Okay, so the stock market has gone nowhere this year. In fact, it’s gone nowhere in 10 years.
But that doesn’t mean all the money-making opportunities have dried up. Investors have had plenty of opportunities to make money in individual stocks and non-traditional sectors.
Take gold and silver, for example. Over the past 10 years, the price of gold has blasted from $300 to $1,300 per ounce, while silver has shot from $6 to $21 per ounce. In this “easy money” era, commodities have performed well.
But there’s another little-known market that has also taken off…
“Rare” by name … but not by nature
Ever heard of “rare earth” elements?
Don’t worry if you haven’t. They’re so rare that Wall Street firms are only just discovering them. Last week, I met with a couple of Goldman Sachs executives and neither one of them had heard of “rare earth” stocks.
Maybe it’s because they’ve been a favorite of anti-establishment guru and long-time friend Jim Dines, who was the first to draw attention to their speculative potential.
So what are “rare earths?”
While it sounds like a rock band, they’re actually little-known elements like cerium (used in glass), yttrium (computer screens), and lanthanum (petroleum refining).
They’re used in hybrid automobiles, wind turbines, computer hard drives, fluorescent light bulbs, ceramics and glass, and a number of critical military applications. Rare earths are also key components of green energy and technology.
But here’s the twist…
Rare earth metals aren’t really “rare” at all. They’re actually more common than silver or copper.
However, most deposits are either too low in concentration, or are contaminated by radioactive thorium and are thus unusable. Rare earths are also by-products of iron ore and gold mining production and require highly toxic chemicals for extraction – a procedure that involves high processing costs.
So where do you find these rare earths? One country has a monopoly on the market…
China squeezes the rare earth market
Producing a massive 95% of the 130,000 metric tonnes of rare earths consumed annually worldwide, China has a stranglehold on the market. Earlier this week, Aluminum Corp. of China (NYSE: ACH, Stock Forum), known as Chalco, announced that it’s investing $1.5 billion to develop rare earth deposits in China.
However, China has threatened to ban rare earth exports. In July, it announced a sharp reduction of its export quotas to 30,258 tonnes – an astonishing 40% cutback.
Shortages have already appeared and some analysts think China is deliberately trying to corner this strategic market by banning exports. Boeing (NYSE: BA, Stock Forum) reports that worldwide demand is outstripping supply, thus fueling more speculation.
Whatever the reason for the shortage, you can see that rare earth elements have skyrocketed in price this year.
Source: The Economist
America to jumpstart rare earth production… and these firms could capitalize
China’s dominance in the rare earth market has left the United States and others flat-footed. In an attempt to play catch-up, there’s now a tremendous push to find non-Chinese rare earth mining operations. Trouble is, they’re few and far between.
However, because this industry is essential for manufacturing and military usage, many believe that the U.S. government will have no choice but to restart the rare earth supply chain. In fact, Congress has introduced legislation to encourage quick development of “rare earth” mines in the United States.
For investors, most rare earth stocks trade in Canada. Favorites include Quest Minerals (TSX: V.QRM, Stock Forum) and Tasman Metals (TSX: V.TSM, Stock Forum).
Rare earth companies that trade on the U.S. exchanges include:
Molycorp is the blue-chip of rare earth mining in the United States. It owns the Mountain Pass Mine in eastern California (near the Nevada border), which used to be the world’s largest producer of rare earth elements.
But since the mine is in California and not Nevada, the company faces huge environmental costs to extract the rare minerals and then has to ship them to China for processing. For more information, go to: www.molycorp.com.
Rare Element Resources has a developing play in gold and rare earth elements at the Bear Lodge property in northeast Wyoming, but it has no revenue yet.
Given the high costs associated with mining rare earth elements, analysts estimate that REE won’t be profitable until 2015. But the net present value is positive. Last month, REE reported extremely positive results after drilling 13 holes at Bear Lodge, which showed “robust grades” of rare earth elements. For details on the company, go to: https://www.rareelementresources.com/.
Subscribers to my Forecasts & Strategies newsletter have already doubled their money in a month in REE, which proved that although the rare earth market is volatile, it possesses considerable upside potential.
And if Jim Dines is right, there’s more profit in “them thar hills.” He calls rare earths the “mother of all bubbles.”
Disclosure: The author does not hold positions in any of the stocks mentioned