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business newsNew Way to Mine for Rare Earth Metals
By
Josh Lipton Oct 29, 2010 2:00 pm
Van Eck Global gives investors a way to play rare earth metals via the first US-listed rare earth metals ETF.
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Van Eck Global has just launched the first U.S.-listed exchange traded fund (ETF) giving investors pure play exposure to producers of so-called “rare earth” metals. Market Vectors Rare Earth/Strategic Metals ETF (REMX) aims to track the performance of publicly traded companies that generate more than 50% of their revenue from these sought-after metals.
In the midday on Friday, REMX was up 4.6% to $20.40.
Many investors, while familiar with precious metals like gold, are still unfamiliar with what are known as ultra-precious metals. Rare earth elements (or REEs as they are referred to) are 17 specialized elements that basically make up the bottom two rows of the Periodic Table of Elements.
These metallic elements are used in a variety of industrial and commercial applications. For instance, Neodymium is used in cell phones and sound systems; Dysprosium helps make electronic components smaller and faster; Cerium, the most abundantly prevalent rare earth element, is found in catalytic converters.
However, the metals are used in a lot more than just cameras and flat-screen televisions: they’re also irreplaceable in many new green technologies like windmills and thin solar film panels as well as critical to the manufacture of many defense items, including aircraft controls, missile technology and navigation systems. Rare earths aren’t really all that rare, say analysts. There are REEs all over the world. But it’s difficult to find high enough concentration of these metals together in one location to make an REE deposit economical.
Right now, say industry experts, the world demands 140,000 tons of rare earth metals per year. Production currently runs at 120,000 tons. Looking ahead, in 2014, there will be 190,000 tons worth of demand but only 160,000 tons of available material.
This week, according to a report in The New York Times, the Chinese government abruptly ended its unannounced export embargo on rare earth. The Chinese had blocked shipments of raw earth mineral to Japan since mid-September. On October 18, the Chinese government broadened its halt in raw rare earths to include the US and Europe.
The move occurred only hours after Zhang Guobao, the country’s top energy official, summoned foreign reporters in Beijing, where he reportedly delivered a blistering denunciation of the Obama administration’s decision to begin investigating whether China’s clean energy policies violated the World Trade Organization’s free trade rules.
However, The New York Times emphasizes that the exact interaction between American policy decisions and Chinese customs enforcement actions is unclear.
Regardless, tight export quotas have caused world prices to soar. Miners like Lynas (LYSDY) and Molycorp (MCP) have enjoyed triple-digit moves in their stock prices over the last few months.
The Chinese now control 95% of the world’s supplies of these metals, says Kevin Kerr of Kerr Trading International, and that’s making both countries and corporations extremely nervous. “After all, it puts them at the mercy of the Chinese because there is simply nowhere near enough production outside of China to meet the global demand growth for REEs,” writes Kerr in a recent research report.He says that a lot of rare earth stocks are now way ahead of themselves. This is especially true for the junior miners, who don’t project production until 2014. Many of these companies will not really be in production until after 2015 and can only be considered, at best, buyout candidates.
A model rare earth portfolio, Kerr argues, could consist of heavier concentrations of positions in Lynas, Molycorp, Great Western Minerals, and Stans Energy with smaller positions of other REE juniors sprinkled in.
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