Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Dacha Capital: a rare commodity play

|Includes: iQIYI, Inc (IQ)

Investors who are alert to up-and-coming niche opportunities have probably heard about opportunities in rare earth mining. The excitement about this sector stems from the fact that many high-tech industries depend on "rare earth" elements (Neodymium, Europium, Terbium, Dysprosium, etc.) which are produced almost exclusively in China. China is increasingly committed to keeping its resources for its domestic use, so it's easy to extrapolate the increasing value of supplies outside of China.

But the Canadian and Australian companies that produce rare earth ore are risky investments, as are all small mining companies. And while the recent IPO of US rare earth miner Molycorp (MCP) has been met some success on Wall Street, it will be some years before the company can develop the capacity to actually produce refined ore. (Much of the difficulty in obtaining these metals is separating them from each other, as well as from other materials, in the ore).

A much safer way to gain exposure to the rising value of rare metals is to actually own the refined ore. Dacha Strategic Metals Inc. (TSX:VENTURE:DSM)(OTCQX:DCHAF) is a small company that buys Rare Earth metals that have already been mined and refined, and resells them at fabulously increased prices.

The managers have targeted Yttrium (NYSE:Y), Terbium (Tb) and Dysprosium (Dy) as the main assets to accumulate. Yttrium is mainly used in lighting; Tb and Dy are primarily used in  magnets designed for high temperature environments, such as hybrid cars and military vehicles. And "hard to get" is actually what the name Dysprosium means! (This is clearly the prototype for the fictional "Unobtainium"--but no Pandorans were injured in the stockpiling of this asset). 

What I like about this stock is that, with smart management, the investment is as close to foolproof as you can find in the volatile commodity sector. The metals are stored securely, mostly in Singapore.  While anything is possible, the risks that could reduce the value of this asset seem remote. But the upside has already proven spectacular. Terbium Oxide stockpiled early this year cost $360/kilo, and is now quoted at $2600/kilo. Clearly, management knows what they are doing and have already added a lot of value to the invested capital. Yet the stock persistently trades at less than its net asset value:

 

DATE

NAV (C$)

STOCK PRICE (TSX)

OTC PRICE (US$)

2/15/11

0.51

0.41

0.41

4/5/11

0.68

0.45

0.49

5/30/11

0.94

0.64

0.65

6/13/11 (intraday)

1.32

0.73

0.76

 

More information on the company can be found at http://www.dachametals.com/. 

Disclosure: I am long OTCPK:DCHAF.