China's Rare Earth Monopoly: The End is Coming

David Fessler
by David Fessler, Energy & Infrastructure Strategist

China's Rare Earth Monopoly: The End is Coming

by David Fessler, Investment U's Energy and Infrastructure Expert

February 11, 2011

The huge global wall of worry over China's dominance of the rare earth market is certainly warranted if you're the CEO of one of the thousands of companies around the world that depend on such material.

Rare earths are those magical 17 elements that are used in thousands of everyday products, including certain cutting edge ones. Camera lenses, lasers, high-power magnets for wind turbines and electric vehicles, and even steel all contain one or more of them.

Last year, the world's rare earth market was worth about $2 billion. Between China's export quotas and increasing demand - which is forecasted at about 180,000 tons next year - the rare earth market could approach $9 billion by 2012.

The problem is that China currently controls 97% of the world's rare earths, producing about 120,000 tons per year.

But last year, it reduced its export quotas. And this past December, it did it again.

Given the numbers mentioned above, rare earth mining companies all over the world are seeing increasing opportunities.

Brazil Is Looking to Pounce on Rare Earth Opportunity

U.S.-based Molycorp, Inc. (NYSE: MCP) - perhaps the most followed of rare earth miners - owns the most developed mining project outside China. It's currently in the process of restarting a mine that was shutdown for years.

Meanwhile, other countries with deposits of crucial elements are also trying to capitalize on China's plans to shut down its exports of these rare earths.

One of them is Brazil. In 2009, Brazil produced a mere 650 tons of rare earths, or about 0.5% of the world's total.

In a special report to Brazil's central government, its Ministry of Mines and Energy and its Ministry of Science and Technology both highlighted the opportunities in mining rare earths.

The report suggested that most of the exploration and production activities should be undertaken by the private sector.

Brazil's Amazing Rare Earth Potential Has a Few Setbacks... for Now

Brazil has plenty of areas to develop.

Deposits of rare earths are known to exist in the districts of Catalão (Goáis state), Pitinga (Amazonas state) and São Francisco do Itabapoana (Rio de Janeiro state).

The Buena operation is Brazil's main producer of rare earths. It's currently owned by the State-owned Nuclear Industries of Brazil, which is abbreviated INB in Portuguese.

And its reserves are estimated to be roughly 20,000 tons.

INB's main rare earth mining operation is centered around monazite ore, which contains rare earth elements, along with uranium and thorium.

The latter two are in concentrations considered too low to be economically viable. But the radioactivity is high enough that it requires special handling in order to protect workers.

All this adds cost to the mining operation, making it even more important for Brazil to begin production from some of the other known deposits of rare earths found there.

Exploration and production companies are already beginning discussions with the Brazilian government in hopes of gaining licenses to explore for these increasingly important elements.

We'll be watching for any additional developments regarding this potentially exciting investment frontier.

Good Investing,

Dave Fessler

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