we've surely won...................................................saying some good things.
Investors taking a shine to rare earth metals
Shirley Won
Gold and silver may be stealing the limelight thanks to surging prices,but some obscure metals are also making their way onto investors’ radarscreens.
Rare earth metals, a group of 17 elements used to make everything fromhybrid cars to mobile phones, came into the spotlight last weekfollowing reports that China had blocked exports of the commodities toJapan.
Beijing denied the reports, but the dispute underlined the market’sdependency on China. The country, which produces 90 per cent of theglobal supply of rare earths, has already slashed export quotas on themetals this year by 40 per cent from 2009, a move which has pushed upprices and spurred new mining projects.
Potential shortages of rare earths, combined with growing demand for thematerials, is sparking new interest in investment opportunities in thearea, ranging from newly listed junior miners to an exchange-traded fundpoised to list in the United States. But the sector is fraught withrisks for investors, market watchers say.
China aside, the biggest reason to invest is the growing demand for the“heavy” or higher-grade rare earths used in hybrid and electric cars,said Jon Hykawy, an analyst at Toronto-based Bryon Capital Inc. “Therarest elements may come into short supply over the next two or threeyears.”
The problem is not finding rare earths, but extracting themeconomically. The best way to play this sector is to buy severalproducers because the risk is too high to bet on one, Mr. Hykawy said.
The analyst has “speculative buys” on Canadian-listed Rare ElementResource Ltd. and Great Western Minerals Group Ltd.; U.S.-listedMolycorp Inc. and Australian-listed names like Lynas Corp. Ltd. andArafura Resources Ltd. Molycorp, which is restarting its Mountain Passmine in California, and Lynas are closer to production so they are lessrisky bets, Mr. Hykawy said.
'Strategic' Play
Hedge fund manager Steve Palmer of AlphaNorth Asset Management Inc.,likes the “strategic nature” of rare earths, and has invested in juniorssuch as Stans Energy Corp. and Ucore Rare Metals Inc.
Ucore, which focuses on the Bokan area in Alaska, will benefit from anew desire by the U.S. to reduce its reliance on China for rare earths,which have military applications, he said. A U.S. senator has alreadyintroduced a bill promoting a domestic rare earth industry.
Van Eck Global, a U.S.-based provider of ETFs, has filed a preliminaryprospectus for the Market Vectors Minor Metals ETF, which will track aminor metals index that includes producers of rare earths. But becauseit will invest in about 30 public companies, not all of which producerare earths, it is not really a pure play on the sector, Byron Capital’sMr. Hykawy said.
Investors can also play rare earths through Toronto-based Dacha CapitalInc. (soon to be renamed Dacha Strategic Metals Inc.). The investmentholding company began buying and stockpiling rare earths from Chinaearlier this year, and stores them in warehouses in South Korea andSingapore, on the assumption that prices are on a long upward trend.
Dacha faces the risk that China could cut off rare earth exports, but,if that happens, the material stored outside the country would be morevaluable while new projects coming on stream will provide new inventory,chief executive officer Scott Moore said. Unlike the risk in spendingmoney in advancing a mining project, “I can sell all my inventory, turnit into cash and redirect it back to shareholders,” he added.
What are rare earth elements or metals?
They are a collection of 17 elements that have become increasinglyimportant in the manufacture of light weight, super-miniaturizedcomponents. The scarcer heavy rare earths, such as dysprosium andterbium, command a premium price compared with light rare earths.
Where are rare earths used?
Batteries and magnets for electric and hybrid cars, mobile phones,iPods, digital cameras, wind turbines, computer monitors,superconductors, solar panels and military hardware like fighter jetsand nuclear weapons.