A boom in rare metal prices has garnered a lot of attention for the “rare earth” stocks. They may even be the next set of hot commodity stocks. The Market Vectors Rare Earth/Strategic Metals ETF (REMX), for example, has been in an upward trend since last October.
“Prices of heavy rare earths, used in products including magnets, plasma TVs and smart phones, have more than doubled over the last two weeks after China announced plans to centralise control over its rare earth mine assets, according to U.K.-based publication Industrial Minerals,” wrote Diana Kinch of MarketWatch.
What exactly are rare metals?
“They are used, a pinch here and a pinch there, to make powerful permanent magnets for lightweight electric motors, phosphors for colour television and flat-panel displays, catalysts for cars and chemical refineries, rechargeable batteries for hybrid and electric cars, generators for wind turbines, as well as numerous optical, medical and military devices. To give just one example, every Toyota Prius has over 25 pounds of lanthanum in its nickel-metal hydride battery,” according to the Economist.
China currently produces and exports 97% of the world’s supply of rare earths. China’s success in dominating the market largely comes from its loose environmental policy rules, which allow Chinese miners to dig up the minerals cheaply. Rare earth deposits, however, are also found in many other countries, including Australia and the USA, and are not as rare as their name implies.
China announced a policy to severely limit rare earth exports, purportedly for environmental reasons. Analysts and pundits foresee two outcomes from the policy. First, the price of rare earths is expected to continue increasing as excessive demand is met with limited supply. Second, rare earths will likely be cheaper within China, allowing Chinese manufacturers to buy rare earths at lower prices, which will allow them to transition to selling higher-value goods (like flat-panel screens for tablets, laptops, TVs, as well as batteries for hybrid cars) instead of low-value basic materials.
Since China’s policy announcement, Japanese scientists have found a large deposit in the middle of the Pacific Ocean (close to Hawaii and Tahiti). These deposits, which are in international waters, could help increase the supply of rare earths, as long as the international community approves the mining permits and the mining technology is viable (there are pertinent environmental issues that miners must contend with).
In the US, Molycorp of Colorado has announced plans to update and expand its main rare earths mining project in Mountain Pass, California.
“When Phase 1 of Project Phoenix is completed, which is expected to occur next year, Molycorp’s manufacturing assets will comprise the world’s first fully integrated rare earth manufacturing supply chain, producing high-purity rare earth oxides, metals, alloys, and neodymium-iron-boron (NdFeB) permanent magnets, widely used in transportation, high tech, clean energy, defence, and other industries,” according to BusinessWire.
To help you follow this commodity trend, here is a list of five rare earth stocks. Do you think these companies will flourish as rare earth prices and demand skyrocket? Or do you expect China to maintain its stranglehold of the supply (considering it may be years before these non-Chinese projects are operational)?
List stored by market cap.
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1. Molycorp, Inc. (MCP): Market cap of $5.02 billion. It is headquartered in Colorado. It mines rare earth minerals, which it then turns into oxides, alloys, metals, and magnets. It is one of the few vertically integrated rare earth metal producers.
2. Avalon Rare Metals Inc. (AVL): Market cap of $617.5 million. It is a Canadian mineral exploration and development company with a primary focus on the rare metals and minerals, headquartered in Toronto. Avalon’s primary asset is the 100% owned, advanced development stage project, Nechalacho Rare Earth Element Deposit located in the Northwest Territories, Canada.
3. Rare Element Resources Ltd. (REE): Market cap of $479.5 million. It owns and operates the Bear Lodge mining facility in Wyoming, which contains one of the largest disseminated rare-earth deposits in North America as well as extensive gold occurrences.
4. Quest Rare Minerals Ltd Common (QRM): Market cap of $407.5 million. It is a Canadian-based, exploration company focused on the identification and discovery of new world-class Rare Earth deposit opportunities. Most of their projects are located in the Newfoundland and Labrador regions of Canada.
5. PolyMet Mining Corp. (PLM): Market cap of $269.78 million. It is a Canadian mining company that owns and operates mines in the Duluth Complex in Minnesota. Its deposit, the second-largest deposit within the large Duluth Complex, represents nearly 25% of the known mineral resources in the area.
(List compiled by Eben Esterhuizen, CFA; Article by Andrew Dominguez)