March 3, 2008 / 8:26 PM / in 10 years

Miners in Mexico hunt rare and pricey germanium

TRES MARIAS MINE, Mexico (Reuters) - Prospectors deep in the desert of northern Mexico are searching for tiny traces of germanium, a minor metal whose price is booming due to high U.S. military spending and export controls by China.

The rare metal, a by-product of zinc and coal production which is used in making military equipment, has risen to its highest price in over a decade at around $1,300 a kilogram.

“We are seeing a renaissance of germanium,” said Keith Knobelauch, who analyzes the germanium market for War Eagle Mining Co (WAR.V), a Canadian company which is searching for the metal in the Chihuahua desert just south of the border with Texas.

Germanium GERM-LON is used to make infrared missile guidance systems and surveillance cameras mounted on tanks and helicopters. Demand for germanium, also a component of fiber optic cables and high-speed computer chips, outpaces world supply of only around 100 tons a year.

The U.S. government is aiming to replace and restock equipment as the war in Iraq nears the end of its fifth year, and Russia and China are ramping up spending on defense.

China produces some 80 percent of the world’s germanium and controls exports of the metal. Some analysts say Beijing might be strategically stockpiling germanium to develop their own military technology or to keep prices high.

“China is putting restrictions on exports. They are keeping it for themselves,” said Knobelauch.

Prices for many minor metals and more conventional commodities like gold and oil are surging higher as world resources become scarcer and more costly to extract.

High prices have encouraged War Eagle, based in Vancouver, British Columbia, to search for traces of germanium — which is imperceptible to the naked eye — by drilling core samples in an abandoned Mexican zinc mine.

GERMANIUM FOUND

Samples collected have shown deposits of germanium around 130 grams per ton, potentially enough to start mining.

The company wants to convince buyers and investors that the world needs alternative sources of the metal, which has properties similar to silicon and is part of the U.S. national defense stockpile.

War Eagle geologists working to determine the size of the reserves at the Tres Marias mine — one of only a couple dozen known germanium deposits in the world — are confident uses for the metal will expand as technology advances.

“We are seeing more and more uses for germanium. Demand is just going to keep growing,” said Terry Schorn, president of War Eagle.

Military spending, mostly on infrared optics, accounts for 23 percent of the germanium market, said Knobelauch, while most of the rest is used in fiber optic telephone cables and as a catalyst to make plastic bottles.

Germanium can also be used as a high-speed conductor in solar cells and energy saving lights, which could become more abundant as oil prices rise and countries invest in alternative energy.

Computer maker IBM announced in 2005 it would start adding traces of germanium in its high-speed silicon computer chips, since the metal can speed up data processing.

Demand is steady in Japan where manufacturers use it to make extra-shiny plastic bottles. And one Japanese soccer star says he takes germanium-enriched mineral baths to sooth his aching muscles.

Editing by Jim Marshall

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