3 Mining Stocks to Hedge China's Rare Earth Policies

What do your cell phone, a Euro banknote, superconductors, fiber-optic communications systems and the motor for your car’s windshield wiper all have in common? They (and thousands of other everyday products) contain minute quantities of some of the most obscure chemical elements on the planet.

They’re known as “rare earth metals” or simply “rare earths.”

What’s the big deal about them?

Simply put, trillions of dollars of modern devices wouldn’t be possible without their existence. These “rare earths” are critical elements in many industrial processes and the United States Geological Survey (USGS) has identified 17 of them.

Let’s take a quick look at “rare earths” to get an idea of just how pervasive and critically important they are and, of course, how to do something that very few other investors even consider, profit from them…

Little-Known, Rare Earths… Critical to Everyday Life

The term “rare earths” comes from the fact that the minerals that contain these unusual elements were quite rare when first found in Ytterby, Sweden.

And occupying slots 21, 39 and 57-71 in the periodic table of the elements, here are a few of the most commonly used “rare earths”…

• Cerium is the most abundant of the “rare earths.” It’s found in automobile catalytic converters and other pollution control equipment. And it helps to reduce sulfur oxide emissions. It’s also added to diesel fuel to help it burn better.
• Neodymium is used in magnets to make the magnetic field incredibly strong. Cell phones, computers and audio speakers wouldn’t exist without neodymium magnets. And miniature motors wouldn’t be possible at all without it.
• Holmium has the greatest magnetic strength of any element, and is used in medical and dental lasers and nuclear control rods. It’s also a colorant for glass.
• Dysprosium’s magnetic strength properties make it a useful material for certain lasers, fuel injectors for diesel engines, compact discs, and other various data storage applications.
• Thulium is one of the rarest and most expensive of the “rare earth” metals. It has unique properties that make it ideal for laser-based surgical tools.
• Yttrium is primarily utilized to make red phosphors for use in red LED’s and superconductors.
• Europium is a key ingredient in certain types of lasers and is a part of the chemical process to screen for Down’s Syndrome.
• Erbium is a silvery white metal created for use in photographic filters and as a coloring agent in cheap sunglasses and jewelry. It’s also a key element in optical amplifiers widely used in fiber-optic communications systems.

Rare Earth Elements and The China Factor – Again…

While found in relatively high concentrations in the Earth’s crust, until 1948 most of the world’s “rare earth” supply came from sand deposits in Brazil and India.

But in the 1950s, South Africa became the primary source, with U.S. supplies ramping up and continuing well into the late 1980’s.

And while there is still some residual production from those sources, China has stepped to the front of the pack. Its “rare earth” metal production dwarfs everyone else. As you can see on the chart, the Red Dragon is responsible for nearly 95% of the world’s “rare earth” production.

Over the past decade or so, rare metal usage has increased dramatically, which has resulted in a significant strain on supplies. In fact, there’s growing concern that the world may soon face a shortage that could rise to over 40,000 tons annually.

With China using nearly two-thirds of what it produces, it’s naturally keen to protect its own interests. The country is stockpiling its supplies and continuing to reduce annual exports of “rare earths.” The real concern is that within a few years China may decide to keep everything it produces.

As a result of this threat from China, the “rare earth” sector is on fire, with a worldwide flurry of “rare earth” exploration. A mine in California is set to reopen by 2012 and Australia is currently developing the richest “rare earth” deposits outside of China.

Three Mining Stocks for “Rare Earth” Element Speculators

Unfortunately, the Chinese haven’t yet converted the state-owned Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Company into a publicly traded entity, so you can’t buy shares. Moreover, it’s unlikely that it ever will become publicly traded, given the strategic nature of “rare earths” and China’s dwindling reserves.

But many other “rare earth” mining stocks are up over 100% since China announced a change to its “rare earth” export quotas in August. Here are a few to consider…

• Lynas Corporation (OTCBB: LYSCF.PK): The company is behind the big Western Australian “rare earth” deposit at Mt. Weld and has seen its shares soar by 141% over the past six months.
• Avalon Rare Metals (OTCBB: AVARF.PK) and Rare Element Resources (OTCBB: RRLMF.PK) are two other rare element miners that have enjoyed a huge surge over the past six months. Their share prices are up 510% and 596%, respectively.

A note of caution, however: like most junior gold mining stocks, all three are highly speculative. As such, they’re subject to wild price swings.

That said, “rare earths” are in short supply and that means there will be profitable opportunities, as new suppliers emerge and try to offset the dwindling supply from China.

Disclosure: None

Comments

[LBERARD]

Two other companies that not only own large rare earth deposits but actually have processing plants for them are Great Western Minerals (GWMGF) and the real sleeper Alkane Exploration (ALKEF).

2009 Oct 21 10:22 AM

[tripleblack]

Does anyone know anything about Molycorp MInerals and the REITA (group they started)?

2009 Oct 21 11:15 AM

[stockferret]

Most of the Rare Earth companies can be bought on the Toronto Venture Exchange. GWG.V is my favorite but RES.V and AVL.TO also seem legitimate. You have to be careful though, every other junior miner suddenly seems to have a Rare Earth property now.

Plus, I would always recommend having some of your assets in a good resource backed currency such as CAD or AUD.

2009 Oct 21 12:07 PM

[chinastakes]

<b>China's Mining Companies Struggling in Downturn</b>
With major metal prices slumping in both domestic and overseas markets, China's non-ferrous metal industry is facing an unprecedented challenge, with all companies suffering losses in September and October. The situation shows no sign of changing before the end of this year

2009 Oct 22 04:55 AM

[chux08]

Just yesterday the Honorable Senator from Alaska had a comment about the strategic value of REE's. Do you think she was talking about a Canadian REE deposit? She was yakking it up about China's seeming lock on this market and what the US government could do to help this small but vastly important and under-developed REE market. But the most interesting thing of all was that this was posted on Ucore Uranium's website and that's interesting because they own the Bokan Mountain REE Project on the Prince of Wales Island near Ketchikan Alaska, which is among the largest Heavy REE deposits in North America. It's on the same property as the Ross Adams uranium project, which is Alaska's high grade, ONLY past producing uranium mine as well. Multi-commodities located on the same property. They're currently waiting for assay results from their latest drill/exploration program. But if you're looking for an investable (unlike Molycorp's Mountain Pass Project, which is a private company) American REE project, that list is mighty short. Besides Ucore, RES has the Bear Lodge Project in Wyoming but I can't think of another REE project on American soil that's has as much PRIOR US government study and importance as Bokan Mountain. Check em out for yourselves.

www.ucoreuranium.com/

2009 Oct 22 01:47 PM

[Jack Lifton]

I have written an analysis of "The Rare Earth Crisis of 2009" that is too long for Seeking Alpha. It can be found at jackliftonreport.com. I have been writing about and consulting to the real rare earth junior miners for so long that two of them are now well under way to becoming producers in the next 24-36 months. I will post an article on SA next week naming these two producers-in-readiness and contrasting them with the wannabes that are today trying to grab some publicity and sell stock not rare earths, not ever.

2009 Oct 23 05:40 AM

[optionsgirl]

You may want to look at PNPFF.PK, which holds Ucore and invests in ree, molyb,uranium, pm juniors, etc.


On Oct 22 01:47 PM chux08 wrote:

> Just yesterday the Honorable Senator from Alaska had a comment about
> the strategic value of REE's. Do you think she was talking about
> a Canadian REE deposit? She was yakking it up about China's seeming
> lock on this market and what the US government could do to help this
> small but vastly important and under-developed REE market. But the
> most interesting thing of all was that this was posted on Ucore Uranium's
> website and that's interesting because they own the Bokan Mountain
> REE Project on the Prince of Wales Island near Ketchikan Alaska,
> which is among the largest Heavy REE deposits in North America. It's
> on the same property as the Ross Adams uranium project, which is
> Alaska's high grade, ONLY past producing uranium mine as well. Multi-commodities
> located on the same property. They're currently waiting for assay
> results from their latest drill/exploration program. But if you're
> looking for an investable (unlike Molycorp's Mountain Pass Project,
> which is a private company) American REE project, that list is mighty
> short. Besides Ucore, RES has the Bear Lodge Project in Wyoming but
> I can't think of another REE project on American soil that's has
> as much PRIOR US government study and importance as Bokan Mountain.
> Check em out for yourselves.
>
> www.ucoreuranium.com/

2009 Oct 23 06:35 AM

[optionsgirl]

Mr. Fessler: Good article, but I have 2 questions:
You stated that Inner Mongolia isn't traded. Isn't it on the Hong Kong exchange as ticker 600111?:
Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co<600111>, the Shanghai-listed unit of Baotou Iron & Steel Group Co Ltd, which is known as Baogang Group.

Lynas underwent voluntary suspension on 9/25/09. Has this been lifted?

Thank you in advance for answering my questions.

2009 Oct 23 06:48 AM

[tripleblack]

I have been watching this development as well. I will do something in this area soon...

I see production getting a boost in Australia, South Africa, maybe Russia, and even the US should China reduce exports. I'm surprised there isn't more movement in these idled mines already. Molycorp has some interesting backers...

Just bought some AMLM at $2.20 yesterday when it dipped. Lithium is now a strategic material as well.

2009 Oct 23 10:03 AM

[Frelodr]

There seems to be one little point thats being missed when talking Ucore and Molycorp in the same sentence.
Molycorp is LREE's which there is more of in the world.
Ucore is HREE's which are in bigger demand and bring more cash.

2009 Oct 23 10:38 PM

[theFMradio]

This would suggest that Ucore is an attractive purchase for Molycorp if it gets financial backing for its production side of things.


On Oct 23 10:38 PM Frelodr wrote:

> There seems to be one little point thats being missed when talking
> Ucore and Molycorp in the same sentence.
> Molycorp is LREE's which there is more of in the world.
> Ucore is HREE's which are in bigger demand and bring more cash.

2009 Oct 24 01:27 PM

[User 407683]

Any further info on status of LYSCF? Someone above stated that they underwent voluntary suspension on 9/25/09. In light of the fact that their operations have been suspended since last Spring, what does this mean? Additionally, does anyone know how much $ the co. raised in their warrants

2009 Oct 27 02:29 PM

[McHugs]

Does anyone know anything about China Rare Earth...?

2009 Nov 18 07:59 AM