China kicks the semiconductor chip war up a notch as gallium and germanium restrictions come in to play
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China’s export controls on gallium and germanium come into effect today with licensing procedures with provincial governments now required to export them freely.
Both metals are critical components in semiconductor chips, the building blocks of the technology used in IT, smartphones, computers, EVs and military applications like radars, lasers and spy satellites.
China’s share of global production capacity on the two metals is an eye-watering 68% and ~90% according to stats from the US Geological Survey.
In a nutshell, Chinese authorities will need to provide approval to exporters to ship the rare commodities in a move ‘to preserve security and national interests’.
It’s a bit of a tit-for-tat trade tech war that’s been brewing between East and West for a while, with the Biden administration launching a suite of export controls in October last year which included a measure to cut China off from certain semiconductor chips made anywhere in the world with US equipment.
Japan and the Netherlands followed suit, with the Chinese measures announced just days after the Netherlands said they planned to limit the sale of high-end chipmaking equipment abroad – a move that will effectively bar ASML, the Dutch company producing the world’s most advanced semiconductor-making tools, from reaching Chinese companies.
But the move could potentially backfire in the short term.
According to Argus Metals, the new measures could hamper US supplies, trickling down to the semiconductor, electronics and defence industries.
China imposes exports restrictions on gallium and germanium, along with their chemical compounds, both used in chip high-tech and chips.
According to @USGS, China produces ~98% of the world’s gallium and ~70% of germanium.
US imported ~$265 million worth of the two metals.
— Javier Blas (@JavierBlas) July 3, 2023
Germanium is a key component in infrared, fibre optics and high-end semiconductors, while the US primarily relies on gallium in gallium-arsenide and gallium-nitride for semiconductor components.
In January to May this year, the US imported over 10 metric tonnes of germanium, both metals and oxides, up 21pc from the same period last year, according to customs data.
China accounted for just under three-quarters of this volume followed distantly by Belgium and Germany with a combined 24pc share.
However, germanium is a byproduct of zinc and there are zinc producers in America like Canadian miner Teck Resources with its Red Dog mine in Alaska, and Dutch zinc producer Nyrstar operates a zinc facility in Tennessee – so there’s a few options for potential supply.
Plus, Nyrstar’s Tasmanian zinc business, which includes the Hobart smelter, could well become Australia’s first source of the rare metals.
A critical metals white paper last month showed Nyrstar could add processing steps at its Aussie zinc business to produce 7t of germanium and 14-17t of indium annually.
It may not seem like much, but that’s actually 5% of the whole germanium market, meaning it would be a significant contributor to the global supply chain.
But it does require the production of zinc or alumina to stack up economically before germanium comes into the picture.
So far, Argus says germanium prices have been relatively stable since China’s announcement, increasing slightly from CN¥400/kg on 3 July to CN¥550/kg ex-works on 19 July for 5N metal in China and from $1,340/kg to $1,390/kg in Europe.
According to the US Geological Survey, the US imports around US$225 million worth of gallium largely in the form of gallium arsenide wafers.
It’s used in the manufacture of semiconductor wafers in integrated circuits, around 74% of the American market, along with light and light sensitive devices like laser diodes, LEDs, photodetectors and solar cells.
In other words, it is central to everything modern from aerospace to consumer goods, industrial equipment, medical equipment and telecommunications.
Argus flagged that in 2022, China accounted for just 7pc of the gallium-arsenide volumes, but if other partner countries such as Finland, which supplied over 56pc of total wafer volumes, experience supply cuts for gallium “then wafer supplies would ultimately tighten as well.”
Gallium is mainly produced as a byproduct of refining bauxite – the ore for aluminum, and while there could be over 1Mt of gallium contained in bauxite and zinc resources worldwide, less than 10% could be potentially recoverable.
While many countries could see a supply squeeze because of limited options for alternative supplies outside of China, “the true impact is unlikely to be known until controls come into force and the procedures for obtaining export licences are further clarified,” Argus says.
Gallium prices in particular in China and Europe have increased substantially since Beijing’s announcement of new export regulations on 3 July.
Argus flagged that prices have risen from CN¥1,695/kg on 3 July to CN¥2,025/kg ex-works on 19 July in China, and from $282.50/kg to $332.50/kg cif (Cost, insurance and freight) main airport in Europe.
Battery Age Minerals (ASX:BM8) owns the Bleiberg project in Austria which was once a major producer of zinc and lead and at one point was among the largest primary germanium producers globally.
Gallium mineralisation has also been found in historical workings, though it was never extracted by previous owners.
News of the Chinese restrictions was well-timed for Battery Age, primarily focused on the Falcon Lake lithium project in Ontario, Canada, who’ve now pegged additional extensions to the west-northwest of Bleiberg’s historic workings.
It’s a move that could prove to have real strategic potential in light of China’s trade attack.
“We are pleased to have secured additional ground adjacent to our existing Bleiberg Zinc-Lead-Germanium Project,” BM8 MD Gerard O’Donovan said last month.
“Based on our early desktop studies and a site visit, we have identified additional prospective land which merited strategic expansion of our claims.
“We now look forward to progressing exploration activities over the coming months to evaluate the potential of this project for our shareholders.”
Mt Burgess Mining (ASX:MTB) was talking up the gallium and germanium potential of its Kihabe-Nxuu project even before the potential Chinese trading restrictions were announced.
Located on Botswana’s border with Namibia, Nxuu has an indicated and inferred resource of 6Mt at 1.8% zinc equivalent, including 64,000t zinc, 32,000t lead, 1.04Moz silver, 2600t vanadium pentoxide, 16t of gallium and 61t of germanium at a 0.5% zinc cutoff.
Kihabe hosts 21Mt at 2% ZnEq, including 321,000t zinc and 154,000t of lead. But MTB has yet to assay there for gallium and germanium.
Its gallium exploration target comes in at a large 75-100Mt at a grade of 9-12ppm or grams to the tonne.
Core samples are in Australia awaiting test work to determine how gallium and germanium can be recovered at Kihabe, with early work showing the mica that contained the gallium and germanium was amenable to flotation, typically resulting in high recovery in a concentrate.
Interesting share price movement this week in junior explorer, Mount Burgess Mining $MTB, from $0.001 to $0.006. MTB is exploring its Kihabe-Nxuu Zn-Pb-Ag-Cu-V-Ga-Ge Project in western Botswana. A possible catalyst is a China ban from 1 Aug on some gallium and germanium products. pic.twitter.com/GvMlptfrnn
— Gavin Wendt (@MineLifeReport) July 5, 2023
Golden Deeps (ASX:GED) has stumbled over germanium and gallium at the Nosib vanadium-copper-lead-silver project in Namibia, days after the restrictions were announced.
GED says examination of one drillhole has returned hits like 8.70m @ 128g/t Ga, 11.3g/t Ge (1.84% Cu, 1.88% V2O5, 10.2% Pb, 3.6g/t Ag) from surface.
“The nearest project to us, the Tsumeb mine, averaged around 50g/t germanium,” CEO Jon Dugdale told Stockhead.
“So, it is in the ballpark of what people have been producing as by-product to get some value from it.”
Metallurgical concentrate testwork is close to completion, which will allow the company to finalise a maiden resource for Nosib.
Expectations are that gallium and germanium will be recovered in the concentrate alongside vanadium, copper, lead, zinc and silver.
Gold 50 (ASX:G50) announced last week it had drilled into gallium paydirt in 11 of 14 holes at the polymetallic Golconda project in Arizona, including a highlight 308m at 28.6g/t from surface.
That’s not true width, and we don’t know if those grades are consistent across the entire intercept.
Golconda was historically mined for lead and zinc, but also contains high grade gold, silver … and now gallium. It is also right next door to a big copper porphyry.
The company says the benefits of this gallium find are twofold: one, it provides a ‘vector’ for base and precious metal mineralisation and two, it represents a significant credit in zinc concentrates.
G50 says higher grades of gallium and indium are expected to be found with the high-grade zinc-lead lodes that it has yet to target with drilling.
“We look forward to following up our recent high-grade gold discovery with further drilling to better understand the extensive thicknesses of gallium present in the recent drilling,” MD Mark Wallace said.
Other companies worth mentioning include Hastings Technology Metals (ASX:HAS) which is focused on advancing construction of its Yangibana rare earths project, but also holds the Brockman heavy rare earths project in WA, which contains high quantities of niobium pentoxide and zirconium oxide, as well as the rare metals tantalum, hafnium and… gallium.
Godolphin Resoures (ASX:GRL) has the Narraburra project which contains 94.9 million tonnes at 739ppm TREO, including a higher-grade component of 20 million tonnes at 1,079ppm TREO.
But interestingly, the project had a previously reported resource which included 54g/t gallium.
No word yet on whether these explorers are delving deeper into the gallium potential of these projects.
There’s also a couple of non-resources companies on the ASX which rely on gallium to do business – and could conceivably be on the pointy end of the stick when it comes to tightening of supply.
Semiconductor player Bluglass (ASX:BLG) makes gallium nitride (GaN) lasers for original equipment manufacturers (OEM) in the quantum and industrial robotics segments – a high-value, high-margin semiconductor sector – which it says is worth around US$2.5 billion.
“BluGlass has been in contact with its primary gallium suppliers, who have indicated no short-term impact to supply,” BLG said.
“The company is monitoring the situation closely with its suppliers and will update the market should there be any material change.”
At Stockhead we tell it like it is. While Hastings Technology Metals, Battery Age Minerals and Godolphin Resources are Stockhead advertisers, they did not sponsor this article.