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Rare Earth Elements: Three Ways to Profit from Mining Crucial Precious Metals
by David Fessler, Energy and Infrastructure Expert
Tuesday, October 20, 2009: Issue #1119
What do your cell phone, a Euro banknote, superconductors, fiber-optic communications systems and the motor for your car’s windshield wiper all have in common? They (and thousands of other everyday products) contain minute quantities of some of the most obscure chemical elements on the planet.
They’re known as “rare earth metals” or simply “rare earths.”
What’s the big deal about them?
Simply put, trillions of dollars of modern devices wouldn’t be possible without their existence. These “rare earths” are critical elements in many industrial processes and the United States Geological Survey (USGS) has identified 17 of them.
Let’s take a quick look at “rare earths” to get an idea of just how pervasive and critically important they are and, of course, how to do something that very few other investors even consider, profit from them…
Little-Known, Rare Earths… Critical to Everyday Life
The term “rare earths” comes from the fact that the minerals that contain these unusual elements were quite rare when first found in Ytterby, Sweden.
And occupying slots 21, 39 and 57-71 in the periodic table of the elements, here are a few of the most commonly used “rare earths”…
- Cerium is the most abundant of the “rare earths.” It’s found in automobile catalytic converters and other pollution control equipment. And it helps to reduce sulfur oxide emissions. It’s also added to diesel fuel to help it burn better.
- Neodymium is used in magnets to make the magnetic field incredibly strong. Cell phones, computers and audio speakers wouldn’t exist without neodymium magnets. And miniature motors wouldn’t be possible at all without it.
- Holmium has the greatest magnetic strength of any element, and is used in medical and dental lasers and nuclear control rods. It’s also a colorant for glass.
- Dysprosium’s magnetic strength properties make it a useful material for certain lasers, fuel injectors for diesel engines, compact discs, and other various data storage applications.
- Thulium is one of the rarest and most expensive of the “rare earth” metals. It has unique properties that make it ideal for laser-based surgical tools.
- Yttrium is primarily utilized to make red phosphors for use in red LED’s and superconductors.
- Europium is a key ingredient in certain types of lasers and is a part of the chemical process to screen for Down’s Syndrome.
- Erbium is a silvery white metal created for use in photographic filters and as a coloring agent in cheap sunglasses and jewelry. It’s also a key element in optical amplifiers widely used in fiber-optic communications systems.
Rare Earth Elements and The China Factor – Again…
While found in relatively high concentrations in the Earth’s crust, until 1948 most of the world’s “rare earth” supply came from sand deposits in Brazil and India.
But in the 1950s, South Africa became the primary source, with U.S. supplies ramping up and continuing well into the late 1980’s.
And while there is still some residual production from those sources, China has stepped to the front of the pack. Its “rare earth” metal production dwarfs everyone else. As you can see on the chart, the Red Dragon is responsible for nearly 95% of the world’s “rare earth” production.
Over the past decade or so, rare metal usage has increased dramatically, which has resulted in a significant strain on supplies. In fact, there’s growing concern that the world may soon face a shortage that could rise to over 40,000 tons annually.
With China using nearly two-thirds of what it produces, it’s naturally keen to protect its own interests. The country is stockpiling its supplies and continuing to reduce annual exports of “rare earths.” The real concern is that within a few years China may decide to keep everything it produces.
As a result of this threat from China, the “rare earth” sector is on fire, with a worldwide flurry of “rare earth” exploration. A mine in California is set to reopen by 2012 and Australia is currently developing the richest “rare earth” deposits outside of China.
Three Mining Stocks for “Rare Earth” Element Speculators
Unfortunately, the Chinese haven’t yet converted the state-owned Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Company into a publicly traded entity, so you can’t buy shares. Moreover, it’s unlikely that it ever will become publicly traded, given the strategic nature of “rare earths” and China’s dwindling reserves.
But many other “rare earth” mining stocks are up over 100% since China announced a change to its “rare earth” export quotas in August. Here are a few to consider…
- Lynas Corporation (OTCBB: LYSCF): The company is behind the big Western Australian “rare earth” deposit at Mt. Weld and has seen its shares soar by 141% over the past six months.
- Avalon Rare Metals (OTCBB: AVARF) and Rare Element Resources (OTCBB: RRLMF) are two other rare element miners that have enjoyed a huge surge over the past six months. Their share prices are up 510% and 596%, respectively.
A note of caution, however: like most junior gold mining stocks, all three are highly speculative. As such, they’re subject to wild price swings.
That said, “rare earths” are in short supply and that means there will be profitable opportunities, as new suppliers emerge and try to offset the dwindling supply from China.
Good investing,
David Fessler
Editor’s Note: Whether it’s energy or infrastructure, David Fessler is our man on the ground, tracking the latest industry developments. The ideas he presents here in Investment U are just a brief taste of what he covers in his energy and infrastructure-based “Hot Stacked” feature in The Oxford Club’s Communiqué newsletter each month. As the global population continues to grow and our resources become more strained, this is one of the most important trends, both politically and economically, as well as from an investment standpoint. Make sure you don’t miss out on David’s latest recommendations.
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8 Responses to “Rare Earth Elements: Three Ways to Profit from Mining Crucial Precious Metals”
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David Fessler is an Advisory Panelist for Investment U and The Oxford Club, one of the world’s most exclusive and prestigious networks of private investors.
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October 20th, 2009 at 1:06 pm
Good article – most of these email articles do not name the specific companies but just send teasers. I bought Lynas over 3 years ago and it has been up and down several times since then.
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October 20th, 2009 at 7:37 pm
Hi,
If your readers are interested in the Rare Earth Elements and their investment opportunities in Australia a visit to http://www.australianrareearths.com will provide them with a fair bit of detail.
Australia has an increasingly important role in the REEs as it has several micro-cap compnaies that control slightly more REEs than China.
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October 21st, 2009 at 7:25 pm
Thank you for your thorough response to my inquiry about investing in mining companies with stakes in rare earths. They do seem very speculative, but I think this whole area of exploration and development for rare earths, and other elements not classified as “rare earths,” elements such as lithium, boron, bismuth, strontium, etc. may evolve very, very rapidly as new revolutionary technological applications start being widely employed. I am old enough to remember that the primary use of uranium, prior to the atomic age, was adding color to glass. Please keep information on opportunities in companies mining elements other than commodities and rare earths, coming.
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October 23rd, 2009 at 5:08 am
Hello from Russia!
Can I quote a post in your blog with the link to you?
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Investment U Reply:
October 23rd, 2009 at 2:06 pm
Polprav,
Sure, post away. Just be sure to link back to our original article. Thank you!
Investment U
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October 26th, 2009 at 1:00 am
Since I am not a metalic engineer, I need to ask can catalist materials be used to percipitate precious metals fron tailing piled in northern minnesota? Most current operations require large quantities of water and electrical power. TRhe cost of product would be much less if the nuggets were 100% pure.
Comments?
DBCarlson@comcast.net
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Investment U Reply:
October 29th, 2009 at 1:50 pm
Duane,
I’m not intimately familiar with the specific technological details used to remove the rare earth elements from their host rocks. I do know there are a number of different processes depending on which rare earth you are talking about. (I’m not a metallurgical engineer either!)
All the Best,
Dave
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October 30th, 2009 at 7:38 pm
My picks:
Great Western Minerals- Mine to Market strategy, vertically integrated- owns two production facilities-five properties, will be mining Rareco/Horn of Africa (highest TREO ever found-17%) and will likely be the first mine outside of China producing in 18 months. no debt
Ucore Uranium- Bokan Mountain/Alaska – quarry/crush/ship to the pacific rim/China for processing. High TREO-deepwater port, may be first to meet asian demand-ore to China/Malaysia for processing.
Recent articles indicate Chinese will soon need all the REEs for their own economy. REE space must expand, and rapidly.
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