Don’t be misled by the name.
Rare-earth producers saw their stocks jump Tuesday as a result of the international spat over China’s decision to withhold some of the key industrial minerals from global markets. But investors hoping to profit from the trend have to confront an unpleasant reality.
Rare-earth minerals aren’t all that rare.
While China provides almost all the world’s supply, that is more a factor of economics than geology.
Rare-earth elements are found around the globe. But China has managed to produce them more cheaply than other countries, and it has kept prices low for so long that it became uneconomical for mines outside the country to stay in production.
Today, however, two Western-based companies are close to bringing mines outside China to full production, a move that could weaken prices for several rare-earth minerals.
Molycorp Inc., of Greenwood Village, Colo., is restarting a mine in California that was once the world’s largest producer of rare-earth minerals before falling prices and environmental concerns forced its closing several years ago. At the same time, Australia’s Lynas Corp. hopes to get a mine in Malaysia into full production before the end of the year.
Meanwhile, a host of other miners hope to reach production some time soon after, a move that would depress prices that are already in decline.
“There’s no monopoly here,” says Jon Hykawy, an analyst with Byron Capital Markets in Toronto. “They are all going to be angling for the best cash flow that they can get.”
The price of rare-earth materials began to soar in the second half of 2010, when the market first became worried about supply disruption from China. The price of lanthanum and cerium, the two most commonly used elements, rocketed from just a few dollars a kilogram in 2010 to more than $150 (U.S.) last year. Today they sell for less than $50 a kilogram, and Mr. Hykawy forecasts that prices will return to the $4 range in 2016 or 2017.
“If [a miner is]at the very early stage, just taking trench samples, this story has already been told,” he says. “Nobody’s wearing lanthanum jewellery.”
On Tuesday, the European Union, the United States and Japan formally asked the World Trade Organization to settle a dispute with China over its restriction on exports of rare-earth elements that have become essential ingredients for the automotive, electronic, defence and other industries.
China has reduced the amount of rare-earth elements it allows for export over the past several years as domestic demand has increased with rapid economic expansion. But the EU, the United States and Japan say the policy amounts to unfair trade practices that violate WTO rules.
Of the 17 chemical elements classified as rare-earth elements, lanthanum and cerium account for the majority of the supply and demand. China supplies about 50,000 tonnes of them in total to the West each year. Once Molycorp and Lynas bring their new sites to full capacity, they will be providing the market with about 48,000 tonnes of the metals combined, estimates Mr. Hykawy.
He thinks the market will be able to support only a few additional Western suppliers, favouring those that not only extract the elements but also are able to refine it and produce alloys or other end products for industries. In addition to Molycorp, Mr. Hykawy likes Saskatoon’s Great Western Minerals and Matamec Explorations of Montreal.
Great Western boasts some of the highest grades of ore in the business, a strong management team and an operating mill in Britain. Both Great Western and Matamec are expected to be key suppliers to Toyota Motor Corp., he said.
Many other rare-earth explorers and miners are also Canadian-based. Shares of Vancouver’s Rare Element Resources Ltd. and Montreal’s Quest Rare Minerals Ltd. each rose 7 per cent on Tuesday. Greater Western Minerals rose 4 per cent and Toronto’s Avalon Rare Metals Inc. gained 3 per cent. Ucore Rare Metals Inc. of Nova Scotia soared more than 9 per cent.