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A gray swan for the rare earths sector?

Jeb Handwerger
0 Comments| July 25, 2011

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Those of us who delve into the markets are referred to politely as investors. That is a Madison Avenue spin on what should in essence be a more accurate description. We are speculators, which is a more precise appellation. We assume business risks in hopes of gain. We buy and sell in the expectation of profiting from market fluctuations.

We lean heavily on our technical indicators, which are effected by news driven and exogenous developments. They can often skew the calculations of the most adept of chart readers.

A gray swan is looking over our analytical shoulder. Not quite black, far from white, the coloration as of this writing is gray. The news recently of which my intelligent subscribers are well aware, is that the Lynas Corp. Ltd. (OTO: LYSCF, Stock Forum) Malaysian project has encountered a roadblock requiring ten corrective measures that have to be addressed on the bumpy road to production.

Today Lynas reiterated, “We believe the plant will be commissioned by the end of 2011 and we expect to deliver some product to customers in the first half of 2012.” It is important to note that the independent review panel concluded that the project met all international radiation safety standards. In reality, it is unknown how long the process to completion will take. Management claims they are still on schedule. Skeptics question the timeline.

We expect more of these “Merkel Moments” on the often rocky path to fruition. In reality, the problem is two-fold as the German government discovered. Not only do the “Greenies” have to be assuaged, but there are political considerations that are added to the brew. Politicians inevitably must run for office as Merkel realized.

The Prime Minister of Malaysia is up for reelection. As we deduce, politicians are a fickle breed turning concrete decisions into sand. Similarly, the Prime Minister of Malaysia, a firm proponent of the Lynas project, is confronted by the vocal opposition. They sense the opportunity to score political points in the upcoming vote.

Now all of the valid considerations for the importance of rare earths for our industrial survival recede for the time being. Taking a backseat are the all important needs for rare earths in the technology, military, consumer and alternative energy sector.

Where does this leave subscribers to Gold Stock Trades? The history of water shed developments are replete with difficulties. Fulton’s steam engines blew up at the beginning. The first space missions exploded. The birthing process is described as labor.

The West, which had the lead in rare earth development, has to play catch up to China. It co-opted what was originally an American enterprise. This is a rebirth of an industry. One can sense the Chinese laughing at the plight of The West scurrying helter-skelter to gain independence from the Chinese hegemony over a vital industry.

We notice as we write that Lynas, which had fallen below the 200-day moving average with a low of 1.81 has penetrated above the 200 day and is breaking above the 50 day moving average. This is a very bullish sign.

Goldman Sachs Group Inc. (NYSE: GS, Stock Forum) recently based its rare earth recommendations on a limited universe consisting of only two stocks, Molycorp Inc. (NYSE: MCP, Stock Forum) and Lynas. Gold Stock Trades has a broader view. We notice that other candidates may have been overlooked by the major analysts. We have presented our subscribers with additional viable candidates that are undervalued, undiscovered and strategic.

Valuable lessons are being presented to us by the Lynas and Molycorp experiences. We feel that these are not the only partners on the dance floor.

Feel free to consider additional rare earth miners (REMX) who are located in friendly areas of North America and Europe with critical heavy rare earth ores as well as light rare earths.

Many are undervalued and certainly not in the limited Goldman Sachs universe. These rare earth miners are becoming very attractive and appear to be just beginning to reverse their recent consolidations.

Disclosure: Jeb Handwerger is long on Lynas



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