For U.S. investors wanting exposure to rare earth element plays but unwilling to invest in the foreign issuers via the pinksheets, or on their domestic exchange, we are here to help. If one wants rare earth element exposure in America, there are currently only three available options listed on the reputable exchanges. On the New York Stock Exchange you have Molycorp (NYSE:MCP), which will be the second company in the world, outside of China, to commence mining. The other two options are advanced exploration plays developing deposits and they trade in the U.S. Both companies are also listed in Canada and their names are Rare Element Resources (NYSEMKT:REE) and Avalon Rare Metals (AVARF.PK).
What you need to know about these three:
The historic Mountain Pass Mine is the company's focus. The past producing mine is one of the world's richest in terms of its grade, or TREO (Total Rare Earth Oxide) as it is referred to in the industry. The deposit is categorized as a light rare earth element play (LREE), thus at some point in the future MCP will need to look elsewhere for production of heavy rare earth elements (HREEs). Currently the company is refurbishing/constructing the mine, and it is ahead of schedule. There is a small amount of production occuring right now however full production will commence in 2012.
Molycorp shares have pulled back from their highs set a few weeks ago, and we are bullish at these prices as Molycorp offers investors a two-for-one special. Of course you get the future rare earth element production, but MCP also offers exposure to high tech breakthroughs going forward. Its most exciting technology developed to date is a rare earth element water filter made primarily using cerium. Cerium, for those who do not know, is the most common rare earth element, making up 20-35% of most deposits, especially those categorized as LREE deposits. So MCP has found a use for what will be the hardest rare earth element to sell in the future, and better yet, should they need to source production from someone else's mine, it will be cheap and readily available.
Rare Element Resources
The company's Bear Lodge project has the best infrastructure available in close proximity of any project in the developmental stage. Rare Element Resources offers investors a gold kicker as well, with Bear Lodge hosting drill tested gold mineralization. We suspect that the project hosts a multi-million ounce gold deposit in addition to the rare earth resource already confirmed. Our research indicates that REE will have one of the least capital intensive buildouts of the rare earth miners, not only in America but worldwide. Investors can expect minimal dilution with shares at these prices as the project's cost comes in at under $100 million total, and this is on American soil so REE could receive governmental subsidies (along with MCP).
REE has exploration properties in Canada with the potential for hosting the valuable HREEs, as indicated by the company's grab samples. REE is on the short list of companies with a high likelihood of actually getting a mine constructed and reaching production. The capital expenditures for this project will be lower than those of its peers because Bear Lodge is situated in proximity to state highways, interstates and most importantly high voltage power lines. This will be a company to watch going forward.
Avalon Rare Metals
Avalon was the 'lone wolf' in this industry (in regards to exploring for REEs in Canada) for some time as it has spent years studying and preparing the Nechalacho REE Deposit on its Thor Lake Project for development. Thor Lake is one of the few HREE deposits close to development due to this work. Investors should note that the Nechalacho Deposit is located beneath a lake and deep underground. To put this in perspective, one should think of Cameco's McArthur River or Cigar Lake uranium mines (both have been prone to flooding in years past). We would imagine that the same techniques will be used and that the mine will face many of the same day-to-day operational challenges.
The company will need to raise close to $1 billion if it is to bring this project into production. This is one of the more expensive projects we have seen so far, but with REE prices at these levels the company would have a decent return. The price tag for the project could increase further depending upon where the company decides to locate some of the necessary infrastructure, but there are some rumors it may find a partner to split the costs with.
These three companies give American investors exposure to the rare earth elements bonanza occuring around the world without having to venture into the pinksheets or foreign exchanges. Over the next year we expect them to be joined by at least one more company and possibly as many as three more in total, trading here in the U.S. When making an investment within this industry investors should pay particular attention to each company's project in regards to location, geology, nearby infrastructure and the TREO in order to judge which companies will be successful in bringing projects to production.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.