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Rare Earth Metals - One Small but Striking Addition to the China Story

Many other writers have covered the Rare Earth Metals story eloquently enough on this web site in the past few weeks. The story is clear - the future supply of these metals is critical not only to the Clean Tech industry but also to the US military. However, China is a 97% monopoly producer in the industry and has recently taken to imposing stringent quotas on exports - and allegedly halting exports to Japan as a way of exerting political pressure.

All of this makes this week's Critical and Rare Metals Summit in Washington DC particularly interesting. Thus far, there has been one eye-popping takeaway from the pre-Summit Symposium. The CEO of a prominent Rare Earth mining company
, gave a talk on some foreign rare earth metals deposits which they are looking at.  
And the most interesting point was the following little nugget from his speech. If I understood him correctly, he stated that up until the Spring of this year there was still a stockpile of old rare earth oxides sitting on site in refining plant associated with one of the mines they were looking at. This plant was closed 20 years ago - at the same time and for the same reasons that operations everywhere outside of China were shutting down (nobody could compete with cheap product from China, as everyone now knows). The illuminating issue is that these stockpiles had sat there all these years until this Spring. And who bought them – the Chinese.
 
That clearly should bring home the urgency of the situation from the West’s perspective. China is the 97% monopoly producer of rare earth oxides – and yet they still feel the need to scour the globe buying more.
 
Given the supply issues involved here for both the Clean Tech industry and the US Army there clearly needs to be a coherent policy response to the clear lack of proper functioning in this market. In my own opinion, the vertical integration of the supply chain in the US is probably critical – from mine to magnets. From a policy perspective, the necessity of action couldn't be clearer.

From an investment perspective, there are mixed issues at current valuations. It isn't exactly easy to find low hanging fruit. This is particularly true of the dedicated miners, many of whom are at an early stage of exploration. Personally, I have now taken profits on the majority of the rare earth miners in my portfolio and have consolidated the risk that I have left on Great Western Minerals. Great Western has the attraction of being a refiner with off take rights related to REO mining operations in South Africa. Moreover, they have in place an all-encompassing plan aimed at full vertical integration - exactly what any player in this industry needs to survive the potential difficulties that may result from the vicissitudes of a dominant monopoly producer.



Disclosure: Long GWG