(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
As a follow up to my article last week, "Key Events are turning our Attention Back to Rare Earths", several key pieces of news in the rare earths industry have continued to build momentum and interest in the space again. I have listed below four investing opportunities in order of speculation. #1 being the lowest and #3 being the highest level speculation. The information contained herein is for informational purposes only. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.
Last week, further rumors of China's intention to purchase billions of rare-earth minerals in an effort to bolster its reserves continued to swirl. As I previously noted, China is the number 1 global influencer of rare earth supply and demand with control of over 90% of the global supply. In this effort China is attempting to stabilize global supply and price volatility. Additionally, China's 3rd largest rare-earth producer announced its plan to build a processing plant for rare earth oxides. This investment provides a glimpse into perhaps where the industry is headed and how an influencer like China is streamlining the rare earth industry with more efficient processes.
Rare earth applications are wide spread in products that influence our everyday lives including electric vehicles, smartphones and tablets. As well documented, Apple (AAPL) sold a record 9 million iPhones in its debut weekend. As demand increases for these products there grows more and more concern over the supply of rare earths. This is a major driver in China increasing stockpiles and countries like Russia investing billions of dollars into the space. Please read "Rare Earth Sector Rises on Increased M&A Speculation". It gives an interesting take on how supply concerns may spur M&A activity.
With a speculative #1 rating and a more diversified approach to investing with less of a tolerance for risk associated with a bet on one company, please follow the Rare Earth/Strategic Metals ETF (REMX). Over the past three months this ETF is up ~15%. Please keep in mind that as with all ETFs it is important to understand not only what it contains but how the mechanisms of the instrument truly work.
Molycorp (MCP), REMX's 6th largest holding, is our speculative #2 rating. Molycorp is the most recognizable in the space and operator of the largest rare earths mine outside of China at its Mountain Pass project in California. The company is the only of the group to be operational and generating revenue at Mountain Pass. Earnings disappointed the street this most recent quarter and 15,000 tons produced fell short of its goal to produce 19,050 tons. This may be a case of over promising and under delivering on management's part. Although 15,000 fell short, it still represents one of the most significant sources of rare earths in the world. From a purely technical point of view the stock is currently hovering just under the 50-day and 200-day moving averages. There is also significant short interest in the stock. With some good news both can be contributing factors in short term appreciation for traders.
Texas Rare Earths is focused on its Round Top Project in Texas. Just this week, the company announced its preliminary leach testing results from an independent third party which yielded recoveries of 91% Yttrium (Y) and 87% Dysprosium (DY) amongst six other rare earths. The testing was run for 60 days with sulfuric acid. This method of testing has potential to lower capital and operating costs. The company has stated publicly in presentations that it anticipates a revised PEA to show a decrease in capital cost from $2.1 billion to between $150 million to $350 million. The reduction if proven will make this project much more appealing for potential partners or outright buyers.
Avalon Rare Metals is a Canadian junior miner with several properties, but main focus on the Nechalacho Rare Earth Elements Project located in the Northwest of Canada. This project contains the second largest tantalum and third largest niobium deposits in the world and remains one of the few new rare earth projects to have completed a feasibility study and environmental assessment. According to the company, this mine has 14.6 million tonnes of proven and probable mineral reserves contained within 65.83 million tonnes of measured and indicated mineral resources. Investors should be mindful that Avalon has entered into an At-the-Market financing program with Cowen to sell up to $25 million worth of common shares into the open market.
The rare earth industry has seen its fair share of volatility and is not for the weak at heart. The investments above, although we separate into our opinion based order of speculation, all are very risky. Please conduct your own due diligence before investing in any.