Assessing the outlook for rare earth metals

You find them in everyday items such as TVs and iPods. Yet they are so sought-after they could conceivably spark a trade war.

China has them in abundance, but increasingly refuses to share. Meanwhile the US, Japan and Korea are scrambling to find new supplies.

What I’m talking about here are rare earth metals.

They are used in all manner of things from rechargeable batteries found `in eco-vehicles and wind turbines to superconductors and missile guidance systems.

In fact rare earths are all around us – most of us just don’t realise it.

In all there are 17 rare earths. They go by exotic names such as dysprosium, holmium and erbium and they are used to produce powerful magnets, or improve a metal's ability to withstand high temperatures.

As the name suggests these rare earth metals are incredibly scarce. So scarce in fact that demand will outstrip supply by 30-50,000 tonnes in 2012.

If that wasn’t bad enough China controls 97 per cent of the production and has imposed strict export controls.

The problem is so acute the United States is desperately scrabbling around to secure its own domestic source of rare earths.

For companies outside the People’s Republic, organisations such as Toyota, which makes the Prius electric car, or consumer goods giants such as Apple, the impending shortage is a major threat to business.

To guarantee supplies, manufacturers and miners are actually teaming up. 

Hitachi for instance is currently in talks with Molycorp, one of the world’s biggest rare earth miners, while Toyota has set up a processing plant in India, which will start shipping minerals in 2012.

For the firms mining rare earths, meanwhile, the crisis provides a huge opportunity.

Anyone who successfully gets them out of the ground is on to a sure fire winner.

The problem is they are located in some of the world’s most inhospitable regions. 

China’s production is based around Inner Mongolia, while a treasure trove of rare earths has recently been located on a desolate plateau on the south-western shores of Greenland.

The find is so large it promises a possible cure to supply problems – or so the world’s high tech companies hope.

And it could do for the arctic island what oil did for Saudi Arabia. 

The rights to mine the area belong to Greenland Minerals and Energy, which despite the name is actually an Australian firm.

It was one of a newly emerging band of miners who are part of a huge stampede – the gold rush of the 21st century.

The other big hitters are the Lynas Corporation, which owns the Mount Weld project in Australia, Arafura Resources, another Aussie miner, and Canadian pair Great Western Minerals and Avalon Rare Metals.

The recently-floated Molycorp of the US is at the vanguard of America’s attempts to secure its own resources.

Here in the UK, tiny Red Rock Resources spearheads our efforts and owns a 26 percent stake in Resource Star, which has begun exploratory drilling on a prospect in Malawi. 

What’s on offer of course is a huge prize. Large corporations are queuing up to partner with any firm fortunate enough to strike the mother-load.

For the British investor, the options to invest in a rare earth play are limited. But if you cast your net wider then you’ll find a handful of firms quoted in Australia and Canada.

With the help of Altus Strategies, an investment boutique that specialises in mining, I’ve compiled a watch-list of stocks that specialise in rare earths.

RARE EARTH WATCH-LIST

NAME                                                              Nationality   Project                Status

ALKANE RESOURCES                                          Australian    Dubbo                in production              

ARAFURA RESOURCES                                      Australian      Nolans               exploration       

AVALON RARE METALS                                      Canadian     Thor Lake            early feasibility study   

GREENLAND MINERALS                                     Australian      Kvanefjeld           early feasibility study

LYNAS CORP                                                  Australian      Mount Weld          in construction 

QUEST RARE MINERALS                                   Canadian       Strange lake         early exploration  

RARE ELEMENT RESOURCES                              Canadian      Bear Lodge           early exploration 

GREAT WESTERN MINERALS                              Canadian     Hoidas Lake           early exploration 

UCORE RARE METALS                                       Canadian     Bokan Mountain     early exploration 

TASMAN METALS                                              Canadian     Scandinavia           early stage