Friday, September 25, 2009

Rare earths offer unique investment opportunity

The big dog is Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Company. Down 4% this morning, it trades on the Shanghai exchange under the symbol 600111. There are a few Canadian juniors that are stepping up their exploration efforts. Privately held Molycorp Minerals will be a sizable producer as they bring their California mine back into production. Goldman is one of their backers. Here are our posts on the rare earth metals.
From MarketWatch:

Experts see promise in market growth but urge caution
..."This hot commodity play has some room to run still," said Brent Cook, author of the investment letter Exploration Insights.

Rare earths are a "new thing that no one has actually lost money on yet," he said. "It also helps that there is no way to value these things using the conventional NPV [net present value] metric - hence, the sky's the limit."

Rare earths, comprised of about 17 elements, serve as vital components in everything from lasers and optical fibers to petroleum refining, automotive parts, computer monitors, lighting and televisions.

"This is a near perfect story from a promoter's perspective," said Cook, who is also a geologist. These elements are "a hot new suite of minerals, that no one can say or spell, needed for all the high-tech gadgets the X, Y and Z generations know and love."

Some consumer goods wouldn't even exist without rare earths.

But, said PFGBest senior market analyst Phil Flynn, "many green technologies that seem economically feasible today may not be feasible tomorrow due to shortages of these elements."

"China has been aggressive in controlling the [rare earths] supply that they have and buy what they do not have," he said. "The rest of the world is scrambling to find alternative supply."

With that in mind, it's no wonder that some investors are looking to mimic China's apparent strategy -- to get a foothold in the market and find a way to keep it there. China already controls more than 95% of the world's rare earths market. See in-depth look at market for rare earths.


But commodities investors need to realize that the term "rare," in this case, is a bit of a misnomer.

"Rare earths are not that rare," said Lawrence Roulston, editor of Resource Opportunities. "The most commonly occurring rare earth metals -- cerium, lanthanum, neodymium and yttrium -- are actually more common in the Earth's crust than lead."

"Once exploration gets underway, it won't be hard to find new deposits that contain rare earths," he said....MORE