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I am an investment professional currently working for the amazing Wall Street Bad Boys.
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NextCandle.com
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  • Commodity Review: Playing The Rare Earth Conundrum  0 comments
    Mar 20, 2012 10:04 AM | about stocks: REMX, MCP

    Last week, the US along with the EU and Japan joined forces to file a trade case against China over its export restrictions on rare earth metals but some experts are already saying it might be too little too late. So how should investors and traders alike play the rare earth conundrum?

    How Rare are Rare Earths?

    Rare earths are minerals or elements that are increasingly needed inside of everything from smartphones to smart bombs to many of the new green and clean technologies being developed. Ironically, so-called rare earth minerals are not that rare. A recent Globe and Mail article pointed out that rare earths are actually found all over the world but its only China that has managed to produce them more cheaply than other countries. China has also kept rare earth prices low for so long that it's uneconomical for rare earth mines outside the country to remain in production.

    In fact, it's estimated that China now accounts for around 95% of global rare earth production. Hence, many manufacturers who need components made out of rare earths have already shifted their production to China - meaning that any rare earth miner in the West may not have any customers left outside of China.

    Likewise, China has plenty of cards to play to prevent its domination of rare earths from slipping. For example: A recent Bloomberg article quoted Jack Lifton, the co-founder of Technology Metals Research, as saying that China could respond to the trade case or any other pressure to lift rare earth export restrictions by creating "a monster competitor" to Molycorp (NYSE:MCP), currently the biggest rare earth producer outside of China, and any other western rare earth miner.

    How to Invest in Rare Earths?

    The easiest way for investors or traders alike to gain exposure to rare earths would be with an investment in the Market Vectors Rare Earth/Strategic Metals ETF (NYSEARCA:REMX) which seeks to replicate the price and yield performance of the Market Vectors Rare Earth/Strategic Metals Index. This Index contains both foreign and local equity securities of companies that are primarily engaged in producing, refining and recycling of rare earth and other strategic metals and minerals. The Market Vectors Rare Earth/Strategic Metals ETF (REMX) is up 18.9% since the start of the year but it's also down 23.9% over the past year and 13.9% since its 2010 inception. As of mid-March, the fund's top 10 holdings included:

    • Iluka Resources (ILU)
    • Kenmare Resources Plc (NYSE:KMR)
    • Lynas (LYC)
    • Molycorp (MCP)
    • Neo Material Technologies (NYSE:NEM)
    • Titanium Metals (TIE)
    • Thompson Creek Metals (NYSE:TCM)
    • Assore (NYSE:ASR)
    • Molibdenos Y Metales Sa (MOLYMET)
    • Eramet (NYSE:ERA)

    As for individual rare earth mining stocks themselves, Molycorp (MCP) is the most often mentioned and it's worth noting that they have recently acquired Canadian rare earth and magnetic materials processor Neo Material Technologies (NEM) for about C$1.3 billion ($1.3 billion) - a move that is expected to be a prelude to other acquisitions in the rare earth mining space.

    Hence, investors and traders alike may want to keep an eye on the following rare earth focused mining stocks that are also based outside of China:

    • American Rare Earths and Materials (OTCPK:AREM)
    • Artha Resources Corporation (NYSE:AHC)
    • Avalon Rare Metals (NYSEMKT:AVL)
    • Commerce Resources (NYSE:CCE)
    • Great Western Minerals (GWG)
    • Hudson Resources (HUD)
    • Matamec Explorations (NASDAQ:MAT)
    • Quest Rare Minerals (NYSEMKT:QRM)
    • Rare Earth Metals (NYSE:RA)
    • Rare Element Resources (NYSEMKT:REE)
    • Tasman Metals (NYSEMKT:TAS)
    • Ucore Rare Metals (UCU)
    • US Rare Earths (CALY)

    However, it's important to remember that many of the above rare earth mining stocks are risky and volatile small cap or micro cap OTC or Canadian stocks that may or may not have enough capital on hand to get rare earth production off the ground. Moreover and when they finally do produce rare earths, they may have trouble finding a market outside of China to sell to.

    Rare Earth Stock Predictions

    Nevertheless and if you are an investor or trader thinking of playing the rare earth conundrum, you might want to add a few rare earth mining stocks to your Next Candle my portfolio list in order to keep an eye on them and to help you come up with an appropriate trading strategy.

    NOTE: THIS PIECE WAS JUST POSTED ON OUR BLOG AT http://www.nextcandle.com/blog/2012/03/commodity-review-playing-rare-earth-conundrum
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