Tuesday, December 28, 2010

Corrected: Rare Element Resources Ltd, Molycorp both Up Over 10% on China Move (REE; MCP)

Correction: MCP is still a year away from production.
REE $13.56 up 15.62%, MCP actually down a dime at $49.34 after trading with a $55 handle.
These are rather enthusiastic moves for companies that either aren't in production (REE) or have just started (MCP). We pointed out the initial pop in yesterday's "What's Moving: "Rare Element Resources Ltd UP 12.40%" (REE)". Someone obviously had the tip on the cut in Chinese export quotas.

My short side radar is starting to glow. The perfect play for the Chinese would be to maintain a very tight supply to Japan and the West until MCP, Lynas and REE go into production and then crash the market.
There is currently no way to figure discounted cash flow values for these mines so folks are taking proven, probable and even possible reserve numbers, multiplying by their favorite integer and then forgetting to discount back. That spells opportunity to those panthers sharp enough to wait patiently in the tree until the moment comes to pounce.

From an October post, "Japan Scrambles for Rare Earth" (AVL.TO; LYC.AX; MCP) 600111: Shanghai:

...Words like "uranium", "rare earths", etc. seem to be magic to
 those unsuspecting who are often fleeced...
Gerald M. Loeb
The Battle for Investment Survival
Simon & Schuster, 1935
I'm getting a bit creeped out by all the attention focused on the Rare Earths. Unless one is trading on material non-public information it is probably prudent to stick with the larger producers, the big daddy being our old pal Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., Ltd., symbol 600111 although it has better than doubled in the last six months.
As the quote ascribed* to Mark Twain says about mines:

 "a hole in the ground owned by a liar."
If you are dead set on wild-ass speculation here are some of the names:
Rare Earth Metals: Stocks and a new ETF (AVL.TO; NEM.TO; QRM.X)
Here's the headline story from Reuters:
The surge, which extends the nearly 10 percent jump that Molycorp posted on Monday, came after China cut its first batch of rare earth export quotas for next year by more than a tenth in the face of a threat by the United States to complain to the World Trade Organization over the export limits.

In late morning trading on the New York Stock Exchange, shares of the Greenwood, Colorado-based company were last up 7.4 percent at $53.11 after earlier trading as high as $55.22.

China produces about 97 percent of rare earth elements, which are used in high-technology, clean energy and other products that exploit their properties for magnetism, luminescence and strength.

China's Commerce Ministry allotted 14,446 tonnes of quotas to 31 companies, which was 11.4 percent less than the 16,304 tonnes it allocated to 22 companies in the first batch of 2010 quotas a year ago.

The Ministry said in a statement on its website at http://www.mofcom.gov.cn/ that it had added more producer companies to the quota list, but cut volumes allocated to trading companies for the metals used in high-tech goods....MORE