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Despite weak demand, the rare earth market has displayed positive price movements in January through to early February.
By Adam Currie — Exclusive to Rare Earth Investing News
With weak demand still casting a shadow over the market coming into 2012, analysts were surprised when rare earth stocks displayed positive pricing trends in January and early February.
As favorable economic data once again raised hopes that the demand for rare earth metals would strengthen, the Market Vectors Rare Earth/Strategic Metals ETF – which seeks to yield performance and replicate the price of securities of publicly traded companies related to rare earth, strategic metals, and minerals – surged a staggering 18.6 percent in January.
Looking east
On the legislative front, a World Trade Organization (WTO) appeals panel confirmed that China’s export restrictions on raw materials, including bauxite and magnesium, had violated global trade rules. While rare earth metals were not part of this ruling, Reuters analysts argued that the ruling could result in forced changes to some of China’s rare earth policies.
In February, China’s premier, Wen Jiabao, told local media that the country does not discriminate against foreign companies in terms of rare earth supplies, underlining that policies and quotas for both domestic and foreign companies are equal.
“Although we now know that we must develop rare earth metals sustainably, we can still afford to meet 90 percent of global demand with less than 50 percent of the world’s reserves,” said the premier.
China’s rare earth export quota for 2012 has been largely unchanged from that of 2011. The country’s rare earth exports totaled 14,750 tonnes during the first eleven months of 2011, meeting just 49 percent of the annual quota.
In an interview with The Critical Metals Report, Byron King, energy and natural resource expert at Agora Financial, said that he felt that the world cannot afford for the non-Chinese rare earth sector to fail.
“The rare earth space is at the point of separating out the stock promoters from the company builders and serious managers,” he said. “Rare earth miners are distinct from gold miners, who don’t really care what ultimately happens to the gold they produce.”
“The companies that are going to make the serious gains and profits will make the right kind of deals with the midstream and downstream processors, refiners and end-users,” he concluded.
A sleeping giant
Markets reacted to the news that the world’s largest refinery for rare earth metals could soon obtain permission to operate – a step that analysts feel would help break China’s near monopoly on the sector. At capacity the refinery will be able to meet a fifth of the world’s demand.
The announcement has not been all smooth sailing, and resulted in demonstrations relating to radiation concerns, regulatory hurdles, and the withdrawal of a major equipment supplier due to worries about the safety of the refinery being built by Australian company Lynas Corp. (ASX:LYC).
According to a report by The New York Times, Lynas has been trying for several years to find a site for the permanent disposal of roughly 20,000 tons a year of low-level radioactive waste that will be produced.
In February, speakers at the Technology Metals Summit 2012 in Toronto stressed that the two main challenges faced by the rare earth market are the absence of a supply chain for rare earth elements (REEs) outside China, and the considerable economic challenges to any company starting a mine given that absence.
With the prospect of near-term and significant reduction of rare earth from China, the race is on for juniors to discover and delineate economically feasible deposits to feed a technology sector that has become highly dependent upon REEs.
Constantine Karayannopoulos, CEO, President, and Director of Neo Material Technologies (TSX:NEM), commented: “There’s no question that consumers around the world are making the right noises about supporting production outside of China. Ultimately, they’ll have to put their money on the table if they want to see this happen.”
“Talk is cheap. Some of these projects have a price tag of around $1 billion. There are very few people that have the longer-term confidence in prices and demand.”
In a recent note to investors, Yiannis Mostrous, strategist at Global ETF Profits, claimed that demand growth for rare earth will be driven by the increased adoption of new green technologies, such as hybrid cars, and by spending on military applications. As a result, demand will fluctuate based on the outlook for these industries, meaning that although the overall demand trend for REE is rising, the growth will not travel in a straight line.
Opportunities in the marketplace
China Shen Zhou Mining & Resources (AMEX:SHZ) signed an equity transfer and investment increase agreement with the shareholders of Wuchuan Dongsheng Mining Company, whereby China Shen Zhou will acquire 60 percent ownership of Wuchuan Mining’s equity. China Shen Zhou is engaged in the exploration, development, mining, and processing of fluorite and nonferrous metals such as zinc, lead, and copper in China.
Solo International (OTCBB:SLIO), a development stage exploration and mining company focused on REE, announced that it had expanded its Quebec REE project with the addition of approximately 60 hectares directly adjacent to its Philadelphia Prospect.
Michel Plante, President and CEO, commented, “I am very happy to have completed the acquisition for this additional property adjacent to our Philadelphia REE Prospect,” adding, “This acquisition completes another step in our acquisition and exploration plan to develop asset diversity.”
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.