Rare earth investors might be about to discover that rare earths are not quite as rare as they were last week. Back when rare earth stocks were still very much in favor, I wrote about the overvaluation in the rare earth stocks. Even though many disagreed with the prediction that this sector was at or near a top, all of these stocks have dropped substantially.
Since rare earth prices surged due to supply cutbacks from China, a new source of supplies from deposit-rich sources like this outside of China could cause prices to plunge and reduce margins for all companies. (More about this here.) While this sector has come down substantially in the past couple of months, many of the companies in this sector have limited or no profits yet and vast new discoveries of readily extractable rare earth deposits are likely to put pressure or at least keep a lid on some of these stocks. Here are some stocks that could be impacted by this and other new discoveries in the future.
Molycorp, Inc. (MCP) shares are trading around $59.84. MCP was founded in 2008 and is based in Colorado. The shares have traded in a range between $12.10 to $79.16 in the past 52 weeks. The 50-day moving average is $60.99 and the 200-day moving average is $47.74. This company is very young and any missteps by management or other issues/risks that are inherent in mining could cost investors large sums. MCP insiders have been selling millions of dollars worth of stock. On June 15, a director sold about 5.7 million shares at $51 per share, which resulted in a transaction value of roughly $293 million.
Avalon Rare Metals (AVL) shares are trading at $6.85. AVL is based in Canada. The shares have traded in a range between $1.86 to $10.11 in the past 52 weeks. The 50-day moving average is $7.34 and the 200-day moving average is $6.09. Earnings estimates for AVL are unavailable and the company has been losing money. The company describes itself as being "development stage" and says "its principal source of capital is from the issuance of common shares."
Rare Element Resources, Ltd. (REE) shares are trading at $10.93. REE is based in Canada. The shares have traded in a range between $1.83 to $17.92 in the past 52 weeks. The 50-day moving average is $11.75 and the 200-day moving average is $11.63. Earnings estimates for REE are not available. This company has been losing money. These shares were trading over $15 when I first wrote about this sector and have dropped about 30%.
China Shen Zhou Mining and Resources (SHZ) shares are trading at $3.33. SHZ is based in China. The shares have traded in a range between 60 cents to $10.84 in the past 52 weeks. The 50-day moving average is $3.83 and the 200-day moving average is $4.28. Earnings estimates are unavailable for SHZ. This company has been losing money and it says it was a reverse takeover not long ago. These shares were trading at $6.22 when I first wrote about this sector and have dropped nearly 50% since then.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.