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Once an obscure corner of the mining industry, rare earth exploration burst on to the front pages this year, sending shares of a group of junior Canadian miners soaring.

The remarkable rally was triggered by a diplomatic dispute that led China to halt exports of the 17 rare earth oxides, many of which are crucial to making iPods, electric cars and other high-tech equipment.

Since China controls about 97 per cent of the world's supply of these oxides, which are the processed forms of rare earth elements, shares of Canadian-listed explorers soared, with some stocks jumping as much as 250 percent between September and October.

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But with Beijing having resumed shipments, and shares of companies such as Rare Element Resources , Tasman Metals and Avalon Rare Metals having already risen as much as 450 per cent in the last 12 months, the question that arises is whether there still an upside for investors.

"If the flow of capital in 2011 is anywhere close to what we had this year," said Van Eck metals analyst Charl Malan. "You can get substantial upside again."

There are three factors likely to keep that capital flowing: China's 2011 export quotas, rapid growth in demand, and the timing of the arrival on the market of output from mines being developed by Molycorp and Lynas, the first non-Chinese producers.

With China set to issue 2011 quotas some time before the Lunar New Year in February, there is a potential for a spike in rare earth equities in the coming month, analysts said.

Regardless of the quotas, however, there will still be an underlying supply and demand imbalance as the first non-Chinese producers are still in the development stage.

"It wouldn't matter if the Chinese had no quota - it would still be difficult to find some of the materials," said Byron Capital Market analyst Jon Hykawy. "And that's just going to become more obvious in 2011."

Demand for rare earths is set to more than double in less than five years, from 120,000 to 250,000 tonnes by 2015.

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Driving this demand are companies like General Electric , which uses rare earths in wind turbines, Toyota and Nissan for their hybrid and electric cars, and Research In Motion and Apple for their increasing array of smartphones and tablets.

Particularly in demand are oxides like dysprosium, terbium and neodymium, which are used in permanent magnets.

This is a market gap that mines like Molycorp's Mountain Pass in California and Lynas's Mount Weld in Australia will try to fill. But even if they make it to market in the next 12 to 18 months, Molycorp and Lynas's deposits are skewed to "light rare earths" such as cerium and lanthanum, meaning major holes in the supply chain will still remain.

"We still need more dysprosium likely than we'll be able to produce, we still need more terbium than we'll be able to produce, and we still need more europium," Hykawy said.

These so-called "heavy rare earths" are where Canada's explorers have the advantage. Great Western Minerals , Avalon and Stans Energy are all clamoring to bring their heavy projects to market, with production projected for 2013 and beyond.

But while the demand is there, analysts say that staffing and technology will likely hold up some projects indefinitely.

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"I think you're going to see massive delays for these guys," said Dahlman Rose analyst Anthony Young. "They're in competition with the biggest companies in the world for talent and for construction expertise."

Mining, milling and processing rare earths is a very complex and labor intensive business, which often involves acids and extreme heat.

"Outside the Mountain Pass mine and some assets in China, there aren't that many people who have been involved in the rare element space," Young said. Staffing "could be a real bottleneck for some of these development stage companies."

It's an issue that is already causing worry for Robert MacKay, chief executive of Stans Energy.

His company is looking to bring the past-producing Kutessay II mine in Kyrgyzstan back online, and has struggled to find qualified staff.

"It's an art and a science. It's not just turning a switch and thinking that rare earths are going to come out the back end of the plant," MacKay said.

Although analysts warn investors to be careful about where they put their money, for those willing to invest in a highly speculative sector that may see only minimal production in 2011, the payouts from rare earths could prove impressive

"I still think it's very early days in the rare earth element space," Young said. "I think there still is a lot of opportunity."

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