains gallanium and germanium, two minerals that China recently put export controls on, Chief Executive Officer Randall Atkins said Wednesday in a Bloomberg Television interview. It’s been reported that the mine could be valued at as much as $37 billion.

“We have a lot of the heavier magnetic elements as well as secondary elements as well as two of the critical materials that have recently been banned by China, which is gallium and germanium,” Atkins said. “It does contain a rather valuable basket of elements.”"

At which point everyone in the weird metals industry is going "Yes? And?"

Because it's not new information. Of course, a coal mine contains gallium and germanium. That's just what coal mines do. There are trace elements in nearly all coals that we know of. ( For example , and again, for gallium, germanium we'll get to). So, the presence of these is not a surprise - what would have us all standing around gapemouthed is those two elements not being there.

Now, yes, China

China has said that exports of those two metals will need to have licences. I've written about this elsewhere :

Today the reason given for the export ban is that gallium and germanium have dual use applications, given their role in military technology. So, exports must be licensed under such restrictions. It’s true that gallium and germanium are dual use materials – but lead can be made into bullets, and we’d all look very askance at imposing these sorts of export restrictions upon an ingot of lead. Rather than accepting China’s stated rationale at face value, most, sensibly, believe them to be a reaction to the ban on shipping advanced semiconductor manufacturing equipment into China on those same national security grounds.

Whatever the legal form of the restrictions, the economic outcome is going to be the same. As I pointed out in 2010 – when I was one of the few to do so – the Western world will roll up its sleeves, create a new supply, and the problem will be solved.

Well, maybe Ramaco can become one of the new suppliers of this stuff we can no longer get from China?

And, well, no

The gallium level in coals tends to be - mind you - in the 10 to 20 ppm range. That's parts per million. Coal's pretty hard stuff, it's not easy to get stuff out of it either. Other than by burning, which is actually pretty easy. We'll get to the implications of burning in a moment.

The usual sources of gallium are alumina plants. By volume, globally, far the largest in fact. As the bauxite is digested (essentially, boiled in caustic soda, or lye) then the gallium contained goes into solution. At, hmm, maybe 50 to 100ppm concentration in the liquor. It's simply a standard thing that taking something out of solution is easier than taking it out of rock. So, that's what folks do. Put the right gadget on the side of that Bayer Process plant and there's the raw gallium.

True, this next number is my own calculation, but my best guess is that there's some 8,000 tonnes a year of gallium going through the world's Bayer plants. The world uses a couple of hundred tonnes. We're not going to move to a concentration, in rock, of 5 to 10 times lower and so get it from coal instead.

Yes, the US does still have a Bayer Process plant, the Gramercy one . Put the right extractor on the side of that plant, and we're done for the US strategic needs.

There is another way, which is that sphalerite (a usual zinc ore) contains both germanium and gallium. If we bother to take the germanium out (which, again, we'll get to) then at least one extraction plant is set up to also recover the gallium. But this isn't a raw feed of coal, of course. This is the germanium concentrate already extracted from the zinc process.

But we get germanium from coal

We do indeed get much of the world's germanium from coal. Depends on the actual year, but sometimes it's a little over 50% from that sphalerite from zinc, sometimes it's a little over 50% from coal. So, Ramaco wins there, right?

No, again no. Because there's something a little weird about germanium (and we've known this since at least 1937 ). I might have the word wrong here, but it sublimes. Turns from a solid to a gas without the intervening liquid stage. This gives us a specific effect.

The fly ash (flue dust) from coal burning is a ferrous aluminosilicate. That's reasonable enough, iron, aluminum and silica are the three commonest - or among them at least - elements on the planet. So, we burn off all the carbon in coal and those are the three left in any bulk, and then we've got all the trace elements with them. That germanium sublimes (if I've got the word right) means that the germanium in the original coal concentrates into the fly ash (rather than the clinker, the stuff at the bottom of the furnace). It's about 10 to 1. If Ge is 100 ppm in the original coal (which is a low number) then it will be 1,000 ppm in the chimney dust.

When we first started using Ge to make those transistors for fuzzy guitars (indeed, an early use) the technique was to burn coal, carefully collect the exhaust gases and refine Ge out of that. Johnson Matthey used to have a factory in Cheshire, UK, that did just that. Then people worked out how to extract from sphalerite, so that became the dominant method.

Then we started to put electrostatic precipitators on the smoke stacks of coal plants - stop that dust poisoning the surrounding land. But that meant we now had millions upon millions of tonnes of germanium enriched fly ash. So, extraction switched back to from coal - because we were already getting that 10 to 1 concentration as a result of pollution controls.

Which is where we are today. Around half comes from zinc mining, half from coal - but it's fly ash from having burnt the coal.

Actually, the world's largest Ge producer is in China because their coal bed is so rich that it's worth running a whole electricity plant to just collect the dust. Well, so the story goes, at least.

The importance of this

That coal contains both gallium and germanium is well known. That no one extracts directly from coal is a very good guide to the idea that no one will. We have alternative sources. Worth reminding ourselves how mining really works - we only move to the next least bad source of something when we've exhausted the one we've already got.

Further, the people who extract from coal, if anyone does, are those who do, so after the coal has been burnt. But this also has another issue - sure, Ramaco could build a plant to burn their own coal and so gain access to the Ge and Ga. But then so can Duke Power (just to pick a company at random) build a plant to extract from those vast, multi-million tonne waste pits of fly ash they've got. I actually have, on my desk, a report about and design for a fly ash Ge extraction plant. Under $10 million to build, would produce four or five tonnes a year of Ge (and there would be some unknown Ga production too).

There's simply no way that having Ga and Ge containing coal is unusual or even value additive.

Except, well, maybe

Now, the one unknown here is how silly politics is going to get over strategic and domestic supplies of these two metals. But even with American politics, I really don't think that anyone's going to be stupid enough to start spending money on an entirely unexceptional coal mine. They might fund, maybe, an extraction from fly ash plant, but that's of trivial - by government standards - cost. Or that Ga gadget at Gramercy.

But what strikes me here is that Ramaco seems to be posing as someone who should be gaining those subsidies. Because, strategic. Which doesn't make sense to me, simply because it doesn't.

Finally, money

OK, so I'm entirely wrong. The Ga and Ge concentrations are so high that politics does subsidise and so Ramaco becomes the US producer - for those strategic reasons - of those two metals. Well, OK.

Ga : "Imports of gallium metal and gallium arsenide (GaAs) wafers were valued at about $3 million and $200 million, respectively."

Ge : "The estimated value of germanium consumed in 2021, based on the annual average germanium metal price, was $36 million,"

Those are not numbers that aid in supporting a $37 billion valuation for that mine, are they? The value of the actual metals, in the US market, is just under $40 million. That's what a new producer might be able to capture at least - a coal mine isn't going to gain any of the value of making gallium into wafers after all.

Yes, of course I can be wrong

How politics works has always been something of a mystery to me - despite having worked in it. So, I can imagine at least some money being sent from Uncle Sam to at least explore these claims. But I don't see these latest claims working out, to be honest.

The investor view

It's entirely true that Ramaco will have both gallium and germanium in its coal mine. The idea that the levels will be anything important is unlikely. Even if their market size is such, it's just not an important underlay to that claim of some vast rare metals' valuation.

Valuing Ramaco as a coal mine makes great sense. As a rare metals producer, not so much. As a gallium and germanium producer, even if it works, it simply doesn't matter. So don't buy this stage of the story.

What makes me move my valuation down from that previous look at rare earths is that if this is what management is reaching for, then my opinion of them has fallen too.

For further details see: