Rare-Earth Lithium Stock Opportunities

pLanthanum. Neodymium. Dysprosium. Terbium./p
pThe names donrsquo;t exactly roll off the tongue, but these are four of the 17 rare-earth elements. You canrsquo;t build anbsp;Prius, an accurate missile or anbsp;wind turbinenbsp;without them./p
pAnd thanks to the threat of an export boycott by China, which controls about 95% of the current global supply of rare-earth elements, the stocks of the few non-Chinesenbsp;companies with rare-earth mines undernbsp;constructionnbsp;are some of the hottest stocks on the worldrsquo;s most speculativenbsp;stock markets:/p
ul type=disc
listrongGreat Western Mineralsnbsp;Group/strongnbsp;(GWMGF,nbsp;news,nbsp;msgs), a company developing four rare-earth projects, is up 948%, to 33 cents a share, in 2009./li
/ul
ul type=disc
liThatrsquo;s a sluggish performance compared withnbsp;strongUcore Uranium/strongnbsp;(UURAF,news,nbsp;msgs), which is developing a rare-earth mine in southeastern Alaska. Shares of Ucore are up 4,181% in 2009, to 83 cents a share./li
/ul
pMy advice, at this point, is to stand back and let the rockets cool. The speculators will move on to some other sector fairly soon. Use the time to separate the mining stories from the real mining companies./p
pBecause behind all this speculative smoke, there is a story of global demand thatrsquo;s real enough to make a few of these companies very profitablenbsp;long-term investments./p
pHerersquo;s the story in a nutshell:/p
pIn my Sept. 9 column, ldquo;Plug into electric-car batteries,rdquo; I explained how the growing need for batteries used in hybrid andnbsp;electric carsnbsp;would cause a title=lithium demand href=http://www.lithium-stocks.net/?tag=lithium+demand target=_blankdemand for lithium/a, the key ingredient in the next generation of batteries, to surge from a projected 11,000 metric tons in 2012 to almost 90,000 metric tons in 2020./p
pWell, the same need to develop less-polluting, more-energy-efficient cars is driving demand for the rare-earth elements. And so is the growing market for wind turbines. And the ever-present market for military guidance and control systems./p
h2A little goes a long way/h2
pAdding a bit of one of the 17 rare-earth elements to a magnet in the engine of an electric or hybrid car increases the power and efficiency of the engine, because rare-earth magnets are the strongest type of permanent magnets now made. Rare earths mdash; Nos. 57 to 71 on the periodic table of elements mdash; improve the color in TV screens and in lasers. Yoursquo;ll also find rare-earth elements in tunable microwave resonators, and terbium, No. 65, is a key ingredient in low-energy light bulbs./p
pAnd wersquo;re not talking about trace amounts of these elements either. The electric motor in a Toyota Prius uses about 2 pounds of neodymium in its permanent magnets. Each Prius battery also uses 20 to 30 pounds of another rare-earth element, lanthanum./p
pstrongnbsp;Video: Problems in the mining industry/strong/p
pBecause the magnets in wind turbines are so huge mdash; you need big magnets to maximize the amount of electricity generated from each revolution of the relatively slow-moving blades mdash; these generators need large amounts of rare-earth elements. It takes about a ton of neodymium for every megawatt ofnbsp;generating capacityfrom wind turbines./p
pFortunately, despite their name, a title=rare earth element href=http://www.lithium-stocks.net/?tag=rare+earth+element target=_blankrare-earth elements/a arenrsquo;t especially rare. Theyrsquo;re found in relatively high concentrations in the Earthrsquo;s crust. One, cerium, is the 25th-most-abundant element in the crust./p
pGlobal production came to about 140,000 metric tons of refined rare earths in 2008. Compare that with projected a title=lithium production href=http://www.lithium-stocks.net/?tag=lithium+production target=_blanklithium production/a of 11,000 metric tons by 2012./p
pBut supplies of the rare earths that can be profitably mined arenrsquo;t distributed evenly across the globe. Partly, thatrsquo;s the luck of the geologic draw. But mostly, itrsquo;s a function of the huge environmental costs of mining these rare earths. The traditional method has been to bore holes into promising rock formations, pump acid down the holes to dissolve some of the rare earths and then pump the slurry into holding ponds for extraction of the rare earths. That extraction leaves behind a lake of water mixed with acid and various and sundry dissolved minerals./p
h2Mom-and-pop mining/h2
pItrsquo;s much, much cheaper if a company can get away with spending just about nothing on controlling and treating the resulting sludge. The worldrsquo;s low-cost producers of rare-earth elements are not huge and efficient open-pit mines but small, completely unregulated mom-and-pop mining companies in China./p
pThe Chinese government is trying to force many of these companies out of business. The motive is a combination of desire to limit environmental damage in China and to exercise greater control overnbsp;exports. Irsquo;d say the latter dominates./p
pOver the past 20 years, the accidents of geology and the realities of unequal regulation gradually led to the closure of most of the rare-earth mines outside China. The worldrsquo;s richest proven reserve of rare earths, a mine in Mountain Pass, Calif., stopped production in 2002, for example./p
pBut rising demand is starting to change that picture. Companies such asstrongLynas/strongnbsp;(LYSCY,nbsp;news,nbsp;msgs)nbsp;andnbsp;strongArafura Resources/strongnbsp;(ARAFF,nbsp;news,nbsp;msgs)nbsp;inAustralia,nbsp;strongAvalon Rare Metals/strongnbsp;(AVARF,nbsp;news,nbsp;msgs), Great Western Minerals Group and Ucore Uranium innbsp;Canada, andnbsp;strongMolycorp Minerals/strongnbsp;in the U.S. have crept back onto the stage with plans to start mines or resume production at old mines./p
pIt took the Chinese overplaying their hand, however, to turn that modest trend into a speculatorrsquo;s dream come true. The Chinese, remember, control about 95% of global production for all rare earths. They also control about 99% of the production for rare-earth metals, such as dysprosium and terbium, and 95% of neodymium. Recently, China started to reduce the amount of rare-earth metals that could be exported, and this year the plan is to reduce exports further. The Chinese Ministry of Industry and Information Technology has cut authorized production targets this year by an additional 8.1%./p
pCompanies outside China face the very real possibility not only of paying higher prices but of not being able to buy thenbsp;raw materialsnbsp;they need at all./p
h2Forcing relocation/h2
pThis seems to be a key goal in Chinarsquo;s strategy. By restricting exports, China would force high-technology companies that need these rare earths to relocate production to China mdash; accelerating the transfer ofnbsp;intellectual propertynbsp;to Chinese companies. Itrsquo;s no secret that China wants to create major wind, solar and hybrid-car industries./p
pThatrsquo;s made it possible once again to raise money to start or restart a rare-earth mine outside China. For example,nbsp;strongChevron/strongnbsp;(CVX,nbsp;news,nbsp;msgs)nbsp;sold Molycorp Minerals, which it had acquired when it bought Unocal, to a group of private investors that includednbsp;strongGoldman Sachs/strongnbsp;(GS,nbsp;news,nbsp;msgs)nbsp;in 2008. Molycorp will need Goldmanrsquo;s deep pockets, since it has to drain 95 million gallons of water out of the open-pit mine in Mountain Pass and then strip away tons of rock before it can begin mining in 2012. Initially, Molycorp will process 1,000 tons of ore a day mdash; enough, the company estimates, to produce 20,000 metric tons of rare-earth oxides annually./p
pstrongnbsp;Video: Problems in the mining industry/strong/p
pIn Australia, Lynas and Arafura were relatively close to production until the global economic crisis pulled the financial rug out from under them. A plannednbsp;bondoffering by Lynas failed, and Arafura raised less money than it had hoped in itsnbsp;initial public offering./p
pThe Chinese stepped into the gap, buying 25% of Arafura and offering to buy 51.7% of Lynas. That second offer, which would give the Chinese majority control, has sent Australia into a frenzy, coming as it does on the heels of the detention in China of four staffers from minernbsp;strongRio Tinto/strongnbsp;(RTP,nbsp;news,nbsp;msgs)nbsp;on charges of stealing state secrets. The Australian government has until Sept. 17 to rule on the bid./p
pElsewhere, Ucore Uranium is at work on a project in Alaska, and Great Western Minerals is working to refurbish the Steenkampskraal mine innbsp;South Africa./p
h2Caution advised/h2
pBe very careful when you evaluate any of these highly speculative stocks. Great Western Minerals submitted its application to update the minersquo;s paperwork only in April, and it is still updating its feasibility study. The risk is very real that some of these projects will never get to actual production./p
pWhy bother? Because Chinese production is projected to reach 160,000 metric tons a year by 2015 or so. That would be up from 139,000 tons in 2008. But global demand is projected to rise even faster, resulting in an annual shortfall of 40,000 tons by 2015./p